New Mountain Finance (US:NMFC)2021-11-04 18:49Financial Data and Key Metrics Changes - Net investment income for Q3 2021 was $0.31 per share, fully covering the dividend of $0.30 per share, which was paid in cash on September 30 [5][52] - Net asset value (NAV) as of September 30 was $13.26 per share, a slight decrease of $0.07 from the June 30 NAV of $13.33 per share [6][28] - Total investment income for the quarter was $68.2 million, a $2 million increase from the prior quarter due to higher fee income [52] Business Line Data and Key Metrics Changes - The portfolio had $3 billion in investments at fair value, with total assets of $3.2 billion and total liabilities of $1.9 billion [49] - The average yield of NMFC's portfolio remained stable at approximately 8.8% from Q2 to Q3 [45] Market Data and Key Metrics Changes - Overall conditions in the direct lending market are reported to be very healthy, with transaction volume reaching record levels and increasing deal sizes [32] - Direct lending transactions in excess of $1 billion have become commonplace, particularly in defensive growth sectors such as software and healthcare technology [32] Company Strategy and Development Direction - The company is focused on lending to defensive growth businesses supported by strong sponsors, which is expected to continue serving them well [60] - NMFC is launching an at-the-market (ATM) stock program to opportunistically raise equity and increase liquidity without significantly impacting stock price [12][13] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the prospects for NMFC, highlighting the stability and predictability of investment income [60] - The company is monitoring labor inflation and availability but does not foresee significant impacts on debt service capabilities [69] Other Important Information - The investment adviser has committed to a management fee of 1.25% for 2021, 2022, and 2023, with a permanent reduction of the maximum potential management fee from 1.75% to 1.4% [10][53] - NMFC has a statutory debt-to-equity ratio of 1.19:1, with a pro forma leverage of 1.13:1 net of available cash [49][30] Q&A Session Summary Question: Regarding the spread difference between second lien loans and first lien loans - Management acknowledged that the incremental return on second lien versus first lien is less than ever and emphasized the need for high conviction in credit quality before pursuing second lien investments [63] Question: Difficulty in winning deals due to market competition - Management indicated that they have more deal flow than ever, benefiting from the expanding scale of the New Mountain platform [65][67] Question: Impact of inflationary pressures on the portfolio - Management noted that while inflation and supply chain issues are limited in impact, they are monitoring labor inflation and availability as potential headwinds [69] Question: Clarification on the new fee structure - Management confirmed that the new fee structure simplifies the previous model, with a flat rate of 1.4% coming into effect after the fee cap expires in 2023 [71]