New Mountain Finance (NMFC)2024-10-31 19:20Financial Data and Key Metrics Changes - Adjusted net investment income for Q3 2024 was 0.32 per share [5][45] - Net asset value per share declined to 0.12 or 0.9% from the previous quarter [6][20] - Total investment income for the quarter was 189 million, indicating growth among the companies financed [40] Company Strategy and Development Direction - The company focuses on defensive growth sectors such as life science supplies, healthcare IT, and software [10] - The strategy emphasizes minimizing credit losses and distributing excess income to shareholders, with a long-term track record of consistent returns [16] - Management aims to reduce PIK exposure and replace it with cash-oriented assets, targeting a PIK ratio below 10% to 12% [64] Management Comments on Operating Environment and Future Outlook - Management remains optimistic about the prospects for non-green names in the portfolio, with expectations for M&A activity to increase in 2025 [19][27] - The company has successfully improved its liability structure and anticipates further opportunities to refinance and reduce financing costs [50][52] - Management acknowledges the current weakness in stock price is related to PIK levels but sees potential for improvement in 2025 [77] Other Important Information - The company has paid 3 billion in total borrowing capacity, highlighting a strong liquidity position [48] Q&A Session Summary Question: Changes in portfolio leverage - Management indicated that the decrease in leverage from 6.7 times to 6.3 times is due to a combination of factors, including the performance of existing businesses and the types of new assets being originated [55][56] Question: PIK assets and refinancing - Management expects to reduce PIK exposure through refinancing as older PIK-preferred investments mature and perform well, aiming for a long-term target of under 10% to 12% [60][64] Question: SLP performance and dividends - Management clarified that the decrease in dividends from SLPs was timing-related and not indicative of any underlying issues, as the SLPs continue to perform well [65] Question: Cash pay assets versus PIK - Management plans to focus on reducing chunky PIK exposures while still offering PIK options on predominantly cash pay loans, aiming for a balanced portfolio [69][70] Question: Direct lending market spreads - Management noted that current spreads are indicative of a tighter market but expect normalization as deal flow increases post-election and into 2025 [72][73] Question: Stock buyback and valuation - Management is open to utilizing the stock buyback program to defend stock value, particularly as the stock trades below historical NAV levels [78][79]