New Mountain Finance (NMFC) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Adjusted net investment income for Q1 2025 was $0.32 per share, covering the $0.32 per share dividend paid on March 31 [5] - Net asset value per share declined to $12.45, a decrease of $0.10 or 80 basis points, indicating stable credit performance [5][18] - Total investment income for the quarter was $86 million, a 5% decrease compared to the prior year [29] Business Line Data and Key Metrics Changes - The percentage of first lien assets is increasing while PIK income and second lien income are decreasing [6] - PIK interest income represented only 8% of total investment income, down from 10% in the previous quarter [30] - The average yield of NMFC's portfolio decreased to 10.7% due to lower yields on originations compared to repayments [25] Market Data and Key Metrics Changes - NMFC has only 2% exposure to sectors most at risk for tariffs, compared to 13% for peers [6] - The loan-to-value ratio stands at 43%, indicating a conservative lending approach [6][25] - The weighted average EBITDA of borrowers decreased to $170 million, reflecting the realization of larger companies during the quarter [25] Company Strategy and Development Direction - NMFC aims to continuously improve its portfolio and has a strategic imperative to decrease non-yielding equity positions [10][24] - The company is focused on sectors with low exposure to tariffs and is actively refinancing lending lines at lower rates [6][12] - A stock repurchase program has been authorized to buy back up to $47 million of NMFC shares, indicating confidence in the company's valuation [9] Management's Comments on Operating Environment and Future Outlook - The management noted a pause in M&A activity but sees direct lending as an attractive asset class with stable risk-adjusted returns [20] - The dividend protection program can provide up to $0.02 of extra dividend support per quarter if necessary [7] - Management expressed optimism about the ability to optimize financing and refinance higher-cost debt in the future [60][70] Other Important Information - The company has successfully raised a $15.4 billion private equity fund, one of the largest in the industry [9] - NMFC's non-accruals remain low at $38 million, or 1.2% of the portfolio [19] - The company has a diversified portfolio across 119 companies, with the top 10 single name issuers accounting for 26% of total fair value [26] Q&A Session Summary Question: Inquiry about Unitech's complicated capital structure - Management explained the complexity of Unitech's capital structure and provided details on cash invested and accrued PIK [37][38] Question: Future expectations for Unitech's income - Management indicated that income from Unitech is expected to remain stable moving forward [43] Question: Market outlook on spreads and pricing - Management noted that spreads and pricing have stabilized, with some incremental changes observed [51] Question: Dividend protection plan's sufficiency - Management expressed confidence in having sufficient levers to cover dividends despite potential rate declines [54][60] Question: Duration of the dividend protection program - The dividend protection program is in place for the full year of 2025 and 2026 [72]