Core Viewpoint - The article emphasizes the importance of a diversified investment portfolio that includes both dividend and growth stocks, particularly focusing on European small-cap companies with a 5-7 year investment horizon [1]. Group 1: Investment Strategy - The investment group European Small Cap Ideas is dedicated to providing exclusive research on attractive investment opportunities in Europe, particularly in the small-cap sector [1]. - The strategy includes two model portfolios: the European Small Cap Ideas portfolio and the European REIT Portfolio, aimed at generating capital gains and dividend income for continuous cash flow [1]. Group 2: Features and Offerings - The investment group offers weekly updates and educational content to enhance understanding of European investment opportunities [1]. - An active chat room is available for discussions regarding the latest developments in the portfolio holdings, fostering community engagement among investors [1].

United States: +1 (877) 443-9109 International: +1 (412) 317-1082 Live Audio Webcast Fourth Quarter and Year Ended 2025 Conference Call Replay Information A replay of the conference call can be accessed one hour after the end of the conference call through May 25, 2026. The full webcast replay will be available through February 25, 2027. To access the earnings webcast replay, please visit the New Mountain Investor Relations website. NEW YORK--(BUSINESS WIRE)--New Mountain Finance Corporation (NASDAQ: NMFC) ...

For Immediate ReleaseChicago, IL – January 21, 2026 – Today, Zacks Equity Research discusses New Mountain Finance Corp. (NMFC) and Runway Growth Finance Corp. (RWAY) .Industry: Commercial FinanceLink: https://www.zacks.com/commentary/2819732/2-sbic-commercial-finance-stocks-to-buy-despite-industry-concernsWith interest rates declining, the Zacks SBIC & Commercial Finance industry is expected to face margin compression and lower investment income as the majority of loans are tied to floating rates. Asset qua ...

Industry Overview - The Zacks SBIC & Commercial Finance industry provides financing to small and mid-sized privately held firms, often underserved by traditional banks, focusing on customized financing solutions such as senior debt and equity capital [3] - The industry targets firms in financial distress, offering products like mezzanine loans that typically pay high interest rates and can convert into equity [3] Key Themes - **Declining Interest Rates**: The Federal Reserve has lowered interest rates three times in 2025 to a range of 3.50–3.75%, following a 100-basis-point cut in 2024. This decline is expected to compress loan yields for many industry players with floating-rate loans, negatively impacting net investment income, although loan origination and refinancing activities may improve due to rising demand [4] - **Asset Quality Concerns**: Prolonged high interest rates may weaken asset quality as portfolio companies struggle to service debt. Geopolitical risks and tariff uncertainties further strain asset quality for SBIC & Commercial Finance companies [6] - **Regulatory Changes**: The 2018 amendment to the Investment Company Act eased leverage limits for SBICs, allowing a debt-to-equity ratio increase to 2:1, which provides funding flexibility and growth opportunities for these companies [7] Industry Performance - The Zacks SBIC & Commercial Finance industry ranks 181 out of over 240 Zacks industries, placing it in the bottom 26%, indicating underperformance in the near term [8] - The industry has collectively lost 15.6% over the past year, underperforming the Zacks S&P 500 composite, which has gained 17.3%, and the Zacks Finance sector, which has increased by 14.1% [11] Valuation Metrics - The industry has a trailing 12-month price-to-tangible book (P/TB) ratio of 0.90X, significantly lower than the S&P 500 composite's 13.05X and the Zacks Finance sector's 6.19X, indicating a substantial discount compared to the broader market [14][16] Company Highlights - **New Mountain Finance Corporation (NMFC)**: A specialty finance firm focusing on upper middle market companies, NMFC has seen growth in total investment income and is expected to continue this trend due to regulatory changes and rising demand for customized financing. As of Sept. 30, 2025, NMFC had total statutory debt of $1.59 billion and a market cap of $940.8 million [19][21] - **Runway Growth Finance Corp. (RWAY)**: This company provides senior secured loans to growth-stage companies, showing steady growth in total investment income. As of Sept. 30, 2025, RWAY had $371.9 million in liquidity and a market cap of $339.3 million [23][26]

Core Insights - The article emphasizes the importance of a hybrid investment strategy that combines classic dividend growth stocks with Business Development Companies, REITs, and Closed End Funds to enhance investment income while achieving total returns comparable to traditional index funds [1]. Investment Strategy - The investment approach focuses on high-quality dividend stocks and assets that provide long-term growth potential, which can significantly contribute to income generation [1]. - The strategy aims to create a balanced portfolio that captures total returns on par with the S&P 500, demonstrating the effectiveness of blending growth and income investments [1].

Core Insights - The article emphasizes the importance of a hybrid investment strategy that combines classic dividend growth stocks with Business Development Companies, REITs, and Closed End Funds to enhance investment income while achieving total returns comparable to traditional index funds [1]. Group 1: Investment Strategy - The company advocates for a diversified approach to investing, focusing on high-quality dividend stocks that provide long-term growth potential [1]. - A hybrid system is proposed, blending growth and income strategies to optimize investment returns [1]. - The total return achieved through this strategy is reported to be on par with the S&P index, indicating its effectiveness [1].

Core Viewpoint - New Mountain Finance Corporation (NASDAQ:NMFC) is recognized for its high dividend yield, but recent performance has led to a lowered price target and a neutral rating from analysts [1][2]. Financial Performance - In Q3 2025, NMFC reported net investment income of $33.9 million, equating to $0.32 per weighted average share, with credit performance remaining stable as approximately 95% of the portfolio is rated green [3]. - The company experienced a modest origination period, with $127 million in new assets being offset by $177 million in repayments [4]. Strategic Initiatives - NMFC's board has approved a new share repurchase program valued at $100 million, indicating a focus on returning capital to shareholders [4]. - The company is also exploring the potential sale of up to $500 million of its assets to a third party, which could significantly advance its strategic goals [4]. Market Position - NMFC specializes in providing direct lending solutions to US upper mid-market companies, supported by leading private equity sponsors [5].

Financial Data and Key Metrics Changes - Adjusted net investment income for Q3 2025 was $0.32 per share, covering the $0.32 per share dividend paid on September 30 [5] - Net asset value per share declined by $0.15 compared to Q2, now at $12.06, due to modest declines across four investments [5][15] - Total investment income for the quarter was $80 million, a 4% decrease compared to the prior quarter [26] - Total net expenses decreased by 5% to $47 million, including a fee waiver [27] Business Line Data and Key Metrics Changes - NMFC's portfolio loan-to-value stands at 45%, with a focus on defensive growth sectors such as healthcare and IT [6][24] - Senior-oriented assets increased to 80% of the overall portfolio, up from 78% in the prior quarter [12][23] - The average yield of NMFC's portfolio decreased slightly to 10.4% due to lower yields on originations compared to repayments [24] Market Data and Key Metrics Changes - The direct lending market remains attractive, with stable spreads despite a lack of significant M&A activity [19][20] - Most unitranche loans are pricing at SOFR plus 450-500 range, indicating a stable pricing environment [20] - Approximately 80% of investments are senior in nature, reflecting a shift towards lower-risk assets [23] Company Strategy and Development Direction - NMFC aims to improve the quality and diversity of its asset base while optimizing liabilities and enhancing income quality [12] - The company is exploring a portfolio sale of up to $500 million to diversify its portfolio and reduce PIK income [7][8] - NMFC's management emphasizes shareholder alignment, with 14% of outstanding shares owned by employees and senior advisors [11] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the deal environment improving in Q4 and 2026, with expectations of increased repayments [36] - The company remains committed to maintaining leverage within a target range of 1 to 1.25 [26][36] - Management is focused on reversing unrealized depreciation within the existing portfolio and recovering full principal value on challenged investments [17][58] Other Important Information - NMFC has fully utilized a $50 million stock repurchase program, repurchasing approximately $47 million in shares at an average price of $10 [7] - The company has a diversified portfolio across 127 companies, with the top 10 single-name issuers accounting for 26% of total fair value [25] Q&A Session Summary Question: Regarding the potential portfolio sale - The sale will focus on the largest positions to diversify the portfolio and reduce PIK income, including both PIK and cash-yielding names [34] Question: On the buyback strategy - The company aims to stay within leverage levels while potentially using repayments to buy back stock if conditions allow [36] Question: About deployment capacity and strategy - NMFC remains active in the market but is prioritizing share repurchases due to leverage considerations [41] Question: On the potential secondary sale and use of proceeds - Proceeds could be used for debt repayment, stock repurchases, or new loans to diversify the portfolio [44] Question: Concerns about other portfolio positions affected by tariffs - The portfolio is well-positioned against tariff impacts, with Beauty Industry Group being the only significant exposure [55] Question: On the performance of Admentum - Admentum's performance is stable, and the company is working on targeted M&A to grow the business [67]

Financial Performance - Q3 2025 adjusted net investment income (NII) was $032 per share, covering the dividend of $032 per share[12] - September 30, 2025 net asset value (NAV) was $1206 per share, compared to $1221 per share as of June 30, 2025[12] - The company repurchased approximately $47 million of NMFC shares year-to-date at a weighted average purchase price of $1002 per share[12] - The company announced a new $100 million board authorized share buyback program[12] Portfolio Composition and Risk - Approximately 95% of the portfolio is rated green on the company's heatmap[12] - Approximately 80% of the portfolio is senior in nature, including First Lien, SLPs, and Net Lease[12] - The fair value of investments was $29571 million as of September 30, 2025[14] - The current yield at cost was 110% and the yield to maturity (YTM) at cost was 104%[14] Strategic Initiatives - The company is exploring a secondary portfolio sale of up to $500 million of assets to a third party to further strategic initiatives[12] - New Mountain employees continue to be the largest shareholders of the company, with ownership of approximately 14%[12]

Financial Position - As of September 30, 2025, the company's net asset value was approximately $1,256.6 million, with a portfolio fair value of approximately $2,943.6 million across 126 portfolio companies[430]. - The company raised approximately $1,034.6 million in net proceeds from additional offerings of common stock since its IPO[422]. - As of September 30, 2025, the asset coverage ratio was 179.1%, allowing the company to borrow $2 for every $1 of equity[506]. - The company had outstanding commitments to fund investments totaling $255.9 million as of September 30, 2025[512]. - Total contractual obligations amount to $1,784.1 million, with $476.7 million due in less than 1 year[518]. - Cash and cash equivalents were approximately $63.7 million as of September 30, 2025, down from $80.3 million as of December 31, 2024[508]. Investment Performance - The weighted average yield to maturity at cost for income-producing investments was approximately 10.4%, while the overall yield to maturity at cost for all investments was approximately 10.0%[430]. - As of September 30, 2025, the fair value of the company's investments was approximately $2,943.6 million across 126 portfolio companies, down from approximately $3,091.0 million in 120 portfolio companies at December 31, 2024[492]. - Total investment income for the three months ended September 30, 2025, was approximately $80.5 million, a decrease of about $14.8 million or 16% compared to $95.3 million for the same period in 2024[494]. - For the nine months ended September 30, 2025, total investment income was approximately $249.7 million, reflecting a decrease of about $30.8 million or 11% from $280.5 million in the same period in 2024[499]. - The company reported net realized and unrealized losses of approximately $21.7 million for the three months ended September 30, 2025, compared to a net loss of approximately $11.5 million for the same period in 2024[496]. - Net realized gains on investments were $51.2 million for the nine months ended September 30, 2025, compared to net realized losses of $43.5 million for the same period in 2024[501]. - The company reported a net loss of approximately $59.5 million for the nine months ended September 30, 2025, compared to a net loss of $24.6 million for the same period in 2024[501]. Portfolio Composition - As of September 30, 2025, the top five industry concentrations in the company's portfolio were software, business services, healthcare, investment funds, and consumer services[429]. - The company primarily invests in senior secured debt of U.S. sponsor-backed middle market companies, defined as those with annual EBITDA of $10 million to $200 million[428]. - SLP III had total investments with an aggregate fair value of approximately $758.0 million, up from $715.1 million as of December 31, 2024[458]. - SLP IV had total investments with a fair value of approximately $525.3 million, up from $469.3 million as of December 31, 2024, representing a growth of 11.5%[466]. - The number of portfolio companies in SLP III decreased slightly to 89 from 90 year-over-year[459]. - The number of portfolio companies in SLP IV increased to 87 as of September 30, 2025, compared to 79 as of December 31, 2024, indicating a growth of 10.1%[467]. Debt and Financing - On October 15, 2025, the company repaid the outstanding principal of $258.7 million on the 2022 Convertible Notes[433]. - The board of directors authorized a stock repurchase program of up to $100.0 million, expected to be in place until December 31, 2026, or until the full amount is repurchased[434]. - The company entered into a Third Amended and Restated Uncommitted Revolving Loan Agreement, extending the maturity date from December 31, 2027, to December 31, 2030[435]. - SLP IV's maximum borrowing capacity was increased to $600.0 million as of July 11, 2025, up from $370.0 million prior to the amendment[465]. - The Holdings Credit Facility had outstanding borrowings of $308.1 million as of September 30, 2025, with approximately $421.9 million of available capacity remaining[514]. Interest Rate Exposure - Approximately 85.39% of the company's investments at fair value are floating-rate investments, while 14.61% are fixed-rate investments as of September 30, 2025[531]. - The company's senior secured revolving credit facilities are subject to floating interest rates based on SOFR, SONIA, or EURIBOR rates[531]. - A decrease of 200 basis points in interest rates could lead to a 15.77% reduction in interest and dividend income net of interest expense[534]. - An increase of 200 basis points in interest rates could result in a 15.77% increase in interest and dividend income net of interest expense[534]. - The potential impact of interest rate changes on net investment income is significant, with a high interest rate environment potentially increasing income[531]. - A prolonged low interest rate environment could compress the difference between interest income and interest expense, adversely affecting operating results[531]. Distributions and Dividends - Distributions declared and paid to stockholders for the nine months ended September 30, 2025, totaled approximately $102.8 million[519]. - The company declared a total of $0.96 per share in distributions for the fiscal year ended December 31, 2025[519]. - For the fiscal year ended December 31, 2024, total distributions were $147.2 million, with 75.68% classified as ordinary income[519]. - The company has a dividend reinvestment plan allowing stockholders to reinvest cash distributions in additional shares[522]. - The company intends to distribute approximately all of its net investment income on a quarterly basis and substantially all of its taxable income annually[521]. Management and Fees - Management fees for the three months ended September 30, 2025, totaled $9.6 million, down from $10.7 million in the same period in 2024, primarily due to a lower invested asset base[495]. - The company has entered into a fee waiver agreement with the Investment Adviser, reducing management fees through December 31, 2024[525].