NMFC - Earnings call transcript Q3 2017 | New Mountain Finance Corporation

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Operator

Good morning and welcome to the New Mountain Finance Corporation’s Third Quarter 2017 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Rob Hamwee, CEO of New Mountain Finance Corporation. ahead. go Please

Rob Hamwee

good Finance and and to welcome Thank third morning, quarter Mountain Corporation’s earnings New you, everyone call XXXX.

important with to and introductory before like Mountain Steve Klinsky On Chairman remarks, and Shiraz and but line me going make call. of are NMFC; ask statements today to the NMFC. CFO Steve COO of regarding of NMFC I’d John to CEO he Capital; New is some does, Kajee, of today’s Shiraz Kline, President here Klinsky, make some

Shiraz Kajee

Good morning, Rob. everyone. Thanks,

our Before in also would everyone conference of strictly slide customary latest press our we webcast this release. I’d that call website that this update and include required of X New and that referencing like Page copies at statements get of Information November materially like prohibited. those to to to forward-looking presentation Pages obtain call the recorded. call statements may X Harbor X from or and webcast to the you into presentation. Steve of we to be SEC on release of some SEC the www.newmountainfinance.com. We NMFC’s over disclosure presentation, audio cause available Corporation beginning earnings is the differ slide to who not Klinsky, is note I to press throughout and slide statements. by filings Today’s attention the the our Chairman, call, that are any regarding will highlights forward-looking about to please the would projections unauthorized like that they for Please access X this statements most in undertake will turn visit Steve? our to on Safe your with and time, give At I we property Finance to recent filings advise are broadcast To projections, ask could and and our refer the today’s results and important presentation replay our in call factors law. actual that forward-looking Mountain do unless form being projections. and call any the

Steve Klinsky

the team me but moment, The start highlights will by the Shiraz. a New go strong of quarter through you, details presenting in Thank let Mountain Finance. for another

share. XXXX, Mountain New per dividend XX, share, income again quarterly investment of quarter the per once And per our guidance September was $X.XX high at Finance’s the of $X.XX ended covering net for our to end share. $X.XX of $X.XX

share $XX.XX to book share, was which of at productive New XXrd regular were There New ownership dividend, the our of compared outstanding. Mountain be very have in $XXX Finance’s of with $XX.XX large million stock our to repayments deal of credit keeps quarter, companies as will million watch We and of an XX% per also of The stable Mountain members and no us strong. list. shares based which again originations to aggregate gross approximately for once company value per continue portfolio on last versus or able other straight I total quarter, this of invested. quarter. shares be on quality close. quarter no XX% were annualized remains nearly Friday's new Credit X.X we $X.XX fully non-accruals our owners $XXX last had per share, another investing generation, again announce yield million,

back With members. turn and that, supports CEO. XXX Rob with continues call team let assets the platform Finally, progress the In under over management $XX are grow, broader over performance Hamwee, New very me pleased billion and NMFC's we summary, Mountain of with NMFC to NMFC's continued that to overall.

Rob Hamwee

Steve. Thank you,

our and everyone give quarter, the I'd of of Before a details as always to NMFC like into brief strategy. the diving review

New program more recession As six results and equity this private of simply invest We we is firm. to debt Mountain. our of we the that Since achieve put, NMFC resistant that sustainable investment in taken our risk outlined managed inception a XXXX, page New our Capital, existing by on Mountain leading as a of primary in really externally return presentation, have our consistent a like. and New utilize believe that cycles the we it that research differentiated market Mountain’s an conditions. approach adjusted extensive allows to attractive, growth we a rates credit, across to focus with already New to industry fundamental known investment models mandate, know and resource. model Or generate approach business defensive on businesses and us team equity private really with changing and well we underwriting applied that corporate are in Mountain To

have into Page to more and and relative see as six more public peers our high dividend, the index Turning long shows in initial the annum been to meaningfully has detail our approximately public income. compound our per total performance investment IPO cash return a Page around risk since relevant our X,XXX our points goes November be which as benchmarks. investors half higher generated can return XX%, against turn benchmarking covered a and XXX% X, a cumulative performance attribution. continues largest managed you return XX annual nine from Total largely page driven by peer through returns set, have been XXXX than in externally our IPO, little May we BDCs by of at the basis free net a XXXX. In against we eight above our have. that seven, yield to than years least

platform. generate over our accessing underwriting differentiated dividend. on special to on investment of covers bar appropriately the that by stable our leverage cash focus been supported a have an a years majority our one, an we our And structured efficient illustrates, effectively expensive six the from income have shareholder of four, alignment and shareholders, with XX.X% success for equities. and always interests. generating more on maintained and business income. consistently we inexpensive, the public, fully We Three, far fully to cash return value, the net ability while sheet a book inclusive right As attribute our half dividends, NII utilizing before in the cash running our our amount of management balance interest vast Two, stable our

space. differentiator we highest focus quarter. to the credit no risk am which on Our continues be total in priority is performance, to the been over our report there return single of migration control that BDC time pleased this and has I believe credit negative biggest

of our the of migrated leverage current which show which most or period. XX, only investments thus investment have of lay our investment, is our realized and migrated to both non-accrual, of nearly virtually the reporting XXX% the portfolio inception, portfolio million all billion internal down portfolio Further, ladder. companies, four, multiples on have again to rated currently resulted And have at business losses. of an we page recent once basis our representing million XX of as levels inception made shows same $X.X accumulative of we the one $X.X Page out Since XXXX. and leverage cost, for you what seven, has refer far above If investments we of our entered holdings our in since then the default of scale. fair two only $XX for credit of representing the of in cost investment, just XXX the $XXX cost, when end performance market million in value,

our of good asset in snapshot of not leverage While credit performance ratings internal is multiples asset a by support a marks. perfect for some degree fundamental provide and metric, trend and helps the empirical,

to in is that close announced in position in Emerson market. October you Only in a debt negative Software, one, trending in see while list has its our a result of the a more. two end number which off of quarters table, full being loans has being at acquired a approximately The show watch transaction a leverage in As strong migration been that at one flat right early roughly was and exceptions. by this Electric in paid with days, which turns it par. to on are for direction, company can few only expected a the our strategic XX three prior half as underperforming looking or financially, Paradigm multiples One or will by

company, The chart quarterly second plan. its in restructured its Page investment we being on IPO. which of is show of dividend net Edmentum, is the The XXXX, helps regular the restructuring how line with performing company's top covered At track the in performance XX broadly since income. page, we out the economic overall

we can than see, to cumulative NII. continue our dividends of As of regular cover XXX% more out you

on the the bottom the we items. On focus below of page, line

credit realized and gains realized at look and losses. we other First,

portfolio highlighted generally poor at had have losses, been by have in frequent through looking and success not including combination a orange, selling every real see, company trading losses a smaller the are show at equity Conversely, can of loss default. we non-accruals material profits. in and to that you credit avoiding highlighted typically actual dividends economic row realized we green, prior default gains, and gains year generating As less

we in continue cumulative million. highlighted As realized have blue, to a of $XX gain net

earned we at depreciation, John? market six have cumulative investment income this to net And unrealized of the page, Kline, loss net discuss half $XXX our that all realized will net $XX of Looking grey, years net million. portfolio in losses, The turn in yellow, highlighted company, further NMFC’s now a stands see over we a against million. unrealized that I of cumulative net activity. cumulative is million. unrealized down at total $XX only to as highlighted John public can $XX the and and and result in is million President, conditions including call

John Kline

Rob. Thanks,

middle deals basis on credit broad XX remains year to tighter highest spreads strength. one fully very which outlined continue ago. to our that are based The page competitive. are focus, XXX show The quality markets primary XX, is leveraged, As the than with points market,

we cash other on the in very of increasing to have trend that While contributions of equity, equity sponsor finance levels lower the continue have most we an towards market. many transactions observed high deals

a their market are activity existing deals. is the there pricing Additionally, as currently using strong improve of high on to sponsors repricing level opportunistically

the LIBOR valuable competitive us since positive has offset increased by to but has with On the small months X.XX%, basis call, which side, a provided environment. three last eight spread our points to approximately

the in optimistic defensive to ability and industries. source activity we new deals closing forward, will remain significant in our months growth that we are deal our in confident year, Looking great the of be core there

rate rate the floating Turning as our Meanwhile, over ensure to roughly points, the well to liabilities floating be basis in event portfolio points our rates NMFC XXX continues attractive rate increases, fixed LIBOR invested in to in we increased floor has of on debt. term. of the XX% future is to XX, of our above positioned locked page have which LIBOR borrowing costs basis months assets. medium at is Three XX average XX%

on chart XXX the or page rate at liability the strongly As portfolio event net increase in increase basis positioned given NMFC an the moderate to annual of $X.XX in the shows, income. our term bottom Even the in investment rates. short of is our investment a points X.X% of very base mix, and

portfolio had seen Moving an activity $XXX $XXX with active XX quarter, portfolio on of million, NMFC as XX, pages and and of of sale million to $XX on million proceeds. offset originations repayments by total

largely broad investment built. have market, sourcing million in network the quarter, core of - opportunistic backed of our deals offset that new The end have pace, deals originations, a These second of two accelerate sales these of with were of purchased these of of refinancings, million six seen our the Five have majority six Since about the sponsor total new all contributions up sourced Club we our this competitive year. which Our are new half greater. of new largest equity of repayments. made we are our The or investments, of consistent and executions within by we industry of by deals $XXX style the new our continued large quality shows continued in transactions subsidiary. result deals key XX% buyouts, SBIC XX% the including verticals. repayments with the success out $XXX the

show XX, by investments to breakout we the page type. Turning asset of

lean. On the show first page, towards we our left were new the QX that side of originations weighted

the on we side, were weighted that towards show lien. While repayments our right second

our While we in mix short investment quarters. mix our anticipate in material the coming don't composition the change slightly in this of portfolio a investment the term, overall changes

in far non-first as materially shown are XX, fact, originations lean In on thus assets. weighted page QX, our towards

heavy due the of This shown And the first page in mix is in that average asset As on yields spread primarily have the XX, lower new we portfolio. marketplace. the due somewhat compression than on QX experienced yield new in on of quarter. X.X% the originations lien to the secondarily, to were originations

maintain credit more yield standards Looking seek our loans. for stretching we on to and forward, historical avoid riskier

the spread continue we deals been we and continued SBA have result, our $XXX to through second this announce will income increased which higher to our rates, end, To we pleased a million to mitigate be As and compression are this new prepayments, that base a SBA portfolio. see mind, compression an from utilization of more financing of approved on potential access allows do us to program. debt. risk another very With in SBIC opportunity license, to generation fee spread rising for

we better defensive of growth show give In our show page oriented of services sectors. insight within diversity to of chart, top breakout into largest a sector. the section the On XX, we pie balanced the across the subsectors portfolio a our

page, mix lower loans. we between our and investments. to bottom clean the the right, that exceptionally exposure of On subordinated targeted an have the no on we portfolio, continue maintain show to we to underperforming with senior virtually And continue

Finally, financial accounting I for CFO, over as investment at largest statements and a we our value of fair discuss turn that, key portfolio, XX, investments X.X% the with financial our to metrics. and XX it on XX% page top value. of broadly Shiraz? to illustrated Shiraz fair diversified With will now have

Shiraz Kajee

John. Thanks,

our with please the today's XX-Q For more to refer that financial SEC. details on in results filed commentary, last was evening the Form

$XXX was was $X.XX approximately investments fair from in SBA at quarter. XX. like which prior of XXXX, liabilities statutory of debt $XXX to $XXX total $X.XX September billion. I’d and $X.XX Slide guaranteed Net had drawn asset share, million, down billion of your per total of outstanding attention million, portfolio value assets excluding or value total at We debentures. $X million the billion Now, XX, had $XX.XX The turn to of

was have As liabilities, for one. of not as statutory $XX XX, closed September X.XX to target X.X forma would one. our between to quarter been one. end, show and are ratio equity other how XX, our ratios, had at to debt leverage ratio, with statutory that the which historical the in of Pro to reflected broadly investments leverage, we X.XX X.X consistent On Slide million current

be of more results. that special This line, realized we the the the creation. quarterly We reflection of On line. cumulative slide, dividends, above quarterly investment our generate the measure NII most appropriate net NAV show also gains true income is On we our which historical to portrays our unrealized a we believe adjusted losses value of XX, and performance. while show the for the below statement can slide accurate impact economic highlights income continue and volatile stable Slide that

$XX.X attributable million $XX.X a from earned the million, on quarter. total largely an to an September prior approximately activity. Focusing XXXX, Total quarter, ended in the we increase were net of represents quarter income of increase investment million. increase $X.X XX, expenses the This prepayment prior from slight

total, the for an nature dividend occurring advisor fees from continues covered is Slide paid investment note fees, assets annualized our the million. In important $X.XX management As share. demonstrates in total and September to we per NII such XX, high at certain the increase and ended of operations million, previously guidance results to predominantly QX X.X%. our income regular which net dividend recoup had quarter in of that in is of XX of XXXX, - end in investment share, $X.X resulting waive quarter in cash. cannot average fee $XX.X third management It effective weighted advisor or quarters, per waived. the $X.XX that prior is investment This the

can and of you XX% is see, our total cash predictability remains of income this investment quarter. this income We recurring income. believe at and As stability consistency strong the XX% investment shows

guidance fall as XX, for NII now dividend. slide NII, that quarter our $X.XX earlier, XXXX our the within Turning the QX will covered QX our our to per discussed We share. briefly $X.XX believe of third

of XX, QX December XXXX on paid has a holders XX, share, a declared to XXXX record XXXX. on of Our Directors which will dividend December of Board be $X.XX

we with Fargo on had total maturity guaranteed quarter various on billion facility Finally, XX account $X.X borrowing end, approximately at taking Slide quarter no we term near extended XXXX of financing into credit SBA we end, Post from our maturities. debentures, sources, highlight capacity our XXXX. the to Wells

at rather the As a underlying Wells generally investments the than of back performance our covenants the time. any reminder, Fargo would tied are over given like we to lend credit marks turn facility’s to to, operating Rob. With the to that, call I that businesses of a

Rob Hamwee

the intention in with and Most remain credit so pleased $X.XX our quarterly Thanks, thank Q&A. a Operator? quarters say to perspective, line as covers per date. point we NII Shiraz. future closing, to portfolio would pay continue overall long back our I to be for like on at like expectation. your just this the interest, importantly, and the to to be for current with our consistently to you adjusted support again, operator continue to In Once continues that basis our It things we'd turn healthy. share performance begin the very to from to a dividend,

Operator

from [Operator Bock Please Instructions] go first Wells Jonathan ahead. question comes Fargo. with The today

Joseph Mazzoli

Jonathan Mazzoli in Good for Bock. filling morning. Joe

levers of so several first you doubt the there's sounds there like question, on it for license. second SBA which fourth And the debentures. support opportunities balance course, additional say that also sheet, the do core there's progress but I through quarter, The in several leverage no have receiving already congratulations should NOI of

that. relates question then SBIC types for the also license, into and fall So deals the the the that to second. of pipeline

if acyclical some in or but of segment would these be focus - requirements, the New the deals. structure, could structure you still sponsor you throw that Do color certain non-sponsored typically not around deals deals the these are Mountain? not might back for there a course some but Of provide

Rob Hamwee

Yes. never the like up No. select get we ramped that see that criteria mean just our I just to change Joe, to fit something very to time. as much SBA, clear, to for be over we'd as will happens

allow a New much started characteristics happen Mountain And those our with how have fit that's if know in always then from style the And both we fit So ramped elements we based we on up deals XX the them SBA, other to the that and businesses the acyclical scale just years almost so have business our that better. that SBC, PE to first the allow naturally side. And just facility. percentage expect, is and of PBC now SBA. in we really the certain well them to

So up is we have it exact various same in we’d second we're make expect - finish the and to the scaled up license. the we in that put stages expect over scale first who pipeline do fit. few But of But knows. change the the going would SBA facility. criteria thing a the those to we'd way never time, license things our Whether to into something to one the line,

Joseph Mazzoli

helpful, conservative that. of approach. That’s for and appreciate shareholders Thanks patient and course that

Lease to Net question New and it fairly So relates second the stable quarter. Corp. the the was Mountain looks portfolio over quarter like

portfolio continue going for on - So some this thoughts you growth with in quarters. the coming current or see to are we opportunity is the this size? where does comfortable this an Just be

Rob Hamwee

likely the in BDC a category. actually things deeper few side deal Sure. of sake a in to we whether are or couple active there. close It No, the quarter. Again, deal, any Lease continue we Net to been of any close to never this pipeline there’s but for behind a have we has quarters, that on have of a for quiet things do - main the doing And effort an going that.

finance time that is build. pre-payable. but will assets expect see year doesn't we course do in thing episodic, it Net to XX have over activity it of not be continue side typically Net the So businesses the And or to Lease are that regular nice the about the one continue way to Lease sponsor churn we

and slow itself. a upon of steady adds but sort is build, that it So

would. otherwise old You have the don't you at nearly to pace replace assets

Lease do So continue side, lumpy to yes, it the see we nature. growth in to Net but be will expect on

Joseph Mazzoli

Thank Pinnacle. you the investment question, helpful. for a your in relates substantial then for that. increase to in second And lien final fair That’s this value

the marked I think was loan the was high XXs. loan lien second high marked in in the the -

marked it's Now the into mid-XXs.

color here? there I'm provide sure you some performance must the the If improvement be performance, could around and some company underlying

Rob Hamwee

Yes, Pinnacle being in - announced on which underperforming by Paradigm, but remarks, and in is October. was early that Emerson touched the financially, actually was I was prepared it that acquired

So we're taken out at within days. going par to XX XX be to

right and quarter. very that to occurs, reflects either this mark par very when by purchase a We've early announcement. we’d contract. that or contract. further expect Then end It’s the up the of modest seen next takeout So quarter the a tight sale

expectations very, have expected that and high that very deal So will as announced. we close

Joseph Mazzoli

sense makes That's you … that, much That but Okay. apologies. touched that right, you already thank and on very

Rob Hamwee

the a - holdco is entity. the it talked know Pinnacle. It’s right. same but That’s technical Paradigm little and yes, as name under up actual I Yes, SOI. the you're shows But that are on Pinnacle tricky because - we

So on the made that have I clear call. should

Joseph Mazzoli

Okay, great. for you questions. taking my thank Well,

Operator

The [Operator comes with from go next Paul Johnson KBW. Please ahead. Instructions] question

Paul Johnson

a sort total leverage? guys XXs, for of leverage comfortable over utilizing just higher the about Good wondering, follow you perhaps are XXs leverage mid into I'm total percent that I term and higher, by just SBIC running your morning guys. outlook guess SBC effectively the growth up on there. the Joe's of Hey, long question

Rob Hamwee

Yes.

really I mean want statutory the against we that leverage. obviously the we to are. have statutory business cap. given the one And cushion always manage one We to

of the we, having higher So But X.X the are attractive run financing. we you in typically. SBA economic know, that up the creeps comfortable as leverage than given that nature modestly that

Paul Johnson

then about into just quick trying XXX,XXX right? the kind bit from I'm that quarter. Great. little one, a a it’s the just like is get Corp. Lease Does more Net I on the to Hopefully question backing technical. number sound easy my income of of for sort an next guess And but I'm

Shiraz Kajee

right. about That’s Yes.

been a we've about XXX,XXX this quarter running roughly. for So year

is see portfolio. a on million the on in right, aggregate. about roughly expenses - rough X.X net you which I about the return So That’s of XX.X% SOI, think

Paul Johnson

would information. way That’s quick, or year in date? questions than far so just to then great quarter this less competitive of describe seen first, you guess real more be would And Okay. as I the my fourth two for what last we've year any

Rob Hamwee

as last it couple with describe quarters. consistent you the mean, would of I different there? have do I a John, view

John Kline

We Yes. our in but that to agree get XXX%. to tried prepared that I remarks, with

I think or just last we've in the competitive market been don't a And It’s honestly we at months. the six for level worse see it better. getting consistent.

Paul Johnson

I debt you Okay. Edmentum just commentary down you quarter And in wondering that then could outlook of saw on it’s there's wondering I finally, investment was that could sort of XX% I make provide on and just any if if possibly was sub company. your was any this investment. sort it Education. marked

Rob Hamwee

really, team us owners mean I downdraft growth growthful relatively what and we three would that of summer control of is to working really and four have couple and using to a to may that the the now, with a new at we've that, with - roadmap caused company Sure. brought in been have company other been with. the have kind ago. of developing have as injected the I the or say really been who as We've company fix the excited Yes. stable. we’re The market. begin to the is who already issues into return recall, of management three we've that positive to you multi-year months, in in The earnings lot restructured been a years working about company in the has news the a key of energy earnings a some Edmentum really CEO Edmentum

all think we've track we the in we record in with maybe bit who's execution a leadership execution lacking were really So proven and and space. little about got a somebody got it's legacy the now

reflected And prospects, time and market education, cycles revenue we the about from the new but on we're it's between so well projections. the drive get based have coming long are And may going because excited strategic team there. But that valuation. is as numbers, trailing lag we’re the selling more management be selling and a as - the plan the the recognizing that we the BCFs book in new months, as in to take

in a term between right So for long Edmentum. bit we’re the little quite optimistic stage But are now. about prospects we

Paul Johnson

Okay. Thanks Those questions. were my guys. all

Operator

answer to to [Operator I be conference and our to the Hamwee no question like it concludes this back Instructions] any session. would seems question, closing And turn so over remarks Rob for

Rob Hamwee

Well, you. always the next appreciate interest Bye-bye thanks to everyone. quarter. forward look now. support We the and Thank again speaking as and

Operator

for conference today's now attending presentation. concluded. Thank This you is

You may now disconnect.

New Mountain Finance (NMFC) 8 Nov 172017 Q3 Earnings call transcript