New Mountain Finance Corp Q1 FY2024 earnings call

• Adjusted net investment income of $0.36 per share was in line with implied guidance, covering the $0.32 regular dividend.
• Net asset value per share decreased to $12.77 due to a decrease in one equity position but strong core credit performance.
• Fifth consecutive variable supplemental dividend of $0.02 per share declared, with total annualized current distribution yield at 11%.
• New Mountain has over 245 members, specializes in defensive growth sectors like life science supplies, health care IT, etc., with a strong team.
• Portfolio had 96.5% green-rated assets, very low nonaccrual at 1.6%, and strong credit performance since IPO with minimal realized losses.
• Expect positive outlook for 2024 in sponsor-backed direct lending, with deal flow picking up in defensive growth verticals.
• Originated $192 million of assets, with $145 million in repayments, including second lien positions.
• Portfolio is diversified across 115 portfolio companies, with the top 15 representing 42% of fair value.

Adjusted net investment income for the quarter was $0.36 per share. Net asset value per share decreased slightly to $12.77. The portfolio is invested in defensive, noncyclical sectors with virtually no exposure to cyclical industries. Approximately 88% of the loan portfolio is floating rate and 12% fixed rate. Statutory debt-to-equity ratio was 1.08:1 net of available cash. The portfolio had approximately $3.1 billion in investments at fair value on March 31, with total assets of $3.3 billion and total liabilities of $1.9 billion.

• Expect $0.32 regular dividend and $0.02 variable supplemental dividend in Q2, total $0.34 payable in Q3 2024.
• Bullish on medium- and long-term M&A activity due to private equity dry powder and favorable financing markets.
• Anticipate supply/demand imbalance in syndicated markets to normalize with regular deal flow.
• Confident in continued strong performance of the portfolio and delivering risk-adjusted returns.

• Market conditions and economic uncertainty could impact portfolio performance.
• Interest rate changes may affect earnings and debt servicing.
• Potential spread compression in syndicated markets could impact investment income.
• M&A market conditions may hinder monetization of equity positions.

Q: Origination versus repayment dynamic in terms of pricing.

A: Repayments had attractive spreads, originations have good spreads but lower, expecting spreads to stabilize or improve.

Q: Dividends from SLPs.

A: SLPs have produced great income, likely to continue strong, though some spread pressure possible.

Q: SBA debentures maturity.

A: SBA program has been good, working on third license, aware of maturity in 2025, other debt may be refinanced.

Q: Incentive fee waivers.

A: Program to support dividend, set to expire end of 2024, likely extended, applies to future lower base rate environments.

Q: Equity rotation and Edmentum.

A: Equity positions in good businesses, Edmentum affected by post-COVID market normalization, optimistic about future performance.

Q: Portfolio growth and interest coverage.

A: Committed to leverage range, opportunity to grow portfolio to improve ROE, interest coverage up due to good portfolio performance and new deals with better coverage.