New Mountain Finance (NMFC) - 2024 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Adjusted net investment income for Q4 was $0.32 per share, covering the regular dividend of $0.32 per share paid on December 31 [8] - Net asset value per share declined to $12.55, a decrease of $0.07 or 0.6% from the previous quarter [8][26] - Total investment income for Q4 was $91 million, a 2% decrease year-over-year, while total net expenses decreased by 9% to $57 million [49] Business Line Data and Key Metrics Changes - The portfolio had over $3 billion of investments at fair value, with total assets of $3.2 billion and total liabilities of $2 billion [47] - Approximately 75% of investments are senior in nature, with second lien positions representing just 7% of the portfolio, down from 8% last quarter [40] - The average yield of NMFC's portfolio increased to 11% for Q4, primarily due to the higher for longer shift in the forward SOFR curve [42] Market Data and Key Metrics Changes - The NMFC loan portfolio is 86% floating rate and 14% fixed rate, while liabilities are 49% floating and 51% fixed rate [36] - The weighted average EBITDA of borrowers decreased slightly to $184 million, with portfolio company leverage coming down slightly [43] Company Strategy and Development Direction - The company aims to maintain or increase its heavily senior-oriented asset mix, focusing on first lien and unitranche loans [20] - NMFC seeks to optimize the cost, duration, and quality of its liabilities, targeting a floating rate liability mix of approximately 75% over the next twelve months [23][56] - The company continues to focus on defensive growth sectors, avoiding cyclical and volatile industries [16] Management's Comments on Operating Environment and Future Outlook - Management believes that direct lending remains an attractive asset class despite a slower start to 2025 [32] - There is an expectation of increased M&A activity in 2025, driven by private equity dry powder and attractive financing markets [34] - Credit selection remains critical in a backdrop of volatility and uncertainty across political and regulatory headlines [35] Other Important Information - The company has never had a bankruptcy or missed an interest payment, managing over $55 billion of assets [12] - NMFC has experienced only 12 basis points of average annualized net realized losses since its IPO [12] Q&A Session Summary Question: How does the enterprise value of UniTek compare to the Q4 mark? - The enterprise value is modestly higher than the Q4 mark [62] Question: How comfortable is the company about UniTek and lowering PIK exposure? - The company feels good about UniTek and expects to show progress in reducing PIK positions [66] Question: Will the mix between senior loans, loan funds, and net lease remain the same? - The expectation is that the mix will stay the same [68] Question: Are market spreads expected to stabilize or recalibrate? - Spreads have stabilized, and the company expects them to pick up if M&A activity increases [71] Question: How much of the portfolio is vulnerable to repricing activity? - The majority of deals that could reprice have already gone through that exercise [73]