National Securities Research

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1 National Securities Research Established 1947, Member FINRA/SIPC ` Monroe Capital Corporation January 21, 2015 BUY (MRCC, $14.26) Significant Spare Capacity In Debt and Increasing Pricing Power in Senior Secured Loans - Initating With A Buy Rating And $16 Price Target. Christopher R. Testa ctesta@nationalsecurities.com Investment Conclusion. We are initiating coverage of Monroe Capital Corporation (MRCC) with a BUY rating and $16 price target. In our view, the company has the ability to grow net investment income (NII) per share over the next two years while issuing a minimal amount of equity which should lead to respectable dividend increases. The company still has plenty of Small Business Administration (SBA) debentures they can utilize with a current $40 million commitment of which only 34% is currently outstanding. In 2014 Monroe consistently increased its exposure to senior secured loans and reduced exposure to subordinated loans but still earned higher effective yields on its portfolio. This demonstrates that MRCC truly has pricing power in the loans it originates, rather than simply shifting the portfolio into a riskier composition to maintain yields. MRCC can continue to do this with similar results, in our view, because it can lever up the senior secured loans with spare capacity in SBA debentures and/or its revolver should it begin to lose pricing power on its senior secured loans. The seniority of the loans combined with excellent asset quality should enable Monroe to increase leverage due to the lack of subordination in the majority of its portfolio. Our $16 price target implies an estimated 2016 Price/Net Investment Income (P/ NII) of 9.5x, dividend yield of 9.8%, and Price/Net Asset Value (P/NAV) of 1.05x compared to the BDC sector averages of 8.7x, 10.9%, and 0.90x, respectively. *Note: Adjusted NII = NII excluding incentive fees on capital gains. Source: S&P Capital IQ, National Securities Corporation Estimates We believe that MRCC will continue to improve or at least maintain effective portfolio yields even while shifting more into senior secured first lien loans. MRCC finished 1Q13 with 60.6% of its portfolio in unitranche loans and 30.4% in senior secured loans. As of 3Q14 the mix has nearly reversed itself completely, with senior secured now comprising 58.7% of fair value and unitranche at 34.0%. The unitranche Please see pages for Important Disclosures 1

2 space usually has higher yields because it serves as a one-stop shop for companies seeking multiple layers of financing, i.e., first and second lien credit. Monroe or any unitranche lender can sell the senior or subordinated portion or retain both. However, the weighted average coupon on Monroe s unitranche loans was 60 basis points (bps) lower than its senior secured loans in 3Q14. We believe the pricing power achieved is a function of MRCC focusing on lower middle market companies and earning a true liquidity premium as well as the direct origination platform that allows the company to earn fees on originations. While having 8 nationwide loan offices may not be running lean, per se, earning higher fees as a result of direct originations probably makes these offices worthwhile. The company has significant spare capacity to raise additional debt to grow the portfolio and comfortably increase leverage should pricing pressure in the BDC space continue, in our view. Monroe had debt-to-equity (D/E) of 0.79x as of 3Q14 although the regulatory D/E (which excludes SBA debentures) was 0.73x. Currently the company is only utilizing 34% of SBA capacity and 45% of the capacity on its revolver. The SBA commitment will most likely not be permitted to increase to $75 million eventually unless the family of funds restriction on SBIC licenses is raised by Congress from the current $225 million limit to $350 million. We note, however, that our estimates for MRCC to increase the portfolio to $307.9 million by year-end 2015 and then to $362.3 million by year-end 2016 would still leave capacity in both the revolver and SBA debentures, assuming there are two accretive equity raises of $35 million (before fees) completed in the first quarters of both 2015 and We also estimate the mix of borrowings to steadily shift into SBA debentures more as the company prepares for eventual rate increases. Currently, SBA debentures are 13% of debt which we anticipate will increase to 19% by year-end 2015 and 23% by year-end Given Monroe s excellent asset quality combined with the continued shift into senior secured first lien, NAV should be supported which will allow the company to make opportunistic, accretive equity raises as it sees fit in order to reduce leverage and fund further portfolio growth. Asset quality is crucial for a BDC to trade at or near NAV which permits them to be able to issue additional equity and keep regulatory leverage in check and fund portfolio investments. Monroe rates its investments based upon a scale of 1-5, with 1 being the best and 5 being the worst. Investments rated 2 are performing in-line with expectations at the time of underwriting. Currently MRCC has 85% of its portfolio rated 2 and 15% rated 3. Although investments rated 3 have increased to 15% from 7% in 3Q13 we note that it appears that many of the issues seem to be with unitranche loans, where the cost as a percentage of fair value has increased to 100.1% in 3Q14 from 99.1% in 3Q13. Over this same time period, cost/fv for senior secured loans fell to 98.6% in 3Q14 from 100.2% a year earlier. As the shift into more senior secured continues, we think asset quality will improve. We think that MRCC should be able to increase its dividend by 3 cents per quarter in 2015 and 2 cents per quarter in 2016 while paying out 94% and 93% of NII, respectively. We expect 8.3% NII/share growth in 2015 and 6.9% growth in 2016, driven by portfolio growth and modestly increasing yields. By increasing the dividend to $0.37 / share quarterly in 2015 and to $0.39 / share quarterly in 2016the company s NII payout ratio will range between 86% and 96%, in our opinion. January 21,

3 Currently, shares are at 3% premium to NAV compared the average 10% discount in the BDC space. However, the average P/NII for 2016 is 8.7x for the BDC sector while only 8.5x for MRCC. Given MRCC s asset quality, senior secured focus, and lack of dilutive equity raises we believe that a premium to NAV and to the BDC sector in general is warranted. The discount on a P/NII basis is completely unwarranted, as we expect that not only will the company grow NII/share at around 7% annually over the next couple of years but that the quality of earnings is material as well. Only 4% of MRCC s interest income was PIK (paid in kind) in 3Q14, a non-cash source of revenue in the most recent quarter and the highest coupon and greatest composition of its portfolio is in senior secured loans. January 21,

4 Company Description Monroe Capital Corporation (MRCC) is a Business Development Company (BDC) with headquarters in Chicago and seven other regional offices around the United States. The company primarily focuses on senior secured and unitranche loans although it does have some exposure to junior secured loans and equities. The company went public in 4Q12. MRCC seeks to make mostly senior debt investments for current income to lower middle market borrowers that generally have EBITDA of between $5 - $15 million. The company is managed by Ted Koenig, CEO and Aaron Peck, CIO/CFO. Mr. Koenig has been Chairman and CEO since the company began in 2011 and is also the CEO of MRCC s advisor. Prior to Monroe, Mr. Koenig was at Hilco Capital investing in distressed, junior secured, and subordinated debt. Mr. Peck has been at Monroe since September 2012 and prior to being at MRCC he worked at Deerfield Capital Management. At Deerfield he was a managing director in their middle market lending segment and was co-cio. Both Mr. Koenig and Mr. Peck have significant experience in debt origination, primarily middle market and distressed debt. Exhibit 1. Investment Portfolio at Fair Value as of 9/30/14 Source: Company Reports Monroe s portfolio had a fair value of $234.9 million as of September 30, 2014 with 15.2% of it being comprised of business services and 13.0% retail. The portfolio had a weighted average coupon of 10.8% and a weighted average yield of 11.3%. The company includes fees, prepayment penalties, etc. in its interest income. How much of the yield MRCC is getting in fee income as opposed to contractual interest can be estimated looking at the company s reported numbers versus the calculated effective yields, as demonstrated below (Exhibit 2). January 21,

5 Exhibit 2: Reported Coupons and Yields Compared to Effective Portfolio Yield Source: Company Reports, National Securities Corporation Monroe is externally managed by its investment advisor and pays both a base fee and incentive fee. The base fee is 1.75% of gross assets in arrears less cash balances. The incentive fee is paid only if MRCC passes a designated hurdle rate of 8%. Essentially, MRCC s NII less the incentive fee must post a return on prior period NAV greater than 8% before any fee is paid. If this return exceeds 10%, the investment advisor earns an even greater fee and will get 20% of the difference between the pre-incentive fee NII and the 10% return plus 20% of the difference between the pre-incentive NII and the 10% upper hurdle. WE ARE INITIATING COVERAGE WITH A BUY RATING AND $16 PRICE TARGET In order to arrive at our target price we utilize a variant thesis, expected value analysis of our base case plus a bull case and a bear case. While the valuation is heavily weighted towards the base case (80%) we assign 10% weights to the upside and downside scenarios in order to capture the full spectrum of possibilities that the company may encounter over the next couple of years. We prefer to value MRCC and BDCs in general on a NII basis as opposed to NAV basis because fair value marks that flow into equity under GAAP are difficult to forecast, especially with private investments, and do not necessarily reflect the true fundamentals of the company. January 21,

6 Exhibit 3: Expected Value Analysis Source: National Securities Corporation Estimates The above table represents our assumptions which drive our valuation. For example, in our base case for 2016, we get a result of NII/share of $1.69 if investments end the year at $362.3 million and yield is 12.08%, the cost of funds is 3.95%, the economic return is 15.8%, cost/fv is 99.1%, and total distributions are $1.56/share. We do this for the next two fiscal years and for three scenarios. Based upon each scenarios performance it will receive a multiple and is discounted back at our calculation for the weighted average cost of capital (WACC) and them multiplied by the probability to arrive at our expected value. The sum of the expected values equals our price target. Our $16 price target implies an estimated 2016 P/ NII of 9.6x, dividend yield of 9.8%, and P/NAV of 1.05x compared to the BDC sector averages of 9.0x, 10.5%, and 0.92x, respectively. The economic return is calculated by taking year-end NAV minus the beginning of the year NAV and adding distributions divided by the beginning of the year NAV. MONROE S PORTFOLIO IS 100% FLOATING RATE AND FOCUSED ON SENIOR SECURED AND UNITRANCHE LOANS The company has continued to decrease its exposure to more subordinated investments and continues to earn higher yields. As of 3Q14 MRCC had 58.7% of its portfolio (by fair value) in senior secured loans, 34.0% in unitranche, 6.6% in junior secured, and 0.7% in equities. The unitranche loans are essentially when a borrower needs multiple levels of financing and will receive them from one source. Thus, Monroe can originate both a first and second lien loan and can sell one part or retain both. MRCC tends to originate unitranche loans and will sell the lower yielding first lien portion to a bank and retain the higher yielding second lien portion. It is no surprise then that unitranche loans are inherently riskier than more vanilla, first lien senior secured loans. Even if MRCC were to retain both tranches of the loan it would January 21,

7 still be increasing exposure to second lien debt investments. The weighted average coupons are not all that different between Monroe s senior secured and unitranche loans and the asset quality of the unitranche investments appears to be underperforming the rest of the portfolio as it is currently the only portion of the portfolio sitting on unrealized losses as shown below. Exhibit 5: Portfolio Coupons and Unrealized Gains/(Losses) Source: Company Reports, National Securities Corporation While we value BDCs on a NII basis, it is significant to note that fair value marks 1) impact GAAP NAV, which influences regulatory capital levels and 2) if truly reflective of portfolio performance, give an indication to potential losses the BDC may experience. MRCC is focused on generating current income that will be distributed to shareholders although it still realizes gains and losses on investments and the unrealized gains and losses will still either increase or decrease equity. Thus, even if the investments that are marked down continue to pay contractual interest and principal as scheduled, negative fair value marks will inhibit the company s ability to issue equity above NAV and cause D/E to increase. Exhibit 6: Impact of FV Marks on NAV, Leverage, and Returns Source: Company Reports, National Securities Corporation Estimates January 21,

8 With a 5% decline in the fair value of investments, D/E jumps from 0.79x to 0.86x which severely hampers the company s ability to raise additional capital. They would be closer to the 1:1 regulatory threshold (though they can surpass it with SBA debentures) and the hit to NAV / share is $1.23. Thus this type of scenario could force Monroe or any BDC to issue shares below NAV, which requires shareholder approval. Exhibit 7: Unrealized Gains/(Losses) & Cost/FV Source: Company Reports, National Securities Corporation As noted above, the unrealized losses have been mounting in the unitranche loans while the senior secured has been offsetting it. Despite the fact that senior secured loans are currently 58.7% of the portfolio and unitranche loans 34.0%, the unitranche loans have an amortized cost that is 103.3% of fair value while senior secured loans are 98.6%. Thus, using cost/fv of 100.0% as a base, senior secured loans are 140 bps better than cost while unitranche loans are 330 bps worse. Thus the marks are about 2.4x greater (in a negative respect) on the unitranche investments and senior secured loans are only 1.7x greater than unitranche loans in terms of its portfolio composition. MONROE CAN IMPROVE ASSET QUALITY AND MAINTAIN YIELDS WHILE CHANGING THE PORTFOLIO COMPOSITION The continued shift into senior secured should most likely help to bolster asset quality and thus NAV. We do not believe that yields will experience material compression at the company due to the fact that Monroe has a strong direct origination platform which enables them to earn fees included in effective yield, they are primarily operating in the lower middle market where competition is less, and the company could increase leverage if needed to bring up yields. Up to this point MRCC has reduced portfolio exposure to untrianche and junior secured and has continued to improve its effective yield as shown below. January 21,

9 Exhibit 8: Investment Mix & Effective Yield Source: Company Reports, National Securities Corporation At a glance this is very impressive. We see the unitranche exposure being cut substantially while the company posts strong growth in senior secured loans all the while effective yield steadily rises. However, this is only looking at one side of the coin. Leverage has certainly played a role over the past couple of years as shown in Exhibit 9 below. Exhibit 9: Leverage and ROAE Source: Company Reports, National Securities Corporation January 21,

10 While leverage has substantially influenced returns on equity, the past two quarters demonstrate the type of organic pricing power that we find encouraging. From 2Q14 to 3Q14 effective yield increased by 124 bps even though D/E only increased by 1%. We expect the shift of the portfolio s fair value to continue its current trajectory. If we assume cost/fv remains stubbornly high on unitranche but the mix shifts heavily towards senior secured, the company could be sitting on significant unrealized gains, bolster NAV, and improve asset quality. Exhibit 10: Portfolio Shift & Unrealized Gains/(Losses) Source: Company Reports, National Securities Corporation Estimates Monroe s asset quality is good with no loans on non-accrual status as of 3Q14 and only one investment was restructured in which MRCC received preferred shares with PIK. The company rates investments on a scale of 1 5, with 1 being the best and 5 the worst and 2 being an investment that is performing as it should. Investments rated 3 mean that the issuer may have violated certain covenants and risks have increased since the investment was made but generally these are all still performing. As of 3Q14 MRCC had 85% of its investments ranked 2 and 15% ranked 3 as shown in Exhibit 11. Exhibit 11: Investments Ranked 3 & Effective Yield Source: Company Reports, National Securities Corporation January 21,

11 WE EXPECT THE COMPANY HAS ADEQUATE SPARE CAPACITY TO GROW THE PORTFOLIO AND IMPROVE RETURNS As of 3Q14, MRCC s portfolio had a fair value of approximately $234.7 million, up substantially from the year prior value of $169.4 million. We anticipate that MRCC can ramp the portfolio to $307.9 million by year-end 2015 and $362.3 million by year-end Our assumptions for capital raises to fund this growth are shown in Exhibit 13 below. Exhibit 12: Investment Flow Source: Company Reports, National Securities Corporation Estimates In our opinion MRCC can fund these investments adequately with a mix of debt and equity. Regardless of the SBIC license, we think Monroe will increase debt opportunistically to fund attractive, sizable investments they come across or to lever up senior secured loans further if they experience spread compression. Exhibit 13: Investments Capital Structure Source: Company Reports, National Securities Corporation Estimates We estimate that the company could issue 2.2 million and 2.0 million shares in the first quarters of 2015 and 2016, respectively. We assume a 10% discount rate and apply a 9% required ROE to the annualized prior quarter NII/share. For purposes of weighted January 21,

12 average diluted shares, we apply an equal weighting to the beginning and end of period share count estimates. Exhibit 14: Capital Management Source: National Securities Corporation Estimates MONROE S PERFORMANCE WITH RATE INCREASES IS MIXED Monroe s portfolio is 100% floating rate with spreads over LIBOR. Some of the investments have LIBOR floors of bps, so it would take a very substantial increase in interest rates for MRCC to see it s NIM (net interest margin) increase. As of 3Q14, 86% of Monroe s debt was floating (revolving credit facility) and 14% fixed in SBA debentures (fixed, set twice per year as spread over the 10 year Treasury Note). Secured borrowings are not really debt, but partial loan sales whereupon MRCC is required under ASC (Accounting Standards Codification) 810 to count this as a financing, not a sale. The real issue for Monroe would be if LIBOR were to increase by an amount under 200 bps, as this would cause floating debt interest expense to jump but would not impact as much of the portfolio and would put significant pressure on NIM. Monroe could help offset these pressures by increasing its mix of funding towards fixed rate, unsecured funding such as SBA debentures. With the 10 year Treasury yield at 3.00% the cost would be very comparable to what the company is paying on its credit facility which had an effective interest rate of 3.50% in 3Q14. Due to the LIBOR floors on a number of investments, MRCC acknowledges that it would swing to a NII loss if LIBOR were to increase by an amount less than 200 bps. Exhibit 15: Interest Rate Shock Source: Company Reports As banks continue to back away from working capital loans and create non-bank opportunity in the middle market lending space we believe Monroe will outperform the BDC sector. January 21,

13 Exhibit 16: Select Data and Ratios Source: Company Reports, National Securities Corporation Estimates INVESTMENT POSITIVES: Moderate Leverage and Significant Capacity in Existing Funding Sources As of 3Q14, Monroe had D/E of 0.79x and regulatory D/E of 0.73x. The company is using only 45% of its revolver (including the accordion feature) and 34% of the SBA debenture commitment which is currently at $40 million, although this can eventually be stepped up further to $75 million if the family of funds restriction on SBIC licenses is raised by Congress from the current $225 million limit to $350 million. The company s all-in cost of funds was 3.99% in 3Q14. The company could potentially increase its capacity to 88% on the SBA debentures and 59% on the revolver by year-end 2016 without increasing commitments and with the two $35 million equity raises in 2015 and 2016 can comfortably fund significant portfolio growth. Pricing Power and Direct Origination Platform Monroe has thus far been able to organically earn higher coupons on its loans, especially with the senior secured loans which are the least risky in its portfolio and the fastest growing. Concomitantly, asset quality in the senior secured loans has shown improvement as the portfolio grows. In 3Q14, MRCC had a reported yield on its portfolio of 11.26% with an effective yield of 13.07% with the 181 bps difference most likely being comprised of origination fees, amendment fees, and prepayment penalties. Covering Dividend with Comfort and Ability to Increase it Further MRCC s NII payout ratio has fallen steadily since 1Q14 when was 102%. In 2Q14 the company paid out 97% of NII and in 3Q14 the payout ratio fell to 87%. We estimate that for year-end 2014 the payout will be 94% with an annual dividend of $1.36 per share. For 2015 we estimate an annual dividend of $1.48 per share with January 21,

14 a 94% payout and for 2016 we forecast an annual dividend of $1.56 per share for a 93% payout. MRCC is Attractively Valued on a Peer Basis Currently, shares are at 2% premium to NAV compared the average 10% discount in the BDC space. However, the average P/NII for 2016 is 8.7x for the BDC sector while only 8.5x for MRCC. Given MRCC s asset quality, senior secured focus, and lack of dilutive equity raises we believe that a premium to NAV and to the BDC sector in general is warranted. The discount on a P/NII basis is completely unwarranted, as we expect the company should grow NII/share at around 7% annually over the next couple of years. The quality of earnings is material and another positive for Monroe. Only 4% of MRCC s interest income was PIK (paid in kind) in 3Q14, a non-cash source of revenue in the most recent quarter and the highest coupon and greatest composition of its portfolio is in senior secured loans. INVESTMENT RISKS: Increased Competition and Pricing Pressure Banks have been shedding level 3 assets and most are not ready to make working capital loans to entities with EBTIDAs (earnings before interest, taxes, interest, depreciation, and amortization) under $25 million. Although MRCC and many of their competitors are not directly competing with banks in many instances, they are certainly competing with each other. New BDCs and other specialty lenders have been and will most likely continue to pop up as a result of the displacement of borrowers that banks will no longer service due to regulatory issues or because they are simply too small for a larger institution to perform underwriting and due diligence on. As a matter of fact, we think that the reason we are seeing very similar or in some cases lower pricing on unitranche investments compared to senior secured loans is because loan competition has been so fierce many market participants are bidding second lien loans up in an attempt to reach for yield. Credit Issues Although credit quality is good at Monroe, the fair value marks have continued to mount in the unitranche investments to the point it has led to an overall unrealized net loss on investments. Investments ranked 3, which means they are performing below expectations and possibly violating covenants but are still paying contractual interest for the most part, currently are 15% of the portfolio. This has ratio has remained relatively stable for 2014 but is up significantly from 3Q13 when it was a mere 7%. Asymmetric Interest Rate Changes Since most of Monroe s portfolio has interest rate floors despite the fact that they are all floating rate, most of the loans will not re-price until LIBOR surpasses 200 bps. However, Monroe s revolver is floating based off LIBOR with no cap. Thus if interest rates rise, but increase less than the levels where MRCC has floors in place this would mean that 82% of their debt would re-price but essentially few if any of January 21,

15 the loans. While nobody would blame Monroe or any entity for that matter implementing floors when rates are near zero, it does pose the risk for NIM compression if rates rise but not too much. We do not expect interest rates to rise any time soon as we 1) do not think the Fed will tighten and as a matter of fact we anticipate they will actually end up printing more money within the next months and 2) regardless of the Fed, the US and world economies are simply not strong enough to support higher interest rates. January 21,

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19 Note: Price/NII reflects consensus NII estimate provided by S&P CapitalIQ * Price = closing price on 1/20/15 Source: S&P CapitalIQ January 21,

20 IMPORTANT DISCLOSURES: National Securities Corporation 410 Park Avenue, 14th Floor, New York, NY REG AC ANALYST CERTIFICATION The Estimates analyst named on this report, Christopher Testa, certifies the following: (1) that all of the views expressed in this Estimates report accurately reflect his personal views about any and all of the subject securities or issuers; and (2) that no part of his compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by him in this Estimates report. IMPORTANT DISCLOSURES This publication does not constitute and should not be construed as an offer or the solicitation of any transaction to buy or sell any securities or any instruments or any derivatives of the securities mentioned herein, or to participate in any particular trading strategies. Although the information contained herein has been obtained from recognized services, and sources believed to be reliable, its accuracy or completeness cannot be guaranteed. Opinions, estimates or projections expressed in this report may make assumptions regarding economic, industry, company and political considerations, and constitute current opinions, at the time of issuance, which are subject to change without notice. This report is being furnished for informational purposes only, and on the condition that it will not form a primary basis for any investment decision. Any recommendation(s) contained in this report is/are not intended to be, nor should it / they construed or inferred to be, investment advice, as such investments may not be suitable for all investors. When preparing this report, no consideration to one s investment objectives, risk tolerance and other individual factors was given; as such, as with all investments, purchase or sale of any securities mentioned herein may not be suitable for all investors. By virtue of this publication, neither the Firm nor any of its employees shall be responsible for any investment decisions. Before committing funds to ANY investment, an investor should seek professional advice. Any information relating to the tax status of financial instruments discussed herein is not intended to provide tax advice, or to be used by anyone to provide tax advice. Investors are urged to consult an independent tax professional for advice concerning their particular circumstances. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, either expressed or implied, is made regarding future performance. National Securities Corporation (NSC) and its affiliated companies, shareholders, officers, directors and / or employees (including persons involved with the preparation or issuance of this report) may, from time to time, have long or short positions in, and buy or sell the securities or derivatives (including options) thereof, of the companies mentioned herein. One or more directors, officers, and / or employees of NSC and its affiliated companies, or independent contractors affiliated with NSC may be a director of the issuer of the securities mentioned herein. NSC and / or its affiliated companies may have managed or January 21,

21 co-managed a public offering of, or acted as initial purchaser or placement agent for a private placement of any of the securities of any issuer mentioned in this report within the last three (3) years, or may, from time to time, perform investment banking or other services for, or solicit investment banking business from any company mentioned in this report. This Estimates may be distributed by affiliated entities of National Securities Corporation (NSC). Affiliated entities of NSC may include, but are not limited to, vfinance Investments, Inc., Equity Station, National Asset Management and other subsidiaries of our parent company, National Holdings Corporation. The securities mentioned in this document may not be eligible for sale in some states or countries, nor be suitable for all types of investors; their value and the income they produce if any, may fluctuate and/or be adversely affected by exchange rates, interest rates or other factors. Furthermore, NSC may follow emerging growth companies whose securities typically involve a higher degree of risk and more volatility than the securities of more established companies. This report does not take into account the particular investment objectives, financial situation or needs of individual investors. Before acting on any advice or recommendation in this material, the investor should exercise independent judgment as to whether it is suitable in light of his/her particular circumstances and, if necessary, seek professional advice. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Additional information relative to securities, other financial products, or issuers discussed in this report is available upon request. Neither this entire report, nor any part thereof, may be reproduced, copied or duplicated in any form or by any means without the prior written consent of National Securities Corporation. All rights reserved. NSC is a member of both the Financial Industry Regulatory Authority (FINRA) and the Securities Investors Protection Corporation (SIPC). For disclosures inquiries, please call us at and ask for your NSC representative, or write us at National Securities Corporation, Attn. Al Scerbo - Supervision Department, 410 Park Avenue, 14th Floor, New York, NY 10022, or visit our website at Estimates Disclosures Legend Relevant Disclosures: 1 National Securities (NSC) is a market-maker in the securities of the subject company 2 In the past twelve (12) month period, NSC and / or its affiliates have received compensation for investment banking for services from the subject company 3 In the past twelve (12) month period, NSC and / or its affiliates have received compensation from the subject company for services other than those related to investment banking 4 In the past twelve (12) month period, NSC was a manager or a co-manager of a public offering of one or more of the securities of the issuer 5 In the past twelve (12) month period, NSC was a member of the selling group of a public offering of the security (ies) of the issuer January 21,

22 6 One or more directors, officers, and / or employees of NSC and / or its affiliated companies is / are a director (s) of the issuer of the security which is the subject of this report 7 NSC and / or its affiliates expects to receive or intends to seek compensation for investment banking services from the subject company at some point during the next three (3) months 8 A Estimates analyst or a member of his / her household has a financial interest in the securities of the subject company as follows: a) long common stock; b) short common stock; c) long calls; d) short calls; e) long puts; f) short puts; g) long rights; h) short rights; i) long warrants; j) short warrants; k) long futures; l) short futures; m) long preferred stock; n) short preferred stock 9 As of the end of the month immediately preceding the date of publication of this report or the end of the prior month if the publication is within ten (10) days following the end of the month, NSC and / or its affiliates beneficially owned one percent (1%) or more of any class of common equity securities of the subject company. 10 Please see below for other relevant disclosures Shares of this security may be sold to residents of all 50 states, Puerto Rico, Guam, the US Virgin Islands and the District of Columbia. *Investment banking services provided in the previous 12 months MEANING OF RATINGS: BUY: the stock is likely to generate a total return of at least 10% over the next 12 months and should outperform relative to the industry. NEUTRAL: the stock is likely to perform in-line with the industry over the next 12 months. SELL: the stock is likely to underperform (from a total return perspective) relative to the industry over the next 12 months. NR: Not Rated SP: Suspended January 21,

23 Charts - MRCC Source: S&P Capital IQ. MRCC Date Rating Price Target Initiation BUY $16 January 21,