New Mountain Finance (US:NMFC)2022-05-10 18:01Financial Data and Key Metrics Changes - Net investment income for Q1 2022 was $0.30 per share, fully covering the dividend of $0.30 per share paid on March 31 [7] - Net asset value increased to $13.56 per share, a $0.07 increase from the previous quarter [8] - Total investment income was $68.6 million, a slight decrease from the prior quarter, while total net expenses were approximately $39 million, also a slight increase [58] Business Line Data and Key Metrics Changes - The first quarter represented a slower origination quarter due to seasonal factors and market volatility, with $154 million of gross originations and $74 million of repayments [44] - The average yield of the portfolio increased from 9.1% in Q4 to 9.8% in Q1, largely due to the rising LIBOR curve [47] Market Data and Key Metrics Changes - The market has experienced sustained volatility due to rising interest rates, inflation concerns, and geopolitical instability, but corporate direct lending has remained resilient [29] - Loan-to-value ratios in core industry verticals are less than 40%, with many under 30% [30] Company Strategy and Development Direction - The company focuses on lending to defensive growth businesses in sectors such as enterprise software, tech-enabled business services, and healthcare services, which are expected to perform well in challenging macro environments [10] - The company has decided to reduce exposure to its net lease portfolio to reinvest proceeds into its core strategy of floating rate defensive growth-oriented private credit [42][96] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the prospects for NMFC, emphasizing the focus on lending to stable and valuable businesses [66] - The company anticipates that rising interest rates could materially improve earnings, with potential increases in earnings per share if LIBOR rates rise [33] Other Important Information - The company has a dividend protection program in place, which could provide additional coverage if earnings fall below $0.30 per share [13] - The portfolio had approximately $3.3 billion in investments at fair value, with total assets of $3.4 billion and total liabilities of $2 billion [54] Q&A Session Summary Question: Impact of potential base rate increases on earnings - Management clarified that the earnings sensitivity is primarily based on short-term LIBOR rates, not the overall yield curve [70] Question: Potential for special dividends from real estate portfolio sales - Management indicated that the decision on special dividends will depend on the performance of the rest of the year and any potential losses to offset [78] Question: Interest coverage and impact of rate increases on borrowers - The weighted average interest coverage is above 2.5x, and management believes borrowers are well-positioned to handle rate increases [81] Question: Managing leverage amidst repayment activity - Management stated that they have sufficient deal flow to maintain their leverage profile and are committed to managing within established limits [84] Question: Feedback on portfolio performance amid inflation and labor pressures - Management noted that many companies in the portfolio have shown resilience and pricing power in the face of inflationary pressures [108]