UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 
 FORM 10-K 
  (Mark One)x

          

          ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2016 OR  o

          

          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission file number: 814-00866 
 MONROE CAPITAL CORPORATION (Exact Name of Registrant as Specified in its Charter) 
  Maryland

          

          27-4895840(State or Other Jurisdiction of Incorporation or Organization)

          

          (I.R.S. Employer Identification No.)
  311 South Wacker Drive, Suite 6400 Chicago, Illinois

          

          60606(Address of Principal Executive Office)

          

          (Zip Code)
 (312) 258-8300 (Registrants Telephone Number, Including Area Code) 
 Securities registered pursuant to Section 12(b) of the Act:  Title of Each Class

          

          Name of Each Exchange on Which RegisteredCommon Stock, par value $0.001 per share

          

          The NASDAQ Global Select Market
 Securities registered pursuant to Section 12(g) of the Act: None 
 Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.Yes o No x Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.Yes o No x Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes x No o Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes x No o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (check one):  Large accelerated filer

          

          o

          

          Accelerated filer

          

          xNon-accelerated filer

          

          o (Do not check if a smaller reporting company)

          

          Smaller reporting company

          

          o
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).Yes o No x The aggregate market value of outstanding common stock held by non-affiliates of the registrant was $189.0 million based on the number of shares held by non-affiliates of the registrant as of June 30, 2016, which is the last business day of the registrants most recently completed second fiscal quarter. As of March 6, 2017, the registrant had 16,581,869 shares of common stock, $0.001 par value, outstanding. Documents Incorporated by Reference Portions of the registrants definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A relating to the registrants 2017 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of the Companys fiscal year, are incorporated by reference in Part III of this Annual Report on Form 10-K as indicated herein.
     TABLE OF CONTENTS TABLE OF CONTENTS  PAGEPART IItem 1.Business





3Item 1A.Risk Factors





34Item 1B.Unresolved Staff Comments





59Item 2.Properties





60Item 3.Legal Proceedings





60Item 4.Mine Safety Disclosures





60PART IIItem 5.Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities





61Item 6.Selected Consolidated Financial Data





64Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations





66Item 7A.Quantitative and Qualitative Disclosures about Market Risk





82Item 8.Consolidated Financial Statements and Supplementary Data





83Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure





83Item 9A.Controls and Procedures





83Item 9B.Other Information





83PART IIIItem 10.Directors, Executive Officers and Corporate Governance





84Item 11.Executive Compensation





84Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters





84Item 13.Certain Relationships and Related Transactions, and Director Independence





84Item 14.Principal Accountant Fees and Services





84PART IVItem 15.Exhibits and Consolidated Financial Statement Schedules





85Item 16.Form 10-K Summary





87Signatures





88
 i    TABLE OF CONTENTS CERTAIN DEFINITIONS Except as otherwise specified in this Annual Report on Form 10-K (Annual Report), the terms: 

          we, us, our and the Company refer to Monroe Capital Corporation, a Maryland corporation, and its consolidated subsidiaries; 

          MC Advisors refers to Monroe Capital BDC Advisors, LLC, our investment adviser and a Delaware limited liability company; 

          MC Management refers to Monroe Capital Management Advisors, LLC, our administrator and a Delaware limited liability company; and 

          Monroe Capital refers to Monroe Capital LLC, a Delaware limited liability company, and its subsidiaries and affiliates.
 1    TABLE OF CONTENTS FORWARD-LOOKING STATEMENTS This Annual Report contains statements that constitute forward-looking statements which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Statements that are not historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Some of the statements in this Annual Report constitute forward-looking statements because they relate to future events or our future performance or future financial condition. These forward-looking statements are not historical facts, but rather are based on
current expectations, estimates and projections about our company, our industry, our beliefs and our assumptions. The forward-looking statements contained in this Annual Report involve risks and uncertainties, including statements as to: 

          our future operating results; 

          our business prospects and the prospects of our prospective portfolio companies; 

          the dependence of our future success on the general economy and its impact on the industries in which we invest; 

          the impact of a protracted decline in the liquidity of credit markets on our business; 

          the impact of increased competition; 

          the impact of fluctuations in interest rates on our business and our portfolio companies; 

          our contractual arrangements and relationships with third parties; 

          the valuation of our investments in portfolio companies, particularly those having no liquid trading market; 

          the ability of our prospective portfolio companies to achieve their objectives; 

          our expected financings and investments; 

          the adequacy of our cash resources and working capital; 

          the ability of MC Advisors to locate suitable investments for us and to monitor our investments; and 

          the impact of future legislation and regulation on our business and our portfolio companies. We use words such as anticipates, believes, expects, intends, seeks, plans, estimates, targets and similar expressions to identify forward-looking statements. The forward-looking statements contained in this Annual Report involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth in Part I  Item 1A. Risk Factors in this Annual Report. Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be inaccurate. Important assumptions include our ability to originate new loans and investments, certain margins and levels of profitability and the availability of additional capital. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this Annual Report should not be regarded as a representation by us that our plans and
objectives will be achieved. We have based the forward-looking statements included in this Annual Report on information available to us on the date of this Annual Report, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements in this Annual Report, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the Securities and Exchange Commission (the SEC), including annual reports on Form
10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.
 2    TABLE OF CONTENTS PART I ITEM 1. BUSINESS FORMATION OF OUR COMPANY We are a Maryland corporation, formed February 9, 2011, for the purpose of purchasing an initial portfolio of loans from two funds managed by Monroe Capital, raising capital in our initial public offering, which was completed in October 2012 (the Initial Public Offering) and thereafter operating as an externally managed business development company (BDC) under the Investment Company Act of 1940 (the 1940 Act), as amended. We are a closed-end, non-diversified investment company that has elected to be treated as a BDC under the 1940 Act. In addition, for tax purposes we have elected to be
treated as a regulated investment company (RIC) under the U.S. Internal Revenue Code of 1986, as amended (the Code), commencing with our taxable year ended December 31, 2012. Prior to the closing of the Initial Public Offering, we purchased our initial portfolio of loans for $67.5 million from two funds managed by Monroe Capital, which was comprised of 16 loans that were either senior secured debt, junior secured debt or unitranche secured debt (a combination of senior secured debt and junior secured debt under the same facility) obligations of companies that we believe provided us with a sound foundation for our business. Our board of directors (the Board) determined the purchase price for our initial portfolio based on the aggregate fair value of the assets in the initial portfolio
and the disinterested members of our Board approved the transaction as being fair to us. The Initial Public Offering consisted of the sale of 5,750,000 shares of our common stock at a price of $15.00 per share, resulting in net proceeds to us, net of underwriting discounts and commissions, of approximately $84.6 million. On July 22, 2013, we completed a public offering of an additional 4,000,000 shares of our common stock at a price of $14.05 per share. On August 20, 2013, we also sold an additional 225,000 shares of our common stock at a price of $14.05 per share pursuant to the underwriters partial exercise of the over-allotment option. These issuances during the year ended December 31, 2013 provided us
with proceeds, net of offering and underwriting costs, of $56.0 million. On February 6, 2015, we entered into an at-the-market (ATM) securities offering program with MLV & Co. LLC (MLV) and JMP Securities LLC through which we may sell, by means of ATM offerings from time to time, up to $50.0 million of our common stock. During the year ended December 31, 2015, we sold 672,597 shares at an average price of $14.88 per share for gross proceeds of $10.0 million under the ATM program. Aggregate underwriters discounts and commissions were $0.2 million and offering costs were $0.08 million, resulting in net proceeds of approximately $9.8 million. On April 20, 2015, we closed a public offering of 2,450,000 shares of our common stock at a public offering price of $14.85 per share, raising approximately $36.4 million in gross proceeds. On May 18, 2015, we completed the sale of an additional 367,500 shares of our common stock, at a public offering price of $14.85 per share, raising approximately $5.5 million in gross proceeds pursuant to the underwriters exercise of the over-allotment option. Aggregate underwriters discounts and commissions were $1.7 million and offering costs were $0.3 million, resulting in net proceeds of $39.9 million on these non-ATM program
issuances during the year ended December 31, 2015. On July 1, 2016, we entered into an amendment to MLVs equity distribution agreement and an assignment agreement to replace MLV with FBR Capital Markets & Co., an affiliate of MLV. During the year ended December 31, 2016, we did not make any sales of our common stock under the ATM program. On July 25, 2016, we closed a public offering of 3,100,000 shares of our common stock at a public offering price of $15.50 per share, raising approximately $48.1 million in gross proceeds. On August 3, 2016, we sold an additional 465,000 shares of our common stock, at a public offering price of $15.50 per share, raising approximately $7.2 million in gross proceeds pursuant to the underwriters exercise of the over-allotment option. Aggregate underwriters discounts and commissions were $2.2 million and offering costs were $0.5 million, resulting in net proceeds of $52.5 million.
 3    TABLE OF CONTENTS On February 28, 2014, our wholly-owned subsidiary, Monroe Capital Corporation SBIC, LP (MRCC SBIC), a Delaware limited partnership, received a license from the Small Business Administration (SBA) to operate as a Small Business Investment Company (SBIC) under Section 301(c) of the Small Business Investment Act of 1958. MRCC SBIC commenced operations on September 16, 2013. On April 13, 2016, MRCC SBIC was approved by the SBA for an additional $75.0 million in SBA-guaranteed debentures for a total of $115.0 million in available debentures. As of December 31, 2016, MRCC SBIC had $41.0 million in
leveragable capital and $51.5 million in SBA-guaranteed debentures outstanding. OVERVIEW OF OUR BUSINESS We are a specialty finance company 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 (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 investment objective is to maximize the total return to our stockholders in the form of current income and capital appreciation through investment in senior, unitranche 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, unitranche and junior secured debt of middle-market companies. We believe that our primary focus on lending to lower middle-market companies offers several advantages as compared to lending to larger companies,
including more attractive economics, lower leverage, more comprehensive and restrictive covenants, more expansive events of default, relatively small debt facilities that provide us with enhanced influence over our borrowers, direct access to borrower management and improved information flow. Since the consummation of the Initial Public Offering, we have grown the fair value of our portfolio of investments to approximately $412.9 million at December 31, 2016. Our portfolio at December 31, 2016 consists of 70 different portfolio companies and holdings include senior secured, junior secured and unitranche secured debt and equity securities. As of December 31, 2016, we have borrowed $129.0 million under our revolving credit facility and drawn $51.5 million in SBA-guaranteed debentures to finance the purchase of our assets. Our investments in senior, unitranche, junior secured debt and other investments generally will range between $2.0 million and $18.0 million each, although this investment size may vary proportionately with the size of our capital base. As of December 31, 2016, our portfolio included approximately 66.7% senior secured debt, 12.5% unitranche secured debt, 14.4% junior secured debt and 6.4% equity securities. We expect that the companies in which we invest may be leveraged, often as a result of leveraged buy-outs or other recapitalization transactions, and, in certain 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 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 securities that are non-investment grade. OUR INVESTMENT ADVISOR Our investment activities are managed by our investment advisor, MC Advisors. MC Advisors is responsible for sourcing potential investments, conducting research and due diligence on prospective investments and their private equity sponsors, analyzing investment opportunities, structuring our investments and managing our investments and portfolio companies on an ongoing basis. MC Advisors was organized in February 2011 and is a registered investment adviser under the Investment Advisers Act of 1940, as amended (the Advisers Act).
 4    TABLE OF CONTENTS Under our Investment Advisory and Management Agreement with MC Advisors, we pay MC Advisors a base management fee and an incentive fee for its services. While not expected to review or approve each investment, our independent directors periodically review MC Advisors services and fees as well as its portfolio management decisions and portfolio performance. In connection with these reviews, our independent directors consider whether our fees and expenses (including those related to leverage) remain appropriate. MC Advisors seeks to capitalize on the significant deal origination, credit underwriting, due diligence, investment structuring, execution, portfolio management and monitoring experience of Monroe Capitals investment professionals. The senior management team of Monroe Capital, including Theodore L. Koenig and Aaron D. Peck, provides investment services to MC Advisors pursuant to a staffing agreement, or the Staffing Agreement, between MC Management, an affiliate of Monroe Capital, and MC Advisors. Messrs. Koenig and Peck have developed a broad network of contacts within the investment community and average more than 25
years of experience investing in debt and equity securities of lower middle-market companies. In addition, Messrs. Koenig and Peck have extensive experience investing in assets that constitute our primary focus and have expertise in investing throughout all periods of the economic cycle. MC Advisors is an affiliate of Monroe Capital and is supported by experienced investment professionals of Monroe Capital under the terms of the Staffing Agreement. Monroe Capitals core team of investment professionals has an established track record in sourcing, underwriting, executing and monitoring transactions. From Monroe Capitals formation in 2004 through December 31, 2016, Monroe Capitals investment professionals invested in over 1,000 loan and related investments with an aggregate principal value of over $6.0 billion. In addition to their roles with Monroe Capital and MC Advisors, Messrs. Koenig and Peck serve as interested directors. Mr. Koenig has more than 25 years of experience in structuring, negotiating and closing transactions on behalf of asset-backed lenders, commercial finance companies, financial institutions and private equity investors at organizations including Monroe Capital, which Mr. Koenig founded in 2004, and Hilco Capital LP, where he led investments in over 30 companies in the lower middle-market. Mr. Peck has more than 20 years of public company management, leveraged finance and commercial lending experience at
organizations including Deerfield Capital Management LLC, Black Diamond Capital Management LLC and Salomon Smith Barney Inc. Messrs. Koenig and Peck are joined on the investment committee of MC Advisors by Michael J. Egan and Jeremy T. VanDerMeid, each of whom is a senior investment professional at Monroe Capital. Mr. Egan has more than 25 years of experience in commercial finance, credit administration and banking at organizations including Hilco Capital, The CIT Group/Business Credit, Inc., The National Community Bank of New Jersey (The Bank of New York) and KeyCorp. Mr. VanDerMeid has more than 15 years of lending and corporate finance experience at organizations including Morgan Stanley Investment Management, Dymas Capital Management Company, LLC and Heller Financial. ABOUT MONROE CAPITAL Monroe Capital, a Delaware limited liability company that was founded in 2004, is a leading lender to middle-market companies. As of December 31, 2016, Monroe Capital had approximately $4.0 billion in assets under management. Monroe Capital has maintained a continued lending presence in the lower middle-market throughout the most recent economic downturn. The result is an established lending platform that we believe generates consistent primary and secondary deal flow from a network of proprietary relationships and additional deal flow from a diverse portfolio of over 425 current investments. From Monroe Capitals
formation in 2004 through December 31, 2016, Monroe Capitals investment professionals invested in over 1,000 loans and related investments with an aggregate principal value of over $6.0 billion. The senior investment team of Monroe Capital averages more than 25 years of experience and has developed a proven investment and portfolio management process that has performed through multiple market cycles. In addition, Monroe Capitals investment professionals are supported by administrative and back-office personnel focused on operations, finance, legal and compliance, accounting and reporting, marketing, information technology and office management.
 5    TABLE OF CONTENTS INVESTMENT STRATEGY Our investment objective is to maximize the total return to our stockholders in the form of current income and capital appreciation primarily through investments in senior, unitranche and junior secured debt and, to a lesser extent, unsecured subordinated debt and equity. We also seek to invest opportunistically in attractively priced, broadly syndicated loans, which should enhance our geographic and industry portfolio diversification and increase our portfolios liquidity. We do not target any specific industry, however, as of December 31, 2016, our investments in the healthcare and pharmaceuticals industry represented
approximately 13.7% of the fair value of our portfolio. To achieve our investment objective, we utilize the following investment strategy: Attractive Current Yield.  We believe our sourcing network allows us to enter into transactions with attractive yields and investment structures. Based on current market conditions and our pipeline of new investments, we expect our target directly originated senior and unitranche secured debt will have an average maturity of three to five years and interest rates of 8% to 13%, and we expect our target directly originated junior secured debt and unsecured subordinated debt will have an average maturity of four to seven years and interest rates of 10% to 15%. In addition, based on current market
conditions and our pipeline of new investments, we expect that our target debt investments will typically have a variable coupon (with a LIBOR floor), may include payment-in-kind (PIK) interest (interest that is not received in cash, but added to the principal balance of the loan), and that we will typically receive upfront closing fees of 1% to 4%. We may also receive warrants or other forms of upside equity participation. Our transactions are generally secured and supported by a lien on all assets and/or a pledge of company stock in order to provide priority of return and to influence any corporate actions. Although we will target investments with the characteristics described in this paragraph, we cannot assure you that our new investments will have these characteristics and we may enter into investments with different characteristics as the market dictates. For a description of the characteristics of our current investment portfolio, see Managements
Discussion and Analysis of Financial Condition and Results of Operations  Portfolio and Investment Activity. Until investment opportunities can be found, we may invest our undeployed capital in cash, cash equivalents, U.S. government securities and high-quality debt investments that mature in one year or less from the date of investment. These temporary investments may have lower yields than our other investments and, accordingly, may result in lower distributions, if any, during such period. Sound Portfolio Construction.  We strive to exercise discipline in portfolio creation and management and to implement effective governance throughout our business. Monroe Capital has been, and MC Advisors, which is comprised by substantially the same investment professionals who have operated Monroe Capital, is, and we believe will continue to be, conservative in the underwriting and structuring of covenant packages in order to enable early intervention in the event of weak financial performance by a portfolio company. We seek to pursue lending opportunities selectively and to maintain a diversified
portfolio. We believe that exercising disciplined portfolio management through continued intensive account monitoring and timely and relevant management reporting allows us to mitigate risks in our debt investments. In addition, we have implemented rigorous governance processes through segregation of duties, documented policies and procedures and independent oversight and review of transactions, which we believe helps us to maintain a low level of non-performing loans. We believe that Monroe Capitals proven process of thorough origination, conservative underwriting, due diligence and structuring, combined with careful account management and diversification, enabled it to protect investor capital, and we believe MC Advisors follows and will follow the same philosophy and processes in originating, structuring and managing our portfolio investments. Predictability of Returns.  Beyond conservative structuring and protection of capital, we seek a predictable exit from our investments. We seek to invest in situations where there are a number of potential exit options, that can result in full repayment or a modest refinance of our investment. We seek to structure the majority of our transactions as secured loans with a covenant package that provides for full or partial repayment upon the completion of asset sales and restructurings. Because we seek to structure these transactions to provide for contractually determined, periodic payments of principal
and interest, we are less likely to depend on merger and acquisition activity or public equity markets to exit our debt investments. As a result, we believe that we can achieve our target returns even in a period when public markets are depressed.
 6    TABLE OF CONTENTS BUSINESS STRATEGY We believe that we represent an attractive investment opportunity for the following reasons: Deep, Experienced Management Team.  We are managed by MC Advisors, which has access through the Staffing Agreement to Monroe Capitals experienced team comprised of over 70 professionals, including seven senior partners that average more than 25 years of direct lending experience. We are led by our Chairman and Chief Executive Officer, Theodore L. Koenig, and Aaron D. Peck, our Chief Financial Officer and Chief Investment Officer. This extensive experience includes the management of investments with borrowers of varying credit profiles and transactions completed in all phases of the credit cycle.
Monroe Capitals senior investment professionals provide us with a difficult-to-replicate sourcing network and a broad range of transactional, financial, managerial and investment skills. This expertise and experience is supported by administrative and back office personnel focused on operations, finance, legal and compliance, accounting and reporting, marketing, information technology and office management. From Monroe Capitals formation in 2004 through December 31, 2016, Monroe Capitals investment professionals invested in more than 1,000 loan and related investments with an aggregate principal value of over $6.0 billion. Differentiated Relationship-Based Sourcing Network.  We believe Monroe Capitals senior investment professionals benefit from extensive relationships with commercial banks, private equity firms, financial intermediaries, management teams and turn-around advisors. We believe that this broad sourcing network differentiates us from our competitors and offers us a diversified origination approach that does not rely on a single channel and offers us consistent deal flow throughout the economic cycle. We also believe that this broad network allows us to originate a substantial number of non-private
equity-sponsored investments. Extensive Institutional Platform for Originating Middle-Market Deal Flow.  Monroe Capitals broad network of relationships and significant origination resources enable us to review numerous lending opportunities, permitting us to exercise a high degree of selectivity in terms of loans to which we ultimately commit. Monroe Capital estimates that it reviewed approximately 2,000 investment opportunities during 2016. Monroe Capitals over 1,000 previously executed transactions, over 425 of which are with current borrowers, offer us another source of deal flow, as these debt investments reach
maturity or seek refinancing. As of December 31, 2016, Monroe Capital had a pipeline of more than 250 transactions for an aggregate potential deal volume of greater than $5.0 billion for all funds under management. We are also positioned to benefit from Monroe Capitals established brand name, strong track record in partnering with industry participants and reputation for closing deals on time and as committed. Monroe Capitals senior investment professionals are complemented by extensive experience in capital markets transactions, risk management and portfolio monitoring. Disciplined, Credit-First Underwriting Process.  Monroe Capital has developed a systematic underwriting process that applies a consistent approach to credit review and approval, with a focus on evaluating credit first and then appropriately assessing the risk-reward profile of each loan. MC Advisors assessment of credit outweighs pricing and other considerations, as we seek to minimize potential credit losses through effective due diligence, structuring and covenant design. MC Advisors seeks to customize each transaction structure and financial covenant to reflect risks identified
through the underwriting and due diligence process. We also seek to actively manage our origination and credit underwriting activities through personal visits and calls on all parties involved with an investment, including the management team, private equity sponsors, if any, or other lenders. Established Credit Risk Management Framework.  We seek to manage our credit risk through a well-defined portfolio strategy and credit policy. In terms of credit monitoring, MC Advisors assigns each loan to a particular portfolio management professional and maintains an internal credit rating analysis for all loans. MC Advisors then employs ongoing review and analysis, together with monthly investment committee meetings to review the status of certain complex and challenging loans and a comprehensive quarterly review of all loan transactions. MC Advisors investment professionals also have
significant turnaround and debt work-out experience, which gives them perspective on the risks and possibilities throughout the entire credit cycle. We believe this careful approach to investment and monitoring enables us to identify problems early and gives us an opportunity to assist borrowers before they face difficult liquidity constraints. By anticipating possible negative contingencies and preparing for them, we believe that we diminish the probability of underperforming assets and loan losses.
 7    TABLE OF CONTENTS INVESTMENTS Investment Structure We structure our investments, which typically have maturities of three to seven years, as follows: Senior Secured Loans.  We structure senior secured loans to obtain security interests in the assets of the portfolio company borrowers that serve as collateral in support of the repayment of such loans. This collateral may take the form of first-priority liens on the assets of the portfolio company borrower. Our senior secured loans may provide for moderate loan amortization in the early years of the loan, with the majority of the amortization deferred until loan maturity. Unitranche Loans.  We structure our unitranche loans as senior secured loans. We obtain security interests in the assets of these portfolio companies that serve as collateral in support of the repayment of these loans. This collateral may take the form of first-priority liens on the assets of a portfolio company. Generally, we syndicate a first out portion of the loan to an investor and retain a last out portion of the loan, in which case the first out portion of the loan will generally receive priority with respect to payments of principal, interest and any other amounts
due thereunder. Unitranche structures combine characteristics of traditional first lien senior secured as well as second lien and subordinated loans and our unitranche loans will expose us to the risks associated with second lien and subordinated loans and may limit our recourse or ability to recover collateral upon a portfolio companys bankruptcy. Unitranche loans typically provide for moderate loan amortization in the initial years of the facility, with the majority of the amortization deferred until loan maturity. Unitranche loans generally allow the borrower to make a large lump sum payment of principal at the end of the loan term, and there is a risk of loss if the borrower is unable to pay the lump sum or refinance the amount owed at maturity. In many cases we, together with our affiliates, are the sole or majority lender of our unitranche loans, which can afford us additional influence with a borrower in terms of monitoring and, if necessary, remediation in the event of
underperformance. Junior Secured Loans.  We structure junior secured loans to obtain a security interest in the assets of these portfolio companies that serves as collateral in support of the repayment of such loans. This collateral may take the form of second priority liens on the assets of a portfolio company. These loans typically provide for moderate loan amortization in the initial years of the facility, with the majority of the amortization deferred until loan maturity. Preferred Equity.  We generally structure preferred equity investments to combine features of equity and debt. We may obtain a security interest in the assets of these portfolio companies that serves as collateral in support of the repayment of such preferred equity, which takes a priority to common shareholders. Preferred equity interests generally have a stated dividend rate and may not have a fixed maturity date. Warrants and Equity Co-Investment Securities.  In some cases, we may also receive nominally priced warrants or options to buy a minority equity interest in the portfolio company in connection with a loan. As a result, as a portfolio company appreciates in value, we may achieve additional investment return from this equity interest. We may structure such warrants to include provisions protecting our rights as a minority-interest holder, as well as a put, or right to sell such securities back to the issuer, upon the occurrence of specified events. In other cases, we may make a minority equity
co-investment in the portfolio company in connection with a loan. We tailor the terms of each investment to the facts and circumstances of the transaction and the prospective portfolio company, negotiating a structure that protects our rights and manages our risk while creating incentives for the portfolio company to achieve its business plan and improve its operating results. We seek to limit the downside potential of our investments by: 

          selecting investments that we believe have a very low probability of loss; 

          requiring a total return on our investments (including both interest and potential equity appreciation) that we believe will compensate us appropriately for credit risk; and
 8    TABLE OF CONTENTS 

          negotiating covenants in connection with our investments that afford our portfolio companies as much flexibility in managing their businesses as possible, consistent with the preservation of our capital. Such restrictions may include affirmative and negative covenants, default penalties, lien protection, change of control provisions and board rights, including either observation or rights to a seat on the board of directors under some circumstances. We expect to hold most of our investments to maturity or repayment, but we may sell some of our investments earlier if a liquidity event occurs, such as a sale, recapitalization or worsening of the credit quality of the portfolio company. Investments We seek to create a diverse portfolio that includes senior secured, unitranche, junior secured loans and warrants and equity co-investment securities by investing approximately $2.0 million to $18.0 million of capital, on average, in the securities of middle-market companies. This investment size may vary proportionately with the size of our capital base. Set forth below is a list of our ten largest portfolio company investments as of December 31, 2016, as well as the top ten industries in which we were invested as of December 31, 2016, in each case calculated as a percentage of our total investments at fair value as of such
date (dollars in thousands):  Portfolio Company

          

          Fair Value of Investments

          

          Percentage of Total InvestmentsRockdale Blackhawk, LLC

          

          $

          27,077

          

          

          

          6.6

          %Output Services Group, Inc.

          

          

          15,708

          

          

          

          3.8Incipio Technologies, Inc.

          

          

          14,219

          

          

          

          3.4American Community Homes, Inc.

          

          

          13,950

          

          

          

          3.4Jerry Lee Radio, LLC

          

          

          13,675

          

          

          

          3.3TRG, LLC

          

          

          13,037

          

          

          

          3.2Education Corporation of America

          

          

          12,288

          

          

          

          3.0Repay Holdings, LLC

          

          

          11,934

          

          

          

          2.9The Worth Collection, Ltd.

          

          

          11,132

          

          

          

          2.7Vacation Innovations, LLC

          

          

          10,848

          

          

          

          2.6$

          143,868

          

          

          

          34.9

          %
  Industry

          

          Fair Value of Investments

          

          Percentage of Total InvestmentsHealthcare & Pharmaceuticals

          

          $

          56,435

          

          

          

          13.7

          %Services: Business

          

          

          40,164

          

          

          

          9.7Retail

          

          

          38,147

          

          

          

          9.2Hotels, Gaming & Leisure

          

          

          38,010

          

          

          

          9.2Banking, Finance, Insurance & Real Estate

          

          

          37,130

          

          

          

          9.0Consumer Goods: Non-Durable

          

          

          32,000

          

          

          

          7.7Services: Consumer

          

          

          24,807

          

          

          

          6.0High Tech Industries

          

          

          18,899

          

          

          

          4.6Construction & Building

          

          

          18,602

          

          

          

          4.5Media: Broadcasting & Subscription

          

          

          18,046

          

          

          

          4.4$

          322,240

          

          

          

          78.0

          %
 9    TABLE OF CONTENTS INVESTMENT PROCESS OVERVIEW We view our investment process as consisting of four distinct phases described below: Origination.  MC Advisors seeks to develop investment opportunities through extensive relationships with regional banks, private equity firms, financial intermediaries, management teams and other turn-around advisors. Monroe Capital has developed this network since its formation in 2004. MC Advisors manages these leads through personal visits and calls by its senior deal professionals. It is these professionals responsibility to identify specific opportunities, refine opportunities through due diligence regarding the underlying facts and circumstances and utilize innovative thinking and flexible
terms to solve the financing issues of prospective clients. Monroe Capitals origination professionals are broadly dispersed throughout North America, with seven offices in the United States and one office in Canada. Certain of Monroe Capitals originators are responsible for covering a specified target market based on geography and others focus on specialized industry verticals. We believe MC Advisors origination professionals experience is vital to enable us to provide our borrowers with innovative financing solutions. We further believe that their strength and breadth of relationships across a wide range of markets will generate numerous financing opportunities and enable us to be highly selective in our lending activities. In sourcing new transactions, MC Advisors seeks opportunities to work with borrowers domiciled in the United States and Canada and typically focuses on industries in which Monroe Capital has previous lending experience. Due Diligence.  For each of our investments, MC Advisors prepares a comprehensive new business presentation, which summarizes the investment opportunity and its due diligence and risk analysis, all from the perspective of strengths, weaknesses, opportunities and threats presented by the opportunity. This presentation assesses the borrower and its management, including products and services offered, market position, sales and marketing capabilities and distribution channels; key contracts, customers and suppliers, meetings with management and facility tours; background checks on key executives; customer
calls; and an evaluation of exit strategies. MC Advisors presentation typically evaluates historical financial performance of the borrower and includes projections, including operating trends, an assessment of the quality of financial information, capitalization and liquidity measures and debt service capacity. The financial analysis also includes sensitivity analysis against management projections and an analysis of potential downside scenarios, particularly for cyclical businesses. MC Advisors seeks to also review the dynamics of the borrowers industry and assess the maturity, market size, competition, technology and regulatory issues confronted by the industry. Finally, MC Advisors new business presentation includes all relevant third-party reports and assessments, including, as applicable, analyses of the quality of earnings of the prospective borrower, a review of the business by industry experts and third-party valuations. In general, these analyses and reviews
are more likely to be completed in agented or club deals in which MC Advisors will have greater access to the borrower and its management team. MC Advisors also includes in this due diligence, if relevant, field exams, collateral appraisals and environmental reviews, as well as a review of comparable private and public transactions. Underwriting.  MC Advisors uses the systematic, consistent approach to credit evaluation developed in house by Monroe Capital with a particular focus on determining the value of a business in a downside scenario. In this process, the senior investment professionals at MC Advisors bring to bear extensive lending experience with emphasis on lessons learned from the past two credit cycles. We believe that the extensive credit and debt work-out experience of Monroe Capitals senior management enables us to anticipate problems and minimize risks. Monroe Capitals underwriting professionals work
closely with its origination professionals to identify individual deal strengths, risks and any risk mitigants. MC Advisors preliminarily screens transactions based on cash flow, enterprise value and asset-based characteristics, and each of these measures is developed on a proprietary basis using thorough credit analysis focused on sustainability and predictability of cash flow to support enterprise value, barriers to entry, market position, competition, customer and supplier relationships, management strength, private equity sponsor track record and industry dynamics. For asset-based transactions, MC Advisors seeks to understand current and future collateral value, opening availability and ongoing liquidity. MC Advisors documents this analysis through a new business presentation thoroughly reviewed by at least one member of its investment committee prior to proposing a formal term sheet. We believe this early involvement of the investment committee ensures that our resources and those
of third parties are deployed appropriately and efficiently during the investment process and lowers execution risk
 10    TABLE OF CONTENTS for our clients. With respect to transactions reviewed by MC Advisors, we expect that only approximately 10% of our sourced deals will reach the formal term sheet stage. Credit Approval/Investment Committee Review.  MC Advisors employs a standardized, structured process developed by Monroe Capital when evaluating and underwriting new investments for our portfolio. MC Advisors investment committee considers its comprehensive new business presentation to approve or decline each investment. This committee includes Messrs. Koenig, Peck, Egan and VanDerMeid. The committee is committed to providing a prompt turnaround on investment decisions. Each meeting to approve an investment requires a quorum of at least three members of the investment committee, and each
investment must receive unanimous approval by such members of the investment committee. The following chart illustrates the stages of MC Advisors evaluation process: Evaluation Process [GRAPHIC MISSING] Execution.  We believe Monroe Capital has developed a strong reputation for closing deals as proposed, and we intend to continue this tradition. Through MC Advisors consistent approach to credit evaluation and underwriting, we seek to close deals as fast or faster than competitive financing providers while maintaining the discipline with respect to credit, pricing and structure necessary to ensure the ultimate success of the financing. Upon completion of final documentation, a loan will typically be funded upon the initialing of the new business presentation and closing memo by our appropriate
senior officers and confirmation of the flow of funds and wire transfer mechanics. Monitoring.  We benefit from the portfolio management system already in place at Monroe Capital. This monitoring includes meetings on at least a monthly basis between the responsible analyst and our portfolio company to discuss market activity and current events. 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. 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 monitor performance using standard industry software tools to provide consistent
 11    TABLE OF CONTENTS disclosure of performance. MC Advisors also monitors our investment exposure daily using a proprietary trend analysis tool. When necessary, MC Advisors updates 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 following categories, which we refer to as MC Advisors investment performance rating. For any investment rated in grades 3, 4 or 5, MC Advisors 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. 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 ratings on a quarterly basis, and our Board reviews and affirms such ratings. A definition of the rating system follows:  Investment Performance Risk Rating

          

          Summary DescriptionGrade 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). For grade 4 investments, we intend to increase monitoring of the issuer.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, and we will reduce the fair market value of the loan to the amount we expect to recover.
 Our investment performance ratings do not constitute any ratings of investments by a nationally recognized statistical rating organization or represent or reflect any third-party assessment of any of our investments. In the event of a delinquency or a decision to rate a loan grade 4 or grade 5, the applicable analyst, in consultation with a member of the investment committee, develops 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 required amendments and waivers that may be required. In the event of a dramatic deterioration of a credit, MC Advisors forms a team or engages outside advisors to analyze, evaluate and take further steps to preserve its 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. Several of Monroe Capitals professionals are experienced in running debt work-out transactions and bankruptcies.
 12    TABLE OF CONTENTS The following table shows the distribution of our investments on the 1 to 5 investment performance rating scale at fair value as of December 31, 2016 (dollars in thousands):  Investment Performance Rating

          

          Investments atFair Value

          

          Percentage ofTotal Investments1

          

          $

          

          

          

          

          

          %2

          

          

          360,338

          

          

          

          87.33

          

          

          40,192

          

          

          

          9.74

          

          

          12,390

          

          

          

          3.05

          

          

          

          

          

          

          Total

          

          $

          412,920

          

          

          

          100.0

          %
 The following table shows the distribution of our investments on the 1 to 5 investment performance rating scale at fair value as of December 31, 2015 (dollars in thousands):  Investment Performance Rating

          

          Investments atFair Value

          

          Percentage ofTotal Investments1

          

          $

          

          

          

          

          

          %2

          

          

          315,358

          

          

          

          92.53

          

          

          19,208

          

          

          

          5.64

          

          

          6,525

          

          

          

          1.95

          

          

          

          

          

          

          Total

          

          $

          341,091

          

          

          

          100.0

          %
 MANAGEMENT AND OTHER AGREEMENTS MC Advisors is located at 311 South Wacker Drive, Suite 6400, Chicago, Illinois 60606. MC Advisors is a registered investment adviser under the Advisers Act. Subject to the overall supervision of our Board and in accordance with the 1940 Act, MC Advisors manages our day-to-day operations and provides investment advisory services to us. Under the terms of the Investment Advisory and Management Agreement, MC Advisors: 

          determines the composition of our portfolio, the nature and timing of the changes to our portfolio and the manner of implementing such changes; 

          assists us in determining what securities we purchase, retain or sell; 

          identifies, evaluates and negotiates the structure of the investments we make (including performing due diligence on our prospective portfolio companies); and 

          executes, closes, services and monitors the investments we make. MC Advisors services under the Investment Advisory and Management Agreement are not exclusive, and it is free to furnish similar services to other entities so long as its services to us are not impaired. Management and Incentive Fee Under the Investment Advisory and Management Agreement with MC Advisors and subject to the overall supervision of our Board, MC Advisors provides investment advisory services to us. For providing these services, MC Advisors receives a fee from us, consisting of two components  a base management fee and an incentive fee. The base management fee is calculated at an annual rate of 1.75% of average invested assets (calculated as total assets excluding cash) and is payable quarterly in arrears. The incentive fee consists of two parts. The first part is calculated and payable quarterly in arrears based on our pre-incentive fee net investment income for the preceding quarter subject to a total return requirement. Pre-incentive fee net investment income means interest income, dividend income and any other income (including any other fees such as commitment, origination, structuring, diligence and consulting fees or other fees that we receive from portfolio companies but excluding fees for providing managerial assistance) accrued during the calendar quarter, minus operating expenses for the quarter (including the base
management fee, any
 13    TABLE OF CONTENTS expenses payable under our administration agreement between an affiliate of Monroe Capital and MC Advisors (the Administration Agreement) and any interest expense and dividends paid on any outstanding preferred stock, but excluding the incentive fee). Pre-incentive fee net investment income includes, in the case of investments with a deferred interest feature such as market discount, debt instruments with PIK interest, preferred stock with PIK dividends and zero-coupon securities, accrued income that we have not yet received in cash. MC Advisors is not under any obligation to reimburse us for any part of the
incentive fee it received that was based on accrued interest that we never actually receive. The foregoing incentive fee is subject to a total return requirement, which provides that no incentive fee in respect of our pre-incentive fee net investment income will be payable except to the extent 20.0% of the cumulative net increase in net assets resulting from operations over the then-current and 11 preceding quarters exceeds the cumulative incentive fees accrued and/or paid for the 11 preceding quarters. Therefore, any ordinary income incentive fee that is payable in a calendar quarter will be limited to the lesser of (i) 20% of the amount by which our pre-incentive fee net investment income for such calendar quarter
exceeds the 2% hurdle described below, subject to the catch-up provision, and (ii) (x) 20% of the cumulative net increase in net assets resulting from operations for the then current and 11 preceding calendar quarters minus (y) the cumulative incentive fees accrued and/or paid for the 11 preceding calendar quarters. For the foregoing purpose, the cumulative net increase in net assets resulting from operations is the amount, if positive, of the sum of our pre-incentive fee net investment income, base management fees, realized gains and losses and unrealized appreciation and depreciation for the then-current and 11 preceding calendar quarters. Pre-incentive fee net investment income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation. If any distributions from portfolio companies are characterized as a return of capital, such returns of capital would affect the capital gains incentive fee to the extent a gain or loss is realized. Because of the structure of the incentive fee, it is possible that we may pay an incentive fee in a quarter where we incur a loss. For example, if we receive pre-incentive fee net investment income in excess of the hurdle rate (as defined below) for a quarter, we will pay
the applicable incentive fee even if we have incurred a loss in that quarter due to realized and unrealized capital losses. Pre-incentive fee net investment income, expressed as a rate of return on the value of our net assets (defined as total assets less indebtedness and before taking into account any incentive fees payable during the period) at the end of the immediately preceding calendar quarter, is compared to a fixed hurdle rate of 2% per quarter (8% annually). If market interest rates rise, we may be able to invest our funds in debt instruments that provide for a higher return, which would increase our pre-incentive fee net investment income and make it easier for MC Advisors to surpass the fixed hurdle rate and receive an
incentive fee based on such net investment income. We pay MC Advisors an incentive fee with respect to our pre-incentive fee net investment income in each calendar quarter as follows: 

          no incentive fee in any calendar quarter in which the pre-incentive fee net investment income does not exceed the hurdle rate of 2% (8% annually); 

          100% of our pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the hurdle rate but is less than 2.5% in any calendar quarter. We refer to this portion of our pre-incentive fee net investment income (which exceeds the hurdle rate but is less than 2.5%) as the catch-up provision. The catch-up is meant to provide MC Advisors with 20% of the pre-incentive fee net investment income as if a hurdle rate did not apply if this net investment income exceeds 2.5% in any calendar quarter; and 

          20% of the amount of our pre-incentive fee net investment income, if any, that exceeds 2.5% in any calendar quarter. These calculations are adjusted for any share issuances or repurchases during the quarter.
 14    TABLE OF CONTENTS The following is a graphical representation of the calculation of the income-related portion of the incentive fee: Quarterly Incentive Fee Based on Pre-Incentive Fee Net Investment Income  Pre-incentive fee net investment income (expressed as a percentage of the value of net assets) [GRAPHIC MISSING] Percentage of pre-incentive fee net investment income allocated to income-related portion of incentive fee These calculations will be appropriately prorated for any period of less than three months and adjusted for any share issuances or repurchases during the current quarter. The second part of the incentive fee is a capital gains incentive fee that is determined and payable in arrears as of the end of each fiscal year (or upon termination of the investment advisory and management agreement, as of the termination date), and equals 20% of our realized capital gains as of the end of the fiscal year. In determining the capital gains incentive fee payable to MC Advisors, we calculate the cumulative aggregate realized capital gains and cumulative aggregate realized capital losses since our inception, and the aggregate unrealized capital depreciation as of the date of the calculation, as applicable, with
respect to each of the investments in our portfolio. For this purpose, cumulative aggregate realized capital gains, if any, equals the sum of the differences between the net sales price of each investment, when sold, and the amortized cost of such investment. Cumulative aggregate realized capital losses equals the sum of the amounts by which the net sales price of each investment, when sold, is less than the amortized cost of such investment since our inception. Aggregate unrealized capital depreciation equals the sum of the difference, if negative, between the valuation of each investment as of the applicable calculation date and the amortized cost of such investment. At the end of the applicable year, the amount of capital gains that serves as the basis for our calculation of the capital gains incentive fee equals the cumulative aggregate realized capital gains less cumulative aggregate realized capital losses, less aggregate unrealized capital depreciation, with respect to our
portfolio of investments. If this number is positive at the end of such year, then the capital gains incentive fee for such year equals 20% of such amount, less the aggregate amount of any capital gains incentive fees paid in respect of our portfolio in all prior years. Examples of Quarterly Incentive Fee Calculation Example 1: Income Related Portion of Incentive Fee before Total Return Requirement Calculation Alternative 1 Assumptions Investment income (including interest, dividends, fees, etc.) = 1.25% Hurdle rate(1) = 2% Management fee(2) = 0.4375% Other expenses (legal, accounting, custodian, transfer agent, etc.) = 0.2% Pre-incentive fee net investment income     (investment income  (management fee + other expenses)) = 0.6125% Pre-incentive fee net investment income does not exceed hurdle rate, therefore there is no income-related incentive fee.
 15    TABLE OF CONTENTS Alternative 2 Assumptions Investment income (including interest, dividends, fees, etc.) = 3.0% Hurdle rate(1) = 2% Management fee(2) = 0.4375% Other expenses (legal, accounting, custodian, transfer agent, etc.) = 0.2% Pre-incentive fee net investment income     (investment income  (management fee + other expenses)) = 2.3625% Incentive fee  = 100% × Pre-incentive fee net investment income (subject to catch-up)(3)                        = 100% × (2.3625%  2%)                         = 0.3625% Pre-incentive fee net investment income exceeds the hurdle rate, but does not fully satisfy the catch-up provision, therefore the income-related portion of the incentive fee is 0.3625%. Alternative 3 Assumptions Investment income (including interest, dividends, fees, etc.) = 3.5% Hurdle rate(1) = 2% Management fee(2) = 0.4375% Other expenses (legal, accounting, custodian, transfer agent, etc.) = 0.2% Pre-incentive fee net investment income     (investment income  (management fee + other expenses)) = 2.8625% Incentive fee = 100% × Pre-incentive fee net investment income (subject to catch-up)(3) Incentive fee = 100% × catch-up + (20% × (Pre-incentive fee net investment income  2.5%))
Catch-up    = 2.5%  2%                         = 0.5% Incentive fee = (100% × 0.5%) + (20% × (2.8625%  2.5%))                        = 0.5% + (20% × 0.3625%)                        = 0.5% + 0.0725%                        = 0.5725% Pre-incentive fee net investment income exceeds the hurdle rate, and fully satisfies the catch-up provision, therefore the income related portion of the incentive fee is 0.56%.  (1)

          Represents 8.0% annualized hurdle rate. (2)

          Represents 1.75% annualized base management fee. (3)

          The catch-up provision is intended to provide our investment advisor with an incentive fee of 20% on all pre-incentive fee net investment income as if a hurdle rate did not apply when our net investment income exceeds 2.5% in any fiscal quarter. Example 2: Income Portion of Incentive Fee with Total Return Requirement Calculation: Assumptions Hurdle rate(1) = 2% Management fee(2) = 0.4375% Other expenses (legal, accounting, transfer agent, etc.) = 0.2% Cumulative incentive compensation accrued and/or paid for     preceding 11 calendar quarters = $9 million
 16    TABLE OF CONTENTS Alternative 1 Additional Assumptions Investment income (including interest, dividends, fees, etc.) = 3.50% Pre-incentive fee net investment income     (investment income  (management fee + other expenses)) = 2.8625% 20.0% of cumulative net increase in net assets resulting from operations over     current and preceding 11 calendar quarters = $8 million Although our pre-incentive fee net investment income exceeds the hurdle rate of 2.0% (as shown in Alternative 3 of Example 1 above), no incentive fee is payable because 20.0% of the cumulative net increase in net assets resulting from operations over the then current and 11 preceding calendar quarters did not exceed the cumulative income and capital gains incentive fees accrued and/or paid for the preceding 11 calendar quarters. Alternative 2 Additional Assumptions Investment Income (including interest, dividends, fees, etc.) = 3.50% Pre-incentive fee net investment income     (investment income  (management fee + other expenses)) = 2.8625%. 20% of cumulative net increase in net assets resulting from operations over     current and preceding 11 calendar quarters = $10 million Because our pre-incentive fee net investment income exceeds the hurdle rate of 2.0% and because 20.0% of the cumulative net increase in net assets resulting from operations over the then current and 11 preceding calendar quarters exceeds the cumulative income and capital gains incentive fees accrued and/or paid for the preceding 11 calendar quarters, an incentive fee would be payable, as shown in Alternative 3 of Example 1 above.  (1)

          Represents 8.0% annualized hurdle rate. (2)

          Represents 1.75% annualized management fee. Example 3: Capital Gains Portion of Incentive Fee (*): Alternative 1: Assumptions Year 1:  $20 million investment made in Company A (Investment A), and $30 million investment made in Company B (Investment B) Year 2:  Investment A sold for $50 million and fair market value (FMV) of Investment B determined to be $32 million Year 3:  FMV of Investment B determined to be $25 million Year 4:  Investment B sold for $31 million The capital gains portion of the incentive fee would be: Year 1:  None Year 2:  Capital gains incentive fee of $6 million  ($30 million realized capital gains on sale of Investment A multiplied by 20%) Year 3:  None  $5 million (20% multiplied by ($30 million cumulative capital gains less $5 million cumulative capital depreciation)) less $6 million (previous capital gains fee paid in Year 2) Year 4:  Capital gains incentive fee of $200,000  $6.2 million ($31 million cumulative realized capital gains multiplied by 20%) less $6 million (capital gains incentive fee taken in Year 2)
 17    TABLE OF CONTENTS Alternative 2 Assumptions Year 1:  $20 million investment made in Company A (Investment A), $30 million investment made in Company B (Investment B) and $25 million investment made in Company C (Investment C) Year 2:  Investment A sold for $50 million, FMV of Investment B determined to be $25 million and FMV of Investment C determined to be $25 million Year 3:  FMV of Investment B determined to be $27 million and Investment C sold for $30 million Year 4:  FMV of Investment B determined to be $35 million Year 5:  Investment B sold for $20 million The capital gains incentive fee, if any, would be: Year 1:  None Year 2:  $5 million capital gains incentive fee  20% multiplied by $25 million ($30 million realized capital gains on Investment A less unrealized capital depreciation on Investment B) Year 3:  $1.4 million capital gains incentive fee(1)  $6.4 million (20% multiplied by $32 million ($35 million cumulative realized capital gains less $3 million unrealized capital depreciation)) less $5 million capital gains incentive fee received in Year 2 Year 4:  None Year 5:  None  $5 million (20% multiplied by $25 million (cumulative realized capital gains of $35 million less realized capital losses of $10 million)) less $6.4 million cumulative capital gains incentive fee paid in Year 2 and Year 3(2)  *

          The hypothetical amounts of returns shown are based on a percentage of our total net assets and assume no leverage. There is no guarantee that positive returns will be realized and actual returns may vary from those shown in this example. (1)

          As illustrated in Year 3 of Alternative 1 above, if we were to be wound up on a date other than our fiscal year end of any year, we may have paid aggregate capital gains incentive fees that are more than the amount of such fees that would be payable if we had been wound up on the fiscal year end of such year. (2)

          As noted above, it is possible that the cumulative aggregate capital gains fee received by our investment advisor ($6.4 million) is effectively greater than $5 million (20% of cumulative aggregate realized capital gains less net realized capital losses or net unrealized depreciation ($25 million)). Payment of Our Expenses All investment professionals of MC Advisors and/or its affiliates, when and to the extent engaged in providing investment advisory and management services to us, and the compensation and routine overhead expenses of personnel allocable to these services to us, are provided and paid for by MC Advisors and not by us. We bear all other out-of-pocket costs and expenses of our operations and transactions, including, without limitation: 

          organization and offering; 

          calculating our net asset value (including the cost and expenses of any independent valuation firm); 

          fees and expenses incurred by MC Advisors payable to third parties, including agents, consultants or other advisors, in monitoring financial and legal affairs for us and in conducting research and due diligence on prospective investments and equity sponsors, analyzing investment opportunities, structuring our investment and monitoring our investments and portfolio companies on an ongoing basis (although none of MC Advisors duties will be subcontracted to sub-advisors); 

          interest payable on debt, if any, incurred to finance our investments;
 18    TABLE OF CONTENTS 

          offerings of our common stock and other securities; 

          investment advisory fees; 

          administration fees and expenses, if any, payable under the Administration Agreement (including payments under the Administration Agreement between us and MC Management based upon our allocable portion of MC Managements overhead in performing its obligations under the Administration Agreement, including rent and the allocable portion of the cost of our chief financial officer and chief compliance officer, and their respective staffs); 

          transfer agent, dividend agent and custodial fees and expenses; 

          federal and state registration fees; 

          all costs of registration and listing our shares on any securities exchange; 

          federal, state and local taxes; 

          independent directors fees and expenses; 

          costs of preparing and filing reports or other documents required by the SEC or other regulators; 

          costs of any reports, proxy statements or other notices to stockholders, including printing costs; 

          fidelity bond, directors and officers/errors and omissions liability insurance, and any other insurance premiums; 

          direct costs and expenses of administration, including printing, mailing, long distance telephone, copying, secretarial and other staff, independent auditors and outside legal costs; 

          proxy voting expenses; and 

          all other expenses incurred by us or MC Management in connection with administering our business. Duration and Termination Unless terminated earlier as described below, the Investment Advisory and Management Agreement will continue in effect from year to year if approved annually by our Board or by the affirmative vote of the holders of a majority of our outstanding voting securities, and, in either case, if also approved by a majority of our directors who are not interested persons. The Investment Advisory and Management Agreement automatically terminates in the event of its assignment, as defined in the 1940 Act, by MC Advisors and may be terminated by either party without penalty upon not less than 60 days written notice to
the other. The holders of a majority of our outstanding voting securities may also terminate the Investment Advisory and Management Agreement without penalty. See Risk Factors  Risks Relating to Our Business and Structure  We depend upon MC Advisors senior management for our future success, and upon its access to the investment professionals of Monroe Capital and its affiliates and Risk Factors  Risks Relating to Our Business and Structure  MC Advisors can resign on 60 days notice, and we may not be able to find a suitable replacement within that time, resulting in a disruption in our operations that could adversely affect our financial condition, business and results of operations. Indemnification The Investment Advisory and Management Agreement provides that, absent willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of the reckless disregard of its duties and obligations, MC Advisors and its affiliates respective officers, directors, members, managers, stockholders and employees are entitled to indemnification from us from and against any claims or liabilities, including reasonable legal fees and other expenses reasonably incurred, arising out of or in connection with our business and operations or any action taken or omitted on our behalf pursuant to authority
granted by the Investment Advisory and Management Agreement, except where attributable to gross negligence, willful misconduct, bad faith or reckless disregard of such persons duties under the Investment Advisory and Management Agreement.
 19    TABLE OF CONTENTS Administration Agreement Pursuant to an Administration Agreement, MC Management furnishes us with office facilities and equipment and provides us clerical, bookkeeping and record keeping and other administrative services at such facilities. Under the Administration Agreement, MC Management performs, or oversees the performance of, our required administrative services, which include, among other things, being responsible for the financial records that we are required to maintain and preparing reports to our stockholders and reports filed with the SEC. MC Management also assists us in determining and publishing our net asset value, oversees the
preparation and filing of our tax returns, prints and disseminates reports to our stockholders and generally oversees the payment of our expenses and the performance of administrative and professional services rendered to us by others. Under the Administration Agreement, MC Management also provides managerial assistance on our behalf to those portfolio companies that have accepted our offer to provide such assistance. Payments under the Administration Agreement are equal to an amount based upon our allocable portion (subject to the review and approval of our Board) of MC Managements overhead in performing its obligations under the Administration Agreement, including rent and our allocable portion of the cost of our officers, including our chief financial officer and chief compliance officer and their respective staffs. Unless terminated earlier as described below, the Administration Agreement will continue in effect from year to year with the approval of our Board. The Administration Agreement may be terminated by either party without
penalty upon 60 days written notice to the other party. MC Management may retain third parties to assist in providing administrative services to us. To the extent that MC Management outsources any of its functions, we pay the fees associated with such functions on a direct basis without profit to MC Management. We reimburse MC Management for the allocable portion (subject to the review and approval of our Board) of MC Managements overhead and other expenses incurred by it in performing its obligations under the Administration Agreement, including rent, the fees and expenses associated with performing compliance functions, and our allocable portion of the cost of our chief
financial officer and chief compliance officer and their respective staffs. For the years ended December 31, 2016, 2015 and 2014, we incurred $3.1 million, $2.7 million and $2.7 million in administrative expenses (included within Professional fees, Administrative service fees and General and administrative expenses on the consolidated statements of operations) under the Administration Agreement, respectively, of which $1.3 million, $1.1 million and $0.9 million, respectively, was related to MC Management overhead and salary allocation and paid directly to MC Management. Indemnification The Administration Agreement provides that, absent willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of the reckless disregard of its duties and obligations, MC Management and its and its affiliates respective officers, directors, members, managers, stockholders and employees are entitled to indemnification from us from and against any claims or liabilities, including reasonable legal fees and other expenses reasonably incurred, arising out of or in connection with our business and operations or any action taken or omitted on our behalf pursuant to authority granted by the
Administration Agreement, except where attributable to gross negligence, willful misconduct, bad faith or reckless disregard of such persons duties under the Administration Agreement. License Agreement We have entered into a license agreement with Monroe Capital under which Monroe Capital has agreed to grant us a non-exclusive, royalty-free license to use the name Monroe Capital. Under this agreement, we have a right to use the Monroe Capital name for so long as MC Advisors or one of its affiliates remains our investment advisor. Other than with respect to this limited license, we have no legal right to the Monroe Capital name. This license agreement will remain in effect for so long as the Investment Advisory and Management Agreement with MC Advisors is in effect. Staffing Agreement We do not have any internal employees. We depend on the diligence, skill and network of business contacts of the senior investment professionals of MC Advisors to achieve our investment objective. MC Advisors is an affiliate of Monroe Capital and depends upon access to the investment professionals
 20    TABLE OF CONTENTS and other resources of Monroe Capital and Monroe Capitals affiliates to fulfill its obligations to us under the Investment Advisory and Management Agreement. MC Advisors also depends upon Monroe Capital to obtain access to deal flow generated by the professionals of Monroe Capital and its affiliates. Under the Staffing Agreement, MC Management provides MC Advisors with the resources necessary to fulfill these obligations. The Staffing Agreement provides that MC Management will make available to MC Advisors experienced investment professionals and access to the senior investment personnel of Monroe Capital for purposes of
evaluating, negotiating, structuring, closing and monitoring our investments. The Staffing Agreement also includes a commitment that the members of MC Advisors investment committee serve in such capacity. The Staffing Agreement remains in effect until terminated and may be terminated by either party without penalty upon 60 days written notice to the other party. Services under the Staffing Agreement are provided to MC Advisors on a direct cost reimbursement basis, and such fees are not our obligation. Board Approval of the Investment Advisory and Management Agreement and Staffing Agreement At a meeting of our Board held on October 13, 2016, our Board, including directors who are not interested persons as defined in the 1940 Act, voted unanimously to approve and continue the Investment Advisory and Management Agreement for another annual period in accordance with the requirements of the 1940 Act. The approval included consideration and approval of the specific individuals provided through the Staffing Agreement between MC Advisors and MC Management that comprise our investment committee. In reaching a decision to approve and continue the investment advisory agreement and investment committee, the
Board reviewed a significant amount of information and considered, among other things: 

          Nature, Quality and Extent of Services.  Our Board reviewed information about the services to be performed and the personnel performing such services under the Investment Advisory Agreement and Staffing Agreement, including the specific approval of the members of the investment committee to be provided pursuant to the Staffing Agreement. Our board of directors considered the nature, extent and quality of the investment selection process employed by MC Advisors and the experience of the members of the investment committee. Our board of directors concluded that the services to be provided under the Investment Advisory Agreement are consistent with those of comparable business development companies described in the available market data. 

          The reasonableness of the fees paid to MC Advisors.  Our Board considered comparative data based on publicly available information on other business development companies with respect to services rendered and the advisory fees (including the management fees and incentive fees) of other business development companies as well as our projected operating expenses and expense ratio compared to other business development companies. Our board of directors also considered the profitability of MC Advisors. Based upon its review, our board of directors concluded that the fees to be paid under the Investment Advisory Agreement are reasonable compared to other business development companies. 

          Investment Performance.  Our Board reviewed our investment performance as well as comparative data with respect to the investment performance of other externally managed business development companies. Our board of directors concluded that MC Advisors was delivering results consistent with our investment objective and that our investment performance was superior when compared to comparable business development companies over the most recently completed period. 

          Economies of Scale.  Our Board addressed the potential for MC Advisors to realize economies of scale in managing our assets, and determined that at this time they did not expect economies of scale to be realized by MC Advisors. Based on the information reviewed and the discussions detailed above, our Board, including all of the directors who are not interested persons as defined in the 1940 Act, concluded that the investment advisory fee rates and terms are fair and reasonable in relation to the services provided and approved the investment advisory agreement and its continuation as being in the best interests of our stockholders. MC Advisors bears all expenses related to the services and personnel provided pursuant to the Staffing Agreement.
 21    TABLE OF CONTENTS VALUATION PROCESS AND DETERMINATION OF NET ASSET VALUE The net asset value per share of our outstanding shares of common stock is determined quarterly by dividing the value of total assets minus liabilities by the total number of shares outstanding. We calculate the value of our total assets in accordance with the following procedures. Investments for which market quotations are readily available and within a recent date are valued at such market quotations. We may also obtain indicative prices with respect to certain of our investments from pricing services or brokers or dealers in order to value such investments. We expect that there will not be a readily available market value within a recent date for many of our investments; those debt and equity securities that are not publicly traded or whose market prices are not readily available are valued at fair value as determined in good faith by our Board using a documented valuation policy and a consistently
applied valuation process. Our Board is ultimately and solely responsible for determining the fair value of the portfolio investments that are not publicly traded, whose market prices are not readily available on a quarterly basis in good faith or any other situation where portfolio investments require a fair value determination. With respect to investments for which market quotations are not readily available or for which no indicative prices from pricing services or brokers or dealers have been received, our Board undertakes a multi-step valuation process each quarter, as described below: 

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

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

          our Board engages one or more independent valuation firm(s) to conduct fair value appraisals of material investments for which market quotations are not readily available. These fair value appraisals for material investments are received at least once in every calendar year for each portfolio company investment, but are generally received quarterly; 

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

          our Board discusses these valuations and determines the fair value of each investment in the portfolio in good faith, based on the input of MC Advisors, the independent valuation firm(s) and the audit committee. The valuation technique utilized in the determination of fair value is affected by a wide variety of factors including the type of investment, whether the investment is new and not yet established in the marketplace, and other characteristics particular to the transaction. Management generally uses the yield approach to determine fair value of debt investments, as long as it is appropriate. If there is deterioration in credit quality or a debt investment is in work-out status, management may consider other factors in determining the fair value, including the value attributable to the debt investment from the enterprise value
of the portfolio company or the proceeds that would be received in a liquidation analysis. The types of factors that may be taken into account in the determination of the fair value of our investments include, as relevant, the markets in which the portfolio company does business, overall market conditions, changes in the interest rate environment and the credit markets generally, comparisons to publicly traded securities, the enterprise value of the portfolio company, the portfolio companys financial performance and ability to make scheduled payments, the nature and net realizable value of any collateral and other relevant factors. See Note 4 to the accompanying consolidated financial statements for additional information on the determination of fair value. We report our investments at fair value with changes in value reported through our consolidated statements of operations under the caption unrealized appreciation (depreciation) on investments. In determining fair value, we are required to assume that portfolio investments are to be sold in the principal market to market participants, or in the absence of a principal market, the most advantageous market, which
 22    TABLE OF CONTENTS may be a hypothetical market. Market participants are defined as buyers and sellers in the principal or most advantageous market that are independent, knowledgeable, and willing and able to transact. The market in which we can exit portfolio investments with the greatest volume and level activity is considered our principal market. Determination of fair value involves subjective judgments and estimates. Accordingly, the notes to our consolidated financial statements express the uncertainty with respect to the possible effect of such valuations, and any change in such valuations, on our consolidated financial statements. COMPETITION We compete with a number of specialty and commercial finance companies to make the types of investments that we make in middle-market companies, including business development companies, traditional commercial banks, private investment funds, regional banking institutions, small business investment companies, investment banks and insurance companies. Additionally, with increased competition for investment opportunities, alternative investment vehicles such as hedge funds may invest in areas they have not traditionally invested in or from which they had withdrawn during the recent economic downturn, including investing in
middle-market companies. As a result, competition for investments in lower middle-market companies has intensified, and we expect that trend to continue. Many of our existing and potential competitors are substantially larger and have considerably greater financial, technical and marketing resources than we do. For example, some competitors may have a lower cost of funds and access to funding sources that are not available to us. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than us. We use the expertise of the investment professionals of MC Advisors to assess investment risks and determine appropriate pricing and terms for investments in our loan portfolio. In addition, we expect that the relationships of the senior professionals of MC Advisors will enable us to learn about, and compete effectively for, investment opportunities with attractive middle-market companies, independently or in conjunction with the private equity clients of MC Advisors. For additional information concerning the competitive risks we face, see Risk Factors  Risks Relating to Our Business and
Structure  We operate in a highly competitive market for investment opportunities, which could reduce returns and result in losses. INFORMATION TECHNOLOGY We utilize a number of industry standard practices and software packages to secure, protect, manage and back up all corporate data. We outsource our information technology function to efficiently monitor and maintain our systems. Also, we conduct a daily backup of our systems to ensure the security and stability of the network. Our system provider performs this backup off site. ELECTION TO BE TAXED AS A RIC As a BDC, we have elected to be treated as a RIC under Subchapter M of the Code. As a RIC, we generally do not have to pay corporate-level federal income taxes on any ordinary income or capital gains that we timely distribute to our stockholders as dividends. To continue to qualify as a RIC, we must, among other things, meet certain source-of income and asset diversification requirements (as described below). In addition, we must distribute to our stockholders, for each taxable year, at least 90% of our investment company taxable income, which is generally our net ordinary income plus the excess of realized net
short-term capital gains over realized net long-term capital losses (the Annual Distribution Requirement). Generally we would expect these distributions to be taxable to our stockholders as ordinary income and not to be eligible for the reduced maximum tax rates associated with qualified dividends.
 23    TABLE OF CONTENTS TAXATION AS A RIC If we continue to: 

          qualify as a RIC; and 

          satisfy the Annual Distribution Requirement; then we will not be subject to U.S. federal income tax on the portion of our investment company taxable income and net capital gains, defined as net long-term capital gains in excess of net short-term capital losses we distribute to our stockholders. We will be subject to U.S. federal income tax at the regular corporate rates on any net income or net capital gain not distributed (or deemed distributed) to our stockholders. We will be subject to a 4% nondeductible federal excise tax on our undistributed income unless we distribute in a timely manner an amount at least equal to the sum of (a) 98% of our ordinary income for each calendar year, (b) 98.2% of our capital gain net income (both long-term and short-term) for the one-year period ending October 31 in that calendar year and (c) any income realized, but not distributed, in the preceding years (the Excise Tax Avoidance Requirement). For this purpose, however, any ordinary income or capital gain net income retained by us that is subject to corporate income tax for the tax year
ending in that calendar year will be considered to have been distributed by year end. For the years ended December 31, 2016, 2015 and 2014 we recorded $0.7 million, $0.1 million and $0.1 million on our consolidated statements of operations for U.S. federal excise taxes. In order to qualify as a RIC for federal income tax purposes, we must, among other things: 

          meet the Annual Distribution Requirement; 

          qualify to be treated as a business development company under the 1940 Act at all times during each taxable year; 

          derive in each taxable year at least 90% of our gross income from dividends, interest, payments with respect to certain securities loans, gains from the sale of stock or other securities, or other income derived with respect to our business of investing in such stock or securities, and net income derived from interests in qualified publicly traded partnerships (partnerships that are traded on an established securities market or tradable on a secondary market, other than partnerships that derive 90% of their income from interest, dividends and other permitted RIC income) (the 90% Income Test); and 

          diversify our holdings so that at the end of each quarter of the taxable year: 

          at least 50% of the value of our assets consists of cash, cash equivalents, U.S. government securities, securities of other RICs, and other securities if such other securities of any one issuer do not represent more than 5% of the value of our assets or more than 10% of the outstanding voting securities of the issuer (which for these purposes includes the equity securities of a qualified publicly traded partnership); and 

          no more than 25% of the value of our assets is invested in the securities, other than U.S. government securities or securities of other RICs, of one issuer or of two or more issuers that are controlled, as determined under applicable tax rules, by us and that are engaged in the same or similar or related trades or businesses or in the securities of one or more qualified publicly traded partnerships (the Diversification Tests). To the extent that we invest in entities treated as partnerships for federal income tax purposes (other than a qualified publicly traded partnership), we generally must include the items of gross income derived by the partnerships for purposes of the 90% Income Test, and the income that is derived from a partnership (other than a qualified publicly traded partnership) will be treated as qualifying income for purposes of the 90% Income Test only to the extent that such income is attributable to items of income of the partnership which would be qualifying income if realized by us directly. In addition, we
generally must take into account our
 24    TABLE OF CONTENTS proportionate share of the assets held by partnerships (other than a qualified publicly traded partnership) in which we are a partner for purposes of the Diversification Tests. In order to prevent our receipt of income that would not satisfy the 90% Income Test, we may establish one or more special purpose corporations to hold assets from which we do not anticipate earning dividend, interest or other qualifying income under the 90% Income Test. Any investments held through a special purpose corporation would generally be subject to federal income taxes and other taxes, and therefore would be expected to achieve a reduced after-tax yield. We may be required to recognize taxable income in circumstances in which we do not receive a corresponding payment in cash. For example, if we hold debt obligations that are treated under applicable tax rules as having original issue discount (such as debt instruments with payment-in-kind interest or, in certain cases, increasing interest rates or issued with warrants), we must include in income each year a portion of the original issue discount that accrues over the life of the obligation, regardless of whether cash representing such income is received by us in the same taxable year. We may also have to include in our income
other amounts that we have not yet received in cash, such as deferred loan origination fees that are paid after origination of the loan or are paid in non-cash compensation such as warrants or stock. We anticipate that a portion of our income may constitute original issue discount or other income required to be included in taxable income prior to receipt of cash. Because any original issue discount or other amounts accrued will be included in our investment company taxable income for the year of the accrual, we may be required to make a distribution to our stockholders in order to satisfy the Annual Distribution Requirement, even though we will not have received any corresponding cash amount. As a result, we may have difficulty meeting the Annual Distribution Requirement. We may have to sell some of our investments at times and/or at prices we do not consider advantageous, raise additional debt or equity capital or forgo new investment opportunities for this purpose. If we are not able
to obtain cash from other sources, we may fail to qualify for RIC tax treatment and thus become subject to corporate-level federal income tax. Gain or loss realized by us from warrants acquired by us as well as any loss attributable to the lapse of such warrants generally will be treated as capital gain or loss. Such gain or loss generally will be long-term or short-term, depending on how long we held a particular warrant. Our investments in Non-U.S. securities may be subject to Non-U.S. income, withholding and other taxes. In that case, our yield on those securities would be decreased. Stockholders will generally not be entitled to claim a credit or deduction with respect to Non-U.S. taxes paid by us. If we purchase shares in a passive foreign investment company (a PFIC), we may be subject to federal income tax on a portion of any excess distribution or gain from the disposition of such shares even if such income is distributed as a taxable dividend by us to our stockholders. Additional charges in the nature of interest may be imposed on us in respect of deferred taxes arising from such distributions or gains. If we invest in a PFIC and elect to treat the PFIC as a qualified electing fund (a QEF), under the Code, in lieu of the foregoing requirements, we will be
required to include in income each year a portion of the ordinary earnings and net capital gain of the QEF, even if such income is not distributed to us. Alternatively, we can elect to mark-to-market at the end of each taxable year our shares in a PFIC; in that case, we will recognize as ordinary income any increase in the value of such shares and as ordinary loss any decrease in such value to the extent it does not exceed prior increases included in income. Under either election, we may be required to recognize in a year income in excess of our distributions from PFICs and our proceeds from dispositions of PFIC stock during that year, and such income will be taken into account for purposes of the Annual Distribution Requirement and the 4% federal excise tax. Under Section 988 of the Code, gain or loss attributable to fluctuations in exchange rates between the time we accrue income, expenses, or other liabilities denominated in a foreign currency and the time we actually collect such income or pay such expenses or liabilities is generally treated as ordinary income or loss. Similarly, gain or loss on foreign currency forward contracts and the disposition of debt denominated in a foreign currency, to the extent attributable to fluctuations in exchange rates between the acquisition and disposition dates, are also treated as ordinary income or loss.
 25    TABLE OF CONTENTS If we use leverage, we may be subject to certain financial covenants that could limit our ability to make distributions to our stockholders. In addition, under the 1940 Act, we are not permitted to make distributions to our stockholders while our debt obligations and other senior securities are outstanding unless certain asset coverage tests are met. If we are unable to make sufficient distributions to satisfy the Annual Distribution Requirement, we may fail to qualify as a RIC. Although we do not expect to do so, we will be authorized (subject to our financial covenants and 1940 Act asset coverage tests) to borrow funds and to sell assets in order to satisfy the Annual Distribution Requirement and to eliminate or minimize our liability for federal income tax and the 4% federal excise tax. However, our ability to dispose of assets to make distributions may be limited by (1) the illiquid nature of our portfolio and/or (2) other requirements relating to our status as a RIC, including the Diversification Tests. If we dispose of assets in order to meet the Annual Distribution Requirement or to avoid the
4% federal excise tax, we may make such dispositions at times that, from an investment standpoint, are not advantageous. If we fail to satisfy the Annual Distribution Requirement or otherwise fail to qualify as a RIC in any taxable year, and certain relief provisions are not available, we will be subject to tax in that year on all of our taxable income, regardless of whether we make any distributions to our stockholders. In that case, all of such income will be subject to corporate-level federal income tax, reducing the amount available to be distributed to our stockholders. See Failure To Qualify as a RIC below for more information. As a RIC, we are not allowed to carry forward or carry back a net operating loss for purposes of computing our investment company taxable income in other taxable years. We generally are permitted to carry forward for an indefinite period any capital losses not used to offset capital gains. However, future transactions that we engage in may cause our ability to use any capital loss carryforwards, and unrealized losses once realized, to be limited under Section 382 of the Code. Certain of our investment practices may be subject to special and complex federal income tax provisions that may, among other things, (i) disallow, suspend or otherwise limit the allowance of certain losses or deductions, (ii) convert lower taxed long-term capital gain and qualified dividend income into higher taxed short-term capital gain or ordinary income, (iii) convert an ordinary loss or a deduction into a capital loss (the deductibility of which is more limited), (iv) cause us to recognize income or gain without a corresponding receipt of cash, (v) adversely affect the time as to when a purchase or sale of stock or
securities is deemed to occur, (vi) adversely alter the characterization of certain complex financial transactions, and (vii) produce income that will not be qualifying income for purposes of the 90% Income Test. We will monitor our transactions and may make certain tax elections in order to mitigate the effect of these provisions. As described above, to the extent that we invest in equity securities of entities that are treated as partnerships for federal income tax purposes, the effect of such investments for purposes of the 90% Income Test and the Diversification Tests will depend on whether or not the partnership is a qualified publicly traded partnership (as defined in the Code). If the partnership is a qualified publicly traded partnership, the net income derived from such investments will be qualifying income for purposes of the 90% Income Test and will be securities for purposes of the Diversification Tests. If
the partnership, however, is not treated as a qualified publicly traded partnership, then the consequences of an investment in the partnership will depend upon the amount and type of income and assets of the partnership allocable to us. The income derived from such investments may not be qualifying income for purposes of the 90% Income Test and, therefore, could adversely affect our qualification as a RIC. We intend to monitor our investments in equity securities of entities that are treated as partnerships for federal income tax purposes to prevent our disqualification as a RIC. FAILURE TO QUALIFY AS A RIC If we fail the 90% Income Test or the Diversification Tests for any taxable year or quarter of such taxable year, we may nevertheless continue to qualify as a RIC for such year if certain relief provisions of the Code apply (which, among other things may require us to pay certain corporate-level federal taxes or to dispose of certain assets). If we are unable to qualify for treatment as a RIC and are unable to cure the failure, we would be subject to tax on all of our taxable income at regular corporate rates. We would not be able to deduct distributions to stockholders, nor would they be required to be made. In the event of
such a failure to qualify, distributions, including distributions of net long-term capital gain, would generally be taxable to our
 26    TABLE OF CONTENTS stockholders as ordinary dividend income (currently generally eligible for the 20% maximum rate in the case of U.S. individual stockholders) to the extent of our current and accumulated earnings and profits. Subject to certain limitations under the Code, corporate distributees would be eligible for the dividends received deduction. Distributions in excess of our current and accumulated earnings and profits would be treated first as a return of capital to the extent of the stockholders tax basis, and any remaining distributions would be treated as a capital gain. If we fail to qualify as a RIC for two or more taxable
years, to qualify as a RIC in a subsequent year we may be subject to regular corporate tax on any net built-in gains with respect to certain of our assets (i.e., the excess of the aggregate gains, including items of income, over aggregate losses that would have been realized with respect to such assets if we had been liquidated) that we elect to recognize on requalification or when recognized over the next ten years. REGULATION We are a business development company under the 1940 Act and have elected to be treated as a RIC under the Code. The 1940 Act contains prohibitions and restrictions relating to transactions between business development companies and their affiliates (including any investment advisors), principal underwriters and affiliates of those affiliates or underwriters and requires that a majority of the directors of a business development company be persons other than interested persons, as that term is defined in the 1940 Act. In addition, the 1940 Act provides that we may not change the nature of our business so as to
cease to be, or to withdraw our election as, a business development company unless approved by a majority of our outstanding voting securities. We may invest up to 100% of our assets in securities acquired directly from issuers in privately negotiated transactions. With respect to such securities, we may, for the purpose of public resale, be deemed an underwriter as that term is defined in the Securities Act. Our intention is to not write (sell) or buy put or call options to manage risks associated with the publicly traded securities of our portfolio companies, except that we may enter into hedging transactions to manage the risks associated with interest rate fluctuations. However, we may purchase or otherwise receive warrants to purchase the common stock
of our portfolio companies in connection with acquisition financing or other investments. Similarly, in connection with an acquisition, we may acquire rights to require the issuers of acquired securities or their affiliates to repurchase them under certain circumstances. We also do not intend to acquire securities issued by any investment company that exceed the limits imposed by the 1940 Act. Under these limits, we generally cannot acquire more than 3% of the total outstanding voting stock of any registered investment company, invest more than 5% of the value of our total assets in the securities of one investment company or invest, in the aggregate, more than 10% of the value of our total assets in the securities of more than one investment company. With regard to that portion of our portfolio invested in securities issued by investment companies, it should be noted that such investments might subject our stockholders to additional expenses. None of these policies are fundamental and
may be changed to the extent permitted by law without stockholder approval. The SBIC license allows our subsidiary, MRCC SBIC, to obtain leverage by issuing SBA-guaranteed debentures, subject to the issuance of a leverage commitment by the SBA and other customary procedures. SBA-guaranteed debentures are non-recourse, interest only debentures with interest payable semi-annually and have a ten year maturity. The principal amount of SBA-guaranteed debentures is not required to be paid prior to maturity but may be prepaid at any time without penalty. The interest rate of SBA-guaranteed debentures is fixed on a semi-annual basis (pooling date) at a market-driven spread over U.S. Treasury Notes with
10-year maturities. The SBA, as a creditor, has a superior claim to MRCC SBICs assets over our stockholders in the event we liquidate MRCC SBIC or the SBA exercises its remedies upon an event of default. As of December 31, 2016, MRCC SBIC had $41.0 million in leveragable capital and $51.5 million in SBA-guaranteed debentures outstanding. SBICs are designed to stimulate the flow of private equity capital to eligible small businesses. Under SBA regulations, SBICs may make loans to eligible small businesses and invest in the equity securities of small businesses. Under present SBA regulations, eligible small businesses include businesses that have a tangible net worth not exceeding $19.5 million and have average after tax net income not exceeding $6.5 million for the two most recent fiscal years. In addition, an SBIC must devote 25% of its investment activity to smaller concerns as defined by the SBA. A smaller concern is one that has a tangible net
worth not exceeding $6.0 million and has average after tax net income not exceeding $2.0 million for the two most
 27    TABLE OF CONTENTS recent fiscal years. SBA regulations also provide alternative size standard criteria to determine eligibility, which depends on the industry in which the business is engaged and are based on such factors as the number of employees and gross sales. According to SBA regulations, SBICs may make long-term loans to small businesses, invest in the equity securities of such businesses and provide them with consulting and advisory services. SBA regulations currently limit the amount that an individual SBIC may borrow to a maximum of $150.0 million when it has at least $75.0 million in regulatory capital, receives a leverage commitment from the SBA and has been through an audit examination by the SBA subsequent to licensing. The SBA also historically limited a related group of SBICs (commonly referred to as a family of funds) to a maximum of $225.0 million in total borrowings. On December 18, 2015, this family of funds limitation was raised to $350.0 million in total borrowings. As we have other affiliated SBICs already in operation, MRCC SBIC was
historically limited to a maximum of $40.0 million in borrowings. Pursuant to the increase in the family of funds limitation, we submitted a commitment application to the SBA and on April 13, 2016 we were approved for $75.0 million in additional SBA-guaranteed debentures for MRCC SBIC for a total of $115.0 million in available debentures. On October 2, 2014, we received exemptive relief from the SEC to permit us to exclude the debt of MRCC SBIC guaranteed by the SBA from our 200% asset coverage test under the 1940 Act. The exemptive relief provides us with increased flexibility under the 200% asset coverage test by permitting us to borrow, through MRCC SBIC, more than we would otherwise be able to absent the receipt of this exemptive relief. The SBA restricts the ability of SBICs to repurchase their capital stock. SBA regulations also include restrictions on a change of control or transfer of an SBIC and require that SBICs invest idle funds in accordance with SBA regulations. In addition, our current and any future SBIC subsidiaries may also be limited in their ability to make distributions to us if they do not have sufficient capital, in accordance with SBA regulations. MRCC SBIC is subject to regulation and oversight by the SBA, including requirements with respect to maintaining certain minimum financial ratios and other covenants. Receipt of a SBIC license does not assure that MRCC SBIC will receive SBA-guaranteed debenture funding, which is dependent upon MRCC SBICs continuing to be in compliance with SBA regulations and policies. The SBA, as a creditor, will have a superior claim to MRCC SBICs assets over our stockholders in the event we liquidate MRCC SBIC or the SBA exercises its remedies under the SBA-guaranteed debentures issued to MRCC SBIC upon an event of default. QUALIFYING ASSETS Under the 1940 Act, a business development company may not acquire any asset other than assets of the type listed in Section 55(a) of the 1940 Act, which are referred to as qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the companys total assets. The principal categories of qualifying assets relevant to our business are the following: (a)

          Securities purchased in transactions not involving any public offering from the issuer of such securities, which issuer (subject to certain limited exceptions) is an eligible portfolio company, or from any person who is, or has been during the preceding 13 months, an affiliated person of an eligible portfolio company, or from any other person, subject to such rules as may be prescribed by the SEC. An eligible portfolio company is defined in the 1940 Act as any issuer that: 

          is organized under the laws of, and has its principal place of business in, the United States; 

          is not an investment company (other than a small business investment company wholly-owned by the business development company) or a company that would be an investment company but for certain exclusions under the 1940 Act; and 

          satisfies either of the following: 

          does not have any class of securities listed on a national securities exchange or has any class of securities listed on a national securities exchange subject to a $250 million market capitalization maximum; or
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          is controlled by a business development company or a group of companies including a business development company, and such business development company actually exercises a controlling influence over the management or policies of the eligible portfolio company, and, as a result, the business development company has an affiliated person who is a director of the eligible portfolio company. (b)

          Securities of any eligible portfolio company which we control. (c)

          Securities purchased in a private transaction from a U.S. issuer that is not an investment company or from an affiliated person of the issuer, or in transactions incident to such a private transaction, if the issuer is in bankruptcy and subject to reorganization, or, if the issuer, immediately prior to the purchase of its securities, was unable to meet its obligations as they came due without material assistance other than conventional lending or financing arrangements. (d)

          Securities of an eligible portfolio company purchased from any person in a private transaction if there is no ready market for such securities and we already own 60% of the outstanding equity securities of the eligible portfolio company. (e)

          Securities received in exchange for or distributed on or with respect to securities described above, or pursuant to the exercise of warrants or rights relating to such securities. (f)

          Cash, cash equivalents, U.S. government securities or high-quality debt securities that mature in one year or less from the date of investment. The regulations defining qualifying assets may change over time. We may adjust our investment focus as needed to comply with and/or take advantage of any regulatory, legislative, administrative or judicial actions in this area. To the extent we invest in the securities of companies domiciled in or with their principal places of business outside of the United States, these investments will not be qualifying assets. In accordance with Section 55(a) of the 1940 Act, we cannot invest more than 30% of our assets in non-qualifying assets. MANAGERIAL ASSISTANCE TO PORTFOLIO COMPANIES A business development company must have been organized and have its principal place of business in the United States and must be operated for the purpose of making investments in the types of securities described in (a), (b) or (c) above. However, in order to count portfolio securities as qualifying assets for the purpose of the 70% test, a business development company must either control the issuer of securities or must offer to make available to the issuer of the securities significant managerial assistance. However, when a business development company purchases securities in conjunction with one or more other persons
acting together, one of the other persons in the group may make available such managerial assistance. Making available managerial assistance means any arrangement whereby the business development company, through its directors, officers, employees or agents offers to provide, and, if accepted, does so provide, significant guidance and counsel concerning the management, operations or business objectives and policies of a portfolio company. MC Advisors or its affiliates provide such managerial assistance on our behalf to portfolio companies that request this assistance. TEMPORARY INVESTMENTS Pending investments in other types of qualifying assets, as described above, our investments may consist of cash, cash equivalents, U.S. government securities and high-quality debt investments that mature in one year or less from the date of investment, which we refer to, collectively, as temporary investments, so that 70% of our assets are qualifying assets or temporary investments. We may invest in U.S. Treasury bills or in repurchase agreements, so long as the agreements are fully collateralized by cash or securities issued by the U.S. government or its agencies. A repurchase agreement involves the purchase by an investor,
such as us, of a specified security and the simultaneous agreement by the seller to repurchase it at an agreed-upon future date and at a price that is greater than the purchase price by an amount that reflects an agreed-upon interest rate. There is no percentage restriction on the proportion of our assets that may be invested in such repurchase agreements. However, if more than 25% of our total assets constitute repurchase agreements from a single counterparty, we would not meet the Diversification Tests in order to qualify as a RIC for federal income tax
 29    TABLE OF CONTENTS purposes. Accordingly, we do not intend to enter into repurchase agreements with a single counterparty in excess of this limit. MC Advisors monitors the creditworthiness of the counterparties with which we enter into repurchase agreement transactions. SENIOR SECURITIES We are permitted, under specified conditions, to issue multiple classes of indebtedness and one class of stock senior to our common stock if our asset coverage, as defined in the 1940 Act, is at least equal to 200% immediately after each such issuance. In addition, while any senior securities remain outstanding, we must make provisions to prohibit any distribution to our stockholders or the repurchase of such securities or shares unless we meet the applicable asset coverage ratios at the time of the distribution or repurchase. We may also borrow amounts up to 5% of the value of our total assets for temporary or emergency
purposes without regard to asset coverage. CODES OF ETHICS We and MC Advisors have each adopted a code of ethics pursuant to Rule 17j-1 under the 1940 Act that establishes procedures for personal investments and restricts certain personal securities transactions. Personnel subject to each code may invest in securities for their personal investment accounts, including securities that may be purchased or held by us, so long as such investments are made in accordance with the codes requirements. You may access our code of ethics on our website at www.monroebdc.com. The date and substance of amendments to the code, if any, are noted on the cover page of the code of ethics.
You may also read and copy the code of ethics at the SECs Public Reference Room in Washington, D.C. You may obtain information on the operation of the Public Reference Room by calling the SEC at (202) 551-8090. In addition, each code of ethics is attached as an exhibit to the registration statement of which this prospectus is a part, and is available on the EDGAR Database on the SECs website at www.sec.gov. You may also obtain copies of each code of ethics, after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov, or by writing the SECs Public Reference Section, 100 F Street, N.E., Washington, D.C. 20549. PROXY VOTING POLICIES AND PROCEDURES We have delegated our proxy voting responsibility to MC Advisors. The proxy voting policies and procedures of MC Advisors are set out below. The guidelines are reviewed periodically by MC Advisors and our directors who are not interested persons, and, accordingly, are subject to change. For purposes of these proxy voting policies and procedures described below, we, our and us refer to MC Advisors. Introduction As an investment advisor registered under the Advisers Act, we have a fiduciary duty to act solely in the best interests of our clients. As part of this duty, we recognize that we must vote client securities in a timely manner free of conflicts of interest and in the best interests of our clients. These policies and procedures for voting proxies for our investment advisory clients are intended to comply with Section 206 of, and Rule 206(4)-6 under, the Advisers Act. Proxy Policies We vote proxies relating to our portfolio securities in what we perceive to be the best interest of our clients stockholders. We review on a case-by-case basis each proposal submitted to a stockholder vote to determine its effect on the portfolio securities held by our clients. In most cases we will vote in favor of proposals that we believe are likely to increase the value of the portfolio securities held by our clients. Although we will generally vote against proposals that may have a negative effect on our clients portfolio securities, we may vote for such a proposal if there exist compelling long-term reasons
to do so. Our proxy voting decisions are made by those senior officers who are responsible for monitoring each of our clients investments. To ensure that our vote is not the product of a conflict of interest, we require that (a) anyone involved in the decision-making process disclose to our chief compliance officer any potential conflict that he or she is aware of and any contact that he or she has had with any interested party regarding a
 30    TABLE OF CONTENTS proxy vote; and (b) employees involved in the decision making process or vote administration are prohibited from revealing how we intend to vote on a proposal in order to reduce any attempted influence from interested parties. Where conflicts of interest may be present, we will disclose such conflicts to our client, including those directors who are not interested persons and we may request guidance from such persons on how to vote such proxies for their account. Proxy Voting Records You may obtain information about how we voted proxies for Monroe Capital Corporation by making a written request for proxy voting information to: Monroe Capital Corporation, 311 South Wacker Drive, Suite 6400, Chicago, Illinois 60606, Attention: Investor Relations, or by calling Monroe Capital Corporation at (312) 258-8300. The SEC also maintains a website at http://www.sec.gov that contains such information. COMPLIANCE POLICIES AND PROCEDURES We and MC Advisors have adopted and implemented written policies and procedures reasonably designed to prevent violation of federal securities laws and are required to review these compliance policies and procedures annually for their adequacy and the effectiveness of their implementation. Our chief compliance officer is responsible for administering these policies and procedures. PRIVACY PRINCIPLES We are committed to maintaining the privacy of our stockholders and to safeguarding their nonpublic personal information. The following information is provided to help you understand what personal information we collect, how we protect that information and why, in certain cases, we may share information with select other parties. Generally, we do not receive any nonpublic personal information relating to our stockholders, although certain nonpublic personal information of our stockholders may become available to us. We do not disclose any nonpublic personal information about our stockholders or former stockholders to anyone, except as permitted by law or as is necessary in order to service stockholder accounts (for example, to a transfer agent or third-party administrator). We restrict access to nonpublic personal information about our stockholders to employees of MC Advisors and its affiliates with a legitimate business need for the information. We maintain physical, electronic and procedural safeguards designed to protect the nonpublic personal information of our stockholders. OTHER We are required to provide and maintain a bond issued by a reputable fidelity insurance company to protect us against larceny and embezzlement. Furthermore, as a business development company, we are prohibited from protecting any director or officer against any liability to Monroe Capital Corporation or our stockholders arising from willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such persons office. We and MC Advisors are each required to adopt and implement written policies and procedures reasonably designed to prevent violation of relevant federal securities laws, obtain approval of the Board of these policies and procedures, review these policies and procedures annually for their adequacy and the effectiveness of their implementation and designate a chief compliance officer to be responsible for administering the policies and procedures. We may also be prohibited under the 1940 Act from knowingly participating in certain transactions with our affiliates without the prior approval of our Board who are not interested persons and, in some cases, prior approval by the SEC. The SEC has interpreted the business development company prohibition on transactions with affiliates to prohibit all joint transactions between entities that share a common investment advisor. The staff of the SEC has granted no-action relief permitting purchases of a single class of privately placed securities provided that the advisor negotiates no term other than price and certain
other conditions are met. As a result, we only expect to co-invest on a concurrent basis with other funds advised by MC Advisors when
 31    TABLE OF CONTENTS each of us will own the same securities of the issuer and when no term is negotiated other than price. Any such investment would be made in compliance with existing regulatory guidance, applicable regulations and our allocation procedures. If opportunities arise that would otherwise be appropriate for us and for another fund advised by MC Advisors to invest in different securities of the same issuer, MC Advisors will need to decide which fund will proceed with the investment. Moreover, except in certain circumstances, we are unable to invest in any issuer in which another fund advised by MC Advisors has previously invested. On October 15, 2014, we were granted an exemptive relief order that permits Monroe Capital Corporation, MC Advisors, MC Management, MRCC SBIC and other affiliates of Monroe Capital to engage in co-investment transactions that would otherwise be prohibited under the 1940 Act. Subject to certain conditions, we are now allowed to participate in negotiated investments with certain affiliated investment funds, providing our stockholders with access to a broader array of investment opportunities. POLICIES AND PROCEDURES FOR MANAGING CONFLICTS Affiliates of MC Advisors manage other assets in four closed-end funds, two small business investment companies and nine private funds that also have an investment strategy focused primarily on senior, unitranche and junior secured debt and to a lesser extent, unsecured subordinated debt to lower middle-market companies. In addition, MC Advisors manages our wholly-owned SBIC subsidiary, MRCC SBIC, as the manager of MRCC SBICs general partner, and it may manage other entities in the future with an investment focus similar to ours. To the extent that we compete with entities managed by MC Advisors or any of its affiliates
for a particular investment opportunity, MC Advisors will allocate investment opportunities across the entities for which such opportunities are appropriate, consistent with (a) its internal conflict of interest and allocation policies, (b) the requirements of the Advisers Act and (c) certain restrictions under the 1940 Act and rules thereunder regarding co-investments with affiliates. MC Advisors allocation policies are intended to ensure that we may generally share equitably with other investment funds or other investment vehicles managed by MC Advisors or its affiliates in investment opportunities, particularly those involving a security with limited supply or involving differing classes of securities of the same issuer which may be suitable for us and such other investment funds or other investment vehicles. MC Advisors and/or its affiliates may in the future sponsor or manage investment funds, accounts, or other investment vehicles with similar or overlapping investment strategies and have put in place a conflict-resolution policy that addresses the co-investment restrictions set forth under the 1940 Act. MC Advisors will seek to ensure an equitable allocation of investment opportunities when we are able to invest alongside other accounts managed by MC Advisors and its affiliates. We received exemptive relief from the SEC on October 15, 2014 that permits greater flexibility relating to co-investments, subject to certain
conditions. When we invest alongside such other accounts as permitted under the 1940 Act, pursuant to SEC staff interpretation, and by our exemptive relief from the SEC that would permit greater flexibility relating to co-investments, such investments will be made consistent with such relief and MC Advisors allocation policy. Under this allocation policy, a fixed percentage of each opportunity, which may vary based on asset class and from time to time, will be offered to us and similar eligible accounts, as periodically determined by MC Advisors and approved by our Board, including a majority of our independent directors. The allocation policy provides that allocations among us and other accounts will generally be made pro rata based on each accounts capital available for investment, as determined, in our case, by our Board, including a majority of our independent directors. It is our policy to base our determinations as to the amount of capital available for investment on
such factors as the amount of cash on hand, existing commitments and reserves, if any, the targeted leverage level, the targeted asset mix and diversification requirements and other investment policies and restrictions set by our Board, or imposed by applicable laws, rules, regulations or interpretations. We expect that these determinations will be made similarly for other accounts. In situations where co-investment with other entities sponsored or managed by MC Advisors or its affiliates is not permitted or appropriate, such as when there is an opportunity to invest in different securities of the same issuer, MC Advisors will need to decide whether we or such other entity or entities will proceed with the investment. MC Advisors will make these determinations based on its policies and procedures which will generally require that such opportunities be offered to eligible accounts on a basis that is fair and equitable over time, including, for example, through random or rotational
methods.
 32    TABLE OF CONTENTS AVAILABLE INFORMATION We intend to make this Annual Report on Form 10-K, as well as our quarterly reports on Form 10-Q, our current reports on Form 8-K and, if applicable, amendments to those reports filed or furnished pursuant to Section 13(a) of the Exchange Act, publicly available free of charge as soon as reasonably practicably following our filing of such reports with the SEC. You may read and copy any materials we file with the SEC, at the SECs Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at (202) 551-8090. We maintain a
website at www.monroebdc.com and make all of our annual, quarterly and current reports, proxy statements and other publicly filed information available, free of charge, on or through our website. Information contained on our website is not incorporated into this prospectus, and you should not consider information on our website to be part of this prospectus. You may also obtain such information by contacting us in writing at 311 South Wacker Drive, Suite 6400, Chicago, Illinois 60606, Attention: Investor Relations. The SEC maintains a website that contains reports, proxy and information statements and other information we file with the SEC at www.sec.gov. Copies of these reports, proxy and information statements and other information may also be obtained, after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov, or by writing the SECs Public Reference Section, 100 F Street, N.E., Washington, D.C. 20549.
 33    TABLE OF CONTENTS ITEM 1A. RISK FACTORS Investing in our common stock involves a number of significant risks. The risks set out below are not the only risks we face. Additional risks and uncertainties not presently known to us or not presently deemed material by us may also impair our operations and performance. If any of the following events occurs, our business, financial condition and results of operations could be materially and adversely affected. In such case, our net asset value and the trading price of our common stock could decline, and you may lose all or part of your investment. Risks Relating to Our Business and Structure We have a limited operating history as a business development company and a RIC, and MC Advisors has limited experience managing a business development company or a RIC; we may not be able to operate our business successfully or generate sufficient revenue to make or sustain distributions to our stockholders. We were incorporated in February 2011 and have a limited operating history as a stand-alone entity. Because of our limited operating history, we have limited historical results of operations on which you might otherwise rely for evaluating our business, results of operations and prospects. You should evaluate our business, results of operations and prospects in light of the risks and difficulties we may encounter, including the risk that we will not achieve our investment objective. Prior to our initial public offering in October 2012, we had not operated as a business development company or qualified to be treated as a RIC, and MC Advisors had not previously managed us or any business development company or RIC. As a result, we have limited operating results under these regulatory frameworks that can demonstrate to you either their effect on our business or our ability to manage our business under these frameworks. We are subject to the business risks and uncertainties associated with recently formed entities of these types, including the risk that we will not achieve our investment objective, or that we
will not maintain our qualification to be treated as a RIC, and that the value of your investment could decline substantially. The 1940 Act and the Code impose numerous constraints on the operations of business development companies and RICs that do not apply to other investment vehicles managed by affiliates of MC Advisors. Business development companies are required, for example, to invest at least 70% of their total assets in qualifying assets, which generally include securities of U.S. private or thinly traded public companies, cash, cash equivalents, U.S. government securities and other high-quality debt instruments that mature in one year or less from the date of investment. Any failure to comply with the requirements imposed on business
development companies by the 1940 Act could cause the SEC to bring an enforcement action against us and/or expose us to claims of private litigants. In addition, upon approval of a majority of our stockholders, we may elect to withdraw our status as a business development company. If we decide to withdraw our election, or if we otherwise fail to qualify, or maintain our qualification, as a business development company, we may be subject to the substantially greater regulation under the 1940 Act as a closed-end investment company. Compliance with such regulations would significantly decrease our operating flexibility, and could significantly increase our costs of doing business. Moreover, qualification for treatment as a RIC requires satisfaction of source-of-income, asset diversification and distribution requirements. None of us, MC Advisors or any of our or their respective affiliates has any experience operating under these constraints, which may hinder our ability to take advantage
of attractive investment opportunities and to achieve our investment objective. We depend upon MC Advisors senior management for our success, and upon its access to the investment professionals of Monroe Capital and its affiliates. We do not have any internal management capacity or employees. We depend on the investment expertise, skill and network of business contacts of the senior investment professionals of MC Advisors, who evaluate, negotiate, structure, execute, monitor and service our investments in accordance with the terms of the Investment Advisory and Management Agreement. Our success depends to a significant extent on the continued service and coordination of the senior investment professionals of MC Advisors, particularly Messrs. Koenig, Peck, Egan and VanDerMeid. These individuals may have other demands on their time now and in the future,
and we cannot assure you that they will continue to be actively involved in our
 34    TABLE OF CONTENTS management. Each of these individuals is an employee of MC Management and is not subject to an employment contract. The departure of any of these individuals or competing demands on their time in the future could have a material adverse effect on our ability to achieve our investment objective. MC Advisors evaluates, negotiates, structures, closes and monitors our investments in accordance with the terms of the Investment Advisory and Management Agreement. We can offer no assurance, however, that MC Advisors senior investment professionals will continue to provide investment advice to us. If these individuals do not maintain their existing relationships with Monroe Capital and its affiliates and do not develop new relationships with other sources of investment opportunities, we may not be able to grow our investment portfolio or achieve our investment objective. In addition, individuals with whom Monroe
Capitals senior investment professionals have relationships are not obligated to provide us with investment opportunities. Therefore, we can offer no assurance that such relationships will generate investment opportunities for us. MC Advisors, an affiliate of Monroe Capital, provides us with access to Monroe Capitals investment professionals. MC Advisors also depends upon Monroe Capital to obtain access to deal flow generated by the investment professionals of Monroe Capital and its affiliates. The Staffing Agreement provides that MC Management will make available to MC Advisors experienced investment professionals and access to the senior investment personnel of Monroe Capital for purposes of evaluating, negotiating, structuring, closing and monitoring our investments. We are not a party to this Staffing Agreement and cannot assure you that MC
Management will fulfill its obligations under the agreement. Furthermore, the Staffing Agreement may be terminated by either party without penalty upon 60 days written notice to the other party. If MC Management fails to perform or terminates the agreement, we cannot assure you that MC Advisors will enforce the Staffing Agreement or that such agreement will not be terminated by either party or that we will continue to have access to the investment professionals of Monroe Capital and its affiliates or their information and deal flow. The investment committee that oversees our investment activities is provided by MC Advisors under the Investment Advisory and Management Agreement. MC Advisors investment committee consists of Messrs. Koenig, Peck, Egan and VanDerMeid. The loss of any member of MC Advisors investment committee or of other Monroe Capital senior investment professionals would limit our ability to achieve our investment objective and operate as we anticipate. This could have a material adverse effect on our financial condition and results of operations. Our business model depends to a significant extent upon strong referral relationships with financial institutions, sponsors and investment professionals. Any inability of MC Advisors to maintain or develop these relationships, or the failure of these relationships to generate investment opportunities, could adversely affect our business. We depend upon the senior investment professionals of MC Advisors to maintain their relationships with financial institutions, sponsors and investment professionals, and we rely to a significant extent upon these relationships to provide us with potential investment opportunities. If the senior investment professionals of MC Advisors fail to maintain such relationships, or to develop new relationships with other sources of investment opportunities, we will not be able to grow our investment portfolio. In addition, individuals with whom the senior investment professionals of MC Advisors have relationships are not obligated to
provide us with investment opportunities, and, therefore, we can offer no assurance that these relationships will generate investment opportunities for us in the future. Our financial condition and results of operation depend on our ability to manage our business effectively. Our ability to achieve our investment objective and grow depends on our ability to manage our business. This depends, in turn, on MC Advisors ability to identify, invest in and monitor companies that meet our investment criteria. The achievement of our investment objectives depends upon MC Advisors execution of our investment process, its ability to provide competent, attentive and efficient services to us and, to a lesser extent, our access to financing on acceptable terms. MC Advisors has substantial responsibilities under the Investment Advisory and Management Agreement. The senior origination professionals and
other personnel of MC Advisors and its affiliates may be called upon to provide managerial assistance to our portfolio companies. These activities may distract them or slow our rate of investment. Any failure to manage our
 35    TABLE OF CONTENTS business and our future growth effectively could have a material adverse effect on our business, financial condition and results of operations and prospects. Our results of operations depend on many factors, including the availability of opportunities for investment, readily accessible short and long-term funding alternatives in the financial markets and economic conditions. Furthermore, if we cannot successfully operate our business or implement our investment policies and strategies, it could negatively impact our ability to pay dividends or other distributions and you may lose all or part of your investment. There may be conflicts related to obligations that MC Advisors senior investment professionals and members of its investment committee have to other clients. The senior investment professionals and members of the investment committee of MC Advisors serve or may serve as officers, directors or principals of entities that operate in the same or a related line of business as we do, or of investment funds, accounts or other investment vehicles sponsored or managed by MC Advisors or its affiliates. In serving in these multiple capacities, they may have obligations to other clients or investors in those entities, the fulfillment of which may not be in our best interests or in the best interest of our stockholders. For example, Messrs. Koenig, Egan and VanDerMeid have and will continue to
have, and Mr. Peck may have, management responsibilities for other investment funds, accounts or other investment vehicles sponsored or managed by affiliates of MC Advisors. In serving in these multiple capacities, they may have obligations to other clients or investors in those entities, the fulfillment of which may not be in the best interests of us or our stockholders. MC Advisors seeks to allocate investment opportunities among eligible accounts in a manner that is fair and equitable over time and consistent with its allocation policy. Affiliates of MC Advisors manage other assets in four closed-end funds, two small business investment companies and nine private funds that also have an investment strategy focused primarily on senior, unitranche and junior secured debt and, to a lesser extent, unsecured subordinated debt to lower middle-market companies. None of these funds are registered with the SEC. In addition, although we are currently the only entity managed by MC Advisors, MC Advisors and/or its affiliates may manage other entities in the future with an investment strategy that has the same or similar focus as ours. Monroe Capital and its affiliates seek to allocate investment opportunities among eligible accounts made pro rata based on each accounts capital available for investment, as determined, in our case, by our Board, including our independent directors. It is the policy of Monroe Capital and its affiliates to base the determinations as to the amount of capital available for investment on such factors as the amount of cash on hand, existing commitments and reserves, if any, the targeted leverage level, the targeted asset mix and diversification requirements and other investment policies and restrictions set by our Board, or
imposed by applicable laws, rules, regulations or interpretations. We expect that these determinations will be made similarly for other accounts. In situations where co-investment with other entities sponsored or managed by MC Advisors or its affiliates is not permitted or appropriate, such as when there is an opportunity to invest in different securities of the same issuer, MC Advisors will need to decide whether we or such other entity or entities will proceed with the investment. MC Advisors will make these determinations based on its policies and procedures which require that such opportunities be offered to eligible accounts on a basis that is fair and equitable over time, including, for example, through random or rotational methods. However, there can be no assurance that we will be able to participate in all investment opportunities that are suitable to us. MC Advisors or its investment committee may, from time to time, possess material nonpublic information, limiting our investment discretion. The managing members and the senior origination professionals of MC Advisors and the senior professionals and members of MC Advisors investment committee may serve as directors of, or in a similar capacity with, companies in which we invest, the securities of which are purchased or sold on our behalf. In the event that material nonpublic information is obtained with respect to such companies, or we become subject to trading restrictions under the internal trading policies of those companies or as a result of applicable law or regulations, we could be prohibited for a period of time from purchasing or selling the
securities of such companies, and this prohibition may have a material adverse effect on us.
 36    TABLE OF CONTENTS Our management and incentive fee structure may create incentives for MC Advisors that are not fully aligned with the interests of our stockholders. In the course of our investing activities, we pay management and incentive fees to MC Advisors. Management fees are based on our total assets (which include assets purchased with borrowed amounts but exclude cash and cash equivalents). As a result, investors in our common stock invest on a gross basis and receive distributions on a net basis after expenses, resulting in a lower rate of return than one might achieve through direct investments. Because these fees are based on our total assets, including assets purchased with borrowed amounts but excluding cash and cash equivalents, MC Advisors benefits
when we incur debt or otherwise use leverage. This fee structure may encourage MC Advisors to cause us to borrow money to finance additional investments or to maintain leverage when it would otherwise be appropriate to pay off our indebtedness. Under certain circumstances, the use of borrowed money may increase the likelihood of default, which would disfavor our stockholders. Our Board is charged with protecting our interests by monitoring how MC Advisors addresses these and other conflicts of interest associated with its management services and compensation. While our Board is not expected to review or approve each investment, our independent directors periodically review MC Advisors services and fees as well as its portfolio management decisions and portfolio performance. In connection with these reviews, our independent directors consider whether our fees and expenses (including those related to leverage) remain appropriate. As a result of this arrangement, MC Advisors or its
affiliates may from time to time have interests that differ from those of our stockholders, giving rise to a conflict. The part of the incentive fee payable to MC Advisors that relates to our net investment income is computed and paid on income that may include interest income that has been accrued but not yet received in cash. This fee structure may be considered to involve a conflict of interest for MC Advisors to the extent that it may encourage MC Advisors to favor debt financings that provide for deferred interest, rather than current cash payments of interest. MC Advisors may have an incentive to invest in PIK interest securities in circumstances where it would not have done so but for the opportunity to continue to earn the incentive
fee even when the issuers of the deferred interest securities would not be able to make actual cash payments to us on such securities. This risk could be increased because MC Advisors is not obligated to reimburse us for any incentive fees received even if we subsequently incur losses or never receive in cash the deferred income that was previously accrued. In addition, the part of the incentive fee payable to MC Advisors that relates to our net investment income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation. Any net investment income incentive fee would not be subject to repayment. Our incentive fee may induce MC Advisors to make certain investments, including speculative investments. MC Advisors receives an incentive fee based, in part, upon net capital gains realized on our investments. Unlike that portion of the incentive fee based on income, there is no hurdle rate applicable to the portion of the incentive fee based on net capital gains. As a result, MC Advisors may have a tendency to invest more capital in investments that are likely to result in capital gains as compared to income producing securities. Such a practice could result in our investing in more speculative securities than would otherwise be the case, which could result in higher investment losses, particularly during economic downturns. The Investment Advisory and Management Agreement with MC Advisors and the Administration Agreement with MC Management were not negotiated on an arms length basis and may not be as favorable to us as if they had been negotiated with an unaffiliated third-party. We negotiated the Investment Advisory and Management Agreement and the Administration Agreement with related parties. Consequently, their terms, including fees payable to MC Advisors, may not be as favorable to us as if they had been negotiated with an unaffiliated third-party. In addition, we may choose not to enforce, or to enforce less vigorously, our rights and remedies under these agreements because of our desire to maintain our ongoing relationship with MC Advisors and MC Management. Any such decision, however, would breach our fiduciary obligations to our stockholders.
 37    TABLE OF CONTENTS Our ability to enter into transactions with our affiliates is restricted, which may limit the scope of investments available to us. We are prohibited under the 1940 Act from participating in certain transactions with our affiliates without the prior approval of our independent directors and, in some cases, of the SEC. Any person that owns, directly or indirectly, five percent or more of our outstanding voting securities is our affiliate for purposes of the 1940 Act, and we are generally prohibited from buying or selling any security from or to such affiliate, absent the prior approval of our independent directors. The 1940 Act also prohibits certain joint transactions with certain of our affiliates, which could include investments in the same
portfolio company, without prior approval of our independent directors and, in some cases, of the SEC. We are prohibited from buying or selling any security from or to any person who owns more than 25% of our voting securities or certain of that persons affiliates, or entering into prohibited joint transactions with such persons, absent the prior approval of the SEC. As a result of these restrictions, we may be prohibited from buying or selling any security (other than any security of which we are the issuer) from or to any portfolio company of a private equity fund managed by MC Advisors or its affiliates without the prior approval of the SEC, which may limit the scope of investment opportunities that would otherwise be available to us. We may, however, co-invest with MC Advisors and its affiliates other clients in certain circumstances where doing so is consistent with applicable law and SEC staff interpretations. For example, we may co-invest with such accounts consistent with guidance promulgated by the SEC staff permitting us and such other accounts to purchase interests in a single class of privately placed securities so long as certain conditions are met, including that MC Advisors, acting on our behalf and on behalf of other clients, negotiates no term other than price. We may also co-invest with MC Advisors affiliates other clients
as otherwise permissible under regulatory guidance, applicable regulations, exemptive relief granted to us by the SEC on October 15, 2014 and MC Advisors allocation policy, which the investment committee of MC Advisors maintains in writing. Under this allocation policy, a fixed percentage of each opportunity, which may vary based on asset class and from time to time, is offered to us and similar eligible accounts, as periodically determined by MC Advisors and approved by our Board, including our independent directors. The allocation policy further provides that allocations among us and these other accounts are generally made pro rata based on each accounts capital available for investment, as determined, in our case, by our Board. It is our policy to base our determinations as to the amount of capital available for investment based on such factors as: the amount of cash on-hand, existing commitments and reserves, if any, the targeted leverage level, the targeted asset mix
and diversification requirements and other investment policies and restrictions set by our Board or imposed by applicable laws, rules, regulations or interpretations. We expect that these determinations will be made similarly for other accounts. However, we can offer no assurance that investment opportunities will be allocated to us fairly or equitably in the short-term or over time. In situations where co-investment with other funds managed by MC Advisors or its affiliates is not permitted or appropriate, such as when there is an opportunity to invest in different securities of the same issuer or where the different investments could be expected to result in a conflict between our interests and those of other MC Advisors clients, MC Advisors must decide which client will proceed with the investment. MC Advisors makes these determinations based on its policies and procedures, which generally require that such opportunities be offered to eligible accounts on an alternating basis that will be fair and
equitable over time. Moreover, except in certain circumstances, we are unable to invest in any issuer in which a fund managed by MC Advisors or its affiliates has previously invested. Similar restrictions limit our ability to transact business with our officers or directors or their affiliates. We may also be prohibited under the 1940 Act from knowingly participating in certain transactions with our affiliates without the prior approval of the majority of the members of our Board who are not interested persons and, in some cases, prior approval by the SEC. The SEC has interpreted the business development company regulations governing transactions with affiliates to prohibit certain joint transactions between entities that share a common investment adviser.
 38    TABLE OF CONTENTS We operate in a highly competitive market for investment opportunities, which could reduce returns and result in losses. We compete with a number of specialty and commercial finance companies to make the types of investments that we make in middle-market companies, including business development companies, traditional commercial banks, private investment funds, regional banking institutions, small business investment companies, investment banks and insurance companies. Additionally, with increased competition for investment opportunities, alternative investment vehicles such as hedge funds may seek to invest in areas they have not traditionally invested in or from which they had withdrawn during the economic downturn, including investing in
middle-market companies. As a result, competition for investments in lower middle-market companies has intensified, and we expect that trend to continue. Many of our existing and potential competitors are substantially larger and have considerably greater financial, technical and marketing resources than we do. For example, some competitors may have a lower cost of funds and access to funding sources that are not available to us. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than us. These characteristics could allow our competitors to consider a wider variety of investments, establish more relationships and offer better pricing and more flexible structuring than we offer. We may lose investment opportunities if we do not match our competitors pricing, terms and structure. If we are forced to match our competitors pricing,
terms and structure, however, we may not be able to achieve acceptable returns on our investments or may bear substantial risk of capital loss. A significant part of our competitive advantage stems from the fact that the lower middle-market is underserved by traditional commercial and investment banks, and generally has less access to capital. A significant increase in the number and/or the size of our competitors in this target market could force us to accept less attractive investment terms. Furthermore, many of our competitors are not subject to the regulatory restrictions that the 1940 Act imposes on us as a business development company or the source of income, asset diversification and distribution requirements we must satisfy to maintain our RIC status. The competitive pressures we face may have a material adverse effect on our business, financial condition and results of operations. As a result of this competition, we may not be able to take advantage of attractive investment opportunities from time to time, and we may not be able to identify and make investments that are consistent with our investment
objective. We will be subject to corporate-level federal income tax if we are unable to qualify or maintain qualification as a RIC under Subchapter M of the Code. We have elected to be treated as a RIC under Subchapter M of the Code commencing with our taxable year ended December 31, 2012 and for succeeding tax years; however, no assurance can be given that we will be able to qualify for and maintain RIC status. To qualify as a RIC under the Code and to be relieved of federal taxes on income and gains distributed to our stockholders, we must meet certain requirements, including source-of-income, asset diversification and distribution requirements. The annual distribution requirement applicable to RICs is satisfied if we distribute at least 90% of our net ordinary income and net
short-term capital gains in excess of net long-term capital losses, if any, to our stockholders on an annual basis. In addition, we will be subject to a 4% nondeductible federal excise tax to the extent that we do not satisfy certain additional minimum distribution requirements on a calendar year basis. To the extent we use debt financing, we will be subject to certain asset coverage ratio requirements under the 1940 Act and may be subject to financial covenants under loan and credit agreements, each of which could, under certain circumstances, restrict us from making annual distributions necessary to qualify as a RIC. If we are unable to obtain cash from other sources, we may fail to qualify and maintain our qualification for the tax benefits available to RICs and, thus, may be subject to corporate-level federal income tax on our entire taxable income without regard to any distributions made by us. To qualify and maintain our qualification as a RIC, we must also meet certain asset
diversification requirements at the end of each calendar quarter. Failure to meet these tests may result in our having to dispose of certain investments quickly in order to prevent the loss of RIC status. Because most of our investments will be in private or thinly traded public companies, any such dispositions could be made at disadvantageous prices and may result in substantial losses. If we fail to qualify as a RIC for any reason and become subject to corporate income tax, the resulting corporate taxes could substantially reduce our net assets, the amount of income available for distributions to stockholders and the
 39    TABLE OF CONTENTS amount of our distributions and the amount of funds available for new investments. Such a failure would have a material adverse effect on us and our stockholders. An extended disruption in the capital markets and the credit markets could negatively affect our business. As a business development company, it will be necessary for us to maintain our ability to raise additional capital for investment purposes. Without sufficient access to the capital markets or credit markets, we may be forced to curtail our business operations or we may not be able to pursue new business opportunities. The capital markets and the credit markets have experienced periods of extreme volatility and disruption and, accordingly, there has been and may in the future be uncertainty in the financial markets in general. Ongoing disruptive conditions in the financial industry and the impact of new legislation in response
to those conditions could restrict our business operations and could adversely impact our results of operations and financial condition. We access the capital markets periodically to issue debt or equity securities or borrow from financial institutions in order to obtain such additional capital. Unfavorable economic conditions could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us. A reduction in the availability of new capital could limit our ability to pursue new business opportunities and grow our business. In addition, we are required to distribute at least 90% of our net ordinary income and net short-term capital gains in excess of net long-term capital losses, if any, to our
stockholders to qualify for the tax benefits available to RICs. As a result, these earnings will not be available to fund new investments. An inability to access the capital markets successfully could limit our ability to grow our business and execute our business strategy fully and could decrease our earnings, if any, which may have an adverse effect on the value of our securities. We may need to raise additional capital to grow because we must distribute most of our income. We may need additional capital to fund new investments and grow our portfolio of investments. We intend to access the capital markets periodically to issue debt or equity securities or borrow from financial institutions in order to obtain such additional capital. Unfavorable economic conditions could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us. A reduction in the availability of new capital could limit our ability to grow. In addition, we are required to distribute at least 90% of our net ordinary income and net short-term capital gains in
excess of net long-term capital losses, if any, to our stockholders to maintain our qualification as a RIC. As a result, these earnings are not available to fund new investments. An inability to access the capital markets successfully could limit our ability to grow our business and execute our business strategy fully and could decrease our earnings, if any, which may have an adverse effect on the value of our securities. We may have difficulty paying our required distributions if we recognize income before, or without, receiving cash representing such income. For U.S. federal income tax purposes, we will include in income certain amounts that we have not yet received in cash, such as original issue discount, or through contracted PIK interest, which represents contractual interest added to the loan balance and due at the end of the loan term. Original issue discount, which could be significant relative to our overall investment activities, or increases in loan balances as a result of contracted PIK arrangements, will be included in income before we receive any corresponding cash payments. We also may be required to include in income certain other amounts that we will not receive in
cash. That part of the incentive fee payable by us that relates to our net investment income is computed and paid on income that may include interest that has been accrued but not yet received in cash, such as original issue discount and PIK interest. If we pay a net investment income incentive fee on interest that has been accrued, but not yet received in cash, it will increase the basis of our investment in that loan, which will reduce the capital gain incentive fee that we would otherwise pay in the future. Nevertheless, if we pay a net investment income incentive fee on interest that has been accrued but not yet received, and if
that portfolio company defaults on such a loan, it is possible that accrued interest previously included in the calculation of the incentive fee will become uncollectible.
 40    TABLE OF CONTENTS Because we may recognize income before or without receiving cash representing such income, we may have difficulty meeting the requirements applicable to RICs. In such a case, we may have to sell some of our investments at times and/or at prices we would not consider advantageous, raise additional debt or equity capital or reduce new investment originations and sourcings to meet these distribution requirements. If we are not able to obtain such cash from other sources, we may fail to qualify for the tax benefits available to RICs and thus be subject to corporate-level income tax. Regulations governing our operation as a business development company affect our ability to and the way in which we raise additional capital. We may issue debt securities or preferred stock and/or borrow money from banks or other financial institutions, which we refer to collectively as senior securities, up to the maximum amount permitted by the 1940 Act. Under the provisions of the 1940 Act, we are permitted as a business development company to issue senior securities in amounts such that our asset coverage ratio, as defined in the 1940 Act, equals at least 200% of total assets less all liabilities and indebtedness not represented by senior securities, immediately after each issuance of senior securities. If the value of our assets declines, we may be
unable to satisfy this test. If that happens, we may be required to sell a portion of our investments and, depending on the nature of our leverage, repay a portion of our indebtedness at a time when such sales may be disadvantageous. In addition, issuance of securities could dilute the percentage ownership of our current stockholders in us. No person or entity from which we borrow money will have a veto power or a vote in approving or changing any of our fundamental policies. If we issue preferred stock, the preferred stock would rank senior to common stock in our capital structure, preferred stockholders would have separate voting rights on certain matters and might have other rights, preferences or privileges more favorable than those of our common stockholders, and the issuance of preferred stock could have the effect of delaying, deferring or preventing a transaction or a change of control that might involve a premium price for holders of our
common stock or otherwise be in your best interest. Holders of our common stock will directly or indirectly bear all of the costs associated with offering and servicing any preferred stock that we issue. In addition, any interests of preferred stockholders may not necessarily align with the interests of holders of our common stock and the rights of holders of shares of preferred stock to receive dividends would be senior to those of holders of shares of our common stock. As a business development company, we generally are not able to issue our common stock at a price below net asset value per share without first obtaining the approval of our stockholders and our independent directors. If we raise additional funds by issuing more common stock or senior securities convertible into, or exchangeable for, our common stock, then percentage ownership of our stockholders at that time would decrease, and you might experience dilution. We have stockholder approval to sell our common stock below net asset value through July 14, 2017. We may seek further stockholder approval to sell shares below net asset
value in the future. We maintain a revolving credit facility and may use other borrowed funds to make investments or fund our business operations, which exposes us to risks typically associated with leverage and increases the risk of investing in us. We maintain a revolving credit facility and may borrow money, including through the issuance of debt securities or preferred stock, to leverage our capital structure, which is generally considered a speculative investment technique. As a result: 

          our common stock is exposed to an increased risk of loss because a decrease in the value of our investments would have a greater negative impact on the value of our common stock than if we did not use leverage; 

          if we do not appropriately match the assets and liabilities of our business, adverse changes in interest rates could reduce or eliminate the incremental income we make with the proceeds of any leverage; 

          our ability to pay distributions on our common stock may be restricted if our asset coverage ratio, as provided in the 1940 Act, is not at least 200% and any amounts used to service indebtedness or preferred stock would not be available for such distributions;
 41    TABLE OF CONTENTS 

          any credit facility is subject to periodic renewal by its lenders, whose continued participation cannot be guaranteed; 

          our revolving credit facility with ING Capital LLC, as agent, is, and any other credit facility we may enter into would be, subject to various financial and operating covenants, including that our portfolio of investments satisfies certain eligibility and concentration limits as well as valuation methodologies; 

          such securities would be governed by an indenture or other instrument containing covenants restricting our operating flexibility; and 

          we bear the cost of issuing and paying interest or distributions on such securities, which costs are entirely borne by our common stockholders. The following table illustrates the effect of leverage on returns from an investment in our common stock assuming various annual returns, net of expenses. The calculations in the table below are hypothetical and actual returns may be higher or lower than those appearing in the table below.  Assumed Return on Our Portfolio (Net of Expenses)(1)-10%

          

          -5%

          

          0%

          

          5%

          

          10%Corresponding return to common stockholder(2)

          

          

          -20.34

          %

          

          

          -11.52

          %

          

          

          -2.70

          %

          

          

          6.11

          %

          

          

          14.93

          %
  (1)

          The assumed return on our portfolio is required by regulation of the SEC and is not a prediction of, and does not represent, our projected or actual performance. (2)

          Assumes $425.0 million in total assets, $184.0 million in debt outstanding, $241.0 million in net assets and an average cost of funds of 3.5%, which was the weighted average interest rate of borrowings on our revolving credit facility and SBA-guaranteed debentures as of December 31, 2016. The interest rate on our revolving credit facility is a variable rate. We are subject to risks associated with our revolving credit facility. Our revolving credit facility, as amended, imposes certain conditions that may limit the amount of our distributions to stockholders. Distributions payable in our common stock under our dividend reinvestment plan are not limited by the revolving credit facility. Distributions in cash or property other than our common stock are generally limited to 115% of the amount of distributions required to maintain our status as a RIC. We are required under the revolving credit facility to maintain our status as a RIC. The revolving credit facility requires us to comply with certain financial and operational covenants, including asset and interest coverage ratios, a minimum net worth and minimum number of portfolio investments. For example, the revolving credit facility requires that we maintain an asset coverage ratio of at least 2.10 to 1 at all times and a consolidated interest coverage ratio of at least 2.50 to 1 as of the last day of any fiscal quarter. We may divert cash to pay the lenders in amounts sufficient to cause these tests to be satisfied. Our compliance with these covenants depends on many factors, some of which, such as
market conditions, are beyond our control. Our ability to sell our investments is also limited under the revolving credit facility. Under the revolving credit facility, the sale of any portfolio investment may not cause our covered debt amount to exceed our borrowing base. As a result, there may be times or circumstances during which we are unable to sell investments, pay distributions or take other actions that might be in our best interests. Availability of borrowings under the revolving credit facility is linked to the valuation of the collateral pursuant to a borrowing base mechanism. As such, declines in the fair market value of our investments which are collateral to the revolving credit facility may reduce availability under our revolving credit facility. To the extent we use debt to finance our investments, changes in interest rates will affect our cost of capital and net investment income. To the extent we borrow money to make investments, our net investment income depends, in part, upon the difference between the rate at which we borrow funds and the rate at which we invest those funds. As a result, we can offer no assurance that a significant change in market interest rates will not have a material
 42    TABLE OF CONTENTS adverse effect on our net investment income in the event we use debt to finance our investments. In periods of rising interest rates, our cost of funds would increase, which could reduce our net investment income. We expect that our long-term fixed-rate investments will be financed primarily with issuances of equity and long-term debt securities. We may use interest rate risk management techniques in an effort to limit our exposure to interest rate fluctuations. Such techniques may include various interest rate hedging activities to the extent permitted by the 1940 Act. You should also be aware that a rise in the general level of interest rates typically leads to higher interest rates applicable to our debt investments. Accordingly, an increase in interest rates may result in an increase of the amount of incentive fees payable to MC Advisors. We are exposed to risks associated with changes in interest rates. Interest rate fluctuations may have a substantial negative impact on our investments, the value of our common stock and our rate of return on invested capital. A reduction in the interest rates on new investments relative to interest rates on current investments could have an adverse impact on our net investment income while an increase in interest rates could decrease the value of any investments we hold which earn fixed interest rates and increase our interest expense, thereby decreasing our net income. An increase in interest rates available to investors could also make investment in our common stock less attractive unless
we are able to increase our dividend rate. In addition, a significant increase in market interest rates could also result in an increase in our non-performing assets and a decrease in the value of our portfolio because our floating-rate loan portfolio companies may be unable to meet higher payment obligations. MRCC SBIC is subject to SBA regulations. Under current SBA regulations, a licensed SBIC can invest in entities that have a tangible net worth not exceeding $19.5 million and an average annual net income after U.S. federal income taxes not exceeding $6.5 million for the two most recent fiscal years. In addition, a licensed SBIC must invest 25.0% of its capital in those entities that have a tangible net worth not exceeding $6.0 million and an average annual net income after U.S. federal income taxes not exceeding $2.0 million for the two most recent fiscal years. The SBA regulations also provide alternative size standard criteria to determine eligibility, which depend
on the industry in which the business is engaged and are based on either the number of employees or the gross sales. The SBA regulations permit licensed SBICs to make long term loans to small businesses, invest in the equity securities of such businesses and provide them with consulting and advisory services. The SBA also places certain limitations on the financing terms of investments by SBICs in portfolio companies and prohibits SBICs from providing funds for certain purposes or to businesses in certain prohibited industries. Further, the SBA regulations require that a licensed SBIC be periodically examined and audited by the SBA staff to determine its compliance with the relevant SBA regulations. Compliance with these SBA requirements may cause MRCC SBIC to forego attractive investment opportunities that are not permitted under the SBA regulations, and may cause MRCC SBIC to make investments it otherwise would not make in order to remain in compliance with these regulations. Failure to comply with the SBA regulations could result in the loss of the SBIC license and the resulting inability to participate in the SBA debenture program. The SBA prohibits, without prior SBA approval, a change of control of an SBIC or transfers that would result in any person (or a group of persons acting in concert) owning 10.0% or more of a class of capital stock of a licensed SBIC. Current SBA regulations provide the SBA with certain rights and remedies if an SBIC violates their terms. Remedies for regulatory violations are graduated in severity depending on the seriousness of capital impairment or other
regulatory violations. For minor regulatory infractions, the SBA issues a warning. For more serious infractions, the use of SBA debentures may be limited or prohibited, outstanding debentures can be declared to be immediately due and payable, restrictions on distributions and making new investments may be imposed and management fees may be required to be reduced. In severe cases, the SBA may require the removal of a general partner of an SBIC or its officers, directors, managers or partners, or the SBA may obtain appointment of a receiver for the SBIC.
 43    TABLE OF CONTENTS SBA regulations limit the amount that may be borrowed from the SBA by an SBIC. The SBA regulations currently limit the amount that is available to be borrowed by any SBIC and guaranteed by the SBA to 300.0% of an SBICs regulatory capital or $150.0 million, whichever is less. For two or more SBICs under common control (commonly referred to as a family of funds), the maximum amount of outstanding SBA debentures cannot exceed $350.0 million (prior to December 18, 2015, this limitation was $225.0 million). As we have other affiliated SBICs in operation, MRCC SBIC was historically limited to a maximum of $40.0 million in borrowings. Pursuant to the increase in the family of funds limitation,
we submitted a commitment application to the SBA and on April 13, 2016 we were approved for $75.0 million in additional SBA-guaranteed debentures for MRCC SBIC for a total of $115.0 million in available debentures. If MRCC SBIC borrows the maximum amount from the SBA and thereafter requires additional capital, our cost of capital may increase, and there is no assurance that we will be able to obtain additional financing on acceptable terms. Moreover, there can be no assurance that MRCC SBIC will continue to receive SBA debenture funding. Receipt of SBA debenture funding depends upon an SBICs continued compliance with SBA regulations and policies and the availability of funding. The amount of SBA debenture funding available to SBICs depends upon annual Congressional authorizations and in the future may be subject to annual Congressional appropriations. There can be no assurance that there will be sufficient SBA debenture funding available at the times desired by MRCC SBIC. The debentures issued by MRCC SBIC to the SBA have a maturity of ten years and bear interest semi-annually at fixed rates. MRCC SBIC will need to generate sufficient cash flow to make required debt payments to the SBA. If MRCC SBIC is unable to generate such cash flow, the SBA, as a debt holder, will have a superior claim to our assets over our stockholders in the event it liquidates or the SBA exercises its remedies under such debentures as the result of a default by MRCC SBIC. MRCC SBIC, as an SBIC, is limited in its ability to make distributions to us, which could result in us being unable to meet the minimum distribution requirements to maintain our status as a RIC. In order to maintain our status as a RIC, we are required to distribute to our stockholders on an annual basis 90.0% of our net ordinary income and net short-term capital gains in excess of net long-term capital losses. For this purpose, our taxable income includes the income of MRCC SBIC (and any other entities that are disregarded as separate from us for U.S. federal income tax purposes). MRCC SBICs ability to make distributions to us may be limited by the Small Business Investment Act of 1958. As a result, in order to maintain our status as a RIC, we may be required to make distributions attributable to MRCC
SBICs income without receiving any corresponding cash distributions from it with respect to such income. We can make no assurances that MRCC SBIC will be able to make, or not be limited in making, distributions to us. If we are unable to satisfy the annual distribution requirements, we may fail to maintain our status as a RIC, which would result in the imposition of corporate-level U.S. federal income tax on our entire taxable income without regard to any distributions made by us. If we do not invest a sufficient portion of our assets in qualifying assets, we could fail to qualify as a business development company, which would have a material adverse effect on our business, financial condition and results of operations. As a business development company, we may not acquire any assets other than qualifying assets unless, at the time of and after giving effect to such acquisition, at least 70% of our total assets are qualifying assets. See Regulation  Qualifying Assets. We believe that most of the investments that we may acquire in the future will constitute qualifying assets. However, we may be precluded from investing in what we believe are attractive investments if such investments are not qualifying assets for purposes of the 1940 Act. If we do not invest a sufficient portion of our assets in
qualifying assets, we could violate the 1940 Act provisions applicable to business development companies. As a result of such violation, specific rules under the 1940 Act could prevent us, for example, from making follow-on investments in existing portfolio companies which could result in the dilution of our position or could require us to dispose of investments at inappropriate times in order to come into compliance with the 1940 Act. If we need to dispose of such investments quickly, it could be difficult to dispose of such investments on favorable terms. We may not be
 44    TABLE OF CONTENTS able to find a buyer for such investments and, even if we do find a buyer, we may have to sell the investments at a substantial loss. Any such outcomes would have a material adverse effect on our business, financial condition, results of operations, and cash flows. Many of our portfolio investments are recorded at fair value as determined in good faith by our Board and, as a result, there may be uncertainty as to the value of our portfolio investments. Under the 1940 Act, we are required to carry our portfolio investments at market value or if there is no readily available market value, at fair value as determined by our Board. Many of our portfolio investments may take the form of securities that are not publicly traded. The fair value of securities and other investments that are not publicly traded may not be readily determinable, and we value these securities at fair value as determined in good faith by our Board, including to reflect significant events affecting the value of our securities. As part of the valuation process, we may take into account the following types of
factors, if relevant, in determining the fair value of our investments: 

          a comparison of the portfolio companys securities to publicly traded securities; 

          the enterprise value of a portfolio company; 

          the nature and realizable value of any collateral; 

          the portfolio companys ability to make payments and its earnings and discounted cash flow; 

          the markets in which the portfolio company does business; and 

          changes in the interest rate environment and the credit markets generally that may affect the price at which similar investments may be made in the future and other relevant factors. We expect that most of our investments (other than cash and cash equivalents) will be classified as Level 3 in the fair value hierarchy and require disclosures about the level of disaggregation along with the inputs and valuation techniques we use to measure fair value. This means that our portfolio valuations are based on unobservable inputs and our own assumptions about how market participants would price the asset or liability in question. Inputs into the determination of fair value of our portfolio investments require significant management judgment or estimation. Even if observable market data is available, such
information may be the result of consensus pricing information or broker quotes, which include a disclaimer that the broker would not be held to such a price in an actual transaction. The non-binding nature of consensus pricing and/or quotes accompanied by disclaimers materially reduces the reliability of such information. We employ the services of one or more independent service providers to review the valuation of these securities. The types of factors that the Board may take into account in determining the fair value of our investments generally include, as appropriate, comparison to publicly traded securities including such factors as yield, maturity and measures of credit quality, the enterprise value of a portfolio company, the nature and realizable value of any collateral, the portfolio companys ability to make payments and its earnings and discounted cash flow, the markets in which the portfolio company does business and other relevant factors. Because such valuations,
and particularly valuations of private securities and private companies, are inherently uncertain, may fluctuate over short periods of time and may be based on estimates, our determinations of fair value may differ materially from the values that would have been used if a ready market for these securities existed. Due to this uncertainty in the value of our portfolio investments, a fair value determination may cause net asset value on a given date to materially understate or overstate the value that we may ultimately realize upon one or more of our investments. As a result, investors purchasing shares of our common stock based on an overstated net asset value would pay a higher price than the value of the investments might warrant. Conversely, investors selling shares during a period in which the net asset value understates the value of investments will receive a lower price for their shares than the value the investment portfolio might warrant. We adjust quarterly the valuation of our portfolio to reflect the determination of our Board of the fair value of each investment in our portfolio. Any changes in fair value are recorded in our consolidated statements of operations as net change in unrealized appreciation (depreciation) on investments.
 45    TABLE OF CONTENTS We may experience fluctuations in our quarterly operating results. We could experience fluctuations in our quarterly operating results due to a number of factors, including our ability or inability to make investments in companies that meet our investment criteria, the interest rate payable on the debt securities we acquire, the default rate on such securities, the level of our expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in our markets and general economic conditions. As a result of these factors, results for any period should not be relied upon as being indicative of performance in future
periods. Changes in laws or regulations governing our operations may adversely affect our business or cause us to alter our business strategy. We and our portfolio companies are subject to regulation at the local, state and federal level. New legislation may be enacted or new interpretations, rulings or regulations could be adopted, including those governing the types of investments we or our portfolio companies are permitted to make, any of which could have a material adverse effect on our business. In particular, on July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, became law. The scope of the Dodd-Frank Act impacts many aspects of the financial services industry, and it required the development and adoption of
many implementing regulations. President Trump has indicated that he may seek to amend or repeal portions of the Dodd-Frank Act, among other federal laws, which may create regulatory uncertainty in the near term. The Dodd-Frank Act, including future changes to the rules implementing its provisions and the interpretation of those rules, along with other legislative and regulatory proposals directed at the financial services industry or affecting taxation that are proposed or pending in the U.S. Congress, may negatively impact the operations, cash flows or financial condition of us or our portfolio companies, impose additional costs on us or our portfolio companies, intensify the regulatory supervision of us or our portfolio companies or otherwise adversely affect our business or the business of our portfolio companies. In addition, if we do not comply with applicable laws and regulations, we could lose any licenses that we then hold for the conduct of our business and may be subject to
civil fines and criminal penalties. Additionally, changes to the laws and regulations governing our operations, including those associated with RICs, may cause us to alter our investment strategy in order to avail ourselves of new or different opportunities or result in the imposition of corporate-level taxes on us. Such changes could result in material differences to the strategies and plans set forth herein and may shift our investment focus from the areas of expertise of MC Advisors to other types of investments in which MC Advisors may have little or no expertise or experience. Any such changes, if they occur, could have a material adverse effect on our
results of operations and the value of your investment. Over the last several years, there also has been an increase in regulatory attention to the extension of credit outside of the traditional banking sector, raising the possibility that some portion of the non-bank financial sector will be subject to new regulation. While it cannot be known at this time whether any regulation will be implemented or what form it will take, increased regulation of non-bank credit extension could negatively impact our operations, cash flows or financial condition, impose additional costs on us, intensify the regulatory supervision of us or otherwise adversely affect our business, financial
condition and results of operations. Our Board may change our investment objective, operating policies and strategies without prior notice or stockholder approval, the effects of which may be adverse. Our Board has the authority, except as otherwise prohibited by the 1940 Act, to modify or waive certain of our operating policies and strategies without prior notice and without stockholder approval. However, absent stockholder approval, we may not change the nature of our business so as to cease to be, or withdraw our election as, a business development company. Under Maryland law, we also cannot be dissolved without prior stockholder approval except by judicial action. We cannot predict the effect any changes to our current operating policies and strategies would have on our business, operating results and the price value of
our common stock. Nevertheless, any such changes could adversely affect our business and impair our ability to make distributions.
 46    TABLE OF CONTENTS MC Advisors can resign on 60 days notice, and we may not be able to find a suitable replacement within that time, resulting in a disruption in our operations that could adversely affect our financial condition, business and results of operations. MC Advisors has the right to resign under the Investment Advisory and Management Agreement without penalty at any time upon 60 days written notice to us, whether we have found a replacement or not. If MC Advisors resigns, we may not be able to find a new investment advisor or hire internal management with similar expertise and ability to provide the same or equivalent services on acceptable terms within 60 days, or at all. If we are unable to do so quickly, our operations are likely to experience a disruption, our financial condition, business and results of operations as well as our ability to pay distributions are
likely to be adversely affected and the market price of our shares may decline. In addition, the coordination of our internal management and investment activities is likely to suffer if we are unable to identify and reach an agreement with a single institution or group of executives having the expertise possessed by MC Advisors and its affiliates. Even if we were able to retain comparable management, whether internal or external, the integration of such management and their lack of familiarity with our investment objective may result in additional costs and time delays that may adversely affect our financial condition, business and results of operations. MC Management can resign on 60 days notice from its role as our administrator under the Administration Agreement, and we may not be able to find a suitable replacement within that time, resulting in a disruption in our operations that could adversely affect our financial condition, business and results of operations. MC Management has the right to resign under the Administration Agreement without penalty upon 60 days written notice to us, whether we have found a replacement or not. If MC Management resigns, we may not be able to find a new administrator or hire internal management with similar expertise and ability to provide the same or equivalent services on acceptable terms, or at all. If we are unable to do so quickly, our operations are likely to experience a disruption, our financial condition, business and results of operations as well as our ability to pay distributions are likely to be adversely affected and the market price
of our shares may decline. In addition, the coordination of our internal management and administrative activities is likely to suffer if we are unable to identify and reach an agreement with a service provider or individuals with the expertise possessed by MC Management. Even if we were able to retain a comparable service provider or individuals to perform such services, whether internal or external, their integration into our business and lack of familiarity with our investment objective may result in additional costs and time delays that may adversely affect our financial condition, business and results of operations. We are an emerging growth company, and we do not know if such status will make our common stock less attractive to investors. We currently are, and expect to remain, an emerging growth company, as defined in the Jumpstart Our Business Startups Act, or the JOBS Act, signed into law on April 5, 2012, until the earliest of: 

          the last day of our fiscal year ending December 31, 2017; 

          the year in which our total annual gross revenues first exceed $1.0 billion; 

          the date on which we have, during the prior three-year period, issued more than $1.0 billion in non-convertible debt; and 

          the last day of a fiscal year in which we (1) have an aggregate worldwide market value of our common stock held by non-affiliates of $700 million or more, computed at the end of each fiscal year as of the last business day of our most recently completed second fiscal quarter, and (2) have been an Exchange Act reporting company for at least one year (and filed at least one annual report under the Exchange Act). We currently take advantage of some or all of the reduced regulatory and disclosure requirements permitted by the JOBS Act and, as a result, some investors may consider our common stock less attractive, which could reduce the market value of our common stock. For example, while we are an emerging growth company, we will take advantage of exemption from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that our independent registered public accounting firm provide an attestation
 47    TABLE OF CONTENTS report on the effectiveness of our internal control over financial reporting and the extended transition period available to emerging growth companies to comply with new or revised accounting standards until those standards are applicable to private companies. As a result, our consolidated financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies. This may increase the risk that material weaknesses or other deficiencies in our internal control over financial
reporting go undetected. Efforts to comply with the Sarbanes-Oxley Act involve significant expenditures, and non-compliance with the Sarbanes-Oxley Act may adversely affect us and the market price of our common stock. As a publicly traded company, we incur legal, accounting and other expenses, including costs associated with the periodic reporting requirements applicable to a company whose securities are registered under the Exchange Act, as well as additional corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and other rules implemented by the SEC. We are subject to the Sarbanes-Oxley Act, and the related rules and regulations promulgated by the SEC. Under current SEC rules, our management is required to report on its internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act and rules and regulations of the SEC thereunder. We are required to review on an annual basis our internal controls over financial reporting, and on a quarterly and annual basis to evaluate and disclose changes in our internal controls over financial reporting. As a result, we expect to continue to incur associated expenses, which may negatively impact our financial
performance and our ability to make distributions. This process also will result in a diversion of our managements time and attention. We cannot be certain as to the timing of completion of our evaluation, testing and remediation actions or the impact of the same on our operations and may not be able to ensure that the process is effective or that the internal controls are or will be effective in a timely manner. There can be no assurance that our quarterly reviews and annual audits will not identify additional material weaknesses. In the event that we are unable to maintain or achieve compliance with the Sarbanes-Oxley Act and related rules, our value and results of operations may be adversely affected. As a result, we expect to incur significant associated expenses, which may negatively impact our financial performance and our ability to make distributions. As an emerging growth company, we are following certain permitted corporate governance practices instead of the otherwise applicable SEC and NASDAQ requirements, which may result in less protection than is accorded to investors in a non-emerging growth company. As an emerging growth company, we are permitted and intend to follow certain permitted corporate governance practices instead of those otherwise required by the SEC and under the listing requirements of the NASDAQ Global Select Market. Following our emerging growth company governance practices as opposed to the requirements that would otherwise apply to a company listed on the NASDAQ Global Select Market may provide less protection to you than what is accorded to investors under the Listing Rules of the NASDAQ Stock Market applicable to non-emerging growth company issuers. The failure in cyber security systems, as well as the occurrence of events unanticipated in our disaster recovery systems and management continuity planning, could impair our ability to conduct business effectively. The occurrence of a disaster such as a cyber-attack, a natural catastrophe, an industrial accident, a terrorist attack or war, events unanticipated in our disaster recovery systems, or a support failure from external providers, could have an adverse effect on our ability to conduct business and on our results of operations and financial condition, particularly if those events affect our computer-based data processing, transmission, storage, and retrieval systems or destroy data. If a significant number of our managers were unavailable in the event of a disaster, our ability to effectively conduct our business could be severely
compromised. We depend heavily upon computer systems to perform necessary business functions. Despite our implementation of a variety of security measures, our computer systems could be subject to cyber-attacks and unauthorized access, such as physical and electronic break-ins or unauthorized tampering. Like other companies, we may experience threats to our data and systems, including malware and computer virus attacks, unauthorized access, system failures and disruptions. If one or more of these events occurs, it could
 48    TABLE OF CONTENTS potentially jeopardize the confidential, proprietary and other information processed and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions or malfunctions in our operations, which could result in damage to our reputation, financial losses, litigation, increased costs, regulatory penalties and/or customer dissatisfaction or loss. We may incur lender liability as a result of our lending activities. In recent years, a number of judicial decisions have upheld the right of borrowers and others to sue lending institutions on the basis of various evolving legal theories, collectively termed lender liability. Generally, lender liability is founded on the premise that a lender has either violated a duty, whether implied or contractual, of good faith and fair dealing owed to the borrower or has assumed a degree of control over the borrower resulting in the creation of a fiduciary duty owed to the borrower or its other creditors or stockholders. We may be subject to allegations of lender liability, which could be
time-consuming and expensive to defend and result in significant liability. We may incur liability as a result of providing managerial assistance to our portfolio companies. In the course of providing significant managerial assistance to certain portfolio companies, certain of our management and directors may serve as directors on the boards of such companies. To the extent that litigation arises out of investments in these companies, our management and directors may be named as defendants in such litigation, which could result in an expenditure of our funds, through our indemnification of such officers and directors, and the diversion of management time and resources. MC Advisors may not be able to achieve the same or similar returns as those achieved by our senior management and investment teams while they were employed at prior positions. The track record and achievements of the senior investment professionals of Monroe Capital are not necessarily indicative of future results that will be achieved by MC Advisors. As a result, MC Advisors may not be able to achieve the same or similar returns as those achieved by the senior investment professionals of Monroe Capital. Risks Related to Our Investments Economic recessions or downturns could impair our portfolio companies and harm our operating results. Many of our portfolio companies are susceptible to economic slowdowns or recessions and may be unable to repay our loans during these periods. Therefore, our non-performing assets are likely to increase and the value of our portfolio is likely to decrease during these periods. Adverse economic conditions may decrease the value of collateral securing some of our loans and the value of our equity investments and could lead to financial losses in our portfolio and a corresponding decrease in revenues, net income and assets. Unfavorable economic conditions also could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us. These events could prevent us from increasing our investments and harm our operating results. A portfolio companys failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially, acceleration of its loans and foreclosure on its assets, which could trigger cross-defaults under other agreements and jeopardize our portfolio companys ability to meet its obligations under the debt securities that we hold. We may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms with a defaulting portfolio company. It is possible that we could become subject to a lender liability claim, including as a result of actions taken
if we or MC Advisors render significant managerial assistance to the borrower. Furthermore, if one of our portfolio companies were to file for bankruptcy protection, even though we may have structured our investment as senior secured debt, depending on the facts and circumstances, including the extent to which we or MC Advisors provided managerial assistance to that portfolio company or otherwise exercise control over it, a bankruptcy court might re-characterize our debt as a form of equity and subordinate all or a portion of our claim to claims of other creditors.
 49    TABLE OF CONTENTS Current market conditions have materially and adversely affected debt and equity capital markets in the United States and around the world. In the past, the global capital markets experienced periods of disruption resulting in increasing spreads between the yields realized on riskier debt securities and those realized on securities perceived as being risk-free and a lack of liquidity in parts of the debt capital markets, significant write-offs in the financial services sector relating to subprime mortgages and the re-pricing of credit risk in the broadly syndicated market. These events, along with the deterioration of the housing market, illiquid market conditions, declining business and consumer confidence and the failure of major financial institutions in the
United States, led to a general decline in economic conditions. This economic decline materially and adversely affected the broader financial and credit markets and reduced the availability of debt and equity capital for the market as a whole and to financial firms in particular. If such a period of disruption were to occur in the future, to the extent that we wish to use debt to fund our investments, the debt capital that will be available to us, if at all, may be at a higher cost, and on terms and conditions that may be less favorable, than what we expect, which could negatively affect our financial performance and results. A prolonged period of market illiquidity may cause us to reduce the volume of loans we originate and/or fund below historical levels and adversely affect the value of our portfolio investments, which could have a material and adverse effect on our business, financial condition, and results of operations. The spread between the yields realized on riskier debt
securities and those realized on securities perceived as being risk-free has remained narrow on a relative basis recently. If these spreads were to widen or if there were deterioration of market conditions, these events could materially and adversely affect our business. Our investments in leveraged portfolio companies may be risky, and you could lose all or part of your investment. Investment in leveraged companies involves a number of significant risks. Leveraged companies, including lower middle-market companies, in which we invest may have limited financial resources and may be unable to meet their obligations under their debt securities that we hold. Such developments may be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of our realizing any guarantees that we may have obtained in connection with our investment. In addition, our junior secured loans are generally subordinated to senior loans. As such, other creditors may rank senior to us in the event
of an insolvency. Our portfolio companies will likely consist primarily of lower middle-market, privately owned companies, which may present a greater risk of loss than loans to larger companies. Our portfolio consists, and will most likely continue to consist, primarily of loans to lower middle-market, privately owned companies. Compared to larger, publicly traded firms, these companies generally have more limited access to capital and higher funding costs, may be in a weaker financial position and may need more capital to expand, compete and operate their business. In addition, many of these companies may be unable to obtain financing from public capital markets or from traditional sources, such as commercial banks. Accordingly, loans made to these types of borrowers may entail higher risks than loans made to
companies that have larger businesses, greater financial resources or are otherwise able to access traditional credit sources on more attractive terms. Investing in lower middle-market companies involves a number of significant risks, including that lower middle-market companies: 

          may have shorter operating histories, narrower product lines and smaller market shares than larger businesses, which tend to render them more vulnerable to competitors actions and market conditions, as well as general economic downturns; 

          are more likely to depend on the management talents and efforts of a small group of persons; therefore, the death, disability, resignation or termination of one or more of these persons could have a material adverse impact on our portfolio company and, in turn, on us; 

          typically have more limited access to the capital markets, which may hinder their ability to refinance borrowings;
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          will be unable to refinance or repay at maturity the unamortized loan balance as we structure our loans such that a significant balance remains due at maturity; 

          generally have less predictable operating results, may be particularly vulnerable to changes in customer preferences or market conditions, depend on one or a limited number of major customers, may from time to time be parties to litigation, may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence, and may require substantial additional capital to support their operations, finance expansion or maintain their competitive position; and 

          generally have less publicly available information about their businesses, operations and financial condition. If we are unable to uncover all material information about these companies, we may not make a fully informed investment decision, and may lose all or part of our investment. Any of these factors or changes thereto could impair a portfolio companys financial condition, results of operation, cash flow or result in other adverse events, such as bankruptcy, any of which could limit a portfolio companys ability to make scheduled payments on loans from us. This, in turn, may lead to their inability to make payments on outstanding borrowings, which could result in losses in our loan portfolio and a decrease in our net interest income and book value. Loans may become nonperforming for a variety of reasons. A nonperforming loan may require substantial debt work-out negotiations or restructuring that may entail a substantial reduction in the interest rate and/or a substantial write-down of the principal of such loan. Because of the unique and customized nature of a loan agreement and the private syndication of a loan, certain loans may not be purchased or sold as easily as publicly traded securities, and, historically, the trading volume in the loan market has been small relative to other markets. Loans may encounter trading delays due to their unique and customized nature, and transfers of interests in loans may require the
consent of an agent or borrower. The lack of liquidity in our investments may adversely affect our business. All of our assets may be invested in illiquid securities, and a substantial portion of our investments in leveraged companies will be subject to legal and other restrictions on resale or will otherwise be less liquid than more broadly traded public securities. The illiquidity of these investments may make it difficult for us to sell such investments when desired. In addition, if we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we have previously recorded these investments. As a result, we do not expect to achieve liquidity in our investments in
the near-term. However, to maintain the election to be regulated as a business development company and qualify as a RIC, we may have to dispose of investments if we do not satisfy one or more of the applicable criteria under the respective regulatory frameworks. We may also face other restrictions on our ability to liquidate an investment in a portfolio company to the extent that we or MC Advisors have material nonpublic information regarding such portfolio company. Price declines and illiquidity in the corporate debt markets may adversely affect the fair value of our portfolio investments, reducing our net asset value through increased net unrealized depreciation. As a business development company, we are required to carry our investments at market value or, if no market value is ascertainable, at fair value as determined in good faith by our Board. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, we use the pricing indicated by the external event to corroborate our valuation. We record decreases in the market values or fair values of our investments as unrealized depreciation. Declines in prices and liquidity in the corporate debt markets may result in significant net unrealized depreciation in our portfolio. The effect of all of
these factors on our portfolio may reduce our net asset value by increasing net unrealized depreciation in our portfolio. Depending on market conditions, we could incur substantial realized losses and may suffer additional unrealized losses in future periods, which could have a material adverse effect on our business, financial condition and results of operations.
 51    TABLE OF CONTENTS Our portfolio companies may prepay loans, which prepayment may reduce stated yields if capital returned cannot be invested in transactions with equal or greater expected yields. The loans underlying our portfolio may be callable at any time, and many of them can be repaid with no premium to par. It is not clear at this time when or if any loan might be called. Whether a loan is called will depend both on the continued positive performance of the portfolio company and the existence of favorable financing market conditions that allow such company the ability to replace existing financing with less expensive capital. As market conditions change frequently, it is unknown when, and if, this may be possible for each portfolio company. Risks associated with owning loans include the fact that prepayments may
occur at any time, sometimes without premium or penalty, and that the exercise of prepayment rights during periods of declining spreads could cause us to reinvest prepayment proceeds in lower-yielding instruments. In the case of some of these loans, having the loan called early may reduce the achievable yield for our company below the stated yield to maturity described elsewhere in this Annual Report if the capital returned cannot be invested in transactions with equal or greater expected yields. Our portfolio may be exposed in part to one or more specific industries, which may subject us to a risk of significant loss in a particular investment or investments if there is a downturn in that particular industry. Our portfolio may be exposed in part to one or more specific industries. A downturn in any particular industry in which we are invested could significantly impact the aggregate returns we realize. If an industry in which we have significant investments suffers from adverse business or economic conditions, as these industries have to varying degrees, a material portion of our investment portfolio could be affected adversely, which, in turn, could adversely affect our financial position and results of operations. As of December 31, 2016, our investments in the healthcare and pharmaceuticals industry represented approximately 13.7% of the fair value of our portfolio and are subject to certain risks particular to that industry. The laws and rules governing the business of healthcare companies and interpretations of those laws and rules are subject to frequent change and broad latitude is given to the agencies administering those regulations. Existing or future laws and rules could force our portfolio companies engaged in healthcare to change how they do business, restrict revenue, increase costs, change reserve levels and change business
practices. Healthcare companies often must obtain and maintain regulatory approvals to market many of their products, change prices for certain regulated products and consummate some of their acquisitions and divestitures. Policy changes on the local, state and federal level, such as the expansion of the governments role in the healthcare arena, health insurance reform and alternative assessments and tax increases specific to the healthcare industry or products could fundamentally change the dynamics of the healthcare industry. Any of these factors could materially adversely affect the operations of a portfolio company in this industry and, in turn, impair our ability to timely collect principal and interest payments owed to us. To the extent original issue discount and payment-in-kind interest constitute a portion of our income, we will be exposed to typical risks associated with such income being required to be included in taxable and accounting income prior to receipt of cash representing such income. Our investments include original issue discount, or OID, components and may include PIK interest components. For the year ended December 31, 2016, PIK interest comprised approximately 4.5% of our investment income. To the extent original issue discount constitutes a portion of our income, we are exposed to typical risks associated with such income being required to be included in taxable and accounting income prior to receipt of cash, including the following: 

          We must include in income each year a portion of the OID that accrues over the life of the obligation, regardless of whether cash representing such income is received by us in the same taxable year. Because any OID or other amounts accrued will be included in investment company taxable income for the year of the accrual, we may be required to make a distribution to our stockholders in order to satisfy our annual distribution requirements, even though we will not have received any corresponding cash amount. As a result, we may have to sell some of our investments at times or at prices that would not be advantageous to us, raise additional debt or equity capital or forgo new investment opportunities.
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          The higher yield of OID instruments reflect the payment deferral and credit risk associated with these instruments. 

          Even if the accounting conditions for income accrual are met, the borrower could still default when our actual collection is supposed to occur at the maturity of the obligation. 

          OID instruments may have unreliable valuations because their continuing accruals require continuing judgments about the collectability of the deferred payments and the value of the collateral. 

          OID instruments generally represent a significantly higher credit risk than coupon loans. 

          OID income received by us may create uncertainty about the source of our cash distributions to stockholders. For accounting purposes, any cash distributions to stockholders representing OID or market discount income are not treated as coming from paid-in capital, even though the cash to pay them comes from the offering proceeds. Thus, although a distribution of OID or market discount interest comes from the cash invested by the stockholders, Section 19(a) of the 1940 Act does not require that stockholders be given notice of this fact by reporting it as a return of capital. 

          The deferral of PIK interest has a negative impact on liquidity, as it represents non-cash income that may require distribution of cash dividends to stockholders in order to maintain our RIC status. In addition, the deferral of PIK interest also increases the loan-to-value (LTV) ratio at a compounding rate, thus, increasing the risk that we will absorb a loss in the event of foreclosure. 

          OID and market discount instruments create the risk of non-refundable incentive fee payments to MC Advisors based on non-cash accruals that we may not ultimately realize. We are a non-diversified investment company within the meaning of the 1940 Act, and therefore we are not limited by the 1940 Act with respect to the proportion of our assets that may be invested in securities of a single issuer. We are classified as a non-diversified investment company within the meaning of the 1940 Act, which means that we are not limited by the 1940 Act with respect to the proportion of our assets that we may invest in securities of a single issuer. Our portfolio is and may in the future be concentrated in a limited number of portfolio companies and industries. Beyond the asset diversification requirements associated with our qualification as a RIC under the Code, we do not have fixed guidelines for diversification. To the extent that we assume large positions in the securities of a small number of issuers, our net asset value may
fluctuate to a greater extent than that of a diversified investment company as a result of changes in the financial condition or the markets assessment of the issuer. We may also be more susceptible to any single economic or regulatory occurrence than a diversified investment company. As a result, the aggregate returns we realize may be significantly adversely affected if a small number of investments perform poorly or if we need to write down the value of any one investment. Additionally, while we are not targeting any specific industries, our investments may be concentrated in relatively few industries. As a result, a downturn in any particular industry in which we are invested could also significantly impact the aggregate returns we realize. We may hold the debt securities of leveraged companies that may, due to the significant volatility of such companies, enter into bankruptcy proceedings. Leveraged companies may experience bankruptcy or similar financial distress. The bankruptcy process has a number of significant inherent risks. Many events in a bankruptcy proceeding are the product of contested matters and adversary proceedings and are beyond the control of the creditors. A bankruptcy filing by a portfolio company may adversely and permanently affect the portfolio company. If the proceeding is converted to a liquidation, the value of the issuer may not equal the liquidation value that was believed to exist at the time of the investment. The duration of a bankruptcy proceeding is also difficult to predict, and
a creditors return on investment can be adversely affected by delays until the plan of reorganization or liquidation ultimately becomes effective. The administrative costs in connection with a bankruptcy proceeding are frequently high and would be paid out of the debtors estate prior to any return to creditors. Because the standards for classification of claims under bankruptcy law are vague, our influence with respect to the class of securities or other obligations we own may be lost by increases in the number and amount of claims in the same class or by different classification and treatment. In the early stages of the bankruptcy process, it is often
 53    TABLE OF CONTENTS difficult to estimate the extent of, or even to identify, any contingent claims that might be made. In addition, certain claims that have priority by law (for example, claims for taxes) may be substantial. Our failure to make follow-on investments in our portfolio companies could impair the value of our portfolio. Following an initial investment in a portfolio company, we may make additional investments in that portfolio company as follow-on investments, in seeking to: 

          increase or maintain in whole or in part our position as a creditor or equity ownership percentage in a portfolio company; 

          exercise warrants, options or convertible securities that were acquired in the original or subsequent financing; or 

          preserve or enhance the value of our investment. We have discretion to make follow-on investments, subject to the availability of capital resources and the provisions of the 1940 Act. Failure on our part to make follow-on investments may, in some circumstances, jeopardize the continued viability of a portfolio company and our initial investment, or may result in a missed opportunity for us to increase our participation in a successful operation. Even if we have sufficient capital to make a desired follow-on investment, we may elect not to make a follow-on investment because we may not want to increase our level of risk, because we prefer other opportunities or because we are
inhibited by compliance with business development company requirements or the desire to maintain our RIC status. Our ability to make follow-on investments may also be limited by MC Advisors allocation policy. Because we do not hold controlling equity interests in the majority of our portfolio companies, we may not be able to exercise control over our portfolio companies or to prevent decisions by management of our portfolio companies, which could decrease the value of our investments. Although we may do so in the future, we do not currently hold controlling equity positions in the majority of our portfolio companies. Our debt investments may provide limited control features such as restrictions, for example, on the ability of a portfolio company to assume additional debt, or to use the proceeds of our investment for other than certain specified purposes. Control under the 1940 Act is presumed at more than 25% equity ownership, and may also be present at lower ownership levels where we provide managerial assistance. When we do not acquire a controlling equity position in a portfolio company, we
may be subject to the risk that a portfolio company may make business decisions with which we disagree, and that the management and/or stockholders of a portfolio company may take risks or otherwise act in ways that are adverse to our interests. Due to the lack of liquidity of the debt and equity investments that we typically hold in our portfolio companies, we may not be able to dispose of our investments in the event we disagree with the actions of a portfolio company and may therefore suffer a decrease in the value of our investments. Defaults by our portfolio companies will harm our operating results. A portfolio companys failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially, termination of its loans and foreclosure on its assets. This could trigger cross-defaults under other agreements and jeopardize such portfolio companys ability to meet its obligations under the debt or equity securities that we hold. We may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms, which may include the waiver of certain financial covenants, with a defaulting portfolio company. In addition, many of our investments will likely have a principal amount outstanding at maturity, which could result in a substantial loss to us if the borrower is unable to refinance or repay. Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies. We generally seek to invest capital in senior, unitranche and junior secured loans and, to a lesser extent, unsecured subordinated debt and equity. The portfolio companies in which we invest usually have, or may be
 54    TABLE OF CONTENTS permitted to incur, other debt that ranks equally with, or senior to, the debt securities in which we invest. By their terms, such debt instruments may provide that the holders are entitled to receive payment of interest or principal on or before the dates on which we are entitled to receive payments in respect of the debt securities in which we invest. Also, in the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a portfolio company, holders of debt instruments ranking senior to our investment in that portfolio company would typically be entitled to receive payment in full before we receive any
distribution in respect of our investment. After repaying senior creditors, the portfolio company may not have any remaining assets to use for repaying its obligation to us. In the case of debt ranking equally with debt securities in which we invest, we would have to share any distributions on an equal and ratable basis with other creditors holding such debt in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy of the relevant portfolio company. Additionally, certain loans that we make to portfolio companies may be secured on a second-priority basis by the same collateral securing senior secured debt of such companies. The first-priority liens on the collateral will secure the portfolio companys obligations under any outstanding senior debt and may secure certain other future debt that may be permitted to be incurred by the portfolio company under the agreements governing the loans. The holders of obligations secured by first-priority liens on the collateral will generally control the liquidation of, and be entitled to receive proceeds from, any realization of
the collateral to repay their obligations in full before us. In addition, the value of the collateral in the event of liquidation will depend on market and economic conditions, the availability of buyers and other factors. There can be no assurance that the proceeds, if any, from sales of all of the collateral would be sufficient to satisfy the loan obligations secured by the second-priority liens after payment in full of all obligations secured by the first-priority liens on the collateral. If such proceeds were not sufficient to repay amounts outstanding under the loan obligations secured by the second-priority liens, then, to the extent not repaid from the proceeds of the sale of the collateral, we will only have an unsecured claim against the portfolio companys remaining assets, if any. The rights we may have with respect to the collateral securing the loans we make to our portfolio companies with senior debt outstanding may also be limited pursuant to the terms of one or more intercreditor agreements that we enter into with the holders of such senior debt, including in unitranche transactions. Under a typical intercreditor agreement, at any time that obligations that have the benefit of the first-priority liens are outstanding, any of the following actions that may be taken in respect of the collateral will be at the direction of the holders of the obligations secured by the first-priority liens: 

          the ability to cause the commencement of enforcement proceedings against the collateral; 

          the ability to control the conduct of such proceedings; 

          the approval of amendments to collateral documents; 

          releases of liens on the collateral; and 

          waivers of past defaults under collateral documents. We may not have the ability to control or direct such actions, even if our rights are adversely affected. In addition, a bankruptcy court may choose not to enforce an intercreditor agreement or other agreement with creditors. We may also make unsecured loans to portfolio companies, meaning that such loans will not benefit from any interest in collateral of such companies. Liens on such portfolio companies collateral, if any, will secure the portfolio companys obligations under its outstanding secured debt and may secure certain future debt that is permitted to be incurred by the portfolio company under its secured loan agreements. The holders of obligations secured by such liens will generally control the liquidation of, and be entitled to receive proceeds from, any realization of such collateral to repay their obligations in full
before us. In addition, the value of such collateral in the event of liquidation will depend on market and economic conditions, the availability of buyers and other factors. There can be no assurance that the proceeds, if any, from sales of such collateral would be sufficient to satisfy our unsecured loan obligations after payment in full of all secured loan obligations. If such proceeds were not sufficient to repay the outstanding secured loan obligations, then our
 55    TABLE OF CONTENTS unsecured claims would rank equally with the unpaid portion of such secured creditors claims against the portfolio companys remaining assets, if any. We may also make subordinated investments that rank below other obligations of the obligor in right of payment. Subordinated investments are generally more volatile than secured loans and are subject to greater risk of default than senior obligations as a result of adverse changes in the financial condition of the obligor or in general economic conditions. If we make a subordinated investment in a portfolio company, the portfolio company may be highly leveraged, and its relatively high LTV ratio may create increased risks that its operations might not generate sufficient cash flow to service all of its debt obligations. Investments in securities of foreign companies, if any, may involve significant risks in addition to the risks inherent in U.S. investments. We may make investments in securities of foreign companies. Investing in foreign companies may expose us to additional risks not typically associated with investing in U.S. companies, including changes in exchange control regulations, political and social instability, expropriation and imposition of foreign taxes. In addition, any investments that we make that are denominated in a foreign currency will be subject to the risk that the value of a particular currency will change in relation to one or more other currencies. Factors such as trade balances, the level of short-term interest rates, differences in relative values of
similar assets in different currencies, long-term opportunities for investment and capital appreciation and political developments may affect currency values. We may employ hedging techniques to minimize these risks, but we cannot assure you that we will, in fact, hedge currency risk, or, that if we do, such strategies will be effective. We may be subject to risks associated with syndicated loans. From time to time, our investments may consist of syndicated loans. Under the documentation for such loans, a financial institution or other entity typically is designated as the administrative agent and/or collateral agent. This agent is granted a lien on any collateral on behalf of the other lenders and distributes payments on the indebtedness as they are received. The agent is the party responsible for administering and enforcing the loan and generally may take actions only in accordance with the instructions of a majority or two-thirds in commitments and/or principal amount of the associated indebtedness. In most cases, we
do not expect to hold a sufficient amount of the indebtedness to be able to compel any actions by the agent. Accordingly, we may be precluded from directing such actions unless we act together with other holders of the indebtedness. If we are unable to direct such actions, we cannot assure you that the actions taken will be in our best interests. There is a risk that a loan agent may become bankrupt or insolvent. Such an event would delay, and possibly impair, any enforcement actions undertaken by holders of the associated indebtedness, including attempts to realize upon the collateral securing the associated indebtedness and/or direct the agent to take actions against the related obligor or the collateral securing the associated indebtedness and actions to realize on proceeds of payments made by obligors that are in the possession or control of any other financial institution. In addition, we may be unable to remove the agent in circumstances in which removal would be
in our best interests. Moreover, agented loans typically allow for the agent to resign with certain advance notice. The disposition of our investments may result in contingent liabilities. A significant portion of our investments involve private securities. In connection with the disposition of an investment in private securities, we may be required to make representations about the business and financial affairs of the portfolio company typical of those made in connection with the sale of a business. We may also be required to indemnify the purchasers of such investment to the extent that any such representations turn out to be inaccurate or with respect to potential liabilities. These arrangements may result in contingent liabilities that ultimately result in funding obligations that we must satisfy through
our return of distributions previously made to us. We may be subject to additional risks if we engage in hedging transactions and/or invest in foreign securities. The 1940 Act generally requires that 70% of our investments be in issuers each of whom, in addition to other requirements, is organized under the laws of, and has its principal place of business in, any state of the United States, the District of Columbia, Puerto Rico, the Virgin Islands or any other possession of the
 56    TABLE OF CONTENTS United States. Our investment strategy does not contemplate a significant number of investments in securities of Non-U.S. companies other than Canadian companies. We expect that these investments would focus on the same investments that we intend to make in U.S. middle-market companies and, accordingly, would be complementary to our overall strategy and enhance the diversity of our holdings. Engaging in either hedging transactions or investing in foreign securities would entail additional risks to our stockholders. We could, for example, use instruments such as interest rate swaps, caps, collars and floors and, if we were to invest in foreign securities, we could use instruments such as forward contracts or currency options and borrow under a credit facility in currencies selected to minimize our foreign currency exposure. In each such case, we generally would seek to hedge against fluctuations of the relative values of our portfolio positions from changes in market interest rates or currency exchange rates.
Hedging against a decline in the values of our portfolio positions would not eliminate the possibility of fluctuations in the values of such positions or prevent losses if the values of the positions declined. However, such hedging could establish other positions designed to gain from those same developments, thereby offsetting the decline in the value of such portfolio positions. Such hedging transactions could also limit the opportunity for gain if the values of the underlying portfolio positions increased. Moreover, it might not be possible to hedge against an exchange rate or interest rate fluctuation that was so generally anticipated that we would not be able to enter into a hedging transaction at an acceptable price. Our ability to engage in hedging transactions may also be adversely affected by recent rules adopted by the U.S. Commodity Futures Trading Commission. While we may enter into such transactions to seek to reduce currency exchange rate and interest rate risks, unanticipated changes in currency exchange rates or interest rates could result in poorer overall investment performance than if we had not engaged in any such hedging transactions. In addition, the degree of correlation between price movements of the instruments used in a hedging strategy and price movements in the portfolio positions being hedged could vary. Moreover, for a variety of reasons, we might not seek to establish a perfect correlation between the hedging instruments and the portfolio holdings being hedged.
Any such imperfect correlation could prevent us from achieving the intended hedge and expose us to risk of loss. In addition, it might not be possible to hedge fully or perfectly against currency fluctuations affecting the value of securities denominated in Non-U.S. currencies because the value of those securities would likely fluctuate as a result of factors not related to currency fluctuations. We may not realize gains from our equity investments. We currently hold and we may in the future make investments that include warrants or other equity or equity-related securities. In addition, we may from time to time make non-control, equity co-investments in companies in conjunction with private equity sponsors. Our goal is ultimately to realize gains upon our disposition of such equity interests. However, the equity interests we receive may not appreciate in value and, in fact, may decline in value. Accordingly, we may not be able to realize gains from our equity interests, and any gains that we do realize on the disposition of any equity interests may not be sufficient to
offset any other losses we experience. We also may be unable to realize any value if a portfolio company does not have a liquidity event, such as a sale of the business, recapitalization or public offering, which would allow us to sell the underlying equity interests. We often seek puts or similar rights to give us the right to sell our equity securities back to the portfolio company issuer. We may be unable to exercise these put rights for the consideration provided in our investment documents if the issuer is in financial distress. Risks Relating to Our Common Stock We may not be able to pay distributions, our distributions may not grow over time and/or a portion of our distributions may be a return of capital. We have paid and intend to continue to pay distributions to our stockholders out of assets legally available for distribution. We cannot assure you that we will achieve investment results that will allow us to sustain a specified level of cash distributions or make periodic increases in cash distributions. Our ability to pay distributions might be adversely affected by, among other things, the impact of one or more of the risk factors described herein. In addition, the inability to satisfy the asset coverage test applicable to us as a business development company could limit our ability to pay distributions. All distributions
will be paid at the discretion of our Board and will depend on our earnings, our financial condition, maintenance of our RIC
 57    TABLE OF CONTENTS status, compliance with applicable business development company regulations and such other factors as our Board may deem relevant from time to time. We cannot assure you that we will continue to pay distributions to our stockholders. When we make distributions, we will be required to determine the extent to which such distributions are paid out of current or accumulated earnings and profits. Distributions in excess of current and accumulated earnings and profits will be treated as a non-taxable return of capital to the extent of an investors basis in our stock and, assuming that an investor holds our stock as a capital asset, thereafter as a capital gain. We may choose to pay a portion of our dividends in our own stock, in which case you may be required to pay tax in excess of the cash you receive. We have adopted a dividend reinvestment plan that provides for reinvestment of our dividends and other distributions on behalf of our stockholders, unless a stockholder elects to receive cash pursuant to such plan. We may distribute taxable dividends that are payable in part in our stock. Taxable stockholders receiving such dividends will be required to include the full amount of the dividend as ordinary income (or as long-term capital gain or qualified dividend income to the extent such distribution is properly reported as such) to the extent of our current and accumulated earnings and profits for federal income tax purposes.
The tax rate for ordinary income will vary depending on a stockholders particular characteristics. For individuals, the top marginal federal ordinary income tax rate is 39.6%. To the extent distributions paid by us to non-corporate stockholders (including individuals) are attributable to dividends from U.S. corporations and certain qualified foreign corporations, such distributions generally will be eligible for a maximum qualified dividend federal tax rate of 20%. However, in this regard, it is anticipated that distributions paid by us will generally not be attributable to such dividends and, therefore, generally will not qualify for the preferential federal tax rate. Distributions of our net capital gains (which is generally our realized net long-term capital gains in excess of realized net short-term capital losses) properly reported by us as capital gain dividends will be taxable to a U.S. stockholder as long-term capital gains currently at a maximum federal tax
rate of 20%. As a result of receiving dividends in the form of our common stock, a U.S. stockholder may be required to pay tax with respect to such dividends in excess of any cash received. If a U.S. stockholder sells the stock it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our stock at the time of the sale. Furthermore, with respect to Non-U.S. stockholders, we may be required to withhold federal tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in
shares of our common stock. In addition, if a significant number of our stockholders determine to sell shares of our stock in order to pay taxes owed on dividends, it may put downward pressure on the trading price of shares of our common stock. In addition, as discussed above, our loans may contain a PIK interest provision. The PIK interest, computed at the contractual rate specified in each loan agreement, is added to the principal balance of the loan and recorded as interest income. To avoid the imposition of corporate-level tax, we will need to make sufficient distributions, a portion of which may be paid in shares of our common stock, regardless of whether our recognition of income is accompanied by a corresponding receipt of cash. Investing in our common stock may involve an above-average degree of risk. The investments we make in accordance with our investment objective may result in a higher amount of risk than alternative investment options and a higher risk of volatility or loss of principal. Our investments in portfolio companies may be highly speculative and aggressive and, therefore, an investment in our common stock may not be suitable for someone with lower risk tolerance. Shares of closed-end investment companies, including business development companies, often trade at a discount to their net asset value. Shares of closed-end investment companies, including business development companies, may trade at a discount from net asset value. This characteristic of closed-end investment companies and business development companies is separate and distinct from the risk that our net asset value per share may decline. We cannot predict whether our common stock will trade at, above or below net asset value.
 58    TABLE OF CONTENTS Provisions of the Maryland General Corporation Law and our charter and bylaws could deter takeover attempts and have an adverse effect on the price of our common stock. The Maryland General Corporation Law and our charter and bylaws contain provisions that may discourage, delay or make more difficult a change in control of us or the removal of our directors. We are subject to the Maryland Business Combination Act, subject to any applicable requirements of the 1940 Act. Our Board has adopted a resolution exempting from the Maryland Business Combination Act any business combination between us and any other person, subject to prior approval of such business combination by our Board, including approval by a majority of our independent directors. If the resolution exempting business combinations
is repealed or our Board does not approve a business combination, the Maryland Business Combination Act may discourage third parties from trying to acquire control of us and increase the difficulty of consummating such an offer. Our bylaws exempt acquisitions of our stock by any person from the Maryland Control Share Acquisition Act. If we amend our bylaws to subject the acquisition of our stock to the Maryland Control Share Acquisition Act, we would only do so to the extent consistent with the provisions of Section 18(i) of the 1940 Act and related SEC staff guidance. We have adopted certain measures that may make it difficult for a third-party to obtain control of us, including provisions of our charter classifying our Board in three staggered terms and authorizing our Board to classify or reclassify shares of our capital stock in one or more classes or series and to cause the issuance of additional shares of our stock. These provisions, as well as other provisions of our charter and bylaws, may delay, defer or prevent a transaction or a change in control that might otherwise be in the best interests of our stockholders. The market price of our common stock may fluctuate significantly. The market price and liquidity of the market for shares of our common stock may be higher or lower than the price you pay and may be significantly affected by numerous factors, some of which are beyond our control and may not be directly related to our operating performance. These factors include: 

          significant volatility in the market price and trading volume of securities of business development companies or other companies in our sector, which is not necessarily related to the operating performance of these companies; 

          changes in regulatory policies or tax guidelines, particularly with respect to RICs or business development companies; 

          loss of RIC or business development company status; 

          the ability of MRCC SBIC, or any other SBIC subsidiary we may form to obtain and maintain an SBIC license; 

          changes or perceived changes in earnings or variations in operating results; 

          changes or perceived changes in the value of our portfolio of investments; 

          changes in accounting guidelines governing valuation of our investments; 

          any shortfall in revenue or net income or any increase in losses from levels expected by investors or securities analysts; 

          departure of MC Advisors key personnel; 

          operating performance of companies comparable to us; 

          general economic trends and other external factors; and 

          loss of a major funding source. ITEM 1B. UNRESOLVED STAFF COMMENTS None.
 59    TABLE OF CONTENTS ITEM 2. PROPERTIES We do not own any real estate or other physical properties materially important to our operation. The principal executive offices of Monroe Capital are located at 311 South Wacker Drive, Suite 6400, Chicago, Illinois 60606. Monroe Capital and its affiliates currently have additional offices, and/or company representatives in New York, New York; Los Angeles, California; San Francisco, California; Atlanta, Georgia; Boston, Massachusetts; Dallas, Texas; and Toronto, Canada. Our administrator furnishes us office space, and we reimburse it for such costs on an allocated basis. ITEM 3. LEGAL PROCEEDINGS Neither we nor our investment adviser is currently subject to any material legal proceedings. ITEM 4. MINE SAFETY DISCLOSURES Not applicable.
 60    TABLE OF CONTENTS PART II ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES PRICE RANGE OF COMMON STOCK Our common stock is traded on The NASDAQ Global Select Market under the ticker symbol MRCC. The following tables set forth the net asset value (NAV) at each period end and the range of high and low closing sale prices of our common stock as reported on The NASDAQ Global Select Market.  Year ended December 31, 2016

          

          NAV

          

          High

          

          LowFirst Quarter

          

          $

          14.45

          

          

          $

          14.32

          

          

          $

          10.82Second Quarter

          

          $

          14.50

          

          

          $

          14.83

          

          

          $

          13.11Third Quarter

          

          $

          14.42

          

          

          $

          16.25

          

          

          $

          14.91Fourth Quarter

          

          $

          14.52

          

          

          $

          15.63

          

          

          $

          13.77
  Year ended December 31, 2015

          

          NAV

          

          High

          

          LowFirst Quarter

          

          $

          14.11

          

          

          $

          15.38

          

          

          $

          13.91Second Quarter

          

          $

          14.18

          

          

          $

          15.25

          

          

          $

          14.25Third Quarter

          

          $

          14.21

          

          

          $

          15.08

          

          

          $

          13.60Fourth Quarter

          

          $

          14.19

          

          

          $

          14.99

          

          

          $

          12.78
 HOLDERS As of March 6, 2017, there were seven holders of record of our common stock. This does not include the number of stockholders that hold shares in street name through banks or broker-dealers.
 61    TABLE OF CONTENTS DISTRIBUTIONS The following tables summarize our dividends or distributions declared during the years ended December 31, 2016 and 2015:  Date Declared

          

          Record Date

          

          Payment Date

          

          Amount Per ShareMarch 4, 2016

          

          

          March 15, 2016

          

          

          

          March 31, 2016

          

          

          $

          0.35June 1, 2016

          

          

          June 15, 2016

          

          

          

          June 30, 2016

          

          

          

          0.35August 30, 2016

          

          

          September 15, 2016

          

          

          

          September 30, 2016

          

          

          

          0.35November 30, 2016

          

          

          December 15, 2016

          

          

          

          December 30, 2016

          

          

          

          0.35Total distributions declared during the year ended December 31, 2016

          

          $

          1.40

          (1)
  Date Declared

          

          Record Date

          

          Payment Date

          

          Amount Per ShareMarch 6, 2015

          

          

          March 20, 2015

          

          

          

          March 31, 2015

          

          

          $

          0.35June 2, 2015

          

          

          June 15, 2015

          

          

          

          June 30, 2015

          

          

          

          0.35September 1, 2015

          

          

          September 15, 2015

          

          

          

          September 30, 2015

          

          

          

          0.35November 30, 2015

          

          

          December 15, 2015

          

          

          

          December 30, 2015

          

          

          

          0.35Total distributions declared during the year ended December 31, 2015

          

          $

          1.40

          (1)
  (1)

          Includes a return of capital for tax purposes of zero and zero for the years ended December 31, 2016 and 2015, respectively. On March 7, 2017, the Board declared a quarterly distribution of $0.35 per share payable on March 31, 2017 to stockholders of record on March 17, 2017. Our revolving credit facility, as amended, imposes certain conditions that may limit the amount of our distributions to stockholders. Distributions payable in our common stock under our dividend reinvestment plan are not limited by the revolving credit facility. Distributions in cash or property other than our common stock are generally limited to 115% of the amount of distributions required to maintain our status as a RIC. We have adopted an opt out dividend reinvestment plan for our common stockholders. As a result, if we declare a distribution, our stockholders cash distributions will be automatically reinvested in additional shares of our common stock unless a stockholder specifically opts out of our dividend reinvestment plan. If a stockholder opts out, that stockholder will receive cash distributions.
 62    TABLE OF CONTENTS PERFORMANCE GRAPH The following graph compares the return on our common stock with that of the Standard & Poors 500 Stock Index and the NASDAQ Financial 100 index, for the period from October 25, 2012, the date our common stock began trading, through December 31, 2016. The graph assumes that on October 25, 2012, a person invested $100 in each of our common stock, the Standard & Poors 500 Stock Index and the NASDAQ Financial 100 index. The graph measures total stockholder return, which takes into account both changes in stock price and dividends. The graph also assumes the reinvestment of all dividends prior to any tax
effect. The graph and other information furnished under this Part II Item 5 of this Annual Report on Form 10-K shall not be deemed to be soliciting material or to be filed with the SEC or subject to Regulation 14A or 14C under, or to the liabilities of Section 18 of, the Exchange Act. The stock price performance included in the below graph is not necessarily indicative of future stock performance. [GRAPHIC MISSING]
 63    TABLE OF CONTENTS ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data of the Company as of and for the years ended December 31, 2016, 2015, 2014, 2013 and 2012 are derived from our consolidated financial statements that have been audited by RSM US LLP (RSM), our independent registered public accounting firm. This consolidated financial data should be read in conjunction with our consolidated financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K and with Managements Discussion and Analysis of Financial Condition and Results of Operations which follows (dollars in thousands except
per share data):  As of and forthe yearendedDecember 31,2016

          

          As of and forthe yearendedDecember 31,2015

          

          As of and forthe yearendedDecember 31,2014

          

          As of and forthe yearendedDecember 31,2013

          

          As of and forthe yearendedDecember 31,2012(1)Consolidated statements of operations data:Total investment income

          

          $

          45,018

          

          

          $

          36,898

          

          

          $

          29,913

          

          

          $

          18,213

          

          

          $

          1,706Base management fees

          

          

          6,347

          

          

          

          5,129

          

          

          

          4,091

          

          

          

          2,752

          

          

          

          318Incentive fees, net of incentive fee waiver

          

          

          5,504

          

          

          

          4,685

          

          

          

          3,512

          

          

          

          1,544

          

          

          

          6All other expenses

          

          

          10,661

          

          

          

          8,343

          

          

          

          7,235

          

          

          

          5,267

          

          

          

          592Net investment income

          

          

          22,506

          

          

          

          18,741

          

          

          

          15,075

          

          

          

          8,650

          

          

          

          790Net realized gain (loss) on investments

          

          

          587

          

          

          

          304

          

          

          

          299

          

          

          

          247

          

          

          

          Net change in unrealized appreciation (depreciation) on investments and secured borrowings

          

          

          1,272

          

          

          

          (1,153

          )

          

          

          (1,465

          )

          

          

          869

          

          

          

          160Net increase (decrease) in net assets resulting from operations

          

          $

          24,365

          

          

          $

          17,892

          

          

          $

          13,909

          

          

          $

          9,766

          

          

          $

          950Per share data (basic and diluted):Net asset value

          

          $

          14.52

          

          

          $

          14.19

          

          

          $

          14.05

          

          

          $

          13.92

          

          

          $

          14.54Net investment income

          

          

          1.55

          

          

          

          1.60

          

          

          

          1.57

          

          

          

          1.13

          

          

          

          0.15Net realized gain (loss) on investments

          

          

          0.04

          

          

          

          0.03

          

          

          

          0.03

          

          

          

          0.03

          

          

          

          Net change in unrealized appreciation (depreciation) on investments and secured borrowings

          

          

          0.09

          

          

          

          (0.10

          )

          

          

          (0.15

          )

          

          

          0.12

          

          

          

          0.03Net increase (decrease) in net assets resulting from operations

          

          $

          1.68

          

          

          $

          1.53

          

          

          $

          1.45

          

          

          $

          1.28

          

          

          $

          0.18Distributions declared(2)

          

          $

          1.40

          

          

          $

          1.40

          

          

          $

          1.36

          

          

          $

          1.36

          

          

          $

          0.34Consolidated statements of assets and liabilities data at year end:Investments, at fair value

          

          $

          412,920

          

          

          $

          341,091

          

          

          $

          233,535

          

          

          $

          207,920

          

          

          $

          132,752Cash

          

          

          5,958

          

          

          

          5,278

          

          

          

          4,561

          

          

          

          14,214

          

          

          

          4,060Restricted cash

          

          

          2,373

          

          

          

          8,588

          

          

          

          1,176

          

          

          

          389

          

          

          

          Other assets

          

          

          3,294

          

          

          

          2,353

          (4)

          

          

          1,834

          (4)

          

          

          1,067

          (4)

          

          

          669

          (4)Total assets

          

          

          424,545

          

          

          

          357,310

          (4)

          

          

          241,106

          (4)

          

          

          223,590

          (4)

          

          

          137,481

          (4)Total debt

          

          

          177,869

          

          

          

          162,607

          (4)

          

          

          103,829

          (4)

          

          

          81,852

          (4)

          

          

          53,250

          (4)Other liabilities

          

          

          5,826

          

          

          

          10,168

          (4)

          

          

          3,539

          (4)

          

          

          3,646

          (4)

          

          

          597

          (4)Total liabilities

          

          

          183,695

          

          

          

          172,775

          (4)

          

          

          107,368

          (4)

          

          

          85,498

          (4)

          

          

          53,847

          (4)Total net assets

          

          $

          240,850

          

          

          $

          184,535

          

          

          $

          133,738

          

          

          $

          138,092

          

          

          $

          83,634Other data:Weighted average annualized effective yield at year end(3)

          

          

          9.6

          %

          

          

          10.6

          %

          

          

          11.6

          %

          

          

          10.7

          %

          

          

          11.3

          %Number of portfolio company investments at year end

          

          

          70

          

          

          

          55

          

          

          

          40

          

          

          

          42

          

          

          

          28Purchases of investments for the period

          

          $

          147,780

          

          

          $

          193,631

          

          

          $

          132,183

          

          

          $

          138,781

          

          

          $

          144,482Principal payments and sales of investments for the year

          

          $

          81,446

          

          

          $

          88,379

          

          

          $

          107,073

          

          

          $

          65,165

          

          

          $

          11,898
  (1)

          For historical periods prior to October 24, 2012, the Company had no operations and therefore information provided does not include financial results prior to October 24, 2012.
 64    TABLE OF CONTENTS (2)

          Includes a return of capital for tax purposes of zero, zero, zero, $0.21 and $0.20 for the years ended December 31, 2016, 2015, 2014, 2013 and 2012 respectively. (3)

          The weighted average annualized effective yield at year end is based upon the par value of our debt investments and the cost basis of our preferred equity investments. (4)

          Reflects the adoption of Financial Accounting Standards Board Accounting Standards Update (ASU) 2015-03, Interest  Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (ASU 2015-03). ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the statements of assets and liabilities as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. We adopted ASU 2015-03 during the year ended December 31, 2016 and the consolidated statement of assets and liabilities for December 31, 2015 presented within the consolidated financial statements was also revised to reflect this presentation.
 65    TABLE OF CONTENTS ITEM 7. 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 Special Note Regarding 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 treated as a business development company (BDC) under the 1940 Act. In addition, for tax purposes, we have elected to be treated as a regulated investment company (RIC) under the subchapter M of the Internal Revenue Code of 1986, as amended (the Code). We were incorporated under the Maryland General Corporation Law on February 9, 2011. We are a specialty finance company focused on providing financing solutions primarily to lower middle-market companies in the
United States. We provide customized financing solutions focused primarily on senior secured, junior secured and unitranche (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, unitranche and junior secured debt and, to a lesser extent, 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, unitranche and junior secured debt of middle-market companies. Our investments in senior, unitranche, junior secured debt and other investments generally will range between $2.0 million and $18.0 million each, although this
investment size may vary proportionately with the size of our capital base. As of December 31, 2016, our portfolio included approximately 66.7% senior secured debt, 12.5% unitranche secured debt, 14.4% junior secured debt and 6.4% equity securities compared to December 31, 2015, our portfolio included approximately 55.9% senior secured debt, 20.0% unitranche secured debt, 18.6% junior secured debt and 5.5% equity securities. We expect that the companies in which we invest may be leveraged, often as a result of leveraged buy-outs or other recapitalization transactions, and, in certain 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 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 securities that are non-investment grade. On February 28, 2014, our wholly-owned subsidiary, Monroe Capital Corporation SBIC, LP (MRCC SBIC), a Delaware limited partnership, received a license from the Small Business Administration (SBA) to operate as a Small Business Investment Company (SBIC) under Section 301(c) of the Small Business Investment Act of 1958. MRCC SBIC commenced operations on September 16, 2013. As of December 31, 2016, MRCC SBIC had $41.0 million in leveragable capital and $51.5 million in SBA-guaranteed debentures outstanding. See SBA Debentures below for more information.
 66    TABLE OF CONTENTS 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, junior or unitranche 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 investment 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 fee income is recorded on the accrual basis to the extent we expect to collect such amounts. In addition, we also generate dividend income on preferred equity securities, common equity securities and LLC interests in accordance with our revenue recognition policies. Expenses Our primary operating expenses include the payment of fees to MC Advisors under the Investment Advisory and Management Agreement (management and incentive fees), and the payment of fees to Monroe Capital Management Advisors, LLC (MC Management) for our allocable portion of overhead and other expenses under 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 Investment Advisory and Management Agreement and Administration agreement. Our expenses also include interest
expense on our revolving credit facility, our SBA-guaranteed debentures and our secured borrowings. We bear all other out-of-pocket costs and expenses of our operations and transactions. Net gain (loss) on investments and secured borrowings We recognize realized gains or losses on investments based on the difference between the net proceeds from the disposition and the cost basis of the investment without regard to unrealized gains or losses previously recognized. We record current period changes in fair value of investments and secured borrowings within net change in unrealized appreciation (depreciation) on investments and net change in unrealized (appreciation) depreciation on secured borrowings, respectively, in the consolidated statements of operations. Portfolio and Investment Activity During the year ended December 31, 2016, we invested $105.2 million in 21 new portfolio companies and $42.6 million in 16 existing portfolio companies and had $81.4 million in aggregate amount of sales and principal repayments, resulting in net investments of $66.4 million for the year. During the year ended December 31, 2015, we invested $144.8 million in 24 new portfolio companies and $48.8 million in 16 existing portfolio companies and had $88.4 million in aggregate amount of sales and principal repayments, resulting in net investments of $105.2 million for the year. During the year ended December 31, 2014, we invested $120.4 million in 25 new portfolio companies and $11.8 million in six existing portfolio companies and had $107.1 million in aggregate amount of sales and principal repayments, resulting in net investments of $25.1 million for the year.
 67    TABLE OF CONTENTS The following tables show the composition of the investment portfolio (in thousands) and associated yield data:  December 31, 2016Fair Value

          

          Percentage ofTotal Portfolio

          

          Weighted AverageAnnualizedContractualCoupon Yield(1)

          

          Weighted AverageAnnualized EffectiveYield(1)Senior secured loans

          

          $

          275,253

          

          

          

          66.7

          %

          

          

          9.2

          %

          

          

          9.2

          %Unitranche loans

          

          

          51,638

          

          

          

          12.5

          

          

          

          10.9

          

          

          

          11.4Junior secured loans

          

          

          59,366

          

          

          

          14.4

          

          

          

          9.7

          

          

          

          9.7Equity securities

          

          

          26,663

          

          

          

          6.4

          

          

          

          10.8

          

          

          

          10.8Total

          

          $

          412,920

          

          

          

          100.0

          %

          

          

          9.5

          %

          

          

          9.6

          %
  December 31, 2015Fair Value

          

          Percentage ofTotal Portfolio

          

          Weighted AverageAnnualizedContractualCoupon Yield(1)

          

          Weighted AverageAnnualized EffectiveYield(1)Senior secured loans

          

          $

          190,559

          

          

          

          55.9

          %

          

          

          10.4

          %

          

          

          10.4

          %Unitranche loans

          

          

          68,090

          

          

          

          20.0

          

          

          

          10.7

          

          

          

          12.0Junior secured loans

          

          

          63,388

          

          

          

          18.6

          

          

          

          9.4

          

          

          

          9.4Equity securities

          

          

          19,054

          

          

          

          5.5

          

          

          

          10.8

          

          

          

          10.8Total

          

          $

          341,091

          

          

          

          100.0

          %

          

          

          10.3

          %

          

          

          10.6

          %
  (1)

          Based upon the par value of our debt investments and the cost basis of our preferred equity investments. The shift in portfolio composition from December 31, 2015 primarily reflects our investment of a substantial portion of the capital from our public offering during the year ended December 31, 2016 into senior secured loan assets. The decline in effective rate reflects the general market yield pressure on new loans originated and acquired during the year ended December 31, 2016 and the shift in portfolio mix toward senior secured loans. Additionally, the placement of our investments in TPP Operating Inc. and Answers Corporation on non-accrual status during the year ended December 31, 2016 contributed to the decline in effective
rates. The following table shows the portfolio composition by industry grouping at fair value (dollars in thousands):  December 31, 2016

          

          December 31, 2015Investments atFair Value

          

          Percentage ofTotal Portfolio

          

          Investments atFair Value

          

          Percentage ofTotal PortfolioAerospace & Defense

          

          $

          10,601

          

          

          

          2.6

          %

          

          $

          6,489

          

          

          

          1.9

          %Automotive

          

          

          7,514

          

          

          

          1.8

          

          

          

          5,358

          

          

          

          1.6Banking, Finance, Insurance & Real Estate

          

          

          37,130

          

          

          

          9.0

          

          

          

          17,230

          

          

          

          5.1Beverage, Food & Tobacco

          

          

          16,794

          

          

          

          4.1

          

          

          

          5,532

          

          

          

          1.6Chemicals, Plastics & Rubber

          

          

          4,040

          

          

          

          1.0

          

          

          

          3,948

          

          

          

          1.2Construction & Building

          

          

          18,602

          

          

          

          4.5

          

          

          

          18,867

          

          

          

          5.5Consumer Goods: Durable

          

          

          3,620

          

          

          

          0.9

          

          

          

          4,223

          

          

          

          1.2Consumer Goods: Non-Durable

          

          

          32,000

          

          

          

          7.7

          

          

          

          49,006

          

          

          

          14.4Containers, Packaging & Glass

          

          

          3,663

          

          

          

          0.9

          

          

          

          3,400

          

          

          

          1.0Energy: Oil & Gas

          

          

          7,803

          

          

          

          1.9

          

          

          

          9,077

          

          

          

          2.7Environmental Industries

          

          

          3,768

          

          

          

          0.9

          

          

          

          

          

          

          

          Healthcare & Pharmaceuticals

          

          

          56,435

          

          

          

          13.7

          

          

          

          53,677

          

          

          

          15.7High Tech Industries

          

          

          18,899

          

          

          

          4.6

          

          

          

          16,006

          

          

          

          4.7Hotels, Gaming & Leisure

          

          

          38,010

          

          

          

          9.2

          

          

          

          19,510

          

          

          

          5.7Media: Advertising, Printing & Publishing

          

          

          11,742

          

          

          

          2.8

          

          

          

          12,729

          

          

          

          3.7
 68    TABLE OF CONTENTS December 31, 2016

          

          December 31, 2015Investments atFair Value

          

          Percentage ofTotal Portfolio

          

          Investments atFair Value

          

          Percentage ofTotal PortfolioMedia: Broadcasting & Subscription

          

          

          18,046

          

          

          

          4.4

          

          

          

          18,641

          

          

          

          5.5Media: Diversified & Production

          

          

          4,938

          

          

          

          1.2

          

          

          

          4,925

          

          

          

          1.4Metals & Mining

          

          

          5,268

          

          

          

          1.3

          

          

          

          7,396

          

          

          

          2.2Retail

          

          

          38,147

          

          

          

          9.2

          

          

          

          17,026

          

          

          

          5.0Services: Business

          

          

          40,164

          

          

          

          9.7

          

          

          

          36,215

          

          

          

          10.6Services: Consumer

          

          

          24,807

          

          

          

          6.0

          

          

          

          27,106

          

          

          

          7.9Telecommunications

          

          

          3,430

          

          

          

          0.8

          

          

          

          

          

          

          

          Utilities: Electric

          

          

          2,999

          

          

          

          0.7

          

          

          

          

          

          

          

          Wholesale

          

          

          4,500

          

          

          

          1.1

          

          

          

          4,730

          

          

          

          1.4Total

          

          $

          412,920

          

          

          

          100.0

          %

          

          $

          341,091

          

          

          

          100.0

          %
 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. MC Advisors also
monitors our investment exposure using a proprietary trend analysis tool. 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 rating. For any investment rated in grades 3, 4 or 5, MC Advisors 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. 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 ratings on a quarterly basis, and our board of directors (the Board) reviews and affirms such ratings. A definition of the rating system follows:  Investment Performance Risk Rating

          

          Summary DescriptionGrade 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). For grade 4 investments, we intend to increase monitoring of the issuer.
 69    TABLE OF CONTENTS Investment Performance Risk Rating

          

          Summary DescriptionGrade 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 and we will reduce the fair market value of the loan to the amount we expect to recover.
 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 applicable analyst, in consultation with a member of 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 required amendments and waivers that may be required. In the event of a dramatic deterioration of a credit, MC Advisors intends to form a team or engage outside advisors to analyze, evaluate and take further steps to preserve
its 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. Several of Monroe Capitals professionals are experienced in running debt work-out transactions and bankruptcies. The following table shows the distribution of our investments on the 1 to 5 investment performance rating scale as of December 31, 2016 (dollars in thousands):  Investment Performance Rating

          

          Investments at Fair Value

          

          Percentage of Total Investments1

          

          $

          

          

          

          

          

          %2

          

          

          360,338

          

          

          

          87.33

          

          

          40,192

          

          

          

          9.74

          

          

          12,390

          

          

          

          3.05

          

          

          

          

          

          

          Total

          

          $

          412,920

          

          

          

          100.0

          %
 The following table shows the distribution of our investments on the 1 to 5 investment performance rating scale as of December 31, 2015 (dollars in thousands):  Investment Performance Rating

          

          Investments at Fair Value

          

          Percentage of Total Investments1

          

          $

          

          

          

          

          

          %2

          

          

          315,358

          

          

          

          92.53

          

          

          19,208

          

          

          

          5.64

          

          

          6,525

          

          

          

          1.95

          

          

          

          

          

          

          Total

          

          $

          341,091

          

          

          

          100.0

          %
 70    TABLE OF CONTENTS Results of Operations Operating results are as follows (dollars in thousands):  For the years ended December 31,2016

          

          2015

          

          2014Total investment income

          

          $

          45,018

          

          

          $

          36,898

          

          

          $

          29,913Total expenses, net of incentive fee waiver

          

          

          22,512

          

          

          

          18,157

          

          

          

          14,838Net investment income

          

          

          22,506

          

          

          

          18,741

          

          

          

          15,075Net realized gain (loss) on investments

          

          

          587

          

          

          

          304

          

          

          

          299Net change in unrealized appreciation (depreciation) on investments

          

          

          1,325

          

          

          

          (1,085

          )

          

          

          (1,537

          )Net change in unrealized (appreciation) depreciation on secured borrowings

          

          

          (53

          )

          

          

          (68

          )

          

          

          72Net increase (decrease) in net assets resulting from operations

          

          $

          24,365

          

          

          $

          17,892

          

          

          $

          13,909
 Investment Income The composition of our investment income was as follows (dollars in thousands):  For the years ended December 31,2016

          

          2015

          

          2014Interest income

          

          $

          36,448

          

          

          $

          32,536

          

          

          $

          26,767Dividend income

          

          

          4,548

          

          

          

          626

          

          

          

          Fee income

          

          

          1,471

          

          

          

          1,401

          

          

          

          1,505Prepayment gain (loss)

          

          

          995

          

          

          

          1,230

          

          

          

          952Accretion of discounts and amortization of premium

          

          

          1,556

          

          

          

          1,105

          

          

          

          689Total investment income

          

          $

          45,018

          

          

          $

          36,898

          

          

          $

          29,913
 The increase in investment income of $8.1 million during the year ended December 31, 2016 is primarily due to an increase in average outstanding loan balances and increases in dividend income, partially offset by declines in the effective yield on the investment portfolio. The increase in investment income of $7.0 million during the year ended December 31, 2015 is primarily due to an increase in average outstanding loan balances. Operating Expenses The composition of our operating expenses was as follows (dollars in thousands):  For the years ended December 31,2016

          

          2015

          

          2014Interest and other debt financing expenses

          

          $

          6,782

          

          

          $

          5,400

          

          

          $

          4,342Base management fees

          

          

          6,347

          

          

          

          5,129

          

          

          

          4,091Incentive fees, net of incentive fee waiver

          

          

          5,504

          

          

          

          4,685

          

          

          

          3,512Professional fees

          

          

          988

          

          

          

          835

          

          

          

          1,138Administrative service fees

          

          

          1,287

          

          

          

          1,078

          

          

          

          876General and administrative expenses

          

          

          779

          

          

          

          799

          

          

          

          659Excise taxes

          

          

          679

          

          

          

          83

          

          

          

          70Directors fees

          

          

          146

          

          

          

          148

          

          

          

          150Total expenses, net of incentive fee waiver

          

          $

          22,512

          

          

          $

          18,157

          

          

          $

          14,838
 71    TABLE OF CONTENTS The composition of our interest and other debt financing expenses was as follows (dollars in thousands):  For the years ended December 31,2016

          

          2015

          

          2014Interest expense  revolving credit facility

          

          $

          4,422

          

          

          $

          3,290

          

          

          $

          3,183Interest expense  SBA debentures

          

          

          1,340

          

          

          

          1,080

          

          

          

          161Amortization of deferred financing costs

          

          

          820

          

          

          

          742

          

          

          

          576Interest expense  secured borrowings

          

          

          123

          

          

          

          198

          

          

          

          374Other

          

          

          77

          

          

          

          90

          

          

          

          48Total interest and other debt financing expenses

          

          $

          6,782

          

          

          $

          5,400

          

          

          $

          4,342
 The increase in expenses of $4.4 million during the year ended December 31, 2016 is primarily due to an increase in base management fees and incentive fees primarily due to the growth in invested assets. Increases in interest expense also contributed to the increase in expenses during the year ended December 31, 2016 as a result of additional borrowings (including SBA-guaranteed debenture borrowings) required to support the growth of the portfolio. The increase in expenses of $3.3 million during the year ended December 31, 2015 is primarily due to an increase in base management fees due to the growth in invested assets and
increased incentive fees resulting from improvement in performance. Increases in interest expense also contributed to the increase in expenses during the year ended December 31, 2015 as a result of additional borrowings (including SBA-guaranteed debentures) required to support the growth of the portfolio. Net Realized Gain (Loss) on Investments During the years ended December 31, 2016, 2015 and 2014, we had sales of investments of $0.6 million, $0.4 million and $19.0 million, respectively, resulting in net realized gain (loss) on investments of $0.6 million, $0.3 million and $0.3 million, respectively. Net Change in Unrealized Appreciation (Depreciation) on Investments and Secured Borrowings For the years ended December 31, 2016, 2015 and 2014, our investments had $1.3 million, ($1.1) million and ($1.5) million of net change in unrealized appreciation (depreciation), respectively. Net change in unrealized appreciation (depreciation) includes both unrealized appreciation on investments in our portfolio with mark-to-market gains during the year and unrealized depreciation on investments in our portfolio with mark-to-market losses during the year. During the year ended December 31, 2016, one of our portfolio companies, TPP Operating, Inc. (formerly TPP Acquisition, Inc., collectively, TPP) filed for
bankruptcy and underwent a restructuring process. Net unrealized depreciation on our investments in TPP were $5.1 million and $5.7 million during the years ended December 31, 2016 and 2015, respectively. See Note 5 in our attached consolidated financial statements for additional information on the TPP restructuring and the valuation of these investments. For the years ended December 31, 2016, 2015 and 2014 our secured borrowings had ($0.1) million, ($0.1) million and $0.1 million of net change in unrealized (appreciation) depreciation, respectively. Net Increase (Decrease) in Net Assets Resulting from Operations For the years ended December 31, 2016, 2015 and 2014, we recorded a net increase in net assets resulting from operations of $24.4 million, $17.9 million and $13.9 million, respectively. Based on the weighted average shares of common stock outstanding for the years ended December 31, 2016, 2015 and 2014 our per share net increase in net assets resulting from operations was $1.68, $1.53 and $1.45, respectively. The increase of $6.5 million during the year ended December 31, 2016 is primarily the result of increases in net investment income due to portfolio growth and increases in net unrealized appreciation in the investment
portfolio. The increase of $4.0 million during the year ended December 31, 2015 is primarily the result of increases in net investment income due to portfolio growth. Liquidity and Capital Resources As of December 31, 2016, we had $6.0 million in cash, $2.4 million in cash at MRCC SBIC, $129.0 million of total debt outstanding on our revolving credit facility and $51.5 million in outstanding
 72    TABLE OF CONTENTS SBA-guaranteed debentures. We had $31.0 million available for additional borrowings on our revolving credit facility and $63.5 million in available SBA-guaranteed debentures. See Borrowings below for additional information. Cash Flows For the year ended December 31, 2016, we experienced a net decrease in cash and restricted cash of $5.5 million. During the same period we used $51.9 million in operating activities, primarily as a result of purchases of portfolio investments, partially offset by sales of and principal repayments on portfolio investments. During the same year, we generated $46.3 million from financing activities, principally from net proceeds from our capital raises during the period, net borrowings on our revolving credit facility and SBA-guaranteed debenture borrowings, partially offset by distributions to stockholders and decreases in
secured borrowings. For the year ended December 31, 2015, we experienced a net increase in cash and restricted cash of $8.1 million. During the same period we used $82.7 million in operating activities, primarily as a result of purchases of portfolio investments, partially offset by sales of and principal repayments on portfolio investments. During the same period, we generated $90.8 million from financing activities, principally from net proceeds from our capital raises during the period, net borrowings on our revolving credit facility and SBA-guaranteed debenture borrowings, partially offset by distributions to stockholders and decreases in
secured borrowings. For the year ended December 31, 2014, we experienced a net decrease in cash and restricted cash of $8.9 million. During the same period we used $11.5 million in operating activities, primarily as a result of purchases of portfolio investments, partially offset by sales of and principal repayments on portfolio investments. During the same period, we generated $2.6 million from financing activities, principally from net borrowings on our revolving credit facility and SBA-guaranteed debenture borrowings, partially offset by distributions to stockholders, repurchases of our common stock and decreases in secured borrowings. 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. As a BDC, we are generally not permitted to issue and sell our common stock at a price below net asset value 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 net asset value per share of our common stock if our Board, including independent directors, determines that such sale is in the best interests of us and our stockholders, and if our stockholders approved such sales. On July 14, 2016, our stockholders 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 December 31, 2016 and 2015, we had 16,581,869 and 13,008,007 shares outstanding, respectively. 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 February 6, 2015, we entered into an at-the-market (ATM) securities offering program with MLV & Co. LLC and JMP Securities LLC through which we may sell, by means of ATM offerings from time to time, up to $50.0 million of our common stock. During the year ended December 31, 2015, we sold 672,597 shares at an average price of $14.88 per share for gross proceeds of $10.0 million under the ATM program. Aggregate underwriters discounts and commissions were $0.2 million and offering costs were $0.08 million, resulting in net proceeds of approximately $9.8 million. On April 20, 2015, we closed a public offering of 2,450,000 shares of its common stock at a public offering price of $14.85 per share, raising approximately $36.4 million in gross proceeds. On May 18, 2015,
 73    TABLE OF CONTENTS we sold an additional 367,500 shares of our common stock, at a public offering price of $14.85 per share, raising approximately $5.5 million in gross proceeds pursuant to the underwriters exercise of the over-allotment option. Aggregate underwriters discounts and commissions were $1.7 million and offering costs were $0.3 million, resulting in net proceeds of $39.9 million on these non-ATM program issuances during the year ended December 31, 2015. On July 1, 2016, we entered into an amendment to MLVs equity distribution agreement and an assignment agreement to replace MLV with FBR Capital Markets & Co., an affiliate of MLV. During the year ended December 31, 2016, we did not make any sales of our common stock under the ATM program. On July 25, 2016, we closed a public offering of 3,100,000 shares of our common stock at a public offering price of $15.50 per share, raising approximately $48.1 million in gross proceeds. On August 3, 2016, we sold an additional 465,000 shares of our common stock, at a public offering price of $15.50 per share, raising approximately $7.2 million in gross proceeds pursuant to the underwriters exercise of the over-allotment option. Aggregate underwriters discounts and commissions were $2.2 million and offering costs were $0.5 million, resulting in net proceeds of $52.5 million. Borrowings Revolving Credit Facility:   As of December 31, 2016 and 2015, we had $129.0 million and $123.7 million outstanding, respectively, under our revolving credit facility with ING Capital LLC, as agent, to finance the purchase of our assets. As of December 31, 2016 and 2015, the maximum amount we were able to borrow under the revolving credit facility was $160.0 million and this maximum borrowing can be increased to $300.0 million pursuant to an accordion feature (subject to maintaining 200% asset coverage, as defined by the 1940 Act). The maturity date on the facility is December 14, 2020. The revolving credit facility is secured by a lien on all of our assets, including cash on hand, but excluding the assets of our wholly-owned subsidiary, MRCC SBIC. Our ability to borrow under the revolving credit facility is subject to availability under a defined borrowing base, which varies based on our portfolio characteristics and certain eligibility criteria and concentration limits, as well as required valuation methodologies. We may make draws under the revolving credit facility to make or purchase additional investments through December 2019 and for general working capital purposes until the maturity date of the
revolving credit facility. Borrowings under the revolving credit facility bear interest, at our election, at an annual rate of LIBOR (one-month, two-month, three-month or six-month at our discretion based on the term of the borrowing) plus 3.00%, with a further step-down to LIBOR plus 2.75% when net worth (excluding investments in MRCC SBIC) exceeds $225.0 million or at a daily rate equal to 2.00% per annum plus the greater of the prime interest rate, the federal funds rate plus 0.5% or LIBOR plus 1.0%. In addition to the stated interest rate on borrowings under the revolving credit facility, we are required to pay a fee of 0.5% per annum on any unused portion of the revolving credit facility if the unused portion of the facility is less than 65% of the then available maximum borrowing or a fee of 1.0% per annum on any unused portion of the revolving credit facility if the unused portion of the facility is greater than or equal to 65% of the then available maximum borrowing. As of
December 31, 2016 and 2015, the outstanding borrowings were accruing at an average interest rate of 3.8% and 3.4% (based on one-month LIBOR), respectively. The weighted average interest rate of our revolving credit facility borrowings (excluding debt issuance costs) for the years ended December 31, 2016, 2015 and 2014 was 3.6%, 3.6% and 3.4%, respectively. The weighted average fee rate on our unused portion of the revolving credit facility for the years ended December 31, 2016, 2015 and 2014 was 0.5%, 0.5% and 0.5%, respectively. Our ability to borrow under the revolving credit facility is subject to availability under the borrowing base, which permits us to borrow up to 70% of the fair market value of our portfolio company investments depending on the type of the investment we hold and whether the investment is quoted. Our ability to borrow is also subject to certain concentration limits, and our continued compliance with the representations, warranties and covenants given by us under the facility. The revolving credit facility contains certain financial and restrictive covenants, including, but not limited to, our maintenance of: (1) a minimum
consolidated net worth at least equal to the greater of (a) 40% of the consolidated total assets on the last day of each quarter or (b) $120.0 million plus 65% of the net proceeds to us from sales of our securities after December 14, 2015; (2) a ratio of total assets (less total liabilities other than indebtedness) to total indebtedness of not less than
 74    TABLE OF CONTENTS 2.1 times; and (3) a ratio of earnings before interest and taxes to interest expense of at least 2.5 times. The 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 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. SBA Debentures:  On February 28, 2014, our wholly-owned subsidiary, MRCC SBIC, received a license from the SBA to operate as a SBIC under Section 301(c) of the Small Business Investment Act of 1958, as amended. MRCC SBIC commenced operations on September 16, 2013. The SBIC license allows MRCC SBIC to obtain leverage by issuing SBA-guaranteed debentures, subject to the issuance of a leverage commitment by the SBA and other customary procedures. SBA-guaranteed debentures are non-recourse, interest only debentures with interest payable semi-annually and have a ten year maturity. The principal amount of SBA-guaranteed debentures is not required to be paid prior to maturity but may be prepaid at any time without penalty. The interest rate of SBA-guaranteed debentures is fixed on a semi-annual basis (pooling date) at a market-driven spread over U.S. Treasury Notes with 10-year maturities. The
SBA, as a creditor, has a superior claim to MRCC SBICs assets over our stockholders in the event we liquidate MRCC SBIC or the SBA exercises its remedies upon an event of default. SBA regulations currently limit the amount that an individual SBIC may borrow to a maximum of $150.0 million when it has at least $75.0 million in regulatory capital, receives a leverage commitment from the SBA and has been through an audit examination by the SBA subsequent to licensing. The SBA also historically limited a related group of SBICs (commonly referred to as a family of funds) to a maximum of $225.0 million in total borrowings. On December 18, 2015, this family of funds limitation was raised to $350.0 million in total borrowings. As we have other affiliated SBICs already in operation, MRCC SBIC was
historically limited to a maximum of $40.0 million in borrowings. Pursuant to the increase in the family of funds limitation, we submitted a commitment application to the SBA and on April 13, 2016 we were approved for $75.0 million in additional SBA-guaranteed debentures for MRCC SBIC for a total of $115.0 million in available debentures. As of December 31, 2016, MRCC SBIC had $41.0 million in leveragable capital and $51.5 million in SBA-guaranteed debentures outstanding. In order to gain access to the entirety of the $63.5 million in remaining available debentures, we would be required to contribute to MRCC SBIC an additional $16.5 million in leveragable capital. As of December 31, 2015, MRCC SBIC had $20.0 million in leveragable capital and $40.0 million in SBA-guaranteed debentures outstanding. As of December 31, 2016, MRCC SBIC had the following SBA-guaranteed debentures outstanding (dollars in thousands):  Maturity Date

          

          Interest Rate

          

          AmountSeptember 2024

          

          

          3.4

          %

          

          $

          12,920March 2025

          

          

          3.3

          %

          

          

          14,800March 2025

          

          

          2.9

          %

          

          

          7,080September 2025

          

          

          3.6

          %

          

          

          5,200March 2027

          

          

          2.1

          %(1)

          

          

          9,200March 2027

          

          

          2.0

          %(1)

          

          

          2,300Total

          

          

          

          

          

          $

          51,500
  (1)

          Represents an interim rate of interest as the SBA-guaranteed debentures have not yet pooled.
 75    TABLE OF CONTENTS As of December 31, 2015, MRCC SBIC had the following SBA-guaranteed debentures outstanding (dollars in thousands):  Maturity Date

          

          Interest Rate

          

          AmountSeptember 2024

          

          

          3.4

          %

          

          $

          12,920March 2025

          

          

          3.3

          %

          

          

          14,800March 2025

          

          

          2.9

          %

          

          

          7,080September 2025

          

          

          3.6

          %

          

          

          5,200Total

          

          

          

          

          

          $

          40,000
 On October 2, 2014, we were granted exemptive relief from the SEC for permission to exclude the debt of MRCC SBIC guaranteed by the SBA from the 200% asset coverage test under the 1940 Act. The receipt of this exemption for this SBA-guaranteed debt increases flexibility under the 200% asset coverage test. Secured Borrowings:  Certain partial loan sales do not qualify for sale accounting under ASC Topic 860  Transfers and Servicing (ASC Topic 860) because these sales do not meet the definition of a participating interest, as defined in the guidance, in order for sale treatment to be allowed. Participations or other partial loan sales which do not meet the definition of a participating interest remain as an investment on the accompanying consolidated statements of assets and liabilities and the portion sold is recorded as a secured borrowing in the liabilities
section of the consolidated statements of assets and liabilities. For these partial loan sales, the interest earned on the entire loan balance is recorded within interest income and the interest earned by the buyer in the partial loan sale is recorded within interest and other debt financing expenses in the accompanying consolidated statements of operations. As of December 31, 2016, secured borrowings at fair value totaled $1.3 million and the fair value of the loans that are associated with these secured borrowings was $5.8 million. As of December 31, 2015, secured borrowings at fair value totaled $2.5 million and the fair value of the loans that are associated with these secured borrowings was $11.8 million. These secured borrowings were created as a result of our completion of partial loan sales of certain unitranche loan assets during the year ended December 31, 2013, that did not meet the definition of a participating interest. As a result, sale treatment was not
allowed and these partial loan sales were treated as secured borrowings. No such partial loan sales occurred during the year ended December 31, 2016 and 2015. During the year ended December 31, 2016 and 2015, repayments on secured borrowings totaled $1.2 million and $1.6 million, respectively. The weighted average interest rate on our secured borrowings was approximately 6.3% and 5.8% as of December 31, 2016 and 2015, respectively. Share Repurchase Plan On November 11, 2013, our Board approved a share repurchase plan (Plan) under which up to $7.5 million of our outstanding common stock was allowed to be acquired in the open market at prices below our NAV as reported in our then most recently published consolidated financial statements. The Plan was implemented at the discretion of management and expired on November 10, 2014. During the year ended December 31, 2014, we repurchased 400,359 shares of common stock in open market transactions for an aggregate cost (including transaction costs) of $5.2 million. Over the life of the Plan, we repurchased 485,162 shares of common stock in open market transactions for an aggregate cost (including transaction costs) of $6.3 million. We are incorporated in Maryland and under the law of that state, shares repurchased are considered retired (repurchased shares become authorized but unissued shares) rather than treasury stock. As a result, the cost of stock repurchases is recorded as a reduction to capital in
excess of par value on the consolidated statements of changes in net assets. Distribution Policy 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
 76    TABLE OF CONTENTS out of the assets legally available for such distributions. Distributions to stockholders for years ended December 31, 2016, 2015 and 2014 totaled $20.6 million ($1.40 per share), $16.7 million ($1.40 per share) and $13.0 million ($1.36 per share), respectively, none of which represented return of capital.  We have adopted an opt out dividend reinvestment plan (DRIP) for our common stockholders. As a result, if we declare a distribution, our stockholders cash distributions will be automatically 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. Related Party Transactions We have a number of business relationships with affiliated or related parties, including the following: 

          We have an Investment Advisory and Management Agreement with MC Advisors, an investment advisor registered with the SEC, to manage our day-to-day operating and investing activities. We pay MC Advisors a fee for its services under the Investment Advisory and Management 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. 

          Theodore L. Koenig, our Chief Executive Officer and Chairman of our Board is also a manager of MC Advisors and the President and Chief Executive Officer of MC Management. Aaron D. Peck, our Chief Financial Officer and Chief Investment Officer, serves as a director on our Board and 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 The following table shows our significant contractual payment obligations for repayment as of December 31, 2016 (dollars in thousands):  Total

          

          Less than1 year

          

          1  3 years

          

          3  5 years

          

          More than5 yearsRevolving credit facility

          

          $

          129,000

          

          

          $

          

          

          

          $

          

          

          

          $

          129,000

          

          

          $

          SBA debentures payable

          

          

          51,500

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          51,500Unfunded commitments(1)

          

          

          37,716

          

          

          

          37,716

          

          

          

          

          

          

          

          

          

          

          

          Total contractual obligations(2)

          

          $

          218,216

          

          

          $

          37,716

          

          

          $

          

          

          

          $

          129,000

          

          

          $

          51,500
  (1)

          Unfunded commitments represent all amounts unfunded as of December 31, 2016. These amounts may or may not be funded to the borrowing party now or in the future. The unfunded commitments relate to loans 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, 2016. (2)

          Total contractual obligations excludes $1.3 million of secured borrowings. 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
 77    TABLE OF CONTENTS to extend credit and involve, to varying degrees, elements of liquidity and credit risk in excess of the amount recognized in the consolidated statements of assets and liabilities. If any of the contractual obligations discussed above are terminated, our costs under any new agreements that we enter into may increase. Off-Balance Sheet Arrangements We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. Market Trends We have identified the following 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 is
increased competitive pressure in the BDC and investment company marketplace for senior and subordinated debt which could result in lower yields for increasingly riskier assets. Pricing and Deal Structures:  We believe that the volatility in global markets over the last several years and current macroeconomic issues such as a weakened U.S. economy 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. Recent capital raises in the BDC and investment company marketplace have created increased competition; however, we believe that current market conditions may continue to create favorable opportunities to invest at attractive risk-adjusted returns. Recent Developments On February 22, 2017, we closed a $40.0 million upsize to our revolving credit facility led by ING, from $160.0 million to $200.0 million in revolving commitments, in accordance with the facilitys accordion feature. On March 7, 2017, the Board declared a quarterly dividend of $0.35 per share payable on March 31, 2017 to holders of record on March 17, 2017.
 78    TABLE OF CONTENTS 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 securities 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 securities if we have reason to doubt our ability to collect such interest. Loan origination fees, original issue discount and market discount or premium is capitalized, and we then amortize such amounts using the effective interest method as interest income over the life of the
investment. Upon the prepayment of a loan or debt security, any unamortized premium or discount or loan origination fees are recorded as interest income. We record prepayment premiums on loans and debt securities as interest income when we receive such amounts. Dividend income on preferred equity securities 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 securities 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. Valuation of Portfolio Investments As a BDC, we generally invest in illiquid securities including debt and, to a lesser extent, equity securities of middle-market companies. Under procedures established by our Board, we value investments for which market quotations are readily available and within a recent date at such market quotations. We obtain these market values from an independent pricing service or at the mean between the bid and ask prices obtained from at least two brokers or dealers (if available, otherwise by a principal market maker or a primary market dealer). When doing so, we determine whether the quote obtained is sufficient in accordance with
generally accepted accounting principles in the United States (GAAP) to determine the fair value of the security. Investments purchased within 60 days of maturity are valued at cost plus accreted discount, or minus amortized premium, which approximates fair value. Our Board is ultimately and solely responsible for determining the fair value of the portfolio investments that are not publicly traded, whose market prices are not readily available on a quarterly basis in good faith or any other situation where portfolio investments require a fair value determination. 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 Board using a documented valuation policy and a consistently applied valuation process. 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. With respect to investments for which market quotations are not readily available, our Board undertakes a multi-step valuation process each quarter, as described below: 

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

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

          our Board engages one or more independent valuation firm(s) to conduct fair value appraisals of material investments for which market quotations are not readily available. These fair value appraisals for material investments are received at least once in every calendar year for each portfolio company investment, but are generally received quarterly;
 79    TABLE OF CONTENTS 

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

          our Board discusses these valuations and determines the fair value of each investment in the portfolio in good faith, based on the input of MC Advisors, the independent valuation firm(s) and the audit committee. The Board, together with our independent valuation firms, generally uses the yield 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, we 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 under the market approach or the proceeds that would be received in a liquidation analysis. We generally consider 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 or is otherwise not deemed to be impaired. In determining the fair value of the performing debt, the Company considers fluctuations in current interest rates, the trends in yields of debt instruments with similar credit ratings, financial condition of the borrower, economic conditions and other relevant factors, both qualitative and quantitative. In the event that a debt instrument is not performing, as defined above, we will evaluate the value of the collateral utilizing the same framework described above for a performing loan to determine the value of the loan. Under the yield approach, we utilize discounted cash flow models 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 yield approach, we also consider the following factors: applicable market yields and leverage levels, credit quality, prepayment penalties, the nature and realizable value of any collateral, the portfolio companys ability to make payments, and changes in the interest rate environment and the credit markets that generally may affect the price
at which similar investments may be made. Under the market approach, we typically use the enterprise value methodology to determine the fair value of an investment. There is no one methodology to estimate enterprise value and, in fact, for any one portfolio company, enterprise value is generally best expressed as a range of values, from which we derive a single estimate of enterprise value. In estimating the enterprise value of a portfolio company, we 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. Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation We measure realized gains or losses by the difference between the net proceeds from the sale and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized. Net change in unrealized appreciation or depreciation reflects the change in portfolio investment values during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are realized. We report changes in the fair value of secured borrowings that are measured at fair value as a component of the net change in unrealized (appreciation)
depreciation on secured borrowings in the consolidated statements of operations. Capital Gains Incentive Fee Pursuant to the terms of the Investment Advisory and Management 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 investment advisory and administrative services agreement). This fee equals 20.0% 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
 80    TABLE OF CONTENTS 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 Investment Advisory and Management 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 year ended December 31, 2016, we accrued capital gains incentive fees of $0.2 million based on the performance of our portfolio, none of which was payable to MC Advisors. During the year ended December 31, 2015, we did not accrue any capital gains incentive fees based on the performance of our portfolio. During the year ended December 31, 2014, we had a reduction in accrued capital gains incentive fees of $0.2 million, primarily as a result of declines in certain portfolio valuations. New Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (ASC Topic 606) (ASU 2014-09). The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: Step 1: Identify the contract(s) with a customer. Step 2:
Identify the performance obligations in the contract. Step 3: Determine the transaction price. Step 4: Allocate the transaction price to the performance obligations in the contract. Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 also specified the accounting for some costs to obtain or fulfill a contract with a customer. In addition, ASU 2014-09 requires that an entity disclose sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The initial effective date of ASU 2014-09 was for fiscal periods beginning after December 15, 2016. However, in August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (ASC Topic 606): Deferral of the Effective Date, which deferred the effective
date to fiscal periods beginning after December 15, 2017. Management is currently evaluating the impact these changes will have on our consolidated financial statements and disclosures. In February 2015, the FASB issued ASU 2015-02, Consolidation (ASC Topic 810): Amendments to the Consolidation Analysis (ASU 2015-02). ASU 2015-02 significantly changes the consolidation analysis required under GAAP and ends the deferral granted to investment companies from applying the variable interest entity guidance. ASU 2015-02 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2015 and early adoption is permitted. We have adopted ASU 2015-02 and the adoption did not have a material impact on our consolidated financial statements and disclosures. In April 2015, the FASB issued ASU No. 2015-03, Interest  Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (ASU 2015-03). ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the statements of assets and liabilities as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. ASU 2015-03 is effective for fiscal years that begin after December 15,
2015 and early adoption is permitted. We have adopted ASU 2015-03 and the revised presentation is reflected in our consolidated financial statements for the periods presented. In January 2016, the FASB issued ASU 2016-01, Financial Instruments  Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01). ASU 2016-01
 81    TABLE OF CONTENTS retains many current requirements for the classification and measurement of financial instruments; however, it significantly revises an entitys accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. ASU 2016-01 also amends certain disclosure requirements associated with the fair value of financial instruments. This guidance is effective for annual and interim periods beginning after December 15, 2017, and early adoption is not permitted for public business entities. Management
is currently evaluating the impact these changes will have on our consolidated financial statements and disclosures. In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18). ASU 2016-18 requires that the statements of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statements of cash flows. The new guidance is
effective for annual and interim periods, beginning after December 15, 2017, and early adoption is permitted and is to be applied on a retrospective basis. We have adopted ASU 2016-18 and the revised presentation is reflected in our consolidated financial statements for the periods presented. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are subject to financial market risks, including changes in interest rates. The majority of the loans in our portfolio have floating interest rates, and we expect that our loans in the future may also have floating interest rates. These loans are usually based on a floating LIBOR and typically have interest rate re-set provisions that adjust applicable interest rates under such loans to current market rates on a monthly or quarterly basis. The majority of the loans in our current portfolio have interest rate floors which have effectively converted the loans to fixed rate loans in the current interest rate environment. In
addition, our credit facility has a floating interest rate provision and we expect that other credit facilities into which we enter in the future may have floating interest rate provisions. Assuming that the consolidated statement of financial condition as of December 31, 2016 were to remain constant and that we took no actions to alter our existing interest rate sensitivity, the following table shows the annualized impact of hypothetical base rate changes in interest rates.  Change in Interest Rates

          

          Increase (decrease)in interest income

          

          Increase (decrease)in interest expense

          

          Net increase (decrease)in investment income(in thousands)Down 25 basis points

          

          $

          (315

          )

          

          $

          (326

          )

          

          $

          11Up 100 basis points

          

          

          2,858

          

          

          

          1,303

          

          

          

          1,555Up 200 basis points

          

          

          6,570

          

          

          

          2,606

          

          

          

          3,964Up 300 basis points

          

          

          10,282

          

          

          

          3,910

          

          

          

          6,372
 Although we believe that this analysis is indicative of our existing sensitivity to interest rate changes, it does not adjust for changes in the credit market, credit quality, the size and composition of the assets in our portfolio and other business developments, including borrowing under the credit facility or other borrowings that could affect net increase in net assets resulting from operations, or net income. Accordingly, we can offer no assurances that actual results would not differ materially from the analysis above.
 82    TABLE OF CONTENTS We may in the future hedge against interest rate fluctuations by using standard hedging instruments such as futures, options and forward contracts to the extent permitted under the 1940 Act and applicable commodities laws. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in the benefits of lower interest rates with respect to the investments in our portfolio with fixed interest rates or interest rate floors. ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Our consolidated financial statements are annexed to this Annual Report beginning on page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. CONTROLS AND PROCEDURES Disclosure Controls and Procedures In accordance with Rules 13a-15(b) and 15d-15(b) of the Securities Exchange Act of 1934, as amended (the Exchange Act), we, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that, at the end of the period covered by our Annual Report on Form 10-K, our disclosure controls and
procedures were effective and provided reasonable assurance that information required to be disclosed in our periodic SEC filings is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in the Companys periodic reports. Managements Annual Report on Internal Control Over Financial Reporting The Companys management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act). Under the supervision and with participation of our Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of internal control over financial reporting based on the criteria established in Internal Control  Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the Companys evaluation
under the framework in Internal Control  Integrated Framework (2013), management concluded that the Companys internal control over financial reporting was effective as of December 31, 2016. Changes in Internal Control Over Financial Reporting No change occurred in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the year ended December 31, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION None.
 83    TABLE OF CONTENTS PART III We will file a definitive Proxy Statement for our 2017 Annual Meeting of Stockholders with the Securities and Exchange Commission (the SEC), pursuant to Regulation 14A, not later than 120 days after the end of our fiscal year. Accordingly, certain information required by Part III has been omitted under General Instruction G(3) to Form 10-K. Only those sections of our definitive Proxy Statement that specifically address the items set forth herein are incorporated by reference. ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The information required by Item 10 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2017 Annual Meeting of Stockholders, to be filed with the SEC within 120 days following the end of our fiscal year. ITEM 11. EXECUTIVE COMPENSATION The information required by Item 11 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2017 Annual Meeting of Stockholders, to be filed with the SEC within 120 days following the end of our fiscal year. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required by Item 12 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2017 Annual Meeting of Stockholders, to be filed with the SEC within 120 days following the end of our fiscal year. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required by Item 13 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2017 Annual Meeting of Stockholders, to be filed with the SEC within 120 days following the end of our fiscal year. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required by Item 14 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2017 Annual Meeting of Stockholders, to be filed with the SEC within 120 days following the end of our fiscal year.
 84    TABLE OF CONTENTS PART IV ITEM 15. EXHIBITS AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES The following exhibits are included, or incorporated by reference, in this Annual Report on Form 10-K for the year ended December 31, 2016 (and are numbered in accordance with Item 601 of Regulation S-K). (a)(1) and (2) Consolidated Financial Statements and Schedules See the Index to Consolidated Financial Statements at page F-1 of this report.
 85    TABLE OF CONTENTS INDEX TO CONSOLIDATED FINANCIAL STATEMENTS  PageReport of Independent Registered Public Accounting Firm





F-2Consolidated Financial Statements:Consolidated Statements of Assets and Liabilities as of December 31, 2016 and 2015





F-3Consolidated Statements of Operations for the years ended December 31, 2016, 2015 and 2014





F-4Consolidated Statements of Changes in Net Assets for the years ended December 31, 2016, 2015 and 2014





F-5Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015 and 2014





F-6Consolidated Schedules of Investments as of December 31, 2016 and 2015





F-7Notes to Consolidated Financial Statements





F-16
 F-1    TABLE OF CONTENTS REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and StockholdersMonroe Capital Corporation and Subsidiaries We have audited the accompanying consolidated statements of assets and liabilities, including the consolidated schedules of investments, of Monroe Capital Corporation and Subsidiaries (collectively, the Company) as of December 31, 2016 and 2015, and the related consolidated statements of operations, changes in net assets and cash flows for each of the three years in the period ended December 31, 2016. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of investments owned as of December 31, 2016 and 2015, by correspondence with the custodian and brokers. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Monroe Capital Corporation and Subsidiaries as of December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America. /s/ RSM US LLP Chicago, Illinois March 7, 2017
 F-2    TABLE OF CONTENTS MONROE CAPITAL CORPORATION  CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES (in thousands, except per share data)  December 31, 2016

          

          December 31, 2015ASSETSInvestments, at fair value:Non-controlled/non-affiliate company investments

          

          $

          353,980

          

          

          $

          295,819Non-controlled affiliate company investments

          

          

          50,041

          

          

          

          38,747Controlled affiliate company investments

          

          

          8,899

          

          

          

          6,525Total investments, at fair value (amortized cost of: $413,242 and $342,738, respectively)

          

          

          412,920

          

          

          

          341,091Cash

          

          

          5,958

          

          

          

          5,278Restricted cash

          

          

          2,373

          

          

          

          8,588Interest receivable

          

          

          2,643

          

          

          

          1,606Other assets

          

          

          651

          

          

          

          747Total assets

          

          

          424,545

          

          

          

          357,310LIABILITIESDebt:Revolving credit facility

          

          

          129,000

          

          

          

          123,700SBA debentures payable

          

          

          51,500

          

          

          

          40,000Total debt

          

          

          180,500

          

          

          

          163,700Less: Unamortized deferred financing costs

          

          

          (3,945

          )

          

          

          (3,569

          )Total debt, less unamortized deferred financing costs

          

          

          176,555

          

          

          

          160,131Secured borrowings, at fair value (proceeds of: $1,320 and $2,535, respectively)

          

          

          1,314

          

          

          

          2,476Payable for open trades

          

          

          

          

          

          

          5,297Interest payable

          

          

          735

          

          

          

          577Management fees payable

          

          

          1,749

          

          

          

          1,503Incentive fees payable

          

          

          1,222

          

          

          

          1,251Accounts payable and accrued expenses

          

          

          2,120

          

          

          

          1,466Directors fees payable

          

          

          

          

          

          

          74Total liabilities

          

          

          183,695

          

          

          

          172,775Net assets

          

          $

          240,850

          

          

          $

          184,535Commitments and contingencies (See Note 11)ANALYSIS OF NET ASSETSCommon stock, $0.001 par value, 100,000 shares authorized, 16,582 and 13,008 shares issued and outstanding, respectively

          

          $

          17

          

          

          $

          13Capital in excess of par value

          

          

          233,526

          

          

          

          184,419Undistributed net investment income (accumulated distributions in excess of net investment income)

          

          

          7,037

          

          

          

          1,692Accumulated net realized gain (loss) on investments

          

          

          587

          

          

          

          Accumulated net unrealized appreciation (depreciation) on investments and secured borrowings

          

          

          (317

          )

          

          

          (1,589

          )Total net assets

          

          $

          240,850

          

          

          $

          184,535Net asset value per share

          

          $

          14.52

          

          

          $

          14.19
 See Notes to Consolidated Financial Statements.
 F-3    TABLE OF CONTENTS MONROE CAPITAL CORPORATION  CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data)  Year ended December 31,2016

          

          2015

          

          2014Investment income:Interest income:Non-controlled/non-affiliate company investments

          

          $

          34,348

          

          

          $

          30,222

          

          

          $

          27,337Non-controlled affiliate company investments

          

          

          4,511

          

          

          

          3,522

          

          

          

          860Controlled affiliate company investments

          

          

          140

          

          

          

          1,127

          

          

          

          211Total interest income

          

          

          38,999

          

          

          

          34,871

          

          

          

          28,408Dividend income:Non-controlled/non-affiliate company investments

          

          

          1,002

          

          

          

          325

          

          

          

          Non-controlled affiliate company investments

          

          

          3,546

          

          

          

          301

          

          

          

          Total dividend income

          

          

          4,548

          

          

          

          626

          

          

          

          Fee income:Non-controlled/non-affiliate company investments

          

          

          1,435

          

          

          

          1,351

          

          

          

          1,440Non-controlled affiliate company investments

          

          

          36

          

          

          

          50

          

          

          

          65Total fee income

          

          

          1,471

          

          

          

          1,401

          

          

          

          1,505Total investment income

          

          

          45,018

          

          

          

          36,898

          

          

          

          29,913Operating expenses:Interest and other debt financing expenses

          

          

          6,782

          

          

          

          5,400

          

          

          

          4,342Base management fees

          

          

          6,347

          

          

          

          5,129

          

          

          

          4,091Incentive fees

          

          

          5,777

          

          

          

          4,685

          

          

          

          3,512Professional fees

          

          

          988

          

          

          

          835

          

          

          

          1,138Administrative service fees

          

          

          1,287

          

          

          

          1,078

          

          

          

          876General and administrative expenses

          

          

          779

          

          

          

          799

          

          

          

          659Excise taxes

          

          

          679

          

          

          

          83

          

          

          

          70Directors fees

          

          

          146

          

          

          

          148

          

          

          

          150Expenses before incentive fee waiver

          

          

          22,785

          

          

          

          18,157

          

          

          

          14,838Incentive fee waiver

          

          

          (273

          )

          

          

          

          

          

          

          Total expenses, net of incentive fee waiver

          

          

          22,512

          

          

          

          18,157

          

          

          

          14,838Net investment income

          

          

          22,506

          

          

          

          18,741

          

          

          

          15,075Net gain (loss) on investments and secured borrowings:Net realized gain (loss) on investments:Non-controlled/non-affiliate company investments

          

          

          587

          

          

          

          304

          

          

          

          299Net realized gain (loss) on investments

          

          

          587

          

          

          

          304

          

          

          

          299Net change in unrealized appreciation (depreciation) on investments:Non-controlled/non-affiliate company investments

          

          

          (610

          )

          

          

          (1,944

          )

          

          

          (2,298

          )Non-controlled affiliate company investments

          

          

          7,013

          

          

          

          6,585

          

          

          

          524Controlled affiliate company investments

          

          

          (5,078

          )

          

          

          (5,726

          )

          

          

          237Net change in unrealized appreciation (depreciation) on investments

          

          

          1,325

          

          

          

          (1,085

          )

          

          

          (1,537

          )Net change in unrealized (appreciation) depreciation on secured borrowings

          

          

          (53

          )

          

          

          (68

          )

          

          

          72Net gain (loss) on investments and secured borrowings

          

          

          1,859

          

          

          

          (849

          )

          

          

          (1,166

          )Net increase (decrease) in net assets resulting from operations

          

          $

          24,365

          

          

          $

          17,892

          

          

          $

          13,909Per common share data:Net investment income per share  basic and diluted

          

          $

          1.55

          

          

          $

          1.60

          

          

          $

          1.57Net increase in net assets resulting from operations per share  basic and diluted

          

          $

          1.68

          

          

          $

          1.53

          

          

          $

          1.45Weighted average common shares outstanding  basic and diluted

          

          

          14,546

          

          

          

          11,683

          

          

          

          9,596
 See Notes to Consolidated Financial Statements.
 F-4    TABLE OF CONTENTS MONROE CAPITAL CORPORATION  CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (in thousands)  Common Stock

          

          Capital in excess of par value

          

          Undistributed net investment income (accumulated distributions in excess of net investment income)

          

          Accumulated net realized gain (loss) on investments

          

          Accumulated net unrealized appreciation (depreciation) on investments and secured borrowings

          

          Total net assetsNumber of shares

          

          Par valueBalances at December 31, 2013

          

          

          9,918

          

          

          $

          10

          

          

          $

          140,038

          

          

          $

          (2,985

          )

          

          $

          

          

          

          $

          1,029

          

          

          $

          138,092Net increase (decrease) in net assets resulting from operations

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          15,075

          

          

          

          299

          

          

          

          (1,465

          )

          

          

          13,909Repurchases of common stock

          

          

          (400

          )

          

          

          

          

          

          

          (5,235

          )

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          (5,235

          )Stockholder distributions paid

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          (12,729

          )

          

          

          (299

          )

          

          

          

          

          

          

          (13,028

          )Balances at December 31, 2014

          

          

          9,518

          

          

          $

          10

          

          

          $

          134,803

          

          

          $

          (639

          )

          

          $

          

          

          

          $

          (436

          )

          

          $

          133,738Net increase (decrease) in net assets resulting from operations

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          18,741

          

          

          

          304

          

          

          

          (1,153

          )

          

          

          17,892Issuance of common stock, net of offering and underwriting costs

          

          

          3,490

          

          

          

          3

          

          

          

          49,616

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          49,619Stockholder distributions paid

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          (16,410

          )

          

          

          (304

          )

          

          

          

          

          

          

          (16,714

          )Balances at December 31, 2015

          

          

          13,008

          

          

          $

          13

          

          

          $

          184,419

          

          

          $

          1,692

          

          

          $

          

          

          

          $

          (1,589

          )

          

          $

          184,535Net increase (decrease) in net assets resulting from operations

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          22,506

          

          

          

          587

          

          

          

          1,272

          

          

          

          24,365Issuance of common stock, net of offering and underwriting costs

          

          

          3,566

          

          

          

          4

          

          

          

          52,516

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          52,520Stockholder distributions paid, including stock issued in connection with dividend reinvestment plan

          

          

          8

          

          

          

          

          

          

          

          138

          

          

          

          (20,708

          )

          

          

          

          

          

          

          

          

          

          

          (20,570

          )Tax reclassification of stockholders equity in accordance with generally accepted accounting principles

          

          

          

          

          

          

          

          

          

          

          (3,547

          )

          

          

          3,547

          

          

          

          

          

          

          

          

          

          

          

          Balances at December 31, 2016

          

          

          16,582

          

          

          $

          17

          

          

          $

          233,526

          

          

          $

          7,037

          

          

          $

          587

          

          

          $

          (317

          )

          

          $

          240,850
 See Notes to Consolidated Financial Statements.
 F-5    TABLE OF CONTENTS MONROE CAPITAL CORPORATION  CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)  Year ended December 31,2016

          

          2015

          

          2014Cash flows from operating activities:Net increase (decrease) in net assets resulting from operations

          

          $

          24,365

          

          

          $

          17,892

          

          

          $

          13,909Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities:Net change in unrealized (appreciation) depreciation on investments

          

          

          (1,325

          )

          

          

          1,085

          

          

          

          1,537Net change in unrealized appreciation (depreciation) on secured borrowings

          

          

          53

          

          

          

          68

          

          

          

          (72

          )Net realized (gain) loss on investments

          

          

          (587

          )

          

          

          (304

          )

          

          

          (299

          )Payment-in-kind interest income

          

          

          (2,027

          )

          

          

          (1,980

          )

          

          

          (1,054

          )Net accretion of discounts and amortization of premiums

          

          

          (1,556

          )

          

          

          (1,105

          )

          

          

          (689

          )Proceeds from principal payments and sales of investments

          

          

          81,446

          

          

          

          88,379

          

          

          

          107,073Purchases of investments

          

          

          (147,780

          )

          

          

          (193,631

          )

          

          

          (132,183

          )Amortization of deferred financing costs

          

          

          820

          

          

          

          742

          

          

          

          576Changes in operating assets and liabilities:Interest receivable

          

          

          (1,037

          )

          

          

          (654

          )

          

          

          (314

          )Other assets

          

          

          96

          

          

          

          135

          

          

          

          (453

          )Payable for open trades

          

          

          (5,297

          )

          

          

          5,297

          

          

          

          (281

          )Interest payable

          

          

          158

          

          

          

          333

          

          

          

          5Management fees payable

          

          

          246

          

          

          

          453

          

          

          

          205Incentive fees payable

          

          

          (29

          )

          

          

          111

          

          

          

          73Accounts payable and accrued expenses

          

          

          654

          

          

          

          361

          

          

          

          450Directors fees payable

          

          

          (74

          )

          

          

          74

          

          

          

          Net cash provided by (used in) operating activities

          

          

          (51,874

          )

          

          

          (82,744

          )

          

          

          (11,517

          )Cash flows from financing activities:Borrowings on revolving credit facility

          

          

          105,000

          

          

          

          144,900

          

          

          

          90,800Repayments of revolving credit facility

          

          

          (99,700

          )

          

          

          (103,500

          )

          

          

          (84,500

          )SBA debentures borrowings

          

          

          11,500

          

          

          

          20,000

          

          

          

          20,000Payments of deferred financing costs

          

          

          (1,196

          )

          

          

          (1,832

          )

          

          

          (964

          )Repayments on secured borrowings

          

          

          (1,215

          )

          

          

          (1,600

          )

          

          

          (3,863

          )Proceeds from shares sold, net of offering and underwriting costs

          

          

          52,520

          

          

          

          49,619

          

          

          

          Repurchases of common stock

          

          

          

          

          

          

          

          

          

          

          (5,794

          )Stockholder distributions paid, net of stock issued under dividend reinvestment plan of $138, $0 and $0, respectively

          

          

          (20,570

          )

          

          

          (16,714

          )

          

          

          (13,028

          )Net cash provided by (used in) financing activities

          

          

          46,339

          

          

          

          90,873

          

          

          

          2,651Net increase (decrease) in cash and restricted cash

          

          

          (5,535

          )

          

          

          8,129

          

          

          

          (8,866

          )Cash and Restricted Cash, beginning of year

          

          

          13,866

          

          

          

          5,737

          

          

          

          14,603Cash and Restricted Cash, end of year(1)

          

          $

          8,331

          

          

          $

          13,866

          

          

          $

          5,737Supplemental disclosure of cash flow information:Cash interest paid during the year

          

          $

          5,530

          

          

          $

          4,046

          

          

          $

          3,261Cash paid for excise taxes during the year

          

          $

          284

          

          

          $

          73

          

          

          $

          
  (1)

          Represents cash and restricted cash of $5,958 and $2,373, respectively, from the consolidated statement of assets and liabilities as of December 31, 2016. Represents cash and restricted cash of $5,278 and $8,588, respectively, from the consolidated statement of assets and liabilities as of December 31, 2015. See Notes to Consolidated Financial Statements.
 F-6    TABLE OF CONTENTS MONROE CAPITAL CORPORATION  CONSOLIDATED SCHEDULE OF INVESTMENTS December 31, 2016 (in thousands, except for units)  Portfolio Company(a)

          

          Industry

          

          Spread Above Index(b)

          

          Interest Rate

          

          Maturity

          

          Principal

          

          Amortized Cost

          

          Fair Value(c)

          

          % of Net Assets(d)Senior Secured Loans360 Holdings III Corp.

          

          

          Consumer Goods: Non-Durable

          

          

          

          L+9.00

          %

          

          

          10.00

          %

          

          

          10/1/2021

          

          

          

          5,925

          

          

          $

          5,718

          

          

          $

          5,718

          

          

          

          2.4

          %AdTheorent, Inc. (Revolver)(e)

          

          

          Media: Advertising, Printing & Publishing

          

          

          

          L+8.50

          %

          

          

          9.26

          %

          

          

          12/22/2021

          

          

          

          515

          

          

          

          77

          

          

          

          77

          

          

          

          0.0

          %AdTheorent, Inc.

          

          

          Media: Advertising, Printing & Publishing

          

          

          

          L+8.50

          %

          

          

          9.26

          %

          

          

          12/22/2021

          

          

          

          5,000

          

          

          

          4,908

          

          

          

          4,900

          

          

          

          2.0

          %All Holding Company, LLC(f)

          

          

          Beverage, Food & Tobacco

          

          

          

          L+7.00

          %

          

          

          7.76

          %

          

          

          11/15/2021

          

          

          

          5,466

          

          

          

          5,363

          

          

          

          5,493

          

          

          

          2.3

          %American Community Homes, Inc.(g)

          

          

          Banking, Finance, Insurance & Real Estate

          

          

          

          L+8.00

          %

          

          

          9.50

          %

          

          

          7/22/2019

          

          

          

          7,667

          

          

          

          7,550

          

          

          

          7,816

          

          

          

          3.3

          %American Community Homes, Inc.(g)

          

          

          Banking, Finance, Insurance & Real Estate

          

          

          

          L+12.50

          %

          

          

          9.50% Cash/4.50% PIK

          

          

          

          7/22/2019

          

          

          

          4,217

          

          

          

          4,158

          

          

          

          4,301

          

          

          

          1.8

          %American Community Homes, Inc.(g)

          

          

          Banking, Finance, Insurance & Real Estate

          

          

          

          L+12.50

          %

          

          

          9.50% Cash/4.50% PIK

          

          

          

          n/a

          (h)

          

          

          518

          

          

          

          508

          

          

          

          518

          

          

          

          0.2

          %Answers Corporation

          

          

          High Tech Industries

          

          

          

          P+6.25

          %

          

          

          10.00

          %(i)

          

          

          10/1/2021

          

          

          

          2,903

          

          

          

          2,819

          

          

          

          1,495

          

          

          

          0.6

          %BC Equity Ventures LLC

          

          

          Hotels, Gaming & Leisure

          

          

          

          L+6.50

          %

          

          

          7.50

          %

          

          

          8/31/2022

          

          

          

          2,612

          

          

          

          2,562

          

          

          

          2,635

          

          

          

          1.1

          %BC Equity Ventures LLC

          

          

          Hotels, Gaming & Leisure

          

          

          

          L+6.50

          %

          

          

          7.50

          %

          

          

          8/31/2022

          

          

          

          375

          

          

          

          372

          

          

          

          373

          

          

          

          0.2

          %BCC Software, LLC(f)

          

          

          High Tech Industries

          

          

          

          L+8.00

          %

          

          

          9.00

          %

          

          

          6/20/2019

          

          

          

          2,204

          

          

          

          2,186

          

          

          

          2,203

          

          

          

          0.9

          %BCC Software, LLC (Revolver)(e)

          

          

          High Tech Industries

          

          

          

          L+8.00

          %

          

          

          9.00

          %

          

          

          6/20/2019

          

          

          

          469

          

          

          

          

          

          

          

          

          

          

          

          0.0

          %Beaver-Visitec International Holdings, Inc.

          

          

          Healthcare & Pharmaceuticals

          

          

          

          L+5.00

          %

          

          

          6.00

          %

          

          

          8/19/2023

          

          

          

          4,988

          

          

          

          4,939

          

          

          

          4,988

          

          

          

          2.1

          %Bluestem Brands, Inc.

          

          

          Consumer Goods: Non-Durable

          

          

          

          L+7.50

          %

          

          

          8.50

          %

          

          

          11/6/2020

          

          

          

          2,758

          

          

          

          2,737

          

          

          

          2,404

          

          

          

          1.0

          %Cali Bamboo, LLC

          

          

          Construction & Building

          

          

          

          L+8.50

          %

          

          

          9.26

          %

          

          

          7/10/2020

          

          

          

          5,423

          

          

          

          5,350

          

          

          

          5,531

          

          

          

          2.3

          %Cali Bamboo, LLC (Revolver)(e)

          

          

          Construction & Building

          

          

          

          L+8.50

          %

          

          

          9.26

          %

          

          

          7/10/2020

          

          

          

          1,624

          

          

          

          65

          

          

          

          65

          

          

          

          0.0

          %California Pizza Kitchen, Inc.

          

          

          Beverage, Food & Tobacco

          

          

          

          L+6.00

          %

          

          

          7.00

          %

          

          

          8/23/2022

          

          

          

          6,983

          

          

          

          6,913

          

          

          

          6,966

          

          

          

          2.9

          %Corbett Technology Solutions, Inc.(f)

          

          

          High Tech Industries

          

          

          

          L+7.00

          %

          

          

          7.76

          %

          

          

          11/7/2021

          

          

          

          4,500

          

          

          

          4,434

          

          

          

          4,511

          

          

          

          1.9

          %Corbett Technology Solutions, Inc. (Revolver)(e)

          

          

          High Tech Industries

          

          

          

          L+7.00

          %

          

          

          7.76

          %

          

          

          11/7/2021

          

          

          

          867

          

          

          

          

          

          

          

          

          

          

          

          0.0

          %Cornerstone Detention Products, Inc.(j)

          

          

          Construction & Building

          

          

          

          L+10.50

          %

          

          

          10.50% Cash/1.00% PIK

          

          

          

          4/8/2019

          

          

          

          3,784

          

          

          

          3,747

          

          

          

          3,599

          

          

          

          1.5

          %Cornerstone Detention Products, Inc. (Revolver)(e)

          

          

          Construction & Building

          

          

          

          L+9.50

          %

          

          

          10.50

          %

          

          

          4/8/2019

          

          

          

          400

          

          

          

          

          

          

          

          

          

          

          

          0.0

          %CRCI Holdings, Inc.

          

          

          Utilities: Electric

          

          

          

          L+5.50

          %

          

          

          6.50

          %

          

          

          8/31/2023

          

          

          

          2,993

          

          

          

          2,964

          

          

          

          2,999

          

          

          

          1.3

          %Cyalume Technologies Holdings, Inc.(f)

          

          

          Aerospace & Defense

          

          

          

          L+9.00

          %

          

          

          10.00

          %

          

          

          5/18/2020

          

          

          

          4,291

          

          

          

          4,204

          

          

          

          4,462

          

          

          

          1.9

          %Cyalume Technologies Holdings, Inc. (Delayed Draw)

          

          

          Aerospace & Defense

          

          

          

          L+9.00

          %

          

          

          10.00

          %

          

          

          5/18/2020

          

          

          

          387

          

          

          

          387

          

          

          

          402

          

          

          

          0.2

          %Cyalume Technologies Holdings, Inc. (Revolver)(e)

          

          

          Aerospace & Defense

          

          

          

          L+9.00

          %

          

          

          10.00

          %

          

          

          5/18/2020

          

          

          

          1,528

          

          

          

          

          

          

          

          

          

          

          

          0.0

          %Diesel Direct Holdings, Inc.(f)

          

          

          Energy: Oil & Gas

          

          

          

          L+7.00

          %

          

          

          7.76

          %

          

          

          2/17/2020

          

          

          

          5,225

          

          

          

          5,217

          

          

          

          5,277

          

          

          

          2.2

          %EB Employee Solutions, LLC(f)

          

          

          Services: Business

          

          

          

          L+8.50

          %

          

          

          10.00

          %

          

          

          2/28/2019

          

          

          

          3,370

          

          

          

          3,324

          

          

          

          3,263

          

          

          

          1.4

          %Edge Systems Holdings Corporation

          

          

          Healthcare & Pharmaceuticals

          

          

          

          L+8.00

          %

          

          

          9.00

          %

          

          

          11/29/2021

          

          

          

          3,740

          

          

          

          3,667

          

          

          

          3,665

          

          

          

          1.5

          %Edge Systems Holdings Corporation (Revolver)(e)

          

          

          Healthcare & Pharmaceuticals

          

          

          

          L+8.00

          %

          

          

          9.00

          %

          

          

          11/29/2021

          

          

          

          260

          

          

          

          

          

          

          

          

          

          

          

          0.0

          %Familia Dental Group Holdings, LLC(f)

          

          

          Healthcare & Pharmaceuticals

          

          

          

          L+8.00

          %

          

          

          8.76

          %

          

          

          4/8/2021

          

          

          

          5,397

          

          

          

          5,327

          

          

          

          5,480

          

          

          

          2.3

          %Familia Dental Group Holdings, LLC (Delayed Draw)

          

          

          Healthcare & Pharmaceuticals

          

          

          

          L+8.00

          %

          

          

          8.76

          %

          

          

          4/8/2021

          

          

          

          519

          

          

          

          519

          

          

          

          527

          

          

          

          0.2

          %Familia Dental Group Holdings, LLC (Revolver)(e)

          

          

          Healthcare & Pharmaceuticals

          

          

          

          L+8.00

          %

          

          

          8.76

          %

          

          

          4/8/2021

          

          

          

          573

          

          

          

          57

          

          

          

          57

          

          

          

          0.0

          %Forman Mills, Inc.(f)

          

          

          Retail

          

          

          

          L+7.50

          %

          

          

          8.50

          %

          

          

          10/4/2021

          

          

          

          8,500

          

          

          

          8,337

          

          

          

          8,470

          

          

          

          3.5

          %G&M Opco LLC(f)

          

          

          Construction & Building

          

          

          

          L+7.50

          %

          

          

          8.26

          %

          

          

          6/23/2020

          

          

          

          3,006

          

          

          

          2,951

          

          

          

          3,066

          

          

          

          1.3

          %InMobi Pte, Ltd. (Delayed Draw)(e)(k)(l)

          

          

          Media: Advertising, Printing & Publishing

          

          

          

          L+10.17

          %

          

          

          10.98

          %

          

          

          9/1/2018

          

          

          

          10,000

          

          

          

          6,667

          

          

          

          6,587

          

          

          

          2.7

          %Inteva Products, LLC

          

          

          Automotive

          

          

          

          L+8.50

          %

          

          

          9.75

          %

          

          

          9/8/2021

          

          

          

          1,978

          

          

          

          1,967

          

          

          

          1,998

          

          

          

          0.8

          %Jerry Lee Radio, LLC

          

          

          Media: Broadcasting & Subscription

          

          

          

          L+9.50

          %

          

          

          10.26

          %

          

          

          12/17/2020

          

          

          

          13,407

          

          

          

          13,127

          

          

          

          13,675

          

          

          

          5.7

          %Landpoint, LLC

          

          

          Energy: Oil & Gas

          

          

          

          L+12.75

          %

          

          

          12.00% Cash/2.25% PIK

          (m)

          

          

          12/20/2019

          

          

          

          2,632

          

          

          

          2,602

          

          

          

          2,526

          

          

          

          1.1

          %Landpoint, LLC (Revolver)(e)

          

          

          Energy: Oil & Gas

          

          

          

          L+10.50

          %

          

          

          12.00

          %

          

          

          12/20/2019

          

          

          

          313

          

          

          

          

          

          

          

          

          

          

          

          0.0

          %L.A.R.K. Industries, Inc.

          

          

          Construction & Building

          

          

          

          L+7.00

          %

          

          

          8.00

          %

          

          

          9/3/2019

          

          

          

          6,257

          

          

          

          6,169

          

          

          

          6,341

          

          

          

          2.6

          %Liftforward SPV II, LLC(e)

          

          

          Banking, Finance, Insurance, & Real Estate

          

          

          

          L+10.75

          %

          

          

          11.51

          %

          

          

          11/10/2020

          

          

          

          10,000

          

          

          

          254

          

          

          

          254

          

          

          

          0.1

          %Luxury Optical Holdings Co.

          

          

          Retail

          

          

          

          L+11.50

          %

          

          

          9.00% Cash/3.50% PIK

          

          

          

          9/12/2019

          

          

          

          4,012

          

          

          

          3,965

          

          

          

          3,948

          

          

          

          1.6

          %
 See Notes to Consolidated Financial Statements.
 F-7    TABLE OF CONTENTS MONROE CAPITAL CORPORATION   CONSOLIDATED SCHEDULE OF INVESTMENTS  (continued) December 31, 2016 (in thousands, except for units)  Portfolio Company(a)

          

          Industry

          

          Spread Above Index(b)

          

          Interest Rate

          

          Maturity

          

          Principal

          

          Amortized Cost

          

          Fair Value(c)

          

          % of Net Assets(d)Luxury Optical Holdings Co. (Revolver)(e)

          

          

          Retail

          

          

          

          L+8.00

          %

          

          

          9.00% Cash

          

          

          

          9/12/2019

          

          

          

          273

          

          

          $

          

          

          

          $

          

          

          

          

          0.0

          %Madison Logic, Inc.(f)

          

          

          Services: Business

          

          

          

          L+8.00

          %

          

          

          8.76

          %

          

          

          11/30/2021

          

          

          

          10,500

          

          

          

          10,291

          

          

          

          10,610

          

          

          

          4.4

          %Madison Logic, Inc. (Delayed Draw)(e)(k)

          

          

          Services: Business

          

          

          

          L+8.00

          %

          

          

          8.76

          %

          

          

          11/30/2021

          

          

          

          4,818

          

          

          

          

          

          

          

          

          

          

          

          0.0

          %Madison Logic, Inc. (Revolver)(e)

          

          

          Services: Business

          

          

          

          L+8.00

          %

          

          

          8.76

          %

          

          

          11/30/2021

          

          

          

          988

          

          

          

          

          

          

          

          

          

          

          

          0.0

          %Miles Media Group LLC

          

          

          Hotels, Gaming & Leisure

          

          

          

          L+11.00

          %

          

          

          10.00% Cash/2.00% PIK

          

          

          

          3/24/2021

          

          

          

          6,110

          

          

          

          6,052

          

          

          

          6,119

          

          

          

          2.5

          %Miles Media Group LLC (Delayed Draw)(e)(k)

          

          

          Hotels, Gaming & Leisure

          

          

          

          L+11.00

          %

          

          

          10.00% Cash/2.00% PIK

          

          

          

          3/24/2021

          

          

          

          1,455

          

          

          

          

          

          

          

          

          

          

          

          0.0

          %Miles Media Group LLC (Revolver)(e)

          

          

          Hotels, Gaming & Leisure

          

          

          

          L+11.00

          %

          

          

          10.00% Cash/2.00% PIK

          

          

          

          3/24/2021

          

          

          

          320

          

          

          

          

          

          

          

          

          

          

          

          0.0

          %OBrien Industrial Holdings, LLC

          

          

          Metals & Mining

          

          

          

          L+7.75

          %

          

          

          8.75

          %

          

          

          5/13/2019

          

          

          

          5,286

          

          

          

          5,219

          

          

          

          5,268

          

          

          

          2.2

          %Peerless Network, Inc.(f)

          

          

          Telecommunications

          

          

          

          L+8.50

          %

          

          

          9.18% Cash/0.75% PIK

          (n)

          

          

          12/11/2020

          

          

          

          3,500

          

          

          

          3,431

          

          

          

          3,430

          

          

          

          1.4

          %PeopleConnect Intermediate, LLC (formerly Intelius, Inc.)

          

          

          Services: Consumer

          

          

          

          L+5.50

          %

          

          

          6.50

          %

          

          

          7/1/2020

          

          

          

          4,698

          

          

          

          4,619

          

          

          

          4,693

          

          

          

          1.9

          %PeopleConnect Intermediate, LLC (formerly Intelius, Inc.)

          

          

          Services: Consumer

          

          

          

          L+11.50

          %

          

          

          12.50

          %

          

          

          7/1/2020

          

          

          

          4,849

          

          

          

          4,765

          

          

          

          4,805

          

          

          

          2.0

          %PeopleConnect Intermediate, LLC (formerly Intelius, Inc.) (Revolver)(e)

          

          

          Services: Consumer

          

          

          

          L+8.50

          %

          

          

          9.50

          %

          

          

          8/11/2017

          

          

          

          236

          

          

          

          

          

          

          

          

          

          

          

          0.0

          %Precision Toxicology, LLC(f)

          

          

          Healthcare & Pharmaceuticals

          

          

          

          L+11.50

          %

          

          

          10.26% Cash/2.00% PIK

          

          

          

          3/24/2020

          

          

          

          4,242

          

          

          

          4,186

          

          

          

          4,244

          

          

          

          1.8

          %Repay Holdings, LLC

          

          

          Banking, Finance, Insurance & Real Estate

          

          

          

          L+9.00

          %

          

          

          9.76

          %

          

          

          9/1/2021

          

          

          

          12,000

          

          

          

          11,802

          

          

          

          11,934

          

          

          

          5.0

          %Repay Holdings, LLC (Revolver)(e)

          

          

          Banking, Finance, Insurance & Real Estate

          

          

          

          L+9.00

          %

          

          

          9.76

          %

          

          

          9/1/2021

          

          

          

          1,200

          

          

          

          

          

          

          

          

          

          

          

          0.0

          %Rockdale Blackhawk, LLC(g)

          

          

          Healthcare & Pharmaceuticals

          

          

          

          L+11.00

          %

          

          

          12.00

          %

          

          

          3/31/2020

          

          

          

          10,923

          

          

          

          10,155

          

          

          

          10,933

          

          

          

          4.5

          %Rockdale Blackhawk, LLC (Revolver)(e)(g)

          

          

          Healthcare & Pharmaceuticals

          

          

          

          L+11.00

          %

          

          

          12.00

          %

          

          

          3/31/2020

          

          

          

          1,849

          

          

          

          924

          

          

          

          924

          

          

          

          0.4

          %Rockdale Blackhawk, LLC (Capex)(g)

          

          

          Healthcare & Pharmaceuticals

          

          

          

          L+11.00

          %

          

          

          12.00

          %

          

          

          3/31/2020

          

          

          

          565

          

          

          

          565

          

          

          

          565

          

          

          

          0.2

          %Rocket Dog Brands, LLC(g)

          

          

          Consumer Goods: Non-Durable

          

          

          

          n/a

          

          

          

          12.00% PIK

          

          

          

          8/29/2019

          

          

          

          1,124

          

          

          

          1,125

          

          

          

          464

          

          

          

          0.2

          %Rocket Dog Brands, LLC(g)

          

          

          Consumer Goods: Non-Durable

          

          

          

          n/a

          

          

          

          15.00% PIK

          

          

          

          8/29/2019

          

          

          

          407

          

          

          

          402

          

          

          

          365

          

          

          

          0.2

          %Rocket Dog Brands, LLC(g)

          

          

          Consumer Goods: Non-Durable

          

          

          

          n/a

          

          

          

          17.00% PIK

          

          

          

          3/31/2017

          

          

          

          225

          

          

          

          225

          

          

          

          225

          

          

          

          0.1

          %SHI Holdings, Inc.(f)(g)

          

          

          Healthcare & Pharmaceuticals

          

          

          

          L+9.25

          %

          

          

          10.01

          %

          

          

          7/10/2019

          

          

          

          2,625

          

          

          

          2,592

          

          

          

          2,625

          

          

          

          1.1

          %SHI Holdings, Inc. (Revolver)(e)(g)

          

          

          Healthcare & Pharmaceuticals

          

          

          

          L+9.25

          %

          

          

          10.01

          %

          

          

          7/10/2019

          

          

          

          1,773

          

          

          

          1,188

          

          

          

          1,203

          

          

          

          0.5

          %Shields Land Company of Georgia, LLC

          

          

          Banking, Finance, Insurance & Real Estate

          

          

          

          L+9.50

          %

          

          

          10.15

          %

          

          

          12/28/2017

          

          

          

          2,450

          

          

          

          2,425

          

          

          

          2,445

          

          

          

          1.0

          %Solaray, LLC

          

          

          Consumer Goods: Non Durable

          

          

          

          L+6.50

          %

          

          

          7.50

          %

          

          

          9/9/2023

          

          

          

          3,297

          

          

          

          3,265

          

          

          

          3,280

          

          

          

          1.4

          %Solaray, LLC (Delayed Draw)(e)(k)

          

          

          Consumer Goods: Non Durable

          

          

          

          L+6.50

          %

          

          

          7.50

          %

          

          

          9/9/2023

          

          

          

          703

          

          

          

          

          

          

          

          

          

          

          

          0.0

          %SNI Companies(o)

          

          

          Services: Business

          

          

          

          L+8.00

          %

          

          

          9.00

          %

          

          

          12/31/2018

          

          

          

          5,357

          

          

          

          5,299

          

          

          

          5,378

          

          

          

          2.2

          %SNI Companies (Revolver)(e)

          

          

          Services: Business

          

          

          

          L+8.00

          %

          

          

          9.00

          %

          

          

          12/31/2018

          

          

          

          1,250

          

          

          

          313

          

          

          

          313

          

          

          

          0.1

          %Summit Container Corporation(f)(g)

          

          

          Containers, Packaging & Glass

          

          

          

          L+12.00

          %

          

          

          12.00% Cash/2.00% PIK

          

          

          

          1/6/2019

          

          

          

          3,624

          

          

          

          3,582

          

          

          

          3,550

          

          

          

          1.5

          %Synergy Environmental Corporation(f)

          

          

          Environmental Industries

          

          

          

          L+8.00

          %

          

          

          8.76

          %

          

          

          4/29/2021

          

          

          

          3,130

          

          

          

          3,068

          

          

          

          3,148

          

          

          

          1.3

          %Synergy Environmental Corporation(f)

          

          

          Environmental Industries

          

          

          

          L+8.00

          %

          

          

          8.76

          %

          

          

          4/29/2021

          

          

          

          523

          

          

          

          513

          

          

          

          526

          

          

          

          0.2

          %Synergy Environmental Corporation (Delayed Draw)(e)(k)

          

          

          Environmental Industries

          

          

          

          L+8.00

          %

          

          

          8.76

          %

          

          

          4/29/2018

          

          

          

          1,342

          

          

          

          

          

          

          

          

          

          

          

          0.0

          %Synergy Environmental Corporation (Revolver)(e)

          

          

          Environmental Industries

          

          

          

          L+8.00

          %

          

          

          8.76

          %

          

          

          4/29/2021

          

          

          

          671

          

          

          

          94

          

          

          

          94

          

          

          

          0.0

          %Tectum Holdings, Inc.

          

          

          Automotive

          

          

          

          L+4.75

          %

          

          

          5.75

          %

          

          

          8/24/2023

          

          

          

          1,995

          

          

          

          1,976

          

          

          

          2,025

          

          

          

          0.8

          %The Worth Collection, Ltd.(f)

          

          

          Retail

          

          

          

          L+8.50

          %

          

          

          9.26

          %

          

          

          9/29/2021

          

          

          

          11,000

          

          

          

          10,789

          

          

          

          11,132

          

          

          

          4.6

          %TPP Operating, Inc.(p)

          

          

          Retail

          

          

          

          L+6.00

          %

          

          

          7.50

          %(i)

          

          

          11/8/2018

          

          

          

          9,370

          

          

          

          9,330

          

          

          

          1,799

          

          

          

          0.7

          %TPP Operating, Inc.(p)

          

          

          Retail

          

          

          

          L+6.00

          %

          

          

          7.50

          %(i)

          

          

          11/8/2018

          

          

          

          4,344

          

          

          

          4,344

          

          

          

          4,344

          

          

          

          1.8

          %TPP Operating, Inc.(p)

          

          

          Retail

          

          

          

          L+9.61

          %

          

          

          11.11

          %(i)

          

          

          11/8/2018

          

          

          

          2,756

          

          

          

          2,756

          

          

          

          2,756

          

          

          

          1.1

          %TRG, LLC

          

          

          Hotels, Gaming & Leisure

          

          

          

          L+13.80

          %

          

          

          8.12% Cash/6.30% PIK

          (q)

          

          

          3/31/2021

          

          

          

          11,876

          

          

          

          11,837

          

          

          

          11,960

          

          

          

          5.0

          %TRG, LLC (Revolver)

          

          

          Hotels, Gaming & Leisure

          

          

          

          L+9.50

          %

          

          

          10.12

          %

          

          

          3/31/2021

          

          

          

          131

          

          

          

          131

          

          

          

          131

          

          

          

          0.1

          %TRG, LLC (CapEx)(e)

          

          

          Hotels, Gaming & Leisure

          

          

          

          L+9.50

          %

          

          

          8.12% Cash/2.00% PIK

          

          

          

          3/31/2021

          

          

          

          1,609

          

          

          

          943

          

          

          

          946

          

          

          

          0.4

          %Vacation Innovations, LLC(r)

          

          

          Hotels, Gaming & Leisure

          

          

          

          L+9.40

          %

          

          

          7.76% Cash/2.42% PIK

          (s)

          

          

          8/20/2020

          

          

          

          10,553

          

          

          

          10,382

          

          

          

          10,848

          

          

          

          4.5

          %Vacation Innovations, LLC (Revolver)(e)

          

          

          Hotels, Gaming & Leisure

          

          

          

          L+8.50

          %

          

          

          7.76% Cash/1.50% PIK

          

          

          

          8/20/2020

          

          

          

          342

          

          

          

          

          

          

          

          

          

          

          

          0.0%
 See Notes to Consolidated Financial Statements.
 F-8    TABLE OF CONTENTS MONROE CAPITAL CORPORATION   CONSOLIDATED SCHEDULE OF INVESTMENTS  (continued) December 31, 2016 (in thousands, except for units) Portfolio Company(a)

          

          Industry

          

          Spread Above Index(b)

          

          Interest Rate

          

          Maturity

          

          Principal

          

          Amortized Cost

          

          Fair Value(c)

          

          % of Net Assets(d)Vacation Innovations, LLC (Delayed Draw)(e)(k)

          

          

          Hotels, Gaming & Leisure

          

          

          

          L+8.50

          %

          

          

          7.76% Cash/1.50% PIK

          

          

          

          8/20/2020

          

          

          

          2,037

          

          

          $

          

          

          

          $

          

          

          

          

          0.0

          %Yandy Holding, LLC

          

          

          Retail

          

          

          

          L+9.00

          %

          

          

          10.00

          %

          

          

          9/30/2019

          

          

          

          5,677

          

          

          

          5,625

          

          

          

          5,581

          

          

          

          2.3

          %Yandy Holding, LLC (Revolver)(e)

          

          

          Retail

          

          

          

          L+9.00

          %

          

          

          10.00

          %

          

          

          9/30/2019

          

          

          

          907

          

          

          

          

          

          

          

          

          

          

          

          0.0

          %Total Senior Secured Loans

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          322,496

          

          

          

          280,324

          

          

          

          275,253

          

          

          

          114.3

          %Unitranche LoansCollaborative Neuroscience Network, LLC(t)

          

          

          Healthcare & Pharmaceuticals

          

          

          

          L+11.50

          %

          

          

          13.00

          %

          

          

          12/27/2017

          

          

          

          6,120

          

          

          

          6,059

          

          

          

          5,814

          

          

          

          2.4

          %Collaborative Neuroscience Network, LLC

          

          

          Healthcare & Pharmaceuticals

          

          

          

          n/a

          

          

          

          12.00% Cash/3.00% PIK

          

          

          

          12/27/2017

          

          

          

          286

          

          

          

          286

          

          

          

          286

          

          

          

          0.1

          %Fabco Automotive Corporation

          

          

          Automotive

          

          

          

          L+11.25

          %

          

          

          8.00% Cash/4.25% PIK

          

          

          

          4/3/2019

          

          

          

          8,587

          

          

          

          8,553

          

          

          

          3,491

          

          

          

          1.4

          %Gracelock Industries, LLC

          

          

          Wholesale

          

          

          

          L+13.74

          %

          

          

          11.00% Cash/4.24% PIK

          (u)

          

          

          5/7/2019

          

          

          

          4,888

          

          

          

          4,816

          

          

          

          4,500

          

          

          

          1.9

          %Incipio Technologies, Inc.(v)

          

          

          Consumer Goods: Non-Durable

          

          

          

          L+6.00

          %

          

          

          7.00

          %

          

          

          12/26/2019

          

          

          

          14,291

          

          

          

          14,045

          

          

          

          14,219

          

          

          

          5.9

          %MooreCo, Inc.

          

          

          Consumer Goods: Durable

          

          

          

          L+14.50

          %

          

          

          13.50% Cash/2.50% PIK

          

          

          

          12/27/2017

          

          

          

          3,620

          

          

          

          3,600

          

          

          

          3,620

          

          

          

          1.5

          %Output Services Group, Inc.

          

          

          Services: Business

          

          

          

          L+9.00

          %

          

          

          9.50% Cash/1.00% PIK

          

          

          

          12/17/2020

          

          

          

          6,500

          

          

          

          6,432

          

          

          

          6,520

          

          

          

          2.7

          %Output Services Group, Inc.

          

          

          Services: Business

          

          

          

          L+9.00

          %

          

          

          9.50% Cash/1.00% PIK

          

          

          

          12/17/2020

          

          

          

          8,296

          

          

          

          8,189

          

          

          

          8,391

          

          

          

          3.5

          %Playtime, LLC

          

          

          Hotels, Gaming & Leisure

          

          

          

          L+8.50

          %

          

          

          9.00% Cash/1.00% PIK

          

          

          

          12/31/2021

          

          

          

          5,405

          

          

          

          5,381

          

          

          

          4,797

          

          

          

          2.0

          %Total Unitranche Loans

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          57,993

          

          

          

          57,361

          

          

          

          51,638

          

          

          

          21.4

          %Junior Secured LoansAIM Aerospace, Inc.

          

          

          Aerospace & Defense

          

          

          

          L+9.00

          %

          

          

          10.00

          %

          

          

          8/2/2022

          

          

          

          5,000

          

          

          

          4,933

          

          

          

          5,040

          

          

          

          2.1

          %Confie Seguros Holdings II Co.

          

          

          Banking, Finance, Insurance & Real Estate

          

          

          

          L+9.00

          %

          

          

          10.25

          %

          

          

          5/8/2019

          

          

          

          8,594

          

          

          

          8,215

          

          

          

          8,547

          

          

          

          3.5

          %CSM Bakery Supplies LLC

          

          

          Beverage, Food & Tobacco

          

          

          

          L+7.75

          %

          

          

          8.75

          %

          

          

          7/3/2021

          

          

          

          5,792

          

          

          

          5,792

          

          

          

          4,335

          

          

          

          1.8

          %Education Corporation of America

          

          

          Services: Consumer

          

          

          

          L+11.00

          %

          

          

          12.00

          %

          

          

          12/31/2018

          

          

          

          4,167

          

          

          

          4,099

          

          

          

          4,167

          

          

          

          1.7

          %Hyland Software Inc.

          

          

          High Tech Industries

          

          

          

          L+7.25

          %

          

          

          8.25

          %

          

          

          7/1/2023

          

          

          

          5,000

          

          

          

          4,832

          

          

          

          5,100

          

          

          

          2.1

          %Mergermarket USA, Inc.

          

          

          Media: Broadcasting & Subscription

          

          

          

          L+6.50

          %

          

          

          7.50

          %

          

          

          12/19/2021

          

          

          

          4,500

          

          

          

          4,400

          

          

          

          4,371

          

          

          

          1.8

          %Micro Holdings Corp.

          

          

          High Tech Industries

          

          

          

          L+7.50

          %

          

          

          8.50

          %

          

          

          7/8/2022

          

          

          

          5,590

          

          

          

          5,475

          

          

          

          5,590

          

          

          

          2.3

          %Mud Pie, LLC

          

          

          Consumer Goods: Non-Durable

          

          

          

          n/a

          

          

          

          10.00% Cash/1.50% PIK

          

          

          

          11/4/2020

          

          

          

          5,221

          

          

          

          5,145

          

          

          

          5,325

          

          

          

          2.2

          %New NSI Holdings, Inc.

          

          

          Chemicals, Plastics & Rubber

          

          

          

          L+8.25

          %

          

          

          9.25

          %

          

          

          7/28/2022

          

          

          

          4,000

          

          

          

          3,949

          

          

          

          4,040

          

          

          

          1.7

          %Pre-Paid Legal Services, Inc. (Legal Shield)

          

          

          Services: Consumer

          

          

          

          L+9.00

          %

          

          

          10.25

          %

          

          

          7/1/2020

          

          

          

          3,000

          

          

          

          3,000

          

          

          

          3,021

          

          

          

          1.3

          %Rocket Dog Brands, LLC(g)

          

          

          Consumer Goods: Non-Durable

          

          

          

          n/a

          

          

          

          15.00% PIK

          

          

          

          5/1/2020

          

          

          

          1,938

          

          

          

          1,938

          

          

          

          

          

          

          

          0.0

          %Sterling Merger Sub Corp.

          

          

          Services: Business

          

          

          

          L+7.75

          %

          

          

          8.75

          %

          

          

          6/19/2023

          

          

          

          5,000

          

          

          

          4,958

          

          

          

          4,892

          

          

          

          2.0

          %SCP TPZ Acquisition, Inc.

          

          

          Media: Diversified & Production

          

          

          

          L+8.25

          %

          

          

          9.25

          %

          

          

          5/29/2022

          

          

          

          5,000

          

          

          

          4,938

          

          

          

          4,938

          

          

          

          2.1

          %Total Junior Secured Loans

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          62,802

          

          

          

          61,674

          

          

          

          59,366

          

          

          

          24.6

          %Equity SecuritiesAdTheorent, Inc. (128,866 Units)(w)

          

          

          Media: Advertising, Printing & Publishing

          

          

          

          

          

          

          

          

          (x)

          

          

          

          

          

          

          

          

          

          

          129

          

          

          

          129

          

          

          

          0.1

          %American Community Homes, Inc. (warrant to purchase up to 9.0% of the equity)(g)

          

          

          Banking, Finance, Insurance & Real Estate

          

          

          

          

          

          

          

          

          (x)

          

          

          10/9/2024

          

          

          

          

          

          

          

          

          

          

          

          1,315

          

          

          

          0.6

          %BookIt Operating LLC (warrant to purchase up to 3.0% of the equity)(w)

          

          

          Hotels, Gaming & Leisure

          

          

          

          

          

          

          

          

          (x)

          

          

          12/21/2023

          

          

          

          

          

          

          

          

          

          

          

          201

          

          

          

          0.1

          %Collaborative Neuroscience Network, LLC (warrant to purchase up to 4 LLC units)(w)

          

          

          Healthcare & Pharmaceuticals

          

          

          

          

          

          

          

          

          (x)

          

          

          12/27/2022

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          0.0

          %Cyalume Technologies Holdings, Inc.   Series D Preferred Stock (3.06 shares)(w)

          

          

          Aerospace & Defense

          

          

          

          

          

          

          

          

          (x)

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          697

          

          

          

          0.3

          %Education Corporation of America  Series G Preferred Stock (8,333 shares)(w)

          

          

          Services: Consumer

          

          

          

          n/a

          

          

          

          12.00

          %

          

          

          

          

          

          

          

          

          

          

          8,125

          

          

          

          8,121

          

          

          

          3.4

          %Fabco Automotive Corporation (warrant to purchase up to 1.87% of the equity)(w)

          

          

          Automotive

          

          

          

          

          

          

          

          

          (x)

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          0.0

          %InMobi Pte, Ltd. (represents the right to purchase 0.42% of the equity)(l)(w)

          

          

          Media: Advertising, Printing & Publishing

          

          

          

          

          

          

          

          

          (x)

          

          

          9/18/2025

          

          

          

          

          

          

          

          

          

          

          

          49

          

          

          

          0.0%
 See Notes to Consolidated Financial Statements.
 F-9    TABLE OF CONTENTS MONROE CAPITAL CORPORATION   CONSOLIDATED SCHEDULE OF INVESTMENTS  (continued) December 31, 2016 (in thousands, except for units) Portfolio Company(a)

          

          Industry

          

          Spread Above Index(b)

          

          Interest Rate

          

          Maturity

          

          Principal

          

          Amortized Cost

          

          Fair Value(c)

          

          % of Net Assets(d)OBrien Industrial Holdings, LLC (warrants to purchase up to 2.44% of certain affiliated entities of the company)(w)

          

          

          Metals & Mining

          

          

          

          

          

          

          

          

          (x)

          

          

          5/13/2024

          

          

          

          

          

          

          $

          

          

          

          $

          

          

          

          

          0.0

          %Output Services Group, Inc. (warrant to purchase up to 3.89% of the common stock)(w)

          

          

          Services: Business

          

          

          

          

          

          

          

          

          (x)

          

          

          12/17/2022

          

          

          

          

          

          

          

          

          

          

          

          797

          

          

          

          0.3

          %Playtime, LLC  Preferred Units (8,665 units)(w)

          

          

          Hotels, Gaming & Leisure

          

          

          

          

          

          

          

          

          (x)

          

          

          

          

          

          

          

          

          

          

          200

          

          

          

          

          

          

          

          0.0

          %Rockdale Blackhawk, LLC  LLC Units (11.56% of the LLC interest)(g)

          

          

          Healthcare & Pharmaceuticals

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          1,093

          

          

          

          14,655

          

          

          

          6.1

          %Rocket Dog Brands, LLC  Common Units (75,502 units)(g)

          

          

          Consumer Goods: Non-Durable

          

          

          

          

          

          

          

          

          (x)

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          0.0

          %Rocket Dog Brands, LLC  Preferred Units (10 units)(g)

          

          

          Consumer Goods: Non-Durable

          

          

          

          

          

          

          

          15.00% PIK

          (y)

          

          

          

          

          

          

          

          

          

          

          967

          

          

          

          

          

          

          

          0.0

          %SHI Holdings, Inc. (24 shares of common stock)(g)

          

          

          Healthcare & Pharmaceuticals

          

          

          

          

          

          

          

          

          (x)

          

          

          

          

          

          

          

          

          

          

          27

          

          

          

          469

          

          

          

          0.2

          %Summit Container Corporation (warrant to purchase up to 19.50% of the equity)(g)

          

          

          Containers, Packaging & Glass

          

          

          

          

          

          

          

          

          (x)

          

          

          1/6/2024

          

          

          

          

          

          

          

          

          

          

          

          113

          

          

          

          0.0

          %The Tie Bar Operating Company, LLC  Class A Preferred Units (1,275 units)(w)

          

          

          Retail

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          86

          

          

          

          117

          

          

          

          0.0

          %The Tie Bar Operating Company, LLC  Class B Preferred Units (1,275 units)(w)

          

          

          Retail

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          1

          

          

          

          

          

          

          

          0.0

          %TPP Acquisition, Inc. (829 shares of common stock)(p)

          

          

          Retail

          

          

          

          

          

          

          

          

          (x)

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          0.0

          %TPP Operating, Inc. (40 shares of common stock)(p)

          

          

          Retail

          

          

          

          

          

          

          

          

          (x)

          

          

          

          

          

          

          

          

          

          

          3,255

          

          

          

          

          

          

          

          0.0

          %Total Equity Securities

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          13,883

          

          

          

          26,663

          

          

          

          11.1

          %TOTAL INVESTMENTS

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          $

          413,242

          

          

          $

          412,920

          

          

          

          171.4

          %
  (a)

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

          The majority of the investments bear interest at a rate that may be determined by reference to London Interbank Offered Rate (LIBOR or L) or Prime Rate (Prime or P) which reset daily, monthly, quarterly, or semiannually. For each such investment, the Company has provided the spread over LIBOR or Prime and the current contractual interest rate in effect at December 31, 2016. Certain investments are subject to a LIBOR or Prime interest rate floor. (c)

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

          Percentages are based on net assets of $240,850 as of December 31, 2016. (e)

          All or a portion of this commitment was unfunded at December 31, 2016. As such, interest is earned only on the funded portion of this commitment. (f)

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

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

          This is a demand note with no stated maturity. See Notes to Consolidated Financial Statements.
 F-10    TABLE OF CONTENTS MONROE CAPITAL CORPORATION   CONSOLIDATED SCHEDULE OF INVESTMENTS  (continued) December 31, 2016 (in thousands, except for units) (i)

          This position was on non-accrual status as of December 31, 2016, meaning that the Company has ceased recognizing interest income on the position. (j)

          A portion of this loan (principal of $2,271) is held in the Companys wholly-owned subsidiary, Monroe Capital Corporation SBIC, LP and is therefore not collateral to the Companys revolving credit facility. (k)

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

          This investment is treated as a non-qualifying investment under Section 55(a) of the 1940 Act. Under the 1940 Act, the Company may not acquire any non-qualifying asset unless, at the time the acquisition is made, qualifying assets represent at least 70% of the Companys total assets. As of December 31, 2016, non-qualifying assets totaled 1.56% of the Companys total assets. (m)

          The PIK portion of the interest rate for Landpoint, LLC is structured as a fee paid upon the termination of the commitment. The fee currently accrues at 2.25% per annum. (n)

          The PIK portion of the interest rate for Peerless Network, Inc. is structured as a fee paid upon the termination of the commitment. The fee currently accrues at 0.75% per annum. (o)

          A portion of this loan (principal of $3,435) is held in the Companys wholly-owned subsidiary, Monroe Capital Corporation SBIC, LP and is therefore not collateral to the Companys revolving credit facility. (p)

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

          A portion of the PIK interest rate for TRG, LLC is structured as a fee paid upon the termination of the commitment. The fee currently accrues at 4.30% per annum, (r)

          A portion of this loan (principal of $4,660) is held in the Companys wholly-owned subsidiary, Monroe Capital Corporation SBIC, LP and is therefore not collateral to the Companys revolving credit facility. (s)

          The PIK portion of the interest rate for Vacation Innovations, LLC is structured as a fee paid upon the termination of the commitment. The fee currently accrues at 0.92% per annum. (t)

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

          The PIK portion of the interest rate for Gracelock Industries, LLC is structured as a fee paid upon the termination of the commitment. The fee currently accrues at 4.24% per annum. (v)

          A portion of this loan (principal of $5,240) is held in the Companys wholly-owned subsidiary, Monroe Capital Corporation SBIC, LP and is therefore not collateral to the Companys revolving credit facility. (w)

          Represents less than 5% ownership of the portfolio companys voting securities. (x)

          Represents a non-income producing security. (y)

          This position includes a PIK dividend and is currently on non-accrual status. n/a  not applicable See Notes to Consolidated Financial Statements.
 F-11    TABLE OF CONTENTS MONROE CAPITAL CORPORATION CONSOLIDATED SCHEDULE OF INVESTMENTSDecember 31, 2015(in thousands, except for units)  Portfolio Company(a)

          

          Industry

          

          Spread Above Index(b)

          

          Interest Rate

          

          Maturity

          

          Principal

          

          Amortized Cost

          

          Fair Value(c)

          

          % of Net Assets(d)Senior Secured Loans360 Holdings III Corp.

          

          

          Consumer Goods: Non-Durable

          

          

          

          L+9.00

          %

          

          

          10.00

          %

          

          

          10/1/2021

          

          

          

          5,985

          

          

          $

          5,746

          

          

          $

          5,746

          

          

          

          3.1

          %Alora Pharmaceuticals, LLC(e)

          

          

          Healthcare & Pharmaceuticals

          

          

          

          L+7.50

          %

          

          

          8.50

          %

          

          

          9/13/2018

          

          

          

          11,338

          

          

          

          11,229

          

          

          

          11,253

          

          

          

          6.1

          %Alora Pharmaceuticals, LLC (Revolver)(f)

          

          

          Healthcare & Pharmaceuticals

          

          

          

          L+7.50

          %

          

          

          8.50

          %

          

          

          9/13/2018

          

          

          

          1,336

          

          

          

          

          

          

          

          

          

          

          

          0.0

          %American Community Homes, Inc.(g)

          

          

          Banking, Finance, Insurance & Real Estate

          

          

          

          L+8.00

          %

          

          

          9.50

          %

          

          

          7/22/2019

          

          

          

          7,667

          

          

          

          7,511

          

          

          

          7,398

          

          

          

          4.0

          %American Community Homes, Inc.(g)

          

          

          Banking, Finance, Insurance & Real Estate

          

          

          

          L+12.50

          %

          

          

          9.50% Cash/4.50% PIK

          

          

          

          7/22/2019

          

          

          

          4,029

          

          

          

          3,951

          

          

          

          3,941

          

          

          

          2.1

          %Answers Corporation

          

          

          High Tech Industries

          

          

          

          L+5.25

          %

          

          

          6.25

          %

          

          

          10/1/2021

          

          

          

          2,918

          

          

          

          2,818

          

          

          

          1,984

          

          

          

          1.1

          %BCC Software, LLC(h)

          

          

          High Tech Industries

          

          

          

          L+8.00

          %

          

          

          9.00

          %

          

          

          6/20/2019

          

          

          

          2,817

          

          

          

          2,785

          

          

          

          2,776

          

          

          

          1.5

          %BCC Software, LLC (Revolver)(f)

          

          

          High Tech Industries

          

          

          

          L+8.00

          %

          

          

          9.00

          %

          

          

          6/20/2019

          

          

          

          469

          

          

          

          

          

          

          

          

          

          

          

          0.0

          %Bluestem Brands, Inc.

          

          

          Consumer Goods: Non-Durable

          

          

          

          L+7.50

          %

          

          

          8.50

          %

          

          

          11/6/2020

          

          

          

          2,919

          

          

          

          2,892

          

          

          

          2,737

          

          

          

          1.4

          %Cali Bamboo, LLC

          

          

          Construction & Building

          

          

          

          L+8.50

          %

          

          

          9.00

          %

          

          

          7/10/2020

          

          

          

          4,179

          

          

          

          4,101

          

          

          

          4,093

          

          

          

          2.2

          %Cali Bamboo, LLC (Revolver)(f)

          

          

          Construction & Building

          

          

          

          L+8.50

          %

          

          

          9.00

          %

          

          

          7/10/2020

          

          

          

          1,624

          

          

          

          1,039

          

          

          

          1,039

          

          

          

          0.6

          %Cornerstone Detention Products, Inc.(i)

          

          

          Construction & Building

          

          

          

          L+10.50

          %

          

          

          10.50% Cash/1.00% PIK

          

          

          

          4/8/2019

          

          

          

          4,221

          

          

          

          4,161

          

          

          

          3,969

          

          

          

          2.2

          %Cornerstone Detention Products, Inc. (Revolver)(f)

          

          

          Construction & Building

          

          

          

          L+9.50

          %

          

          

          10.50

          %

          

          

          4/8/2019

          

          

          

          400

          

          

          

          

          

          

          

          

          

          

          

          0.0

          %Cyalume Technologies Holdings, Inc.(h)

          

          

          Aerospace & Defense

          

          

          

          L+9.00

          %

          

          

          10.00

          %

          

          

          5/18/2020

          

          

          

          5,236

          

          

          

          5,106

          

          

          

          5,278

          

          

          

          2.9

          %Cyalume Technologies Holdings, Inc.(Delayed Draw)

          

          

          Aerospace & Defense

          

          

          

          L+9.00

          %

          

          

          10.00

          %

          

          

          5/18/2020

          

          

          

          453

          

          

          

          453

          

          

          

          456

          

          

          

          0.2

          %Cyalume Technologies Holdings, Inc. (Revolver)(f)

          

          

          Aerospace & Defense

          

          

          

          L+9.00

          %

          

          

          10.00

          %

          

          

          5/18/2020

          

          

          

          1,528

          

          

          

          306

          

          

          

          306

          

          

          

          0.2

          %Diesel Direct Holdings, Inc.(h)

          

          

          Energy: Oil & Gas

          

          

          

          L+9.00

          %

          

          

          10.00

          %

          

          

          2/17/2020

          

          

          

          5,363

          

          

          

          5,299

          

          

          

          5,443

          

          

          

          2.9

          %EB Employee Solutions, LLC(h)

          

          

          Services: Business

          

          

          

          L+8.50

          %

          

          

          10.00

          %

          

          

          2/28/2019

          

          

          

          3,470

          

          

          

          3,406

          

          

          

          3,399

          

          

          

          1.8

          %G&M Opco LLC(h)

          

          

          Construction & Building

          

          

          

          L+7.50

          %

          

          

          8.00

          %

          

          

          6/23/2020

          

          

          

          3,169

          

          

          

          3,096

          

          

          

          3,109

          

          

          

          1.7

          %InMobi Pte, Ltd. (Delayed Draw)(f)(j)(k)

          

          

          Media: Advertising, Printing & Publishing

          

          

          

          L+10.17

          %

          

          

          10.50

          %

          

          

          9/1/2018

          

          

          

          10,000

          

          

          

          5,842

          

          

          

          5,772

          

          

          

          3.1

          %Jerry Lee Radio, LLC

          

          

          Media: Broadcasting & Subscription

          

          

          

          L+9.50

          %

          

          

          10.00

          %

          

          

          12/17/2020

          

          

          

          15,000

          

          

          

          14,627

          

          

          

          14,625

          

          

          

          7.9

          %Landpoint, LLC

          

          

          Energy: Oil & Gas

          

          

          

          L+12.75

          %

          

          

          12.00% Cash/2.25% PIK

          (l)

          

          

          12/20/2018

          

          

          

          3,750

          

          

          

          3,688

          

          

          

          3,634

          

          

          

          2.0

          %Landpoint, LLC (Revolver)(f)

          

          

          Energy: Oil & Gas

          

          

          

          L+10.50

          %

          

          

          12.00

          %

          

          

          12/20/2018

          

          

          

          313

          

          

          

          

          

          

          

          

          

          

          

          0.0

          %L.A.R.K. Industries, Inc.

          

          

          Construction & Building

          

          

          

          L+7.00

          %

          

          

          8.00

          %

          

          

          9/3/2019

          

          

          

          6,690

          

          

          

          6,562

          

          

          

          6,657

          

          

          

          3.6

          %Luxury Optical Holdings Co.

          

          

          Retail

          

          

          

          L+9.00

          %

          

          

          9.00% Cash/1.00% PIK

          

          

          

          9/12/2019

          

          

          

          4,035

          

          

          

          3,972

          

          

          

          3,986

          

          

          

          2.2

          %Luxury Optical Holdings Co. (Revolver)(f)

          

          

          Retail

          

          

          

          L+8.00

          %

          

          

          9.00

          %

          

          

          9/12/2019

          

          

          

          273

          

          

          

          

          

          

          

          

          

          

          

          0.0

          %Miles Media Group LLC

          

          

          Hotels, Gaming & Leisure

          

          

          

          L+8.50

          %

          

          

          9.50

          %

          

          

          9/12/2019

          

          

          

          3,875

          

          

          

          3,814

          

          

          

          3,864

          

          

          

          2.1

          %Miles Media Group LLC (Delayed Draw)(f)(j)

          

          

          Hotels, Gaming & Leisure

          

          

          

          L+8.50

          %

          

          

          9.50

          %

          

          

          9/12/2019

          

          

          

          1,600

          

          

          

          

          

          

          

          

          

          

          

          0.0

          %Miles Media Group LLC (Revolver)(f)

          

          

          Hotels, Gaming & Leisure

          

          

          

          L+8.50

          %

          

          

          9.50

          %

          

          

          9/12/2019

          

          

          

          320

          

          

          

          

          

          

          

          

          

          

          

          0.0

          %OBrien Industrial Holdings, LLC

          

          

          Metals & Mining

          

          

          

          L+11.50

          %

          

          

          11.00% Cash/2.00% PIK

          

          

          

          5/13/2019

          

          

          

          6,326

          

          

          

          6,213

          

          

          

          6,177

          

          

          

          3.4

          %OBrien Industrial Holdings, LLC (Revolver)(f)

          

          

          Metals & Mining

          

          

          

          L+9.50

          %

          

          

          11.00

          %

          

          

          5/13/2019

          

          

          

          2,844

          

          

          

          1,219

          

          

          

          1,219

          

          

          

          0.7

          %PD Products, LLC

          

          

          Consumer Goods: Non-Durable

          

          

          

          L+10.50

          %

          

          

          12.00

          %

          

          

          10/4/2018

          

          

          

          12,698

          

          

          

          12,589

          

          

          

          12,679

          

          

          

          6.9

          %PD Products, LLC (Revolver)(f)

          

          

          Consumer Goods: Non-Durable

          

          

          

          L+10.50

          %

          

          

          12.00

          %

          

          

          10/4/2018

          

          

          

          2,500

          

          

          

          1,025

          

          

          

          1,024

          

          

          

          0.6

          %PeopleConnect Intermediate, LLC(formerly Intelius, Inc.)

          

          

          Services: Consumer

          

          

          

          L+5.50

          %

          

          

          6.50

          %

          

          

          7/1/2020

          

          

          

          4,958

          

          

          

          4,855

          

          

          

          4,993

          

          

          

          2.7

          %PeopleConnect Intermediate, LLC(formerly Intelius, Inc.)

          

          

          Services: Consumer

          

          

          

          L+11.50

          %

          

          

          12.50

          %

          

          

          7/1/2020

          

          

          

          4,979

          

          

          

          4,874

          

          

          

          4,964

          

          

          

          2.7

          %PeopleConnect Intermediate, LLC(formerly Intelius, Inc.) (Revolver)(f)

          

          

          Services: Consumer

          

          

          

          L+8.50

          %

          

          

          9.50

          %

          

          

          7/1/2020

          

          

          

          354

          

          

          

          

          

          

          

          

          

          

          

          0.0

          %Precision Toxicology, LLC(h)

          

          

          Healthcare & Pharmaceuticals

          

          

          

          L+8.00

          %

          

          

          8.00% Cash/1.00% PIK

          

          

          

          3/24/2020

          

          

          

          5,440

          

          

          

          5,345

          

          

          

          5,358

          

          

          

          2.9

          %Precision Toxicology, LLC (Revolver)(f)

          

          

          Healthcare & Pharmaceuticals

          

          

          

          L+8.00

          %

          

          

          8.00% Cash/1.00% PIK

          

          

          

          3/24/2020

          

          

          

          635

          

          

          

          

          

          

          

          

          

          

          

          0.0

          %Rockdale Blackhawk, LLC(g)

          

          

          Healthcare & Pharmaceuticals

          

          

          

          L+11.00

          %

          

          

          12.00

          %

          

          

          3/31/2020

          

          

          

          12,207

          

          

          

          11,155

          

          

          

          12,299

          

          

          

          6.7

          %Rockdale Blackhawk, LLC (Revolver)(f)(g)

          

          

          Healthcare & Pharmaceuticals

          

          

          

          L+11.00

          %

          

          

          12.00

          %

          

          

          3/31/2020

          

          

          

          1,849

          

          

          

          789

          

          

          

          786

          

          

          

          0.4

          %Rockdale Blackhawk, LLC (Capex)(f)(g)

          

          

          Healthcare & Pharmaceuticals

          

          

          

          L+11.00

          %

          

          

          12.00

          %

          

          

          3/31/2020

          

          

          

          2,288

          

          

          

          629

          

          

          

          634

          

          

          

          0.3

          %
 See Notes to Consolidated Financial Statements.
 F-12    TABLE OF CONTENTS MONROE CAPITAL CORPORATION CONSOLIDATED SCHEDULE OF INVESTMENTS  (continued)December 31, 2015(in thousands, except for units)  Portfolio Company(a)

          

          Industry

          

          Spread Above Index(b)

          

          Interest Rate

          

          Maturity

          

          Principal

          

          Amortized Cost

          

          Fair Value(c)

          

          % of Net Assets(d)Rocket Dog Brands, LLC(g)

          

          

          Consumer Goods: Non-Durable

          

          

          

          n/a

          

          

          

          10.00

          %

          

          

          8/29/2019

          

          

          

          1,032

          

          

          $

          1,032

          

          

          $

          1,032

          

          

          

          0.6

          %Rocket Dog Brands, LLC (Delayed Draw)(f)(g)(j)

          

          

          Consumer Goods: Non-Durable

          

          

          

          n/a

          

          

          

          15.00

          %

          

          

          8/29/2019

          

          

          

          350

          

          

          

          150

          

          

          

          150

          

          

          

          0.1

          %SHI Holdings, Inc.(h)

          

          

          Healthcare & Pharmaceuticals

          

          

          

          L+9.25

          %

          

          

          9.67

          %

          

          

          7/10/2019

          

          

          

          2,737

          

          

          

          2,688

          

          

          

          2,710

          

          

          

          1.5

          %SHI Holdings, Inc. (Revolver)(f)

          

          

          Healthcare & Pharmaceuticals

          

          

          

          L+9.25

          %

          

          

          9.67

          %

          

          

          7/10/2019

          

          

          

          818

          

          

          

          573

          

          

          

          573

          

          

          

          0.3

          %SNI Companies(m)

          

          

          Services: Business

          

          

          

          L+10.00

          %

          

          

          11.00

          %

          

          

          12/31/2018

          

          

          

          6,852

          

          

          

          6,743

          

          

          

          6,842

          

          

          

          3.7

          %SNI Companies (Revolver)(f)

          

          

          Services: Business

          

          

          

          L+10.00

          %

          

          

          11.00

          %

          

          

          12/31/2018

          

          

          

          1,250

          

          

          

          125

          

          

          

          125

          

          

          

          0.1

          %Summit Container Corporation(g)(h)

          

          

          Containers, Packaging & Glass

          

          

          

          L+9.00

          %

          

          

          11.00

          %

          

          

          1/6/2019

          

          

          

          3,600

          

          

          

          3,537

          

          

          

          3,400

          

          

          

          1.8

          %The Sandbox Group LLC(h)

          

          

          Media: Advertising, Printing & Publishing

          

          

          

          L+10.00

          %

          

          

          9.00% Cash/2.00% PIK

          

          

          

          2/23/2020

          

          

          

          5,388

          

          

          

          5,274

          

          

          

          5,329

          

          

          

          2.9

          %The Sandbox Group LLC (Revolver)(f)

          

          

          Media: Advertising, Printing & Publishing

          

          

          

          L+10.00

          %

          

          

          9.00% Cash/2.00% PIK

          

          

          

          2/23/2020

          

          

          

          1,250

          

          

          

          1,243

          

          

          

          1,243

          

          

          

          0.7

          %TRG, LLC

          

          

          Hotels, Gaming & Leisure

          

          

          

          L+17.92

          %

          

          

          11.00% Cash/7.92% PIK

          (n)

          

          

          12/23/2019

          

          

          

          3,068

          

          

          

          3,017

          

          

          

          3,040

          

          

          

          1.6

          %TRG, LLC (Revolver)(f)

          

          

          Hotels, Gaming & Leisure

          

          

          

          L+12.00

          %

          

          

          13.00

          %

          

          

          12/23/2019

          

          

          

          131

          

          

          

          

          

          

          

          

          

          

          

          0.0

          %TRG, LLC (CapEx)(f)

          

          

          Hotels, Gaming & Leisure

          

          

          

          L+12.00

          %

          

          

          11.00% Cash/2.00% PIK

          

          

          

          12/23/2019

          

          

          

          919

          

          

          

          653

          

          

          

          649

          

          

          

          0.3

          %TTM Technologies, Inc.

          

          

          High Tech Industries

          

          

          

          L+5.00

          %

          

          

          6.00

          %

          

          

          5/31/2021

          

          

          

          1,330

          

          

          

          1,287

          

          

          

          1,207

          

          

          

          0.6

          %Vacation Innovations, LLC

          

          

          Hotels, Gaming & Leisure

          

          

          

          L+9.00

          %

          

          

          9.50

          %

          

          

          8/20/2020

          

          

          

          6,211

          

          

          

          6,093

          

          

          

          6,236

          

          

          

          3.4

          %Vacation Innovations, LLC (Revolver)(f)

          

          

          Hotels, Gaming & Leisure

          

          

          

          L+9.00

          %

          

          

          9.50

          %

          

          

          8/20/2020

          

          

          

          342

          

          

          

          

          

          

          

          

          

          

          

          0.0

          %Yandy Holding, LLC

          

          

          Retail

          

          

          

          L+9.00

          %

          

          

          10.00

          %

          

          

          9/30/2019

          

          

          

          6,419

          

          

          

          6,342

          

          

          

          6,425

          

          

          

          3.5

          %Yandy Holding, LLC (Revolver)(f)

          

          

          Retail

          

          

          

          L+9.00

          %

          

          

          10.00

          %

          

          

          9/30/2019

          

          

          

          907

          

          

          

          

          

          

          

          

          

          

          

          0.0

          %Total Senior Secured Loans

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          214,659

          

          

          

          189,854

          

          

          

          190,559

          

          

          

          103.3

          %Unitranche LoansAccutest Corporation

          

          

          Services: Business

          

          

          

          L+9.50

          %

          

          

          11.00

          %

          

          

          6/5/2018

          

          

          

          6,586

          

          

          

          6,440

          

          

          

          6,586

          

          

          

          3.6

          %Collaborative Neuroscience Network, LLC(o)

          

          

          Healthcare & Pharmaceuticals

          

          

          

          L+11.50

          %

          

          

          13.00

          %

          

          

          12/27/2017

          

          

          

          7,058

          

          

          

          6,968

          

          

          

          6,733

          

          

          

          3.6

          %Fabco Automotive Corporation

          

          

          Automotive

          

          

          

          L+9.25

          %

          

          

          10.25

          %

          

          

          4/3/2017

          

          

          

          8,437

          

          

          

          8,393

          

          

          

          5,358

          

          

          

          2.9

          %Gracelock Industries, LLC

          

          

          Wholesale

          

          

          

          L+12.05

          %

          

          

          11.00% Cash/2.55% PIK

          (p)

          

          

          5/7/2019

          

          

          

          5,207

          

          

          

          5,101

          

          

          

          4,730

          

          

          

          2.6

          %Incipio Technologies, Inc.(q)

          

          

          Consumer Goods: Non-Durable

          

          

          

          L+6.00

          %

          

          

          7.00

          %

          

          

          12/26/2019

          

          

          

          15,000

          

          

          

          14,669

          

          

          

          15,008

          

          

          

          8.1

          %MooreCo, Inc.

          

          

          Consumer Goods: Durable

          

          

          

          L+13.50

          %

          

          

          12.50% Cash/2.50% PIK

          

          

          

          12/27/2017

          

          

          

          4,223

          

          

          

          4,177

          

          

          

          4,223

          

          

          

          2.3

          %Output Services Group, Inc.

          

          

          Services: Business

          

          

          

          L+9.00

          %

          

          

          9.50% Cash/1.00% PIK

          

          

          

          12/17/2018

          

          

          

          6,655

          

          

          

          6,555

          

          

          

          6,562

          

          

          

          3.6

          %Output Services Group, Inc.

          

          

          Services: Business

          

          

          

          L+9.00

          %

          

          

          9.50% Cash/1.00% PIK

          

          

          

          12/17/2018

          

          

          

          7,429

          

          

          

          7,301

          

          

          

          7,295

          

          

          

          3.9

          %Playtime, LLC(o)

          

          

          Hotels, Gaming & Leisure

          

          

          

          L+7.50

          %

          

          

          9.00

          %

          

          

          12/4/2017

          

          

          

          5,677

          

          

          

          5,627

          

          

          

          5,070

          

          

          

          2.8

          %TPP Acquisition, Inc.(r)

          

          

          Retail

          

          

          

          L+11.00

          %

          

          

          10.50% Cash/2.00% PIK

          

          

          

          12/17/2017

          

          

          

          6,835

          

          

          

          6,769

          

          

          

          2,990

          

          

          

          1.6

          %TPP Acquisition, Inc. (Revolver)(r)

          

          

          Retail

          

          

          

          L+11.00

          %

          

          

          4.50% Cash/8.00% PIK

          

          

          

          12/17/2017

          

          

          

          2,035

          

          

          

          2,035

          

          

          

          2,035

          

          

          

          1.1

          %TPP Acquisition, Inc. (Delayed Draw)(r)

          

          

          Retail

          

          

          

          L+11.00

          %

          

          

          10.50% Cash/2.00% PIK

          

          

          

          12/17/2017

          

          

          

          3,429

          

          

          

          3,429

          

          

          

          1,500

          

          

          

          0.8

          %Total Unitranche Loans

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          78,571

          

          

          

          77,464

          

          

          

          68,090

          

          

          

          36.9

          %Junior Secured LoansConfie Seguros Holdings II Co.

          

          

          Banking, Finance, Insurance & Real Estate

          

          

          

          L+9.00

          %

          

          

          10.25

          %

          

          

          5/8/2019

          

          

          

          5,594

          

          

          

          5,555

          

          

          

          5,538

          

          

          

          3.0

          %CSM Bakery Supplies LLC

          

          

          Beverage, Food & Tobacco

          

          

          

          L+7.75

          %

          

          

          8.75

          %

          

          

          7/3/2021

          

          

          

          5,792

          

          

          

          5,691

          

          

          

          5,532

          

          

          

          3.0

          %Education Corporation of America

          

          

          Services: Consumer

          

          

          

          L+11.00

          %

          

          

          11.60

          %

          

          

          12/31/2018

          

          

          

          5,833

          

          

          

          5,698

          

          

          

          5,854

          

          

          

          3.2

          %Hyland Software Inc.

          

          

          High Tech Industries

          

          

          

          L+7.25

          %

          

          

          8.25

          %

          

          

          7/1/2023

          

          

          

          5,000

          

          

          

          4,810

          

          

          

          4,700

          

          

          

          2.5

          %Mergermarket USA, Inc.

          

          

          Media: Broadcasting & Subscription

          

          

          

          L+6.50

          %

          

          

          7.50

          %

          

          

          12/19/2021

          

          

          

          4,500

          

          

          

          4,384

          

          

          

          4,016

          

          

          

          2.2

          %Micro Holdings Corp.

          

          

          High Tech Industries

          

          

          

          L+7.50

          %

          

          

          8.50

          %

          

          

          7/8/2022

          

          

          

          5,590

          

          

          

          5,455

          

          

          

          5,339

          

          

          

          2.9

          %Mud Pie, LLC

          

          

          Consumer Goods: Non-Durable

          

          

          

          n/a

          

          

          

          10.00% Cash/1.50% PIK

          

          

          

          11/4/2020

          

          

          

          10,101

          

          

          

          9,919

          

          

          

          10,060

          

          

          

          5.4

          %New NSI Holdings, Inc.

          

          

          Chemicals, Plastics & Rubber

          

          

          

          L+8.25

          %

          

          

          9.25

          %

          

          

          7/28/2022

          

          

          

          4,000

          

          

          

          3,942

          

          

          

          3,948

          

          

          

          2.1

          %Pre-Paid Legal Services, Inc. (Legal Shield)

          

          

          Services: Consumer

          

          

          

          L+9.00

          %

          

          

          10.25

          %

          

          

          7/1/2020

          

          

          

          3,000

          

          

          

          2,988

          

          

          

          2,950

          

          

          

          1.6

          %Physiotherapy Corporation

          

          

          Healthcare & Pharmaceuticals

          

          

          

          L+8.50

          %

          

          

          9.50

          %

          

          

          6/3/2022

          

          

          

          5,000

          

          

          

          4,953

          

          

          

          5,000

          

          

          

          2.7%
 See Notes to Consolidated Financial Statements.
 F-13    TABLE OF CONTENTS MONROE CAPITAL CORPORATION CONSOLIDATED SCHEDULE OF INVESTMENTS  (continued)December 31, 2015(in thousands, except for units) Portfolio Company(a)

          

          Industry

          

          Spread Above Index(b)

          

          Interest Rate

          

          Maturity

          

          Principal

          

          Amortized Cost

          

          Fair Value(c)

          

          % of Net Assets(d)Rocket Dog Brands, LLC(g)

          

          

          Consumer Goods: Non-Durable

          

          

          

          n/a

          

          

          

          15.00% PIK

          

          

          

          5/1/2020

          

          

          

          1,673

          

          

          $

          1,673

          

          

          $

          570

          

          

          

          0.3

          %Sterling Infosystems, Inc.

          

          

          Services: Business

          

          

          

          L+7.75

          %

          

          

          8.75

          %

          

          

          6/19/2023

          

          

          

          5,000

          

          

          

          4,952

          

          

          

          4,956

          

          

          

          2.7

          %SCP TPZ Acquisition, Inc.

          

          

          Media: Diversified & Production

          

          

          

          L+8.25

          %

          

          

          9.25

          %

          

          

          5/29/2022

          

          

          

          5,000

          

          

          

          4,928

          

          

          

          4,925

          

          

          

          2.7

          %Total Junior Secured Loans

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          66,083

          

          

          

          64,948

          

          

          

          63,388

          

          

          

          34.3

          %Equity SecuritiesAmerican Community Homes, Inc. (warrant to purchase up to 9.0% of the equity)(s)

          

          

          Banking, Finance, Insurance & Real Estate

          

          

          

          

          

          

          

          

          (t)

          

          

          10/9/2024

          

          

          

          

          

          

          

          

          

          

          

          353

          

          

          

          0.2

          %BookIt Operating LLC (warrant to purchase up to 3.0% of the equity)(s)

          

          

          Hotels, Gaming & Leisure

          

          

          

          

          

          

          

          

          (t)

          

          

          12/21/2023

          

          

          

          

          

          

          

          

          

          

          

          587

          

          

          

          0.3

          %Collaborative Neuroscience Network, LLC (warrant to purchase up to 1.67 LLC units)(s)

          

          

          Healthcare & Pharmaceuticals

          

          

          

          

          

          

          

          

          (t)

          

          

          12/27/2022

          

          

          

          

          

          

          

          

          

          

          

          147

          

          

          

          0.1

          %Cyalume Technologies Holdings, Inc.  Series D Preferred Stock (3.06 shares)(s)

          

          

          Aerospace & Defense

          

          

          

          

          

          

          

          

          (t)

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          449

          

          

          

          0.2

          %Education Corporation of America  Series G Preferred Stock (8,333 shares)(s)

          

          

          Services: Consumer

          

          

          

          n/a

          

          

          

          12.00

          %

          

          

          

          

          

          

          

          

          

          

          8,125

          

          

          

          8,345

          

          

          

          4.5

          %InMobi Pte, Ltd. (represents the right to purchase 0.42% of the equity)(k)(s)

          

          

          Media: Advertising, Printing & Publishing

          

          

          

          

          

          

          

          

          (t)

          

          

          9/18/2025

          

          

          

          

          

          

          

          

          

          

          

          108

          

          

          

          0.1

          %OBrien Industrial Holdings, LLC (warrants to purchase up to 2.44% of certain affiliated entities of the company)(s)

          

          

          Metals & Mining

          

          

          

          

          

          

          

          

          (t)

          

          

          5/13/2024

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          0.0

          %Output Services Group, Inc. (warrant to purchase up to 3.89% of the common stock)(s)

          

          

          Services: Business

          

          

          

          

          

          

          

          

          (t)

          

          

          12/17/2022

          

          

          

          

          

          

          

          

          

          

          

          450

          

          

          

          0.2

          %Playtime, LLC  Preferred Units (8,665 units)(s)

          

          

          Hotels, Gaming & Leisure

          

          

          

          

          

          

          

          

          (t)

          

          

          

          

          

          

          

          

          

          

          200

          

          

          

          64

          

          

          

          0.0

          %Rocket Dog Brands, LLC  Common Units (75,502 units)(g)

          

          

          Consumer Goods: Non-Durable

          

          

          

          

          

          

          

          

          (t)

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          0.0

          %Rocket Dog Brands, LLC  Preferred Units (10 units)(g)

          

          

          Consumer Goods: Non-Durable

          

          

          

          

          

          

          

          15.00% PIK

          (u)

          

          

          

          

          

          

          

          

          

          

          967

          

          

          

          

          

          

          

          0.0

          %Rockdale Blackhawk, LLC  LLC Units (11.56% of the LLC interest)(g)

          

          

          Healthcare & Pharmaceuticals

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          1,093

          

          

          

          8,184

          

          

          

          4.4

          %Summit Container Corporation (warrant to purchase up to 19.50% of the equity)(g)

          

          

          Containers, Packaging & Glass

          

          

          

          

          

          

          

          

          (t)

          

          

          1/6/2024

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          0.0

          %The Sandbox Group LLC (warrant to purchase up to 1.0% of the equity)(s)

          

          

          Media: Advertising, Printing & Publishing

          

          

          

          

          

          

          

          

          (t)

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          277

          

          

          

          0.2

          %The Tie Bar Operating Company, LLC  Class A Preferred Units (1,275 units)(s)

          

          

          Retail

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          86

          

          

          

          90

          

          

          

          0.1

          %The Tie Bar Operating Company, LLC  Class B Preferred Units (1,275 units)(s)

          

          

          Retail

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          1

          

          

          

          

          

          

          

          0.0

          %TPP Acquisition, Inc. (829 shares of common stock)(r)

          

          

          Retail

          

          

          

          

          

          

          

          

          (t)

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          0.0

          %Total Equity Securities

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          10,472

          

          

          

          19,054

          

          

          

          10.3

          %TOTAL INVESTMENTS

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          $

          342,738

          

          

          $

          341,091

          

          

          

          184.8

          %
  (a)

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

          The majority of the investments bear interest at a rate that may be determined by reference to London Interbank Offered Rate (LIBOR or L) or Prime Rate (Prime or P) which reset daily, monthly, quarterly, or semiannually. For each such investment the Company has provided the spread over LIBOR or Prime and the current contractual interest rate in effect at December 31, 2015. Certain investments are subject to a LIBOR or Prime interest rate floor. See Notes to Consolidated Financial Statements.
 F-14    TABLE OF CONTENTS MONROE CAPITAL CORPORATION CONSOLIDATED SCHEDULE OF INVESTMENTS  (continued)December 31, 2015(in thousands, except for units) (c)

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

          Percentages are based on net assets of $184,535 as of December 31, 2015. (e)

          A portion of this loan (principal of $4,679) is held in the Companys wholly-owned subsidiary, Monroe Capital Corporation SBIC, LP and is therefore not collateral to the Companys revolving credit facility. (f)

          All or a portion of this commitment was unfunded at December 31, 2015. As such, interest is earned only on the funded portion of this commitment. (g)

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

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

          A portion of this loan (principal of $2,532) is held in the Companys wholly-owned subsidiary, Monroe Capital Corporation SBIC, LP and is therefore not collateral to the Companys revolving credit facility. (j)

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

          This investment is treated as a non-qualifying investment under Section 55(a) of the 1940 Act. Under the 1940 Act, the Company may not acquire any non-qualifying asset unless, at the time the acquisition is made, qualifying assets represent at least 70% of the Companys total assets. As of December 31, 2015, non-qualifying assets totaled 1.60% of the Companys total assets. (l)

          The PIK portion of the interest rate for Landpoint, LLC is structured as a fee paid upon the termination of the commitment. The fee accrues at 2.25% per annum. (m)

          A portion of this loan (principal of $4,394) is held in the Companys wholly-owned subsidiary, Monroe Capital Corporation SBIC, LP and is therefore not collateral to the Companys revolving credit facility. (n)

          A portion of the PIK interest rate for TRG, LLC is structured as a fee paid upon the termination of the commitment. The fee accrues at 5.92% per annum. (o)

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

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

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

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

          Represents less than 5% ownership of the portfolio companys voting securities. (t)

          Represents a non-income producing security. (u)

          This position includes a PIK dividend and is currently on non-accrual status. n/a  not applicable See Notes to Consolidated Financial Statements.
 F-15    TABLE OF CONTENTS MONROE CAPITAL CORPORATION  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) Note 1. Organization and Principal Business Monroe Capital Corporation (Monroe Capital and together with its subsidiaries, the Company) was formed in February 2011 to act as an externally-managed non-diversified, closed-end management investment company and has elected to be treated as a business development company under the Investment Company Act of 1940, as amended (the 1940 Act). The Company had no substantive operating activities prior to October 24, 2012, the date of its initial public offering. Monroe Capitals investment objective is to maximize the total return to its stockholders in the form of current
income and capital appreciation through investment in senior secured, junior secured and unitranche (a combination of senior secured and junior secured debt in the same facility 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 investments. Monroe Capital is managed by Monroe Capital BDC Advisors, LLC (MC Advisors), a registered investment adviser under the Investment Advisers Act of 1940, as amended. In addition, for U.S. federal income tax purposes, Monroe Capital has elected to be treated as a regulated investment company (RIC) under Subchapter M of the Internal Revenue Code of 1986, as amended (the Code). On February 28, 2014, the Companys wholly-owned subsidiary, Monroe Capital Corporation SBIC, LP (MRCC SBIC), a Delaware limited partnership, received a license from the Small Business Administration (SBA) to operate as a Small Business Investment Company (SBIC) under Section 301(c) of the Small Business Investment Act of 1958, as amended. MRCC SBIC commenced operations on September 16, 2013. As of December 31, 2016, MRCC SBIC had $41,000 in leveragable capital and $51,500 in SBA-guaranteed debentures outstanding. See Note 7 for additional information. Note 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP). The accompanying consolidated financial statements of the Company and related financial information have been prepared pursuant to the requirements for reporting on Form 10-K and Articles 6 or 10 of Regulation S-X. The Company has determined it meets the definition of an investment company and follows the accounting and reporting guidance in the Financial Accounting Standards Board (FASB) Accounting Standards Codification
(ASC) Topic 946  Financial Services  Investment Companies (ASC Topic 946). Certain prior period amounts have been reclassified to conform to the current period presentation. Use of Estimates The preparation of the consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Consolidation As permitted under Regulation S-X and ASC Topic 946, the Company will generally not consolidate its investment in a portfolio company other than an investment company subsidiary or a controlled operating company whose business consists of providing services to the Company. Accordingly, the Company consolidated the results of the Companys wholly-owned subsidiaries in its consolidated financial statements. All intercompany balances and transactions have been eliminated.
 F-16    TABLE OF CONTENTS MONROE CAPITAL CORPORATION  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) Note 2. Summary of Significant Accounting Policies   (continued) Fair Value of Financial Instruments The Company applies fair value to substantially all of its financial instruments in accordance with ASC Topic 820  Fair Value Measurements and Disclosures (ASC Topic 820). ASC Topic 820 defines fair value, establishes a framework used to measure fair value, and requires disclosures for fair value measurements, including the categorization of financial instruments into a three-level hierarchy based on the transparency of valuation inputs. See Note 4 to the consolidated financial statements for further discussion regarding the fair value measurements and hierarchy. ASC Topic 820 requires disclosure of the fair value of financial instruments for which it is practical to estimate such value. The Company believes that the carrying amounts of its other financial instruments such as cash, receivables and payables approximate the fair value of such items due to the short maturity of such instruments. Revenue Recognition The Companys revenue recognition policies are as follows: Investments and related investment income:  Interest and dividend income are recorded on the accrual basis to the extent that the Company expects 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. All other income is recorded into income when earned. The Company records prepayment fees and amendment fees on loans as fee income in the period earned. Dividend income on preferred equity securities 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 securities 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, the Company 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. Loan origination fees, original issue discount and market discount or premiums are capitalized, and the Company then amortizes such amounts using the effective interest method as interest income over the life of the investment. Unamortized discounts and loan origination fees totaled $6,192 and $6,340 as of December 31, 2016 and 2015, respectively. Upfront loan origination and closing fees received for the years ended December 31, 2016, 2015 and 2014 totaled $3,100, $3,306 and $3,310, respectively. For the years ended December 31, 2016, 2015 and 2014, interest income included $1,556, $1,105 and $689 of accretion of loan
origination fees, original issue discounts and market discounts or premiums. Upon the prepayment of a loan or debt security, any unamortized premium or discount or loan origination fees are recorded as interest income. For the years ended December 31, 2016, 2015 and 2014, interest income included $995, $1,230 and $952 of unamortized discount or loan origination fees recorded as interest income upon prepayment of a loan or debt security, respectively. The Company has certain investments in its portfolio that contain a payment-in-kind (PIK) interest provision, which represents contractual interest or dividends that are added to the principal balance and recorded as income. For the years ended December 31, 2016, 2015 and 2014, interest income included $2,027, $1,980 and $1,054 of PIK interest, respectively. The Company stops accruing PIK interest when it is determined that PIK interest is no longer collectible. To maintain RIC tax treatment, and to avoid corporate
 F-17    TABLE OF CONTENTS MONROE CAPITAL CORPORATION  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) Note 2. Summary of Significant Accounting Policies   (continued) tax, substantially all of this income must be paid out to stockholders in the form of distributions, even though the Company has not yet collected the cash. Investment transactions are recorded on a trade-date basis. Realized gains or losses on portfolio investments are calculated based upon the difference between the net proceeds from the disposition and the amortized cost basis of the investment, without regard to unrealized gains and losses previously recognized. Realized gains and losses are recorded within net realized gain (loss) on investments in the consolidated statements of operations. Changes in the fair value of investments from the prior period, as determined by the Companys board of directors (the Board) through the application of the Companys
valuation policy, are included within net change in unrealized appreciation (depreciation) on investments in the consolidated statements of operations. Non-accrual:  Loans or preferred equity securities are placed on non-accrual status when principal, interest or dividend payments become materially past due, or when there is reasonable doubt that principal, interest or dividends will be collected. We generally reverse accrued interest when a loan is placed on non-accrual status. Additionally, any original issue discount and market discount are no longer accreted to interest income as of the date the loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon
managements judgment. Non-accrual loans are restored to accrual status when past due principal, interest, or dividends are paid, and, in managements judgment are likely to remain current. The fair value of the Companys investments on non-accrual status totaled $10,394 and zero at December 31, 2016 and 2015, respectively. Partial loan sales:  The Company follows the guidance in ASC Topic 860  Transfers and Servicing (ASC Topic 860), when accounting for loan participations and other partial loan sales. Such guidance requires a participation or other partial loan sale to meet the definition of a participating interest, as defined in the guidance, in order for sale treatment to be allowed. Participations or other partial loan sales which do not meet the definition of a participating interest remain on the Companys consolidated statements of assets and liabilities and the
proceeds are recorded as a secured borrowing until the definition is met. For these partial loan sales, the interest earned on the entire loan balance is recorded within interest income and the interest earned by the buyer in the partial loan sale is recorded within interest and other debt financing expenses in the accompanying consolidated statements of operations. Changes in the fair value of secured borrowings from the prior period, as determined by the Board through the application of the Companys valuation policy, are included as changes in unrealized (appreciation) depreciation on secured borrowings in the consolidated statements of operations. See Note 7 Secured Borrowings for additional information. Distributions Distributions to common stockholders are recorded on the record date. The amount, if any, to be distributed is determined by the Board each quarter and is generally based upon the earnings estimated by management. Net realized capital gains, if any, are generally distributed at least annually, although the Company may decide to retain such capital gains for investment. The determination of the tax attributes for the Companys distributions is made annually, based upon its taxable income for the full year and distributions paid for the full year. Ordinary dividend distributions from a RIC do not qualify for the preferential tax rate on qualified dividend income from domestic corporations and qualified foreign corporations, except to the extent that the RIC received the income in the form of qualifying dividends from domestic corporations and qualified foreign corporations. The tax attributes for distributions will generally include both ordinary income and capital gains, but may also
include qualified dividends or return of capital. The Company has adopted a dividend reinvestment plan (DRIP) that provides for the reinvestment of dividends on behalf of its stockholders, unless a stockholder has elected to receive dividends in cash. As a
 F-18    TABLE OF CONTENTS MONROE CAPITAL CORPORATION  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) Note 2. Summary of Significant Accounting Policies   (continued) result, if the Company declares a cash dividend, the Companys stockholders who have not opted out of the DRIP at least three days prior to the dividend payment date will have their cash dividend automatically reinvested into additional shares of the Companys common stock. The Company has the option to satisfy the share requirements of the DRIP through the issuance of new shares of common stock or through open market purchases of common stock by the DRIP plan administrator. Newly issued shares are valued based upon the final closing price of the Companys common stock on a date determined by the
Board. Shares purchased in the open market to satisfy the DRIP requirements will be valued based upon the average price of the applicable shares purchased by the DRIP plan administrator, before any associated brokerage or other costs. See Note 9 regarding distributions for additional information. Earnings per Share In accordance with the provisions of ASC Topic 260  Earnings per Share (ASC Topic 260), basic earnings per share is computed by dividing earnings available to common stockholders by the weighted average number of shares outstanding during the period. The weighted average shares outstanding utilized in the calculation of earnings per share take into account shares issued on the issuance date and the Companys repurchases of its common stock on the repurchase date. See Note 10 for additional information on the Companys share issuances and repurchases. For the years presented in these
consolidated financial statements, there were no potentially dilutive common shares issued. Segments In accordance with ASC Topic 280  Segment Reporting, the Company has determined that it has a single reporting segment and operating unit structure. Cash The Company deposits its cash in a financial institution and, at times, such balances may be in excess of the Federal Deposit Insurance Corporation insurance limits. Restricted Cash Restricted cash includes amounts held within MRCC SBIC. Cash held within an SBIC is generally restricted to the originations of new loans from the SBIC and the payment of SBA debentures and related interest expense. Unamortized Deferred Financing Costs Deferred financing costs represent fees and other direct incremental costs incurred in connection with the Companys borrowings. As of December 31, 2016 and 2015, the Company had unamortized deferred financing costs of $3,945 and $3,569, respectively, presented as a direct reduction of the carrying amount of debt on the consolidated statements of assets and liabilities. These amounts are amortized and included in interest expense in the consolidated statements of operations over the estimated average life of the borrowings. Amortization of deferred financing costs for the years ended December 31, 2016, 2015 and 2014 was
$820, $742 and $576, respectively. Offering Costs Offering costs include, among other things, fees paid in relation to legal, accounting, regulatory and printing work completed in preparation of equity offerings. Offering costs are charged against the proceeds from equity offerings within the consolidated statements of changes in net assets. As of December 31, 2016 and 2015, other assets on the consolidated statements of assets and liabilities included $281 and $358, respectively, of deferred offering costs which will be charged against the proceeds from further equity offerings when received.
 F-19    TABLE OF CONTENTS MONROE CAPITAL CORPORATION  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) Note 2. Summary of Significant Accounting Policies   (continued) Income Taxes The Company has elected to be treated as a RIC under Subchapter M of the Code and operates in a manner so as to qualify for the tax treatment available to RICs. To maintain qualification as a RIC, the Company must, among other things, meet certain source-of-income and asset diversification requirements and distribute to stockholders, for each taxable year, at least 90% of the Companys investment company taxable income, which is generally the Companys net ordinary income plus the excess, if any, of realized net short-term capital gains over realized net long-term capital losses. If the Company qualifies
as a RIC and satisfies the annual distribution requirement, the Company will not have to pay corporate-level federal income taxes on any income that the Company distributes to its stockholders. The Company intends to make distributions in an amount sufficient to maintain RIC status each year and to avoid any federal income taxes on income. The Company will also be subject to nondeductible federal excise taxes if the Company does not distribute at least 98% of net ordinary income, 98.2% of any capital gain net income, if any, and any recognized and undistributed income from prior years for which it paid no federal income taxes. To the extent that the Company determines that its estimated current year annual taxable income may exceed estimated current year dividend distributions, the Company accrues excise tax, if any, calculated as 4% of the estimated excess taxable income as taxable income is earned. For the years ended December 31, 2016, 2015 and 2014, $679, $83 and $70, respectively,
were recorded on the consolidated statements of operations for U.S. federal excise taxes. As of December 31, 2016 and 2015, payables for excise taxes of $475, and $80, respectively, were included in accounts payable and accrued expenses on the consolidated statements of assets and liabilities. The Company accounts for income taxes in conformity with ASC Topic 740  Income Taxes (ASC Topic 740). ASC Topic 740 provides guidelines for how uncertain tax positions should be recognized, measured, presented and disclosed in the consolidated financial statements. ASC Topic 740 requires the evaluation of tax positions taken in the course of preparing the Companys tax returns to determine whether the tax positions are more-likely-than-not to be sustained by the applicable tax authority. Tax benefits of positions not deemed to meet the more-likely-than-not threshold would be
recorded as a tax expense in the current year. It is the Companys policy to recognize accrued interest and penalties related to uncertain tax benefits in income tax expense. There were no material uncertain income tax positions through December 31, 2016. The 2013 through 2016 tax years remain subject to examination by U.S. federal and state tax authorities. Recent Accounting Pronouncements In May 2014, the FASB issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (ASC Topic 606) (ASU 2014-09). The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: Step 1: Identify the contract(s) with a customer. Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price. Step 4: Allocate the transaction price to the performance obligations in the contract. Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 also specified the accounting for some costs to obtain or fulfill a contract with a customer. In addition, ASU 2014-09 requires that an entity disclose sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The initial effective date of ASU 2014-09 was for fiscal periods beginning after December 15, 2016. However, in August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (ASC Topic 606): Deferral of the Effective Date, which deferred the effective
date to fiscal periods
 F-20    TABLE OF CONTENTS MONROE CAPITAL CORPORATION  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) Note 2. Summary of Significant Accounting Policies   (continued) beginning after December 15, 2017. Management is currently evaluating the impact these changes will have on the Companys consolidated financial statements and disclosures. In February 2015, the FASB issued ASU 2015-02, Consolidation (ASC Topic 810): Amendments to the Consolidation Analysis (ASU 2015-02). ASU 2015-02 significantly changes the consolidation analysis required under GAAP and ends the deferral granted to investment companies from applying the variable interest entity guidance. ASU 2015-02 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2015 and early adoption is permitted. The Company has adopted ASU 2015-02 and the adoption did not have a material impact on the Companys consolidated financial
statements and disclosures. In April 2015, the FASB issued ASU No. 2015-03, Interest  Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (ASU 2015-03). ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the statements of assets and liabilities as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. ASU 2015-03 is effective for fiscal years that begin after December 15,
2015 and early adoption is permitted. The Company has adopted ASU 2015-03 and the revised presentation is reflected in the Companys consolidated financial statements for the periods presented. In January 2016, the FASB issued ASU 2016-01, Financial Instruments  Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01). ASU 2016-01 retains many current requirements for the classification and measurement of financial instruments; however, it significantly revises an entitys accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. ASU 2016-01 also amends certain disclosure
requirements associated with the fair value of financial instruments. This guidance is effective for annual and interim periods beginning after December 15, 2017, and early adoption is not permitted for public business entities. Management is currently evaluating the impact these changes will have on the Companys consolidated financial statements and disclosures. In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18). ASU 2016-18 requires that the statements of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statements of cash flows. The new guidance is
effective for annual and interim periods, beginning after December 15, 2017, and early adoption is permitted and is to be applied on a retrospective basis. The Company has adopted ASU 2016-18 and the revised presentation is reflected in the Companys consolidated financial statements for the periods presented.
 F-21    TABLE OF CONTENTS MONROE CAPITAL CORPORATION  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) Note 3. Investments The following tables show the composition of the investment portfolio, at amortized cost and fair value (with corresponding percentage of total portfolio investments):  December 31, 2016

          

          December 31, 2015Amortized Cost:Senior secured loans

          

          $

          280,324

          

          

          

          67.8

          %

          

          $

          189,854

          

          

          

          55.4

          %Unitranche loans

          

          

          57,361

          

          

          

          13.9

          

          

          

          77,464

          

          

          

          22.6Junior secured loans

          

          

          61,674

          

          

          

          14.9

          

          

          

          64,948

          

          

          

          19.0Equity securities

          

          

          13,883

          

          

          

          3.4

          

          

          

          10,472

          

          

          

          3.0Total

          

          $

          413,242

          

          

          

          100.0

          %

          

          $

          342,738

          

          

          

          100.0

          %Fair Value:Senior secured loans

          

          $

          275,253

          

          

          

          66.7

          %

          

          $

          190,559

          

          

          

          55.9

          %Unitranche loans

          

          

          51,638

          

          

          

          12.5

          

          

          

          68,090

          

          

          

          20.0Junior secured loans

          

          

          59,366

          

          

          

          14.4

          

          

          

          63,388

          

          

          

          18.6Equity securities

          

          

          26,663

          

          

          

          6.4

          

          

          

          19,054

          

          

          

          5.5Total

          

          $

          412,920

          

          

          

          100.0

          %

          

          $

          341,091

          

          

          

          100.0

          %
 The following tables show the composition of the investment portfolio by geographic region, at amortized cost and fair value (with corresponding percentage of total portfolio investments). The geographic composition is determined by the location of the corporate headquarters of the portfolio company, which may not be indicative of the primary source of the portfolio companys business:  December 31, 2016

          

          December 31, 2015Amortized Cost:International

          

          $

          6,667

          

          

          

          1.6

          %

          

          $

          5,842

          

          

          

          1.7

          %Midwest

          

          

          59,710

          

          

          

          14.5

          

          

          

          46,557

          

          

          

          13.6Northeast

          

          

          105,482

          

          

          

          25.5

          

          

          

          69,571

          

          

          

          20.3South

          

          

          2,425

          

          

          

          0.6

          

          

          

          

          

          

          

          Southeast

          

          

          60,719

          

          

          

          14.7

          

          

          

          60,468

          

          

          

          17.6Southwest

          

          

          50,562

          

          

          

          12.2

          

          

          

          42,503

          

          

          

          12.4West

          

          

          127,677

          

          

          

          30.9

          

          

          

          117,797

          

          

          

          34.4Total

          

          $

          413,242

          

          

          

          100.0

          %

          

          $

          342,738

          

          

          

          100.0

          %
  December 31, 2016

          

          December 31, 2015Fair Value:International

          

          $

          6,636

          

          

          

          1.6

          %

          

          $

          5,880

          

          

          

          1.7

          %Midwest

          

          

          60,579

          

          

          

          14.7

          

          

          

          46,103

          

          

          

          13.6Northeast

          

          

          108,188

          

          

          

          26.2

          

          

          

          69,982

          

          

          

          20.5South

          

          

          2,445

          

          

          

          0.6

          

          

          

          

          

          

          

          Southeast

          

          

          61,128

          

          

          

          14.8

          

          

          

          61,960

          

          

          

          18.2Southwest

          

          

          54,263

          

          

          

          13.1

          

          

          

          45,135

          

          

          

          13.2West

          

          

          119,681

          

          

          

          29.0

          

          

          

          112,031

          

          

          

          32.8Total

          

          $

          412,920

          

          

          

          100.0

          %

          

          $

          341,091

          

          

          

          100.0

          %
 F-22    TABLE OF CONTENTS MONROE CAPITAL CORPORATION  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) Note 3. Investments   (continued) The following tables show the composition of the investment portfolio by industry, at amortized cost and fair value (with corresponding percentage of total portfolio investments):  December 31, 2016

          

          December 31, 2015Amortized Cost:Aerospace & Defense

          

          $

          9,524

          

          

          

          2.3

          %

          

          $

          5,865

          

          

          

          1.7

          %Automotive

          

          

          12,496

          

          

          

          3.0

          

          

          

          8,393

          

          

          

          2.4Banking, Finance, Insurance & Real Estate

          

          

          34,912

          

          

          

          8.4

          

          

          

          17,017

          

          

          

          5.0Beverage, Food & Tobacco

          

          

          18,068

          

          

          

          4.4

          

          

          

          5,691

          

          

          

          1.7Chemicals, Plastics & Rubber

          

          

          3,949

          

          

          

          1.0

          

          

          

          3,942

          

          

          

          1.2Construction & Building

          

          

          18,282

          

          

          

          4.4

          

          

          

          18,959

          

          

          

          5.5Consumer Goods: Durable

          

          

          3,600

          

          

          

          0.9

          

          

          

          4,177

          

          

          

          1.2Consumer Goods: Non-Durable

          

          

          35,567

          

          

          

          8.6

          

          

          

          50,662

          

          

          

          14.8Containers, Packaging & Glass

          

          

          3,582

          

          

          

          0.9

          

          

          

          3,537

          

          

          

          1.0Energy: Oil & Gas

          

          

          7,819

          

          

          

          1.9

          

          

          

          8,987

          

          

          

          2.6Environmental Industries

          

          

          3,675

          

          

          

          0.9

          

          

          

          

          

          

          

          Healthcare & Pharmaceuticals

          

          

          41,584

          

          

          

          10.1

          

          

          

          45,422

          

          

          

          13.3High Tech Industries

          

          

          19,746

          

          

          

          4.8

          

          

          

          17,155

          

          

          

          5.0Hotels, Gaming & Leisure

          

          

          37,860

          

          

          

          9.2

          

          

          

          19,404

          

          

          

          5.7Media: Advertising, Printing & Publishing

          

          

          11,781

          

          

          

          2.8

          

          

          

          12,359

          

          

          

          3.6Media: Broadcasting & Subscription

          

          

          17,527

          

          

          

          4.2

          

          

          

          19,011

          

          

          

          5.5Media: Diversified & Production

          

          

          4,938

          

          

          

          1.2

          

          

          

          4,928

          

          

          

          1.4Metals & Mining

          

          

          5,219

          

          

          

          1.3

          

          

          

          7,432

          

          

          

          2.2Retail

          

          

          48,488

          

          

          

          11.7

          

          

          

          22,634

          

          

          

          6.6Services: Business

          

          

          38,806

          

          

          

          9.4

          

          

          

          35,522

          

          

          

          10.4Services: Consumer

          

          

          24,608

          

          

          

          5.9

          

          

          

          26,540

          

          

          

          7.7Telecommunications

          

          

          3,431

          

          

          

          0.8

          

          

          

          

          

          

          

          Utilities: Electric

          

          

          2,964

          

          

          

          0.7

          

          

          

          

          

          

          

          Wholesale

          

          

          4,816

          

          

          

          1.2

          

          

          

          5,101

          

          

          

          1.5Total

          

          $

          413,242

          

          

          

          100.0

          %

          

          $

          342,738

          

          

          

          100.0

          %
  December 31, 2016

          

          December 31, 2015Fair Value:Aerospace & Defense

          

          $

          10,601

          

          

          

          2.6

          %

          

          $

          6,489

          

          

          

          1.9

          %Automotive

          

          

          7,514

          

          

          

          1.8

          

          

          

          5,358

          

          

          

          1.6Banking, Finance, Insurance & Real Estate

          

          

          37,130

          

          

          

          9.0

          

          

          

          17,230

          

          

          

          5.1Beverage, Food & Tobacco

          

          

          16,794

          

          

          

          4.1

          

          

          

          5,532

          

          

          

          1.6Chemicals, Plastics & Rubber

          

          

          4,040

          

          

          

          1.0

          

          

          

          3,948

          

          

          

          1.2Construction & Building

          

          

          18,602

          

          

          

          4.5

          

          

          

          18,867

          

          

          

          5.5Consumer Goods: Durable

          

          

          3,620

          

          

          

          0.9

          

          

          

          4,223

          

          

          

          1.2Consumer Goods: Non-Durable

          

          

          32,000

          

          

          

          7.7

          

          

          

          49,006

          

          

          

          14.4Containers, Packaging & Glass

          

          

          3,663

          

          

          

          0.9

          

          

          

          3,400

          

          

          

          1.0Energy: Oil & Gas

          

          

          7,803

          

          

          

          1.9

          

          

          

          9,077

          

          

          

          2.7Environmental Industries

          

          

          3,768

          

          

          

          0.9

          

          

          

          

          

          

          

          Healthcare & Pharmaceuticals

          

          

          56,435

          

          

          

          13.7

          

          

          

          53,677

          

          

          

          15.7
 F-23    TABLE OF CONTENTS MONROE CAPITAL CORPORATION  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) Note 3. Investments   (continued) December 31, 2016

          

          December 31, 2015High Tech Industries

          

          

          18,899

          

          

          

          4.6

          

          

          

          16,006

          

          

          

          4.7Hotels, Gaming & Leisure

          

          

          38,010

          

          

          

          9.2

          

          

          

          19,510

          

          

          

          5.7Media: Advertising, Printing & Publishing

          

          

          11,742

          

          

          

          2.8

          

          

          

          12,729

          

          

          

          3.7Media: Broadcasting & Subscription

          

          

          18,046

          

          

          

          4.4

          

          

          

          18,641

          

          

          

          5.5Media: Diversified & Production

          

          

          4,938

          

          

          

          1.2

          

          

          

          4,925

          

          

          

          1.4Metals & Mining

          

          

          5,268

          

          

          

          1.3

          

          

          

          7,396

          

          

          

          2.2Retail

          

          

          38,147

          

          

          

          9.2

          

          

          

          17,026

          

          

          

          5.0Services: Business

          

          

          40,164

          

          

          

          9.7

          

          

          

          36,215

          

          

          

          10.6Services: Consumer

          

          

          24,807

          

          

          

          6.0

          

          

          

          27,106

          

          

          

          7.9Telecommunications

          

          

          3,430

          

          

          

          0.8

          

          

          

          

          

          

          

          Utilities: Electric

          

          

          2,999

          

          

          

          0.7

          

          

          

          

          

          

          

          Wholesale

          

          

          4,500

          

          

          

          1.1

          

          

          

          4,730

          

          

          

          1.4Total

          

          $

          412,920

          

          

          

          100.0

          %

          

          $

          341,091

          

          

          

          100.0

          %
 Note 4. Fair Value Measurements Investments The Company values all investments in accordance with ASC Topic 820. As defined in ASC Topic 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters, or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation models involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the assets
or liabilities or market and the assets or liabilities complexity. Based on the observability of the inputs used in the valuation techniques, the Company is required to provide disclosures on fair value measurements according to the fair value hierarchy. The fair value hierarchy ranks the observability of the inputs used to determine fair values. Investments carried at fair value are classified and disclosed in one of the following three categories: 

          Level 1  Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date. 

          Level 2  Valuations based on inputs other than quoted prices in active markets, including quoted prices for similar assets or liabilities, which are either directly or indirectly observable. 

          Level 3  Valuations based on inputs that are unobservable and significant to the overall fair value measurement. This includes situations where there is little, if any, market activity for the assets or liabilities. The inputs into the determination of fair value are based upon the best information available and may require significant management judgment or estimation. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an assets or liabilitys categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Companys assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. All investments as of December 31, 2016 and 2015 were categorized as Level 3 investments.
 F-24    TABLE OF CONTENTS MONROE CAPITAL CORPORATION  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) Note 4. Fair Value Measurements   (continued) With respect to investments for which market quotations are not readily available, the Companys Board undertakes a multi-step valuation process each quarter, as described below: 

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

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

          the Board also engages one or more independent valuation firm(s) to conduct independent appraisals of a selection of investments for which market quotations are not readily available. The Company will consult with independent valuation firm(s) relative to each portfolio company at least once in every calendar year, but are generally received quarterly; 

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

          the Board discusses these valuations and determines the fair value of each investment in the portfolio in good faith, based on the input of MC Advisors, the independent valuation firm(s) and the audit committee. The accompanying consolidated schedules of investments held by the Company consist primarily of private debt instruments (Level 3 debt). The Company generally uses the yield approach to determine fair value, as long as it is appropriate. If there is deterioration in credit quality or a debt investment is in workout status, the Company may consider other factors in determining the fair value, including the value attributable to the debt investment from the enterprise value of the portfolio company under the market approach or the proceeds that would be received in a liquidation analysis. The Company generally
considers its Level 3 debt to be performing loans if the borrower is not in default, the borrower is remitting payments in a timely manner; the loan is in covenant compliance or is otherwise not deemed to be impaired. In determining the fair value of the performing Level 3 debt, the Company considers fluctuations in current interest rates, the trends in yields of debt instruments with similar credit ratings, financial condition of the borrower, economic conditions and other relevant factors, both qualitative and quantitative. In the event that a Level 3 debt instrument is not performing, as defined above, the Company will evaluate the value of the collateral utilizing the same framework described above for a performing loan to determine the value of the Level 3 debt instrument. Under the yield approach, the Company uses discounted cash flow models to determine the present value of the future cash flow streams of its debt investments, based on future interest and principal payments as set forth in the associated loan agreements. In determining fair value under the yield approach, the Company also considers the following factors: applicable market yields and leverage levels, credit quality, prepayment penalties, the nature and realizable value of any collateral, the portfolio companys ability to make payments, and changes in the interest rate environment and the credit markets that generally may
affect the price at which similar investments may be made. Under the market approach, the Company typically uses the enterprise value methodology to determine the fair value of an investment. There is no one methodology to estimate enterprise value and, in fact, for any one portfolio company, enterprise value is generally best expressed as a range of values, from which the Company derives a single estimate of enterprise value. In estimating the enterprise value of a portfolio company, the Company analyzes various factors consistent with industry practice, including but not limited to original transaction multiples, the portfolio companys historical and projected financial
results, applicable market trading and transaction comparables, applicable market yields and leverage levels, the nature and
 F-25    TABLE OF CONTENTS MONROE CAPITAL CORPORATION  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) Note 4. Fair Value Measurements   (continued) 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. Secured Borrowings The Company has elected the fair value option under ASC Topic 825  Financial Instruments (ASC Topic 825) relating to accounting for debt obligations at their fair value for its secured borrowings which arose due to partial loan sales which did not meet the criteria for sale treatment under ASC Topic 860. The Company reports changes in the fair value of its secured borrowings within net change in unrealized (appreciation) depreciation on secured borrowings in the consolidated statements of operations. The net gain or loss reflects the difference between the fair value and the principal amount
due on maturity. Due to the absence of a liquid trading market for these secured borrowings, they are valued by calculating the net present value of the future expected cash flow streams using an appropriate risk-adjusted discount rate model. The discount rate considers projected performance of the related loan investment, applicable market yields and leverage levels, credit quality, prepayment penalties and comparable company analysis. The Company consults with an independent valuation firm relative to the fair value of its secured borrowings at least once in every calendar year. Fair Value Disclosures The following table presents fair value measurements of investments and secured borrowings, by major class, as of December 31, 2016, according to the fair value hierarchy:  Fair Value MeasurementsLevel 1

          

          Level 2

          

          Level 3

          

          TotalInvestments:Senior secured loans

          

          $

          

          

          

          $

          

          

          

          $

          275,253

          

          

          $

          275,253Unitranche loans

          

          

          

          

          

          

          

          

          

          

          51,638

          

          

          

          51,638Junior secured loans

          

          

          

          

          

          

          

          

          

          

          59,366

          

          

          

          59,366Equity securities

          

          

          

          

          

          

          

          

          

          

          26,663

          

          

          

          26,663Total Investments

          

          $

          

          

          

          $

          

          

          

          $

          412,920

          

          

          $

          412,920Secured borrowings

          

          $

          

          

          

          $

          

          

          

          $

          1,314

          

          

          $

          1,314
 The following table presents fair value measurements of investments and secured borrowings, by major class, as of December 31, 2015, according to the fair value hierarchy:  Fair Value MeasurementsLevel 1

          

          Level 2

          

          Level 3

          

          TotalInvestments:Senior secured loans

          

          $

          

          

          

          $

          

          

          

          $

          190,559

          

          

          $

          190,559Unitranche loans

          

          

          

          

          

          

          

          

          

          

          68,090

          

          

          

          68,090Junior secured loans

          

          

          

          

          

          

          

          

          

          

          63,388

          

          

          

          63,388Equity securities

          

          

          

          

          

          

          

          

          

          

          19,054

          

          

          

          19,054Total Investments

          

          $

          

          

          

          $

          

          

          

          $

          341,091

          

          

          $

          341,091Secured borrowings

          

          $

          

          

          

          $

          

          

          

          $

          2,476

          

          

          $

          2,476
 Senior, unitranche and junior secured loans are collateralized by tangible and intangible assets of the borrowers. These investments include loans to entities that have some level of challenge in obtaining financing
 F-26    TABLE OF CONTENTS MONROE CAPITAL CORPORATION  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) Note 4. Fair Value Measurements   (continued) from other, more conventional institutions, such as a bank. Interest rates on these loans are either fixed or floating, and are based on current market conditions and credit ratings of the borrower. The contractual interest rates on the loans ranged between 5.75% to 17.00% at December 31, 2016 and 6.00% to 18.92% at December 31, 2015. The maturity dates on the loans outstanding at December 31, 2016 range between March 2017 and September 2023. The following tables provide a reconciliation of the beginning and ending balances for investments and secured borrowings that use Level 3 inputs for the years ended December 31, 2016 and 2015:  Investments

          

          SecuredborrowingsSeniorsecuredloans

          

          Unitrancheloans

          

          Juniorsecuredloans

          

          Equitysecurities

          

          TotalinvestmentsBalance as of December 31, 2015

          

          $

          190,559

          

          

          $

          68,090

          

          

          $

          63,388

          

          

          $

          19,054

          

          

          $

          341,091

          

          

          $

          2,476Reclassifications(1)

          

          

          3,270

          

          

          

          (6,525

          )

          

          

          

          

          

          

          3,255

          

          

          

          

          

          

          

          Net change in unrealized appreciation (depreciation) on investments

          

          

          (65

          )

          

          

          (2,056

          )

          

          

          (751

          )

          

          

          4,197

          

          

          

          1,325

          

          

          

          Net realized gain (loss) on investments

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          587

          

          

          

          587

          

          

          

          Purchases of investments and other adjustments to cost(2)

          

          

          141,023

          

          

          

          1,950

          

          

          

          8,233

          

          

          

          157

          

          

          

          151,363

          

          

          

          Proceeds from principal payments and sales on investments(3)

          

          

          (59,534

          )

          

          

          (9,821

          )

          

          

          (11,504

          )

          

          

          (587

          )

          

          

          (81,446

          )

          

          

          Net change in unrealized appreciation (depreciation) on secured borrowings

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          53Proceeds from secured borrowings

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          Repayments on secured borrowings

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          (1,215

          )Balance as of December 31, 2016

          

          $

          275,253

          

          

          $

          51,638

          

          

          $

          59,366

          

          

          $

          26,663

          

          

          $

          412,920

          

          

          $

          1,314
  Investments

          

          SecuredborrowingsSeniorsecuredloans

          

          Unitrancheloans

          

          Juniorsecuredloans

          

          Equitysecurities

          

          TotalinvestmentsBalance as of December 31, 2014

          

          $

          124,161

          

          

          $

          96,635

          

          

          $

          10,803

          

          

          $

          1,936

          

          

          $

          233,535

          

          

          $

          4,008Net change in unrealized appreciation (depreciation) on investments

          

          

          (1,244

          )

          

          

          (6,429

          )

          

          

          (1,387

          )

          

          

          7,975

          

          

          

          (1,085

          )

          

          

          Net realized gain (loss) on investments

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          304

          

          

          

          304

          

          

          

          Purchases of investments and other adjustments to cost(2)

          

          

          114,919

          

          

          

          17,794

          

          

          

          54,785

          

          

          

          9,218

          

          

          

          196,716

          

          

          

          Proceeds from principal payments and sales on investments(3)

          

          

          (47,277

          )

          

          

          (39,910

          )

          

          

          (813

          )

          

          

          (379

          )

          

          

          (88,379

          )

          

          

          Net change in unrealized appreciation (depreciation) on secured borrowings

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          68Proceeds from secured borrowings

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          Repayments on secured borrowings

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          (1,600

          )Balance as of December 31, 2015

          

          $

          190,559

          

          

          $

          68,090

          

          

          $

          63,388

          

          

          $

          19,054

          

          

          $

          341,091

          

          

          $

          2,476
  (1)

          Represents non-cash reclassifications of investment type due to restructuring of the investments in portfolio companies. (2)

          Includes purchases of new investments, effects of refinancing and restructurings, premium and discount accretion and amortization and PIK interest. (3)

          Represent net proceeds from investments sold and principal paydowns received. The total change in unrealized appreciation (depreciation) included in the consolidated statements of operations within net change in unrealized appreciation (depreciation) on investments for the year ended December 31, 2016, attributable to Level 3 investments still held at December 31, 2016 was $1,884. The total
 F-27    TABLE OF CONTENTS MONROE CAPITAL CORPORATION  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) Note 4. Fair Value Measurements   (continued) change in unrealized appreciation (depreciation) included in the consolidated statements of operations within net change in unrealized appreciation (depreciation) on investments for the year ended December 31, 2015, attributable to Level 3 investments still held at December 31, 2015 was ($146). The total change in unrealized (appreciation) depreciation included in the consolidated statements of operations within net change in unrealized (appreciation) depreciation on secured borrowings for the year ended December 31, 2016, attributable to Level 3 investments still held at December 31, 2016 was ($53). The total change in
unrealized (appreciation) depreciation included in the consolidated statements of operations within net change in unrealized (appreciation) depreciation on secured borrowings for the year ended December 31, 2015, attributable to Level 3 investments still held at December 31, 2015 was ($68). Reclassifications impacting Level 3 of the fair value hierarchy are reported as transfers in or out of Level 3 as of the beginning of the period which the reclassifications occur. There were no transfers among Levels 1, 2 and 3 during the years ended December 31, 2016 and 2015. Significant Unobservable Inputs ASC Topic 820 requires disclosure of quantitative information about the significant unobservable inputs used in the valuation of assets and liabilities classified as Level 3 within the fair value hierarchy. Disclosure of this information is not required in circumstances where a valuation (unadjusted) is obtained from a third-party pricing service and the information regarding the unobservable inputs is not reasonably available to the Company and as such, the disclosures provided below exclude those investments valued in that manner. The tables below are not intended to be all-inclusive, but rather to provide information on
significant unobservable inputs and valuation techniques used by the Company. The valuation techniques and significant unobservable inputs used in recurring Level 3 fair value measurements of assets and liabilities as of December 31, 2016 were as follows:  Fair Value

          

          Valuation Technique

          

          Unobservable Input

          

          Weighted average Mean

          

          RangeMinimum

          

          MaximumAssets:Senior secured loans

          

          $

          214,267

          

          

          

          Discounted cash flow

          

          

          

          EBITDA multiples

          

          

          

          7.0x

          

          

          

          3.2x

          

          

          

          13.3xMarket yields

          

          

          

          11.7

          %

          

          

          7.0

          %

          

          

          22.0

          %Senior secured loans

          

          

          1,054

          

          

          

          Enterprise value

          

          

          

          Revenue multiples

          

          

          

          0.6x

          

          

          

          0.5x

          

          

          

          0.6xSenior secured loans

          

          

          12,727

          

          

          

          Enterprise value

          

          

          

          EBITDA multiples

          

          

          

          4.1x

          

          

          

          3.3x

          

          

          

          5.5xUnitranche loans

          

          

          47,861

          

          

          

          Discounted cash flow

          

          

          

          EBITDA multiples

          

          

          

          6.1x

          

          

          

          4.8x

          

          

          

          8.0xMarket yields

          

          

          

          13.4

          %

          

          

          9.5

          %

          

          

          22.1

          %Unitranche loans

          

          

          3,491

          

          

          

          Combination of discounted cash flow and enterprise value

          

          

          

          Revenue multiples

          

          

          

          0.5x

          

          

          

          0.5x

          

          

          

          0.6xMarket yields

          

          

          

          29.2

          %

          

          

          29.2

          %

          

          

          29.2

          %Unitranche loans

          

          

          286

          

          

          

          Enterprise value

          

          

          

          EBITDA multiples

          

          

          

          6.0x

          

          

          

          5.5x

          

          

          

          6.5xJunior secured loans

          

          

          18,572

          

          

          

          Discounted cash flow

          

          

          

          EBITDA multiples

          

          

          

          7.5x

          

          

          

          3.5x

          

          

          

          9.5xMarket yields

          

          

          

          11.5

          %

          

          

          7.0

          %

          

          

          13.5

          %Junior secured loans

          

          

          

          

          

          

          Enterprise value

          

          

          

          Revenue multiples

          

          

          

          0.6x

          

          

          

          0.5x

          

          

          

          0.6xEquity securities

          

          

          8,121

          

          

          

          Discounted cash flow

          

          

          

          EBITDA multiples

          

          

          

          3.8x

          

          

          

          3.5x

          

          

          

          4.0xMarket yields

          

          

          

          17.0

          %

          

          

          16.0

          %

          

          

          18.0

          %Equity securities

          

          

          18,164

          

          

          

          Enterprise value

          

          

          

          EBITDA multiples

          

          

          

          4.6x

          

          

          

          3.3x

          

          

          

          13.3xEquity securities

          

          

          249

          

          

          

          Enterprise value

          

          

          

          Revenue multiples

          

          

          

          0.8x

          

          

          

          0.1x

          

          

          

          3.8xTotal Level 3 Assets

          

          $

          324,792(1)Liabilities:Secured borrowings

          

          $

          1,314

          

          

          

          Discounted cash flow

          

          

          

          Market yields

          

          

          

          7.7

          %

          

          

          7.1

          %

          

          

          8.2

          %
  (1)

          Excludes loans of $88,128 at fair value where valuation (unadjusted) is obtained from a third-party pricing service for which such disclosure is not required.
 F-28    TABLE OF CONTENTS MONROE CAPITAL CORPORATION  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) Note 4. Fair Value Measurements   (continued) The valuation techniques and significant unobservable inputs used in recurring Level 3 fair value measurements of assets and liabilities as of December 31, 2015 were as follows:  Fair Value

          

          Valuation Technique

          

          Unobservable Input

          

          Weighted average Mean

          

          RangeMinimum

          

          MaximumAssets:Senior secured loans

          

          $

          163,078

          

          

          

          Discounted cash flow

          

          

          

          EBITDA multiples

          

          

          

          6.2x

          

          

          

          2.3x

          

          

          

          11.0xMarket yields

          

          

          

          12.3

          %

          

          

          6.5

          %

          

          

          21.0

          %Senior secured loans

          

          

          1,182

          

          

          

          Enterprise value

          

          

          

          Revenue multiples

          

          

          

          0.5x

          

          

          

          0.5x

          

          

          

          0.5xUnitranche loans

          

          

          49,620

          

          

          

          Discounted cash flow

          

          

          

          EBITDA multiples

          

          

          

          6.1x

          

          

          

          4.8x

          

          

          

          7.3xMarket yields

          

          

          

          13.6

          %

          

          

          9.0

          %

          

          

          19.6

          %Unitranche loans

          

          

          5,358

          

          

          

          Combination of discounted cash flow and enterprise value

          

          

          

          EBITDA multiples

          

          

          

          4.3x

          

          

          

          4.0x

          

          

          

          4.5xMarket yields

          

          

          

          29.7

          %

          

          

          26.7

          %

          

          

          32.6

          %Unitranche loans

          

          

          6,526

          

          

          

          Enterprise value

          

          

          

          EBITDA multiples

          

          

          

          3.5x

          

          

          

          3.0x

          

          

          

          4.0xJunior secured loans

          

          

          19,862

          

          

          

          Discounted cash flow

          

          

          

          EBITDA multiples

          

          

          

          6.8x

          

          

          

          3.5x

          

          

          

          9.5xMarket yields

          

          

          

          12.2

          %

          

          

          10.5

          %

          

          

          13.0

          %Junior secured loans

          

          

          570

          

          

          

          Enterprise value

          

          

          

          Revenue multiples

          

          

          

          0.5x

          

          

          

          0.5x

          

          

          

          0.5xEquity securities

          

          

          8,345

          

          

          

          Discounted cash flow

          

          

          

          EBITDA multiples

          

          

          

          3.8x

          

          

          

          3.5x

          

          

          

          4.0xMarket yields

          

          

          

          15.0

          %

          

          

          14.5

          %

          

          

          15.5

          %Equity securities

          

          

          10,709

          

          

          

          Enterprise value

          

          

          

          EBITDA multiples

          

          

          

          3.3x

          

          

          

          2.3x

          

          

          

          9.5xTotal Level 3 Assets

          

          $

          265,250(1)Liabilities:Secured borrowings

          

          $

          2,476

          

          

          

          Discounted cash flow

          

          

          

          Market yields

          

          

          

          9.0

          %

          

          

          3.6

          %

          

          

          10.4

          %
  (1)

          Excludes loans of $75,841 at fair value where valuation (unadjusted) is obtained from a third-party pricing service for which such disclosure is not required. The significant unobservable inputs used in the market approach of fair value measurement of the Companys investments are the market multiples of EBITDA or revenue of the comparable guideline public companies. The Company selects a population of public companies for each investment with similar operations and attributes of the portfolio company. Using these guideline public companies data, a range of multiples of enterprise value to EBITDA is calculated. The Company selects percentages from the range of multiples for purposes of determining the portfolio companys estimated enterprise value based on said
multiple and generally the latest twelve months EBITDA of the portfolio company (or other meaningful measure). Significant increases (decreases) in the multiple will result in an increase (decrease) in enterprise value, resulting in an increase (decrease) in the fair value estimate of the investment. The significant unobservable input used in the yield approach of fair value measurement of the Companys investments is the discount rate used to discount the estimated future cash flows expected to be received from the underlying investment, which include both future principal and interest payments. Significant increases (decreases) in the discount rate would result in a decrease (increase) in the fair value estimate of the investment. Included in the consideration and selection of discount rates are the following factors: risk of default, rating of the investment and comparable investments, and call provisions.
 F-29    TABLE OF CONTENTS MONROE CAPITAL CORPORATION  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) Note 4. Fair Value Measurements   (continued) Other Financial Assets and Liabilities ASC Topic 820 requires disclosure of the fair value of financial instruments for which it is practical to estimate such value. The Company believes that the carrying amounts of its other financial instruments such as cash, receivables and payables approximate the fair value of such items due to the short maturity of such instruments. Fair value of the Companys revolving credit facility is estimated by discounting remaining payments using applicable market rates or market quotes for similar instruments at the measurement date, if applicable. The Company believes that the carrying value of its revolving credit facility
approximates fair value. SBA-guaranteed debentures are carried at cost and with their longer maturity dates, fair value is estimated by discounting remaining payments using current market rates for similar instruments and considering such factors as the legal maturity date and the ability of market participants to prepay the debentures. As of December 31, 2016 and 2015, the fair value of the Companys SBA debentures using Level 3 inputs were estimated at $51,500 and $40,000, respectively, which is the same as the Companys carrying value of the SBA debentures. Note 5. Transactions with Affiliated Companies An affiliated company is a company in which the Company has an ownership of 5% or more of its voting securities. A controlled affiliate company is a company in which the Company has ownership of more than 25% of its voting securities. Transactions related to the Companys investments with affiliates for the years ended December 31, 2016 and 2015 were as follows:  Portfolio Company

          

          Fair value atDecember 31,2015

          

          Transfers in (out)

          

          Purchases(cost)

          

          Sales andpaydowns(cost)

          

          PIKinterest(cost)

          

          Discountaccretion

          

          Netrealizedgains(losses)

          

          Netunrealizedgains(losses)

          

          Fair value atDecember 31,2016Non-controlled affiliate company investments(1)American Community Homes, Inc.

          

          $

          11,692

          

          

          $

          

          

          

          $

          488

          

          

          $

          

          

          

          $

          205

          

          

          $

          61

          

          

          $

          

          

          

          $

          1,504

          

          

          $

          13,950Rockdale Blackhawk, LLC

          

          

          21,903

          

          

          

          

          

          

          

          1,387

          

          

          

          (2,503

          )

          

          

          

          

          

          

          187

          

          

          

          

          

          

          

          6,103

          

          

          

          27,077Rocket Dog Brands, LLC

          

          

          1,752

          

          

          

          

          

          

          

          384

          

          

          

          (12

          )

          

          

          452

          

          

          

          11

          

          

          

          

          

          

          

          (1,533

          )

          

          

          1,054SHI Holdings, Inc.(2)

          

          

          

          

          

          

          3,343

          

          

          

          230

          

          

          

          

          

          

          

          

          

          

          

          4

          

          

          

          

          

          

          

          720

          

          

          

          4,297Summit Container Corporation

          

          

          3,400

          

          

          

          

          

          

          

          137

          

          

          

          (185

          )

          

          

          66

          

          

          

          26

          

          

          

          

          

          

          

          219

          

          

          

          3,663Total non-controlled affiliate company investments

          

          $

          38,747

          

          

          $

          3,343

          

          

          $

          2,626

          

          

          $

          (2,700

          )

          

          $

          723

          

          

          $

          289

          

          

          $

          

          

          

          $

          7,013

          

          

          $

          50,041Controlled affiliate company investments(1):TPP Acquisition, Inc.(3)

          

          $

          6,525

          

          

          $

          (9,606

          )

          

          $

          9,844

          

          

          $

          (3,022

          )

          

          $

          

          

          

          $

          

          

          

          $

          

          

          

          $

          (3,741

          )

          

          $

          TPP Operating, Inc.(4)

          

          

          

          

          

          

          9,606

          

          

          

          825

          

          

          

          (195

          )

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          (1,337

          )

          

          

          8,899Total controlled affiliate company investments

          

          $

          6,525

          

          

          $

          

          

          

          $

          10,669

          

          

          $

          (3,217

          )

          

          $

          

          

          

          $

          

          

          

          $

          

          

          

          $

          (5,078

          )

          

          $

          8,899
 F-30    TABLE OF CONTENTS MONROE CAPITAL CORPORATION  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) Note 5. Transactions with Affiliated Companies   (continued)  Portfolio Company

          

          Fair value atDecember 31,2014

          

          Purchases(cost)

          

          Sales andpaydowns(cost)

          

          PIKinterest(cost)

          

          Discountaccretion

          

          Netrealizedgains(losses)

          

          Netunrealizedgains(losses)

          

          Fair value atDecember 31,2015Non-controlled affiliate company investments(1):American Community Homes, Inc.

          

          $

          10,163

          

          

          $

          1,463

          

          

          $

          

          

          

          $

          163

          

          

          $

          45

          

          

          $

          

          

          

          $

          (142

          )

          

          $

          11,692Rockdale Blackhawk, LLC

          

          

          

          

          

          

          14,606

          

          

          

          (1,070

          )

          

          

          

          

          

          

          131

          

          

          

          

          

          

          

          8,236

          

          

          

          21,903Rocket Dog Brands, LLC

          

          

          2,454

          

          

          

          150

          

          

          

          

          

          

          

          254

          

          

          

          

          

          

          

          

          

          

          

          (1,106

          )

          

          

          1,752Summit Container Corporation

          

          

          3,979

          

          

          

          

          

          

          

          (196

          )

          

          

          

          

          

          

          20

          

          

          

          

          

          

          

          (403

          )

          

          

          3,400Total non-controlled affiliate company investments

          

          $

          16,596

          

          

          $

          16,219

          

          

          $

          (1,266

          )

          

          $

          417

          

          

          $

          196

          

          

          $

          

          

          

          $

          6,585

          

          

          $

          38,747Controlled affiliate company investments(1):TPP Acquisition, Inc.

          

          $

          6,621

          

          

          $

          5,400

          

          

          $

          

          

          

          $

          201

          

          

          $

          29

          

          

          $

          

          

          

          $

          (5,726

          )

          

          $

          6,525Total controlled affiliate company investments

          

          $

          6,621

          

          

          $

          5,400

          

          

          $

          

          

          

          $

          201

          

          

          $

          29

          

          

          $

          

          

          

          $

          (5,726

          )

          

          $

          6,525
  For the years ended December 31,2016

          

          2015Portfolio Company

          

          Interest income

          

          Dividendincome

          

          Fee income

          

          Interest income

          

          Dividendincome

          

          Fee incomeNon-controlled affiliate company investments(1)American Community Homes, Inc.

          

          $

          1,444

          

          

          $

          

          

          

          $

          

          

          

          $

          1,224

          

          

          $

          

          

          

          $

          50Rockdale Blackhawk, LLC

          

          

          1,827

          

          

          

          3,546

          

          

          

          

          

          

          

          1,482

          

          

          

          301

          

          

          

          Rocket Dog Brands, LLC

          

          

          489

          

          

          

          

          

          

          

          

          

          

          

          330

          

          

          

          

          

          

          

          SHI Holdings, Inc.

          

          

          96

          

          

          

          

          

          

          

          36

          

          

          

          

          

          

          

          

          

          

          

          Summit Container Corporation

          

          

          655

          

          

          

          

          

          

          

          

          

          

          

          486

          

          

          

          

          

          

          

          Total non-controlled affiliate company investments

          

          $

          4,511

          

          

          $

          3,546

          

          

          $

          36

          

          

          $

          3,522

          

          

          $

          301

          

          

          $

          50Controlled affiliate company investments(1):TPP Acquisition, Inc.

          

          $

          30

          

          

          $

          

          

          

          $

          

          

          

          $

          1,127

          

          

          $

          

          

          

          $

          TPP Operating, Inc.

          

          

          110

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          Total controlled affiliate company investments

          

          $

          140

          

          

          $

          

          

          

          $

          

          

          

          $

          1,127

          

          

          $

          

          

          

          $

          
  (1)

          Includes both loan and equity security investment transactions for these portfolio companies. (2)

          The Company provided a follow-on investment to SHI Holdings, Inc. during the quarter ended December 31, 2016, including the purchase of equity. For the purpose of this schedule, transfers in represents the fair value at September 30, 2016. (3)

          The Companys investment in TPP Acquisition, Inc. was restructured on November 8, 2016. For the purpose of this schedule, transfers out represents all activity up to the restructuring date. (4)

          The Companys investment in TPP Operating, Inc. is due to the restructuring of TPP Acquisition, Inc. on November 8, 2016. For the purpose of this schedule, transfers in represents all of the activity up to the restructuring date. All remaining activity is post restructuring date. On September 2, 2016 TPP Acquisition, Inc. filed for bankruptcy as part of a restructuring process. The existing lenders, including the Company submitted a credit bid to purchase certain assets of TPP Acquisition, Inc., which was approved by the bankruptcy court and the sale closed on November 8, 2016. A new operating company, TPP Operating, Inc., was formed to acquire certain of the assets of TPP Acquisition, Inc. and continue business operations. These new operations are no longer encumbered by significant lease liabilities. The Company owns 40% of the equity interests in both the former operating company, TPP Acquisition,
Inc. (which is in wind-down) and the new operating company, TPP Operating, Inc.
 F-31    TABLE OF CONTENTS MONROE CAPITAL CORPORATION  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) Note 5. Transactions with Affiliated Companies   (continued) During the bankruptcy period, the Company and the other existing lenders provided additional financing through a debtor-in-possession financing (DIP) facility. Upon the purchase of TPP Acquisition, Inc.s assets, TPP Operating, Inc. entered into a new credit facility with the existing lenders, including the Company. The principal amount of the new facility with TPP Operating, Inc. represented the amount owed to the lenders under the pre-petition facilities plus the amount funded under the DIP facility, less the amount of the credit bid. The cost basis of the Companys equity investment in TPP Operating,
Inc. represents the credit bid and equates to the reduction of principal outstanding on the debt facilities when the new facility was issued to TPP Operating, Inc. As of December 31, 2016, the Company valued its positions in TPP Operating, Inc. utilizing an enterprise value waterfall model. The key inputs to the model were an estimated 2017 EBITDA forecast and an EBITDA multiple developed using comparable public and private company data. Note 6. Transactions with Related Parties The Company has entered into an Investment Advisory and Management Agreement with MC Advisors, under which MC Advisors, subject to the overall supervision of the Board, provides investment advisory services to the Company. The Company pays MC Advisors a fee for its services under the Investment Advisory and Management Agreement consisting of two components  a base management fee and an incentive fee. The base management fee is calculated at an annual rate equal to 1.75% of invested assets (calculated as total assets excluding cash) and is payable in arrears. Base management fees for the years ended December 31,
2016, 2015 and 2014 were $6,347, $5,129 and $4,091, respectively. The incentive fee consists of two parts. The first part is calculated and payable quarterly in arrears and equals 20% of pre-incentive fee net investment income for the immediately preceding quarter, subject to a 2% (8% annualized) preferred return, or hurdle, and a catch up feature. The foregoing incentive fee is subject to a total return requirement, which provides that no incentive fee in respect of preincentive fee net investment income will be payable except to the extent that 20.0% of the cumulative net increase in net assets resulting from operations over the then current and 11
preceding calendar quarters exceeds the cumulative incentive fees accrued and/or paid for the 11 preceding calendar quarters. Therefore, any ordinary income incentive fee that is payable in a calendar quarter will be limited to the lesser of (1) 20% of the amount by which preincentive fee net investment income for such calendar quarter exceeds the 2.0% hurdle, subject to the catch-up provision, and (2) (x) 20% of the cumulative net increase in net assets resulting from operations for the then current and 11 preceding calendar quarters minus (y) the cumulative incentive fees accrued and/or paid for the 11 preceding calendar quarters. For the foregoing purpose, the cumulative net increase in net assets resulting from operations is the sum of preincentive fee net investment income, realized gains and losses and unrealized appreciation and depreciation for the then current and 11 preceding calendar quarters. The second part of the incentive fee is determined and
payable in arrears as of the end of each fiscal year in an amount equal to 20% of realized capital gains, if any, on a cumulative basis from inception through the end of the year, computed net of all realized capital losses on a cumulative basis and unrealized depreciation, less the aggregate amount of any previously paid capital gain incentive fees. Incentive fees, excluding the impact of the incentive fee waiver, for the years ended December 31, 2016, 2015 and 2014 were $5,777, $4,685 and $3,512, respectively. Incentive fees for the year ended December 31, 2016, consisted of part one incentive fees (based on net investment income) of $5,602 and part two incentive fees (based upon net realized and unrealized gains and losses, or capital gains) of $175. Incentive fees for the year ended December 31, 2015, consisted solely of part one incentive fees (based on net investment income). Incentive fees for the year ended December 31, 2014 consisted of part one incentive fees
(based on net investment income) of $3,718, reduced by the part two incentive fees (based upon net realized and unrealized gains and losses, or capital gains) of ($206). The Company accrues, but does not pay, a capital gains incentive fee in connection with any unrealized capital appreciation, as appropriate. If, on a cumulative basis, the sum of net realized gains (losses) plus net unrealized appreciation (depreciation) decreases during a period, the
 F-32    TABLE OF CONTENTS MONROE CAPITAL CORPORATION  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) Note 6. Transactions with Related Parties   (continued) Company will reverse any excess capital gains incentive fee previously accrued such that the amount of capital gains incentive fee accrued is no more than 20% of the sum of net realized gains (losses) plus net unrealized appreciation (depreciation). For the years ended December 31, 2016, 2015, and 2014, MC Advisors waived part one incentive fees of $273, zero and zero, respectively. The Company has entered into an Administration Agreement with Monroe Capital Management Advisors, LLC (MC Management), under which the Company reimburses MC Management (subject to the review and approval of the Board) for its allocable portion of overhead and other expenses, including the costs of furnishing the Company with office facilities and equipment and providing clerical, bookkeeping, record-keeping and other administrative services at such facilities, and the Companys allocable portion of the cost of the chief financial officer and chief compliance officer and their respective staffs. To the extent
that MC Management outsources any of its functions, the Company will pay the fees associated with such functions on a direct basis, without incremental profit to MC Management. For the years ended December 31, 2016, 2015 and 2014, the Company incurred $3,054, $2,712 and $2,673, respectively, in administrative expenses (included within Professional fees, Administrative service fees and General and administrative expenses on the consolidated statements of operations) under the Administration Agreement, of which $1,287, $1,078 and $876, respectively, was related to MC Management overhead and salary allocation and paid directly to MC Management. As of December 31, 2016 and 2015, $330 and $249, respectively, of expenses were due to MC Management under this agreement and are included in accounts payable and accrued expenses on the consolidated statements of assets and liabilities. The Company has entered into a license agreement with Monroe Capital LLC under which Monroe Capital LLC has agreed to grant the Company a non-exclusive, royalty-free license to use the name Monroe Capital for specified purposes in its business. Under this agreement, the Company will have a right to use the Monroe Capital name at no cost, subject to certain conditions, for so long as the Advisor or one of its affiliates remains its investment advisor. Other than with respect to this limited license, the Company has no legal right to the Monroe Capital name. As of December 31, 2016 and 2015, the Company had accounts payable to members of the Board of zero and $74, respectively, representing accrued and unpaid fees for their services. Note 7. Borrowings Revolving Credit Facility:  As of December 31, 2016 and 2015, the Company had $129,000 and $123,700 outstanding, respectively, under its revolving credit facility with ING Capital LLC, as agent, to finance the purchase of the Companys assets. As of December 31, 2016 and 2015, the maximum amount the Company was able to borrow under the revolving credit facility was $160,000 and this maximum borrowing can be increased to $300,000 pursuant to an accordion feature (subject to maintaining 200% asset coverage, as defined by the 1940 Act). The maturity date on the facility is December 14, 2020. The revolving credit facility is secured by a lien on all of the Companys assets, including cash on hand, but excluding the assets of the Companys wholly-owned subsidiary, MRCC SBIC. The Companys ability to borrow under the revolving credit facility is subject to availability under a defined borrowing base, which varies based on the Companys portfolio characteristics and certain eligibility criteria and concentration limits, as well as required valuation methodologies. The Company may make draws under the revolving credit facility to make or purchase additional investments through December 2019 and for
general working capital purposes until the maturity date of the revolving credit facility. Borrowings under the revolving credit facility bear interest, at the Companys election, at an annual rate of LIBOR (one-month, two-month, three-month or six-month at the Companys discretion based on the term of the borrowing) plus 3.00%, with a further step-down to LIBOR plus 2.75% when net worth (excluding investments in MRCC SBIC) exceeds $225,000 or at a daily rate equal to 2.00% per annum plus the greater of the prime interest rate, the federal funds rate
 F-33    TABLE OF CONTENTS MONROE CAPITAL CORPORATION  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) Note 7. Borrowings   (continued) plus 0.5% or LIBOR plus 1.0%. In addition to the stated interest rate on borrowings under the revolving credit facility, the Company is required to pay a fee of 0.5% per annum on any unused portion of the revolving credit facility if the unused portion of the facility is less than 65% of the then available maximum borrowing or a fee of 1.0% per annum on any unused portion of the revolving credit facility if the unused portion of the facility is greater than or equal to 65% of the then available maximum borrowing. As of December 31, 2016 and 2015, the outstanding borrowings were accruing at an average interest rate of 3.8% and
3.4% (based on one-month LIBOR), respectively. The weighted average interest rate of the Companys revolving credit facility borrowings (excluding debt issuance costs) for the years ended December 31, 2016, 2015 and 2014 was 3.6%, 3.6% and 3.4%, respectively. The weighted average fee rate on the Companys unused portion of the revolving credit facility for the years ended December 31, 2016, 2015 and 2014 was 0.5%, 0.5% and 0.5%, respectively. The Companys ability to borrow under the revolving credit facility is subject to availability under the borrowing base, which permits the Company to borrow up to 70% of the fair market value of its portfolio company investments depending on the type of the investment the Company holds and whether the investment has a quoted price. The Companys ability to borrow is also subject to certain concentration limits, and continued compliance with the representations, warranties and covenants given by the Company under the facility. The revolving credit facility contains certain financial and restrictive covenants,
including, but not limited to, the Companys maintenance of: (1) a minimum consolidated total net assets at least equal to the greater of (a) 40% of the consolidated total assets on the last day of each quarter or (b) $120,000 plus 65% of the net proceeds to the Company from sales of its securities after December 14, 2015; (2) a ratio of total assets (less total liabilities other than indebtedness) to total indebtedness of not less than 2.1 times; and (3) a ratio of earnings before interest and taxes to interest expense of at least 2.5 times. The revolving credit facility also requires the Company 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 the Company incurs an event of default under the revolving credit facility and fails 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 the Companys liquidity, financial condition, results of operations and cash flows. The Companys credit facility also imposes certain conditions that may limit the amount of the Companys distributions to stockholders. Distributions payable in the Companys common stock under the DRIP are not limited by the credit facility. Distributions in cash or property other than common stock are generally limited to 115% of the amount of distributions required to maintain the Companys status as a RIC. SBA Debentures:  On February 28, 2014, the Companys wholly-owned subsidiary, MRCC SBIC received a license from the SBA to operate as a SBIC under Section 301(c) of the Small Business Investment Act of 1958, as amended. MRCC SBIC commenced operations on September 16, 2013. The SBIC license allows MRCC SBIC to obtain leverage by issuing SBA-guaranteed debentures, subject to the issuance of a leverage commitment by the SBA and other customary procedures. SBA-guaranteed debentures are non-recourse, interest only debentures with interest payable semi-annually and have a ten year maturity. The principal amount of SBA-guaranteed debentures is not required to be paid prior to maturity but may be prepaid at any time without penalty. The interest rate of SBA-guaranteed debentures is fixed on a semi-annual basis (pooling date) at a market-driven spread over U.S. Treasury Notes with 10-year maturities. The
SBA, as a creditor, has a superior claim to MRCC SBICs assets over the Companys stockholders in the event the Company liquidates MRCC SBIC or the SBA exercises its remedies upon an event of default.
 F-34    TABLE OF CONTENTS MONROE CAPITAL CORPORATION  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) Note 7. Borrowings   (continued) SBA regulations currently limit the amount that an individual SBIC may borrow to a maximum of $150,000 when it has at least $75,000 in regulatory capital, receives a leverage commitment from the SBA and has been through an audit examination by the SBA subsequent to licensing. The SBA also historically limited a related group of SBICs (commonly referred to as a family of funds) to a maximum of $225,000 in total borrowings. On December 18, 2015, this family of funds limitation was raised to $350,000 in total borrowings. As the Company has other affiliated SBICs already in operation, MRCC SBIC was historically limited
to a maximum of $40,000 in borrowings. Pursuant to the increase in the family of funds limitation, the Company submitted a commitment application to the SBA and on April 13, 2016, MRCC SBIC was approved by the SBA for an additional $75,000 in SBA-guaranteed debentures, for a total of $115,000 in available debentures. As of December 31, 2016, MRCC SBIC had $41,000 in leveragable capital and $51,500 in SBA-guaranteed debentures outstanding. In order to gain access to the entirety of the $63,500 in remaining available debentures, the Company would be required to contribute to MRCC SBIC an additional $16,500 in leveragable capital. As of December 31, 2015, MRCC SBIC had $20,000 in leveragable capital and $40,000 in SBA-guaranteed debentures outstanding. As of December 31, 2016, MRCC SBIC had the following SBA-guaranteed debentures outstanding (dollars in thousands):  Maturity Date

          

          Interest Rate

          

          AmountSeptember 2024

          

          

          3.4

          %

          

          $

          12,920March 2025

          

          

          3.3

          %

          

          

          14,800March 2025

          

          

          2.9

          %

          

          

          7,080September 2025

          

          

          3.6

          %

          

          

          5,200March 2027

          

          

          2.1

          %(1)

          

          

          9,200March 2027

          

          

          2.0

          %(1)

          

          

          2,300Total

          

          

          

          

          

          $

          51,500
  (1)

          Represents an interim rate of interest as the SBA-guaranteed debentures have not yet pooled. As of December 31, 2015, MRCC SBIC had the following SBA-guaranteed debentures outstanding (dollars in thousands):  Maturity Date

          

          Interest Rate

          

          AmountSeptember 2024

          

          

          3.4

          %

          

          $

          12,920March 2025

          

          

          3.3

          %

          

          

          14,800March 2025

          

          

          2.9

          %

          

          

          7,080September 2025

          

          

          3.6

          %

          

          

          5,200Total

          

          

          

          

          

          $

          40,000
 On October 2, 2014, the Company was granted exemptive relief from the SEC for permission to exclude the debt of MRCC SBIC guaranteed by the SBA from the 200% asset coverage test under the 1940 Act. The receipt of this exemption for this SBA-guaranteed debt increases flexibility under the 200% asset coverage test. Secured Borrowings:  Certain partial loan sales do not qualify for sale accounting under ASC Topic 860 because these sales do not meet the definition of a participating interest, as defined in the guidance, in order for sale treatment to be allowed. Participations or other partial loan sales which do not meet the definition of a participating interest remain as an investment on the accompanying consolidated statements of assets and
 F-35    TABLE OF CONTENTS MONROE CAPITAL CORPORATION  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) Note 7. Borrowings   (continued) liabilities and the portion sold is recorded as a secured borrowing in the liabilities section of the consolidated statements of assets and liabilities. For these partial loan sales, the interest earned on the entire loan balance is recorded within interest income and the interest earned by the buyer in the partial loan sale is recorded within interest and other debt financing expenses in the accompanying consolidated statements of operations. As of December 31, 2016, secured borrowings at fair value totaled $1,314 and the fair value of the loans that are associated with these secured borrowings was $5,814. As of December 31, 2015, secured borrowings at fair value totaled $2,476 and the fair value of the loans that are associated with these secured borrowings was $11,803. These secured borrowings were created as a result of the Companys completion of partial loan sales of certain unitranche loan assets during the year ended December 31, 2013 that did not meet the definition of a participating interest. As a result, sale treatment was not allowed
and these partial loan sales were treated as secured borrowings. No such partial loan sales occurred during the years ended December 31, 2016, 2015 and 2014. During the years ended December 31, 2016, 2015 and 2014, repayments on secured borrowings totaled $1,215, $1,600 and $3,863, respectively. The weighted average interest rate on our secured borrowings was approximately 6.3% and 5.8% as of December 31, 2016 and 2015, respectively. Components of interest expense:  The components of the Companys interest expense and other debt financing expenses are as follows:  For the years ended December 31,2016

          

          2015

          

          2014Interest expense  revolving credit facility

          

          $

          4,422

          

          

          $

          3,290

          

          

          $

          3,183Interest expense  SBA debentures

          

          

          1,340

          

          

          

          1,080

          

          

          

          161Amortization of deferred financing costs

          

          

          820

          

          

          

          742

          

          

          

          576Interest expense  secured borrowings

          

          

          123

          

          

          

          198

          

          

          

          374Other

          

          

          77

          

          

          

          90

          

          

          

          48Total interest and other debt financing expenses

          

          $

          6,782

          

          

          $

          5,400

          

          

          $

          4,342
 Note 8. Income Taxes The Company has elected to be treated as a RIC under Subchapter M of the Code. As a RIC, the Company is not taxed on any investment company taxable income or capital gains which it distributes to stockholders. The Company intends to distribute all of its investment company taxable income and capital gains annually. Accordingly, no provision for federal income tax has been made in the consolidated financial statements. Dividends from net investment income and distributions from net realized capital gains are determined in accordance with U.S. federal tax regulations, which may differ from amounts in accordance with U.S. GAAP and those differences could be material. These book-to-tax differences are either temporary or permanent in nature. Reclassifications due to permanent book-to-tax differences have no impact on net assets. The following permanent differences were reclassified for tax purposes:  For the years ended December 31,2016

          

          2015

          

          2014Increase (decrease) in capital in excess of par value

          

          $

          (3,547

          )

          

          $

          

          

          

          $

          Increase (decrease) in undistributed net investment income (accumulated distributions in excess of net investment income)

          

          

          3,547

          

          

          

          

          

          

          

          
 F-36    TABLE OF CONTENTS MONROE CAPITAL CORPORATION  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) Note 8. Income Taxes   (continued) Taxable income generally differs from net increase (decrease) in net assets resulting from operations for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses and generally excludes unrealized appreciation (depreciation) on investments as investment gains and losses are not included in taxable income until they are realized. Capital losses in excess of capital gains earned in a tax year may generally be carried forward and used to offset capital gains, subject to certain limitations. Under the recently enacted Regulated Investment Company Modernization Act of 2010, capital losses incurred after September 30, 2011 will not be subject to expiration. As of December 31, 2016 and 2015, the Company does not have any capital loss carry forwards. The following table reconciles net increase in net assets resulting from operations to taxable income:  For the years ended December 31,2016

          

          2015

          

          2014Net increase in net assets resulting from operations

          

          $

          24,365

          

          

          $

          17,892

          

          

          $

          13,909Net change in unrealized (appreciation) depreciation on investments and secured borrowings

          

          

          (1,272

          )

          

          

          1,153

          

          

          

          1,465Other income for tax but not book

          

          

          2,081

          

          

          

          2,975

          

          

          

          Other deductions for book in excess of deductions for tax

          

          

          175

          

          

          

          

          

          

          

          (206

          )Expenses not currently deductible

          

          

          679

          

          

          

          83

          

          

          

          Total taxable income

          

          $

          26,028

          

          

          $

          22,103

          

          

          $

          15,168
 For income tax purposes, distributions paid to stockholders are reported as ordinary income, return of capital, long term capital gains or a combination thereof. The following table provides the tax character of distributions paid:  For the years ended December 31,2016

          

          2015

          

          2014Ordinary income

          

          $

          20,708

          

          

          $

          16,410

          

          

          $

          13,028Long-term capital gains

          

          

          

          

          

          

          304

          

          

          

          Total

          

          $

          20,708

          

          

          $

          16,714

          

          

          $

          13,028
 For federal income tax purposes, as of December 31, 2016, gross unrealized appreciation and gross unrealized depreciation was $24,157 and $24,479, respectively, and as of December 31, 2015, gross unrealized appreciation and gross unrealized depreciation was $12,998 and $14,645, respectively. As of December 31, 2016 and 2015, the aggregate cost of securities for federal income tax purposes was $413,242 and $342,738, respectively.
 F-37    TABLE OF CONTENTS MONROE CAPITAL CORPORATION  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) Note 9. Distributions The Companys distributions are recorded on the record date. The following table summarizes dividends declared during the years ended December 31, 2016, 2015 and 2014, respectively:  Date Declared

          

          Record Date

          

          Payment Date

          

          AmountPer Share

          

          CashDistribution

          

          DRIPSharesIssued

          

          DRIPSharesValue

          

          DRIPSharesRepurchasedin the OpenMarket

          

          Cost ofDRIPSharesRepurchasedYear ended December 31, 2016:March 4, 2016

          

          

          March 15, 2016

          

          

          

          March 31, 2016

          

          

          $

          0.35

          

          

          $

          4,553

          

          

          

          

          

          

          $

          

          

          

          

          20,144

          

          

          $

          277June 1, 2016

          

          

          June 15, 2016

          

          

          

          June 30, 2016

          

          

          

          0.35

          

          

          

          4,553

          

          

          

          

          

          

          

          

          

          

          

          18,518

          

          

          

          275August 30, 2016

          

          

          September 15, 2016

          

          

          

          September 30, 2016

          

          

          

          0.35

          

          

          

          5,730

          

          

          

          4,493

          

          

          

          70

          

          

          

          

          

          

          

          November 30, 2016

          

          

          December 15, 2016

          

          

          

          December 30, 2016

          

          

          

          0.35

          

          

          

          5,734

          

          

          

          4,369

          

          

          

          68

          

          

          

          

          

          

          

          Total distributions declared

          

          $

          1.40

          

          

          $

          20,570

          

          

          

          8,862

          

          

          $

          138

          

          

          

          38,662

          

          

          $

          552Year ended December 31, 2015:March 6, 2015

          

          

          March 20, 2015

          

          

          

          March 31, 2015

          

          

          $

          0.35

          

          

          $

          3,371

          

          

          

          

          

          

          $

          

          

          

          

          16,057

          

          

          $

          238June 2, 2015

          

          

          June 15, 2015

          

          

          

          June 30, 2015

          

          

          

          0.35

          

          

          

          4,357

          

          

          

          

          

          

          

          

          

          

          

          19,023

          

          

          

          281September 1, 2015

          

          

          September 15, 2015

          

          

          

          September 30, 2015

          

          

          

          0.35

          

          

          

          4,432

          

          

          

          

          

          

          

          

          

          

          

          18,300

          

          

          

          264November 30, 2015

          

          

          December 15, 2015

          

          

          

          December 30, 2015

          

          

          

          0.35

          

          

          

          4,554

          

          

          

          

          

          

          

          

          

          

          

          19,615

          

          

          

          255Total distributions declared

          

          $

          1.40

          

          

          $

          16,714

          

          

          

          

          

          

          $

          

          

          

          

          72,995

          

          

          $

          1,038Year ended December 31, 2014:March 7, 2014

          

          

          March 18, 2014

          

          

          

          March 28, 2014

          

          

          $

          0.34

          

          

          $

          3,304

          

          

          

          

          

          

          $

          

          

          

          

          21,787

          

          

          $

          295May 29, 2014

          

          

          June 13, 2014

          

          

          

          June 27, 2014

          

          

          

          0.34

          

          

          

          3,252

          

          

          

          

          

          

          

          

          

          

          

          19,208

          

          

          

          264August 27, 2014

          

          

          September 15, 2014

          

          

          

          September 30, 2014

          

          

          

          0.34

          

          

          

          3,236

          

          

          

          

          

          

          

          

          

          

          

          19,095

          

          

          

          258December 1, 2014

          

          

          December 15, 2014

          

          

          

          December 30, 2014

          

          

          

          0.34

          

          

          

          3,236

          

          

          

          

          

          

          

          

          

          

          

          17,023

          

          

          

          244Total distributions declared

          

          $

          1.36

          

          

          $

          13,028

          

          

          

          

          

          

          $

          

          

          

          

          77,113

          

          

          $

          1,061
 None of the distributions declared during the years ended December 31, 2016, 2015, and 2014 represented a return of capital for tax purposes. Note 10. Stock Issuances and Repurchases Stock Issuances:  On February 6, 2015, the Company entered into an at-the-market (ATM) securities offering program with MLV & Co. LLC (MLV) and JMP Securities LLC through which the Company may sell, by means of ATM offerings from time to time, up to $50,000 of the Companys common stock. During the year ended December 31, 2015, the Company sold 672,597 shares at an average price of $14.88 per share for gross proceeds of $10,007 under the ATM program. Aggregate underwriters discounts and commissions were $158 and offering costs were $83, resulting in net proceeds of
approximately $9,766. On April 20, 2015, the Company closed a public offering of 2,450,000 shares of its common stock at a public offering price of $14.85 per share, raising approximately $36,383 in gross proceeds. On May 18, 2015, the Company sold an additional 367,500 shares of its common stock, at a public offering price of $14.85 per share, raising approximately $5,457 in gross proceeds pursuant to the underwriters exercise of the over-allotment option. Aggregate underwriters discounts and commissions were $1,692 and offering costs were $295, resulting in net proceeds of $39,853 on these non-ATM program issuances during the year ended
December 31, 2015. On July 1, 2016, the Company entered into an amendment to MLVs equity distribution agreement and an assignment agreement to replace MLV with FBR Capital Markets & Co., an affiliate of MLV. During the year ended December 31, 2016, the Company did not make any sales of its common stock under the ATM program.
 F-38    TABLE OF CONTENTS MONROE CAPITAL CORPORATION  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) Note 10. Stock Issuances and Repurchases   (continued) On July 25, 2016, the Company closed a public offering of 3,100,000 shares of common stock at a public offering price of $15.50 per share, raising approximately $48,050 in gross proceeds. On August 3, 2016, the Company sold an additional 465,000 shares of common stock, at a public offering price of $15.50 per share, raising approximately $7,208 in gross proceeds pursuant to the underwriters exercise of the over-allotment option. Aggregate underwriters discounts and commissions were $2,210 and offering costs were $528, resulting in net proceeds of $52,520. Stock Repurchases:  On November 11, 2013, the Board approved a share repurchase plan (the Plan) under which up to $7,500 of the Companys outstanding common stock was allowed to be acquired in the open market at prices below the Companys NAV as reported in its then most recently published consolidated financial statements. The Plan was implemented at the discretion of management and expired on November 10, 2014. During the year ended December 31, 2014, the Company repurchased 400,359 shares of common stock in open market transactions for an aggregate cost (including transaction costs) of $5,235. Over the life of the Plan, the Company repurchased 485,162 shares of common stock in open market transactions for an aggregate cost (including transaction costs) of $6,267. The Company is incorporated in Maryland and under the law of that state, shares repurchased are considered retired (repurchased shares become authorized but unissued shares) rather than treasury stock. As a result, the cost of stock repurchases is recorded as a reduction to
capital in excess of par value on the consolidated statements of changes in net assets. Note 11. Commitments and Contingencies Commitments:  As of December 31, 2016 and 2015, the Company had $37,716, and $20,703, respectively, in outstanding commitments to fund investments under undrawn revolvers, capital expenditure loans and delayed draw commitments. Indemnifications:  In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties that provide general indemnifications. The Companys maximum exposure under these agreements is unknown, as these involve future claims that may be made against the Company but that have not occurred. The Company expects the risk of any future obligations under these indemnifications to be remote. Concentration of credit and counterparty risk:  Credit risk arises primarily from the potential inability of counterparties to perform in accordance with the terms of the contract. In the event that the counterparties do not fulfill their obligations, the Company may be exposed to risk. The risk of default depends on the creditworthiness of the counterparties or issuers of the instruments. It is the Companys policy to review, as necessary, the credit standing of each counterparty. Market risk:  The Companys investments and borrowings are subject to market risk. Market risk is the potential for changes in the value due to market changes. Market risk is directly impacted by the volatility and liquidity in the markets in which the investments and borrowings are traded. Legal proceedings:  In the normal course of business, the Company may be subject to legal and regulatory proceedings that are generally incidental to its ongoing operations. While there can be no assurance of the ultimate disposition of any such proceedings, the Company is not currently aware of any such proceedings or disposition that at this time would have a material adverse effect on the Companys consolidated financial statements.
 F-39    TABLE OF CONTENTS MONROE CAPITAL CORPORATION  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) Note 12. Financial Highlights The financial highlights for the Company are as follows:  For the years ended December 31,2016

          

          2015

          

          2014

          

          2013

          

          2012Per share data:Net asset value at beginning of year(1)

          

          $

          14.19

          

          

          $

          14.05

          

          

          $

          13.92

          

          

          $

          14.54

          

          

          $

          15.00Net investment income(2)

          

          

          1.55

          

          

          

          1.60

          

          

          

          1.57

          

          

          

          1.13

          

          

          

          0.15Net gain (loss) on investments and secured borrowings(2)

          

          

          0.13

          

          

          

          (0.07

          )

          

          

          (0.12

          )

          

          

          0.15

          

          

          

          0.03Net increase in net assets from operations(2)

          

          

          1.68

          

          

          

          1.53

          

          

          

          1.45

          

          

          

          1.28

          

          

          

          0.18Stockholder distributions  income

          

          

          (1.40

          )

          

          

          (1.40

          )

          

          

          (1.36

          )

          

          

          (1.15

          )

          

          

          (0.14

          )Stockholder distributions  return of capital

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          (0.21

          )

          

          

          (0.20

          )Effect of share issuance above (below) NAV(3)

          

          

          0.05

          

          

          

          

          

          

          

          

          

          

          

          (0.57

          )

          

          

          (0.30

          )Effect of share repurchases(3)

          

          

          

          

          

          

          

          

          

          

          0.04

          

          

          

          0.03

          

          

          

          Other(3)

          

          

          

          

          

          

          0.01

          

          

          

          

          

          

          

          

          

          

          

          Net asset value at end of year

          

          $

          14.52

          

          

          $

          14.19

          

          

          $

          14.05

          

          

          $

          13.92

          

          

          $

          14.54Net assets at end of year

          

          $

          240,850

          

          

          $

          184,535

          

          

          $

          133,738

          

          

          $

          138,092

          

          

          $

          83,634Shares outstanding at end of year

          

          

          16,581,869

          

          

          

          13,008,007

          

          

          

          9,517,910

          

          

          

          9,918,269

          

          

          

          5,750,103Per share market value at end of year

          

          $

          15.38

          

          

          $

          13.09

          

          

          $

          14.46

          

          

          $

          12.20

          

          

          $

          14.83Total return based on market value(4)

          

          

          28.95

          %

          

          

          (0.21

          )%

          

          

          30.67

          %

          

          

          (9.29

          )%

          

          

          1.15

          %Total return based on average net asset value(5)

          

          

          11.70

          %

          

          

          11.04

          %

          

          

          10.34

          %

          

          

          9.17

          %

          

          

          1.14

          %Ratio/Supplemental data:Ratio of net investment income to average net assets(6)

          

          

          10.81

          %

          

          

          11.56

          %

          

          

          11.20

          %

          

          

          7.71

          %

          

          

          5.00

          %Ratio of interest and other debt financing expenses to average net assets(7)

          

          

          3.26

          %

          

          

          3.33

          %

          

          

          3.23

          %

          

          

          2.59

          %

          

          

          1.93

          %Ratio of expenses (without incentive fees) to average net assets(7)

          

          

          8.17

          %

          

          

          8.31

          %

          

          

          8.42

          %

          

          

          7.15

          %

          

          

          5.76

          %Ratio of incentive fees, net of incentive fee waiver, to average net assets(8)(9)

          

          

          2.64

          %

          

          

          2.89

          %

          

          

          2.61

          %

          

          

          1.38

          %

          

          

          0.01

          %Ratio of total expenses to average net assets(6)

          

          

          10.81

          %

          

          

          11.20

          %

          

          

          11.03

          %

          

          

          8.53

          %

          

          

          5.77

          %Average debt outstanding

          

          $

          156,358

          

          

          $

          119,860

          

          

          $

          92,410

          

          

          $

          42,103

          

          

          $

          31,056Average debt outstanding per share

          

          $

          10.75

          

          

          $

          10.26

          

          

          $

          9.63

          

          

          $

          5.52

          

          

          $

          5.40Portfolio turnover(9)

          

          

          22.41

          %

          

          

          30.70

          %

          

          

          47.03

          %

          

          

          39.77

          %

          

          

          11.88

          %
  (1)

          The beginning net asset value for 2012 represents the initial public offering price on October 24, 2012. (2)

          Calculated using the weighted average shares outstanding during the years ended December 31, 2016, 2015, 2014, 2013 and for the period from October 24, 2012 to December 31, 2012, respectively.
 F-40    TABLE OF CONTENTS MONROE CAPITAL CORPORATION  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) Note 12. Financial Highlights   (continued) (3)

          Includes the impact of different share amounts used in calculating per share data as a result of calculating certain per share data based on weighted average shares outstanding during the period and certain per share data based on shares outstanding as of a period end or transaction date. (4)

          Total return based on market value is calculated assuming a purchase of common shares at the market value on the first day and a sale at the market value on the last day of the periods reported. Distributions, if any, are assumed for purposes of this calculation to be reinvested at prices obtained under the Companys DRIP. Total return based on market value does not reflect brokerage commissions. (5)

          Total return based on average net asset value is calculated by dividing the net increase in net assets from operations by the average net asset value. (6)

          Ratios for the period from October 24, 2012 to December 31, 2012 are annualized. Incentive fees included within the ratio are not annualized. (7)

          Ratios for the period from October 24, 2012 to December 31, 2012 are annualized. (8)

          The ratio of waived incentive fees to average net assets was 0.13%, zero, zero, zero, and zero for the years ended December 31, 2016, 2015, 2014, 2013 and for the period from October 24, 2012 to December 31, 2012, respectively. (9)

          Ratios for the period from October 24, 2012 to December 31, 2012 are not annualized. Note 13. Selected Quarterly Financial Data (unaudited)  For the quarter endedDecember 31,2016

          

          September 30,2016

          

          June 30,2016

          

          March 31,2016Total investment income

          

          $

          11,233

          

          

          $

          11,128

          

          

          $

          11,118

          

          

          $

          11,539Net investment income

          

          $

          5,377

          

          

          $

          5,583

          

          

          $

          5,759

          

          

          $

          5,787Net gain (loss) on investments and secured borrowings

          

          $

          2,155

          

          

          $

          (1,971

          )

          

          $

          (482

          )

          

          $

          2,157Net increase (decrease) in net assets resulting from operations

          

          $

          7,532

          

          

          $

          3,612

          

          

          $

          5,277

          

          

          $

          7,944Net investment income per share  basic and diluted

          

          $

          0.32

          

          

          $

          0.36

          

          

          $

          0.44

          

          

          $

          0.44Net increase (decrease) in net assets resulting from operations per share  basic and diluted

          

          $

          0.45

          

          

          $

          0.23

          

          

          $

          0.41

          

          

          $

          0.61Net asset value per share at period end

          

          $

          14.52

          

          

          $

          14.42

          

          

          $

          14.50

          

          

          $

          14.45
  For the quarter endedDecember 31,2015

          

          September 30,2015

          

          June 30,2015

          

          March 31,2015Total investment income

          

          $

          10,126

          

          

          $

          9,172

          

          

          $

          9,519

          

          

          $

          8,081Net investment income

          

          $

          5,005

          

          

          $

          4,498

          

          

          $

          5,071

          

          

          $

          4,167Net gain (loss) on investments and secured borrowings

          

          $

          (793

          )

          

          $

          242

          

          

          $

          (7

          )

          

          $

          (291

          )Net increase (decrease) in net assets resulting from operations

          

          $

          4,212

          

          

          $

          4,740

          

          

          $

          5,064

          

          

          $

          3,876Net investment income per share  basic and diluted

          

          $

          0.39

          

          

          $

          0.36

          

          

          $

          0.43

          

          

          $

          0.44Net increase (decrease) in net assets resulting from operations per share  basic and diluted

          

          $

          0.33

          

          

          $

          0.38

          

          

          $

          0.43

          

          

          $

          0.41Net asset value per share at period end

          

          $

          14.19

          

          

          $

          14.21

          

          

          $

          14.18

          

          

          $

          14.11
 F-41    TABLE OF CONTENTS MONROE CAPITAL CORPORATION  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) Note 13. Selected Quarterly Financial Data (unaudited)   (continued)  For the quarter endedDecember 31,2014

          

          September 30,2014

          

          June 30,2014

          

          March 31,2014Total investment income

          

          $

          8,683

          

          

          $

          7,668

          

          

          $

          7,046

          

          

          $

          6,516Net investment income

          

          $

          4,621

          

          

          $

          3,810

          

          

          $

          3,514

          

          

          $

          3,130Net gain (loss) on investments and secured borrowings

          

          $

          (419

          )

          

          $

          (437

          )

          

          $

          (848

          )

          

          $

          538Net increase (decrease) in net assets resulting from operations

          

          $

          4,202

          

          

          $

          3,373

          

          

          $

          2,666

          

          

          $

          3,668Net investment income per share  basic and diluted

          

          $

          0.49

          

          

          $

          0.40

          

          

          $

          0.37

          

          

          $

          0.32Net increase (decrease) in net assets resulting from operations per share  basic and diluted

          

          $

          0.44

          

          

          $

          0.35

          

          

          $

          0.28

          

          

          $

          0.38Net asset value per share at period end

          

          $

          14.05

          

          

          $

          13.95

          

          

          $

          13.93

          

          

          $

          13.99
 Note 14. Subsequent Events The Company has evaluated subsequent events through March 7, 2017, the date on which the consolidated financial statements were issued. On February 22, 2017, the Company closed a $40,000 upsize to its revolving credit facility led by ING, from $160,000 to $200,000 in revolving commitments, in accordance with the facilitys accordion feature. On March 7, 2017, the Board declared a quarterly distribution of $0.35 per share payable on March 31, 2017 to holders of record on March 17, 2017.
 F-42    TABLE OF CONTENTS (a)(3) Exhibits  Exhibit Number

          

          Description of Document3.1

          

          Amended and Restated Articles of Incorporation of Monroe Capital Corporation (Incorporated by reference to Exhibit (a)(1) of the Registrants Pre-Effective Amendment No. 8 to the Registration Statement on Form N-2 (File No. 333-172601) filed on October 18, 2012)3.2

          

          Bylaws of Monroe Capital Corporation (Incorporated by reference to Exhibit (b)(1) of the Registrants Pre-Effective Amendment No. 8 to the Registration Statement on Form N-2 (File No. 333-172601) filed on October 18, 2012)4.1

          

          Form of Stock Certificate of Monroe Capital Corporation (Incorporated by reference to Exhibit (d) of the Registrants Pre-Effective Amendment No. 8 to the Registration Statement on Form N-2 (File No. 333-172601) filed on October 18, 2012)10.1

          

          Dividend Reinvestment Plan (Incorporated by reference to Exhibit (e) of the Registrants Pre-Effective Amendment No. 8 to the Registration Statement on Form N-2 (File No. 333-172601) filed on October 18, 2012)10.2

          

          Investment Advisory and Management Agreement between Registrant and MC Advisors (Incorporated by reference to Exhibit (g) of the Registrants Pre-Effective Amendment No. 8 to the Registration Statement on Form N-2 (File No. 333-172601) filed on October 18, 2012)10.3

          

          Form of Custodian Agreement (Incorporated by reference to Exhibit (j) of the Registrants Pre-Effective Amendment No. 8 to the Registration Statement on Form N-2 (File No. 333-172601) filed on October 18, 2012)10.4

          

          Administration Agreement between Registrant and MC Management (Incorporated by reference to Exhibit (k)(1) of the Registrants Pre-Effective Amendment No. 8 to the Registration Statement on Form N-2 (File No. 333-172601) filed on October 18, 2012)10.5

          

          License Agreement between the Registrant and Monroe Capital, LLC (Incorporated by reference to Exhibit (k)(2) of the Registrants Pre-Effective Amendment No. 8 to the Registration Statement on Form N-2 (File No. 333-172601) filed on October 18, 2012)10.6

          

          Senior Secured Revolving Credit Agreement between the Registrant and the Lenders (Incorporated by reference to Exhibit (k)(3) of the Registrants Post-Effective Amendment No. 1 to the Registration Statement on Form N-2 (File No. 333-172601) filed on October 25, 2012)10.7

          

          Senior Secured Term Loan Credit Agreement between Registrant and the Lender (Incorporated by reference to Exhibit (k)(4) of the Registrants Post-Effective Amendment No. 1 to the Registration Statement on Form N-2 (File No. 333-172601) filed October 25, 2012)10.8

          

          Amendment No. 1 to Senior Revolving Credit Agreement between the Registrant and the Lenders (Incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K (File No. 814-00866) filed on December 20, 2013)10.9

          

          Amended and Restated Senior Secured Revolving Credit Agreement among the Registrant as borrower, the Lenders party thereto and ING Capital LLC, as Administrative Agent, dated December 14, 2015 (Incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K (File No. 814-00866) filed on December 15, 2015)11.1

          

          Computation of per share earnings (included in the notes to the audited financial statements included in this report)14.1

          

          Joint Code of Ethics of Registrant and MC Advisors (Incorporated by reference to Exhibit (q)(1) of the Registrants Pre-Effective Amendment No. 8 to the Registration Statement on Form N-2 (File No. 333-172601) filed on October 18, 2012)21.1

          

          List of Subsidiaries (filed herewith)31.1

          

          Certification of Chief Executive Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
 86    TABLE OF CONTENTS Exhibit Number

          

          Description of Document31.2

          

          Certification of Chief Financial Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)32.1

          

          Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002-(filed herewith)
 ITEM 16. FORM 10-K SUMMARY None.
 87    TABLE OF CONTENTS SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. Date: March 7, 2017 Monroe Capital Corporation (Registrant) By

          /s/ Theodore L. KoenigTheodore L. KoenigChairman, Chief Executive Officer and Director(Principal Executive Officer) By

          /s/ Aaron D. PeckAaron D. PeckChief Financial Officer, Chief InvestmentOfficer and Director(Principal Financial and Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.  Signature

          

          Title

          

          Date/s/ Theodore L. KoenigTheodore L. Koenig

          

          Chairman, Chief Executive Officer and Director (Principal Executive Officer)

          

          March 7, 2017/s/ Aaron D. PeckAaron D. Peck

          

          Chief Financial Officer, Chief Investment Officer and Director(Principal Financial and Accounting Officer)

          

          March 7, 2017/s/ Thomas J. AllisonThomas J. Allison

          

          Director

          

          March 7, 2017/s/ Jeffrey A. GolmanJeffrey A. Golman

          

          Director

          

          March 7, 2017/s/ Jorde M. NathanJorde M. Nathan

          

          Director

          

          March 7, 2017/s/ Robert S. RubinRobert S. Rubin

          

          Director

          

          March 7, 2017/s/ Jeffrey D. SteeleJeffrey D. Steele

          

          Director

          

          March 7, 2017
 88