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]

Industry Overview - The natural gas distribution industry is experiencing rising demand due to the clean-burning nature of natural gas, which is essential for transporting gas from production regions to consumers across the U.S. [1][3] - The U.S. has a substantial natural gas reserve of 3,353 trillion cubic feet and a pipeline network of 2.5 million miles [4]. Key Trends - The shale revolution has significantly increased natural gas production, leading to higher demand from various customer groups [3]. - The industry faces challenges from aging infrastructure, with many pipelines nearing the end of their effective service life, raising safety and maintenance concerns [6]. - Competition from other clean energy sources is increasing, as renewable energy projects become more affordable and reliable, potentially impacting the demand for natural gas [5]. Financial Insights - The Zacks Utility Gas Distribution industry currently ranks 149 out of 243 Zacks industries, indicating weak near-term prospects, with a negative earnings outlook as earnings estimates for 2025 have decreased by 7.7% since December 31, 2024 [10][11]. - The Gas Distribution industry has underperformed compared to the S&P 500 and the Utility sector, with an 8.5% gain over the past year compared to 14.5% for the Utility sector and 16.1% for the S&P 500 [12]. Valuation Metrics - The industry is trading at a trailing 12-month EV/EBITDA ratio of 10.35X, which is lower than the Zacks S&P 500 composite's 18.77X and the sector's 15.27X [13]. Company Highlights - **Atmos Energy Corp.**: Plans to invest $3.6 billion in fiscal 2026 to enhance infrastructure and replace old pipelines, with a current dividend yield of 2.4% and long-term earnings growth projected at 7.98% [15][16]. - **Brookfield Infrastructure Corp.**: Engaged in natural gas and electricity supply, recently signed a $5 billion deal with Bloom Energy and a $20 billion partnership with Qai, with a dividend yield of 3.68% and significant earnings growth estimates [17][18]. - **Spire Inc.**: Focused on organic expansion through infrastructure investments, plans to invest approximately $809 million in fiscal 2026, with a dividend yield of 3.82% and long-term earnings growth estimated at 10.54% [19][20].

Industry Overview - Natural gas distribution companies transport natural gas from production regions to consumers across the U.S., with a significant underground pipeline network [1] - The shale revolution has increased natural gas production, leading to higher demand due to its clean-burning nature [3] - The U.S. has 3,353 trillion cubic feet of natural gas and a pipeline network of 2.5 million miles [3] - Major concerns include aging infrastructure and rising investment costs due to interest rate hikes [3] Key Trends - Increasing competition from renewable energy sources is making utility-scale projects cheaper and more reliable, posing economic risks to new pipeline investments [4] - Aging infrastructure is a challenge, with many pipelines nearing the end of their service life, leading to safety concerns and higher maintenance costs [5] - A decline in interest rates, with the Federal Reserve lowering rates by 175 basis points to a range of 3.50-3.75%, is expected to benefit capital-intensive utilities [6] Industry Performance - The Zacks Utility Gas Distribution industry ranks 149, placing it in the bottom 38% of 243 Zacks industries, indicating weak near-term prospects [7] - Earnings estimates for the industry have decreased by 7.7% since December 31, 2024 [8] - The Gas Distribution industry has gained 8.5% over the past year, underperforming the Utility sector's 14.5% and the S&P 500's 16.1% [9] Valuation - The industry is trading at a trailing 12-month EV/EBITDA ratio of 10.35X, compared to 18.77X for the S&P 500 and 15.27X for the sector [12] - Over the past five years, the industry's EV/EBITDA has ranged from a high of 12.41X to a low of 9.55X, with a median of 10.91X [12] Company Highlights - **Atmos Energy Corporation (ATO)**: Plans to invest $3.6 billion in fiscal 2025 and 2026 to enhance infrastructure and replace old pipelines, with a current dividend yield of 2.4% and long-term earnings growth projected at 7.98% [16][17] - **Brookfield Infrastructure Corporation (BIPC)**: Engaged in natural gas and electricity supply, with significant growth initiatives including a $5 billion deal with Bloom Energy and a $20 billion partnership with Qai, offering a dividend yield of 3.68% [21][22] - **Spire Inc. (SR)**: Focused on organic expansion through infrastructure investments, planning to spend $922 million in fiscal 2025 and $809 million in fiscal 2026, with a dividend yield of 3.82% and long-term earnings growth of 10.54% [25][26]

Group 1 - The Federal Open Market Committee (FOMC) is expected to lower interest rates by at least 25 basis points in its upcoming meeting [1] - Dovish moves by the U.S. central bank lead fixed income investors to consider longer-dated bonds, but shorter duration ETFs like Neuberger Berman Short Duration Income ETF (NBSD) remain valuable [2][5] - The NBSD ETF, which has a weighted average duration of 2.08 years, offers a 30-day SEC yield of 5.01%, making it an attractive alternative to cash as interest rates decline [4] Group 2 - Short duration bonds provide potentially higher returns than cash, lower volatility, and liquidity, making them appealing to investors, especially in a declining interest rate environment [5] - Following a significant bond sell-off in 2022, investors are shifting focus to short duration bonds, which offer a safer option during market volatility [6] - Short duration bonds reflect central bank interest rate policies, providing more stability and predictability in yields [7]

Core Insights - The earnings season is approaching, with three blue-chip REITs set to report, providing a financial health check for dividend investors [1][2] - Each REIT faces unique challenges and opportunities, impacting their distribution sustainability and growth potential [2] CapitaLand Integrated Commercial Trust (CICT) - CICT is reporting on 28 October 2025, managing S$26 billion in assets, with a focus on the contribution from ION Orchard [3] - For the first half of 2025, CICT's Distribution Per Unit (DPU) increased by 3.5% year-on-year to S$0.056, aided by ION's contribution and lower interest costs [3] - Key metrics to watch include rental reversion momentum, which showed 7.7% for retail and 4.8% for office in 1H'25, and the impact of the acquisition of a 55% stake in CapitaSpring [4][5] Mapletree Logistics Trust (MLT) - MLT is also reporting on 28 October 2025, facing a 12.4% year-on-year DPU decline due to currency headwinds and challenges in China [6] - The trust manages S$13 billion in assets across 178 properties, with a critical focus on stabilizing distributions amid regional currency pressures [6] - Key signals to monitor include the negative 7.5% rental reversion in Mainland China and the overall occupancy rate of 93.0% [7][8] Mapletree Industrial Trust (MIT) - MIT is set to report on 30 October 2025, with a 4.7% DPU decline in 1Q'FY26, which is less severe when excluding divestment gains [9] - The trust, valued at S$9 billion, has a significant focus on data centers, with 54.8% of its portfolio allocated to this sector [10] - Important factors include the lease-up progress of the Osaka data center, Singapore's strong rental reversion of 8.2%, and the impact of capital recycling from recent divestments [11][12] Interest Rate Environment - All three REITs are positioned to benefit from falling interest rates, with CICT's borrowing costs dropping to 3.4% in 1H'25 [15] - The decline in interest rates is crucial for REITs with significant debt, as it can enhance distributable income [16][17] - Monitoring interest coverage ratios and the weighted average cost of debt will be essential in assessing the impact of this trend on future distributions [16][17]

Industry Overview - The Zacks Utility - Water Supply industry provides essential drinking water and wastewater services across the U.S., managing nearly 2.2 million miles of aging pipelines [3] - The industry is capital-intensive, benefiting from lower interest rates that reduce financing costs for infrastructure investments [3][5] Current Trends - The U.S. water industry is fragmented with over 50,000 community water systems, leading to inefficiencies; consolidation through mergers and acquisitions is necessary for improving service quality [4] - Aging infrastructure is a significant concern, with the American Society of Civil Engineers estimating a need for $1.25 trillion in investments over the next 20 years [6] Financial Performance - The Zacks Utility Water Supply industry has underperformed compared to the S&P 500 and the broader utility sector, gaining only 5% over the past 12 months compared to the sector's 9% and the S&P 500's 15.4% [10] - The industry is currently trading at a trailing 12-month EV/EBITDA of 10.55X, significantly lower than the S&P 500's 17.7X and the sector's 15.15X [13] Company Highlights - California Water Service Group plans to invest $2.06 billion from 2025 to 2027 to strengthen its infrastructure [19] - Global Water Resources focuses on Total Water Management, optimizing the use of recycled water, with a long-term earnings growth rate pegged at 15% [23][24] - The York Water Company plans to invest $94.5 million from 2025 to 2026 and has seen a 1.5% increase in the Zacks Consensus Estimate for 2025 earnings per share [27][28]