New Mountain Finance (US:NMFC)2025-05-06 15:02Financial Data and Key Metrics Changes - Adjusted net investment income for the quarter was $0.32 per share, covering the $0.32 per share dividend paid on March 31 [6] - Net asset value per share declined by $0.10 to $12.45, indicating stable credit performance across the portfolio [6][18] - Total investment income for the quarter was $86 million, a 5% decrease compared to the prior year [29] - Total net expenses decreased by 4% to $51 million, including a fee waiver [29] Business Line Data and Key Metrics Changes - Over 96% of the portfolio is rated green, with no non-accruals reported [7][17] - The percentage of first lien assets is increasing while PIK income and second lien income are decreasing [7] - The average yield of the 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 [7][13] - The loan-to-value ratio stands at 43%, indicating a conservative lending approach [7][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 - The company aims to continuously improve and has a strategic imperative to reduce non-yielding equity positions [10][24] - A stock repurchase program has been authorized to buy back up to $47 million of NMFC shares, indicating confidence in the stock's value [9] - The focus remains on defensive non-cyclical sectors, leveraging private equity expertise to enhance NMFC's performance [12][20] Management's Comments on Operating Environment and Future Outlook - 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 support per quarter if necessary [8] - Management expressed optimism about refinancing opportunities and maintaining a strong balance sheet [32][68] Other Important Information - The company has raised a $15.4 billion private equity fund, one of the largest in the industry [9] - The current stock price reflects a 21% discount to book value, with a dividend yield of 13% [8] Q&A Session Summary Question: Inquiry about Unitech's complicated capital structure - Management acknowledged the complexity and provided details on cash invested and accrued PIK in Unitech, totaling a cost basis of $114 million [38][39] Question: Stability of income from Unitech going forward - Management confirmed that income is expected to remain stable, accruing primarily from the super senior preferred [42] Question: Market outlook on spreads and pricing - Management indicated that spreads have stabilized, with some incremental OID on new deals, driven by a lack of supply [50][51] Question: Sufficiency of dividend protection plan amid declining rate cycle - Management expressed confidence in having sufficient levers to cover dividends, including refinancing opportunities and strong portfolio activity [53][56] Question: PIK income expectations - Management indicated a target to reduce PIK income to the low teens, acknowledging current levels are higher than desired [66] Question: Duration of the dividend protection program - Management confirmed that the program is in place for the full years of 2025 and 2026 [69]