NMFC - Earnings call transcript Q4 2024 | New Mountain Finance Corporation

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Operator

Good day, and welcome to the New Mountain Finance Corporation's Fourth Quarter 2024 Earnings Call. [Operator Instructions]. Please note that this event is being recorded.

I would now like to turn the conference over to John Kline, President and CEO of New Mountain Finance Corporation. sir. ahead, go Please

John Kline

good and morning, you, everyone. Thank

Welcome Earnings Call. Mountain Finance Quarter XXXX Corporation's Fourth to New

On with Mountain and CFO NMFC COO the Klinsky, NMFC; and and Steve line of CEO me Treasurer here of of Kris New and Capital; NMFC. Holson, are Laura Corbett, today Chairman

introductory to Steve is remarks. going make some

does, he regarding ask call. to today's make to Before Kris like I'd statements some important

Kris Corbett

Good everyone. morning, John. Thanks,

our would recorded. like and Before XX note press to any everyone unauthorized Information we presentation, audio of prohibited. February get the call being into broadcast about strictly that Mountain and replay are earnings webcast they this I are New Finance Please in the that today's release. in of is that call is the advise property form Corporation any available

that conference undertake statements required to most slide to by I disclosures and X our we with press would like We X and projections, regarding and your presentation important of include forward-looking and law. in not SEC and for call those our update and customary results harbor Page recent cause unless materially projections. refer our actual ask the factors statements to do Today's filings webcast on or may differ call release forward-looking to projections the forward-looking statements to you safe from the attention statements. to

the call, we slide www.newmountainfinance.com. To obtain please at that access website throughout latest copies our presentation, and our be filings visit referring of will SEC to this

X who highlights Chairman, the time, presentation. to I'd Klinsky, over beginning of will NMFC's slide us this to give turn some the call At like on Page Steve

Steven Klinsky

Thanks, Kris.

as shareholder. you be Chairman able both major to fellow great a today, NMFC's all to It's address as and

our share $X.XX Adjusted net on XX. covering December dividend quarter was paid per investment $X.XX regular in per that for the share was cash income

share performance per our declined value $X.XX credit stable of across X.X%, portfolio. demonstrating asset relatively $XX.XX net Our or

the during our names no quarter. in and no new heat Importantly, nonaccruals map. we had red

dividend payable record Looking would forward to XX of we QX, March XX. on announce a to $X.XX shareholders like to March

continues strong if dividend to protection necessary, renewed XXXX. core Our supported earnings by program recurring that the in and be we dividend our

good valuing off like $XXX original I million returned full and over is to which to our convertible to transaction to in UniTek on announce important XXXX NMFC, QX priorities. above preferred second XX, lien preferred a our senior approximately our mark. is a Strategic with that invested our II very UniTek $XX far, we cost tranche. Services start stake an basis for million PIK BTG Capital. So This and Global tranche PIK would of On February at BTG UniTek's NMFC implies Pactual security, sold strategic Xx transaction redemption through and through multiple aligns a million $XX

credit partial both This ownership we income, New while another also accrued Mountain retained and through aligns company NMFC XX% with exit our combined in PIK the goal stake fund. monetizing a of

including major believe improved wins the we under space. new meaningfully center forward, UniTek Mountain's leadership, Looking prospects that in its has data New

transaction details on the in more and May. this call offer will We QX on other early highlights

dividends. average near only now in bankruptcy funds annualized XX $XX Similarly, equity a manages an a of payment its private as Mountain had the basis and $XX paying years while almost XX or points experienced has per missed never cumulative public NMFC losses company interest New have realized assets. share firm out billion over of

times. in well are all less in today loans defensive we that growth NMFC's certain particularly positioned believe overall economic and times think in are industries attractive We right

to make building very also to business use competency loan had Mountain these have on troubled NMFC defaults, example UniTek As the the gains in Capital, cases once we core few those seeks shows of positions. where New

team value we believes private of at have Mountain's over achieved equity over our XXX $XX enterprise now billion firm shareholders. New gains the and companies members numbers for all

New selected for where such to information efforts and health for chosen as have be The infrastructure carefully fully in science services. efforts of care life our sectors our seeks as every strength software lend both the year we to Mountain NMFC. supplies, are acquire stronger and PE strength credit technology, applied and

Finally, shareholders of NMFC. we, management, continue as major as

X.X now I as compared members about and of XX% own our of about million increased other by NMC to XX% We During the QX, team quarter. holdings NMFC shares. last

me to let the call With turn John. that,

John Kline

Steve. you, Thank

to of where record. track list begin our X, lending New industries investment knowledge strongest. made investments diversified exposure like a we of defensive firm's map to Page private the review equity strategy would These sectors. a by our our the Starting to where and on long-term direct sectors noncyclical broader successful has Mountain offering I and is highlight

cash drivers, free seek strong conversion. companies predictable stability streams, in We and revenue make margin growth to with flow durable investments

As pie challenged you and industry chart X, have industries. Page cyclical, no from we virtually see volatile to on can the secularly exposure

has Moreover, of limited tariffs on to and dependent exposure we exposure goods. foreign portfolio companies spending our limited to government believe that forms on various

us Our strategy in any been it environment. over years consistent to XX a operate as with public nearly company, economic has our allows and confidence

losses, our a to long-term minimizing shareholders provides delivering enhanced consistent, track shareholders. virtually our income distributing record excess yield key performance showing X to all Page and credit by statistics of of

NMFC an shareholders XXXX, generating in through $X.X dividend XX%. approximately our returned IPO billion program, has return to of annualized our Since

Our yield points XX% risk-free approximately dividend or rates. nearly basis XXX is over short-term interest

businesses of within companies price last risk paid of business. our loans are that is to NMFC's make. XX% to dollar current the financial portfolio by the the are and significant where that We we capital junior lend owned for approximately who with primarily is in supportive purchase performing and high-quality that owners industries sponsors, well invests sophisticated

of focus to for NMFC. areas to strategic would more like Turning Page We the a detail bit XX. give on

would or increase XX% maintain evolved And here, We that portfolio have mix we mix. senior-oriented to heavily successfully to our from like senior-oriented assets.

Within subsidiary, real diversified lease which and we lien senior and estate of unitranche occupied growth-oriented a this mission-critical our have loan well-performing businesses. defensive by core our owns category, net our first loans, funds group

While senior majority past, come the platform many has will believe This views junior our in of informed high value and risk-adjusted be profitable we for NMFC high make it our these compelling. accretive have and us going positions. conviction to been broader conviction of vast investments selectively in by We where capital lending the are returns especially strategy the from particularly investment portfolio, where shareholder most effective we represents investments instances forward.

increase X% the top the portfolio, of opportunity time, have within total positions. we companies Over our clear to particularly a see of the represent we to AUM. than of each diversity less portfolio XX Additionally, seek

also focus sharp continue have the to our on cost, optimizing We quality duration a and liabilities. of

improve progress and of opportunity XXXX. sees has right to over the great balance the Our team our throughout sheet more last year made side

Over the bonds. will liabilities ladder remain floating next hedges, and committed of expect XX of mix approximately to inclusive our be we unsecured we that rate building months, XX% a high-quality

UniTek certain opportunities investments. in to partial PIK we stakes sell equity to expect sale, Finally, and have to future addition the

to -- and While has of income. levels quality and committed PIK maintaining attractive generates prudent we portfolio remain our PIK credit overall attractive returns, shareholder strong

quarter, no XX% were XX. on consistent rated roughly to have green fair quarter risk $XX at Page to rating company million approximately red. prior Similar Turning our with our internal negatively we the scale. of importantly, value or we And rated. In, portfolio X risk had prior companies of only rating market moved

portfolio. represent orange X.X% marked of only our market name, challenged a most them Our NMFC's of value, making negligible part fair

Updated undewriting. growth, matter top heat in how our perform majority map well vast entirety the our The its shown rated XX% on consistent with to is continue positioned continue assets bottom we economic believe landscape no and our of experience investments of Page XX, to is with both our to green, line develops. portfolio

by in XX. quarter to last declines Page of a graphical decline to offset performance, HelpSystems. a modest and $XX.XX, value We a analysis in core resulting the Turning $X.XX the of Overall, compared changes quarter. credit NAV the during good value from of benefited quarter, book Edmentum provide

the this are trading cycles competition. that sales quarter. the business a X increased cybersecurity to concerns business around largest business operates name overall the during division the HelpSystems, most of due smaller market We for facing prospects The was declined the headwinds the its single continues and that from loan as levels of in important extended on remain segments grow. relatively company's positive to decrease

NMFC's addresses nonaccrual performance. XX Page

the that nonaccrual. state UniTek page, at or positions $XX investments of is of currently we'll of have the X.X% the capital statistics where side We market which $X.X structure. non-accruing approximately On these we forma show of million the have portfolio no pro for only on which we value. in current the show portfolio transaction, the fair after of billion left

credit our right On side the cumulative performance show of since page, the IPO. we

NMFC time, made net IPO. that of represents $XX realizing investments realized $XX.X rate losses During has million. points of billion since loss annualized XX average This an of basis approximately nearly

$XX realized NMFC's XX-plus cumulative generating nearly million investment net years. resulting has billion while net cumulative losses On Page last compelling earned Cumulatively, only income for of over of depreciation, value in present we the of net returns $X.X million only XX, shareholders. consistent and created $XX and NMFC $X.X over in unrealized billion

and Laura provide Holson, Chief to call details more on the performance. turn NMFC's now environment discuss Operating the will I our market over quarterly current Officer, to

Laura Holson

Thanks, John.

a similar Spreads syndicated That XX been lending been an in today's months market in over environment, new market. concluded in the in activity. and the year as the remains of with fashion class the have said, we to direct asset XXXX believe deal XX episodic tightened deal to flow last we've active less rest has aggressive.

growth X% found $X.XX verticals structure a XX% where our consistently capital attach to can We opportunities have that defensive at we loans in unlevered make and return.

remain the contribution, significant the structures representing majority vast with structures. equity capital sponsor Deal compelling of

ongoing including M&A to continue in as the well for XXXX increased private return to for previously capital we've activity of volume as LPs to discussed, reasons the for of the an attractive borrowers. powder magnitude equity, dry markets expect pressure financing We

as gap question higher frame, from many of maturity. the time deals the into remains The the XXXX age multiple bid-ask

amount are we However, also a of exiting. fair focused there on deals that sponsors expect pre-XXXX are

rate M&A well continued which to counter a as the be. volatility to headlines base positioned uncertainty environment, returns to deal in of is is as a tailwind activity We pickup across headwind a believe activity. but high and can and we political regulatory expected we're and The a backdrop

as differentiation there However, credit particularly pricing selection and structural critical is remains minimal borrowers. between

into our XX earnings. XX% are an XX% The presents effective rates NMFC the provides fixed rate expect rate. fixed maturities insight we portfolio notes fixed. our floating XX% XXXX base is loan forma for interest XX% liabilities mix analysis XX% over Page shift unsecured the towards and will the and XX% that and XXXX floating on while Pro XX rate next floating and NMFC's convert rate, months,

rates sensitivity on chart. We highlight our interest bottom to the

would we cost where our swapping also fixed that new to to rate see the our have help rates in scenarios potentially to and pressure. we rate have structure Namely, base expect decrease, we floating refinance we capital pressure earnings to opportunities been are some some of shorter rates, fixed higher exposure While debt. offset some building dated,

lower converts Our of refinance to X.XX% XXXX bonds November at are our mature of callable rates. which X.X% both represent XXXX, over baby opportunities in and hopefully

target originated assets, our deleveraging leverage $XXX repayments acquired in a lien QX, in to the was In Notable by driving second that included software million assets. $XX repayments Page to as a well business XX. Recorded strategic sales, X we offset on range. by million middle the of of of Future, quarter as Moving

believe spread a environments didn't exit in our growth derisking. the for in beneficial to assets of mentioned handful evolving can credit a or The close power to change refresh and opportunistically landscape. depth to negative advantage repricing I've informed challenges able the thinking core view. performance our be knowledge alleys While take of We've that where compression re-underwriting warrant market market we us an repriced and stay defensive in continuously of either our have lending, these of hot been a direct recent allows

Similar quarter, of Page last XX. nature. to XX% first lease to senior lien, SLPs investments, and Turning our inclusive approximately net of are in

X% page. portfolio largest price the of Approximately just from down side represent positions, quarter last equity XX% the on year. our positions portfolio, in are shown QX the which last lien X% our the and of right of is of X% Second of of

We continue all resources we to to building dedicate these positive meaningful progress. time are business which believe companies, of and making at

capabilities key any and is As our our New differentiator. of positions Mountain We a full and evidenced ability owned strategic approach credit Capital transaction earlier, other businesses leveraged by the business. like the equity announced operating our to team private UniTek own operate equity

increased for to in on SOFR yields are QX, yields the the NMFC's that yields as to speaking, compared lower risk. primarily to for portfolio average remain shows due the though shift for spreads of XX evidenced Generally forward our by Page even on total originations repayments, the longer tighter, attractive higher XX% our curve.

highlights underlying of borrowers borrowers. slightly lend to. XX growth some of EBITDA decreased million, during our our scale of positive trends underlying by larger companies quarter partially Page average weighted offset individual fourth companies in the realization and due to we the the of the to the quarter, $XXX The

tend growth safer, criteria, to equal. New an and and first knowledge, internal else believe borrowers foremost marginally be that we we While concentrate how larger maps Mountain our all against opportunity defensive

the stats be slightly compelling, last and loan-to-value come portfolio average to values Portfolio the several Loan the leverage also quarters. interest coverage across leverage company to has continue We over of the has portfolio. an relevant show and XX%. down current quite

company average and weighted investment this our indication X.Xx is that continued We've portfolio additional This portfolio M&A of valuations. on proactively continue well performing a support interest to liquidity healthy are companies that The consists coverage and seen great able quarter. are at increased to sponsors attract to activity. the

illustrated as diversified XX, a across Finally, Page we have XXX portfolio companies. portfolio on

into and total value. partial conviction just in account XX funds, and name investments top Taking monetization X.X% that net our issuers the our the value decreases Excluding to market the of lease highest for X.X% SLP XX% names. represent position UniTek, account of fair of fair from single

now will our our call to the Chief Kris financial discuss turn I to over Financial Officer, results. Corbett,

Kris Corbett

Laura. Thank you,

details, quarterly SEC. our report the please XX-K more For that yesterday on Form with filed refer was

$X of fair which total portfolio billion prior of $X.X end, on and on total over on per X investments December statutory billion with was assets sheet, in our outstanding debt billion, share approximately to of at value As value $X.X Slide of compared total which our quarter. liabilities $X.X shown billion, or X.XX:X $XX.XX At available of the had and billion. net slightly asset of Net X.XX:X XX, X.XXx. the was XX of target cash to ratio the middle is $X was down statutory balance debt-to-equity quarter range of

On statement quarterly show our Slide XX, income we results.

total X% financing Total year. expenses net million we a year. decrease was $XX a earned of over investment For $XX the decreased higher prior of quarter, income versus million expenses of or X% costs. in prior This product increase

for adjusted Our investment QX our dividend. regular was quarter average net $X.XX per weighted covered income which the share,

total of X% year, As the of over Total represented Slide the prior million XX, the X% shown in increased earned million of which expenses investment net for income $XXX a $XXX decrease year. year. we prior over

the XX% recurring quarter. that highlights in XX fourth is investment Slide of income total our

preferred of strategy total equity mentioned For mix income. from our John income This QX, aligns asset whereas income, total represented of investments investment only dividend PIK noncash the XX% with interest earlier. investment represented X%

generating fourth and positioned during at of quarter Importantly, positions XX% our rated generated over income is the of average of income this marked are fair weighted market from a XX% noncash green par names. value

over plans. their borrowers included Additionally, PIK to generated on best strategic is from execute of that XX% positions these to this enable growth income inception by

coverage dividend. the of shows line red The XX. Slide to Turning our regular

a our dividend QX of has $X.XX Board For of again share. XXXX, Directors declared per

borrowing since base billion most revolving the leverage account our $X.X billion inception commitments limitations. our subject Taking to $X XX, represents available This our guaranteed than covers of Slide $XXX we our business on SBA with highlight of and our financing into On significant lines, borrowing more and unfunded million. sources we various debentures, of diversified availability capacity total have profile.

investment-grade a capital our maturity evolution structure. X capacity spread. extending We by corporate of issued marked significant our its increasing We XXXX first also while enhanced its lowering our bonds. revolver and its

rate mix facilities Fargo increase XX% XXXX, by floating credit our our December repaying Deutsche and facility fully the our XXXX, credit more rate cost This approximately XX% streamlined of Bank our match facility. from to an also XX, higher resulted floating at to December XX, cost We assets. liabilities at asset-based of our credit in lowering closely Wells

While XX%, XX% the from during period, percentage SBA unsecured debt to our debentures. increasing same excluding

Looking to mix of course outlined over to red to forward XX opportunities increase months represent refinance are facilities in liability of XXXX, next the medium the reduce our rate term. cost our and Further, in floating to the XX%. we approximately the financing targeting

on Finally, our schedule. leverage show Slide maturity we XX,

have matures liquidity early investment-grade XXXX, the ladder to to XX% access sufficient and near-term debt opportunity of maturities an XXXX. maturities continue over or with XXXX We Notably, manage in to to after representing upcoming maturities and our bond in market. continue our

over would With John. back call the that, turn like I to to

John Kline

you, Thank Kris.

have to sale Credit changes quality our catalyst. ahead. XXXX a our UniTek is with liability to substantial have strong positive opportunity before pleased start important are than to remains made and We portfolio with a we structure senior more good, as more an

In closing, ongoing May. call next look thank speaking all for of our again like and the once support stakeholders and again our would partnership forward in to to on you to

to like the now things would Operator? begin I operator Q&A. to turn to over

Operator

today Dodd [Operator Robert with James. will come Instructions]. first your Raymond And from question

Robert Dodd

I realize particularly quarter, QX end. the you be call. On more UniTek, on I UniTek. on Congrats quarter said After if can, the details there'd

used valuation at inform partial stack up not value does But to mark of how realization, but value enterprise at exit the with exit the the enterprise UniTek, that QX?

John Kline

Sure.

As picture, be line but it Steve mentioned, in to yes, higher. modestly would higher, modestly overall it's

Robert Dodd

when remarks, prepared I some Got I early part, Got said in think -- that's the it's it a one maybe on it. And theme the slow maybe, of then and in bit there's kind -- the that was it. from I think a things, uncertainties new of in little quarter. going XXXX, certainly to competitors this market recurring in activity the other

still how lowering fact year. potentially, PIK about, mean that, of that the you it go an is UniTek do by through market informed aside, your a we is light you as the In but partly target, year? active Because this feel comfortable exposure I follow

So things think do go together? you how those

John Kline

I that is active. than of think have been will But it's competitors -- slower start a this our with would we year expected. think think it I along we, many be

PIK will what opportunity on seeing based But we positions when the the think able -- we QX think of we're some some to be we to progress show call. I the about reduce on will have

So opportunistic And be QX, to we feel position. good it. we'd about continue down beyond work we that can PIK

I say goal. our wouldn't So for changed the environment or our outlook market has strategic that view

Robert Dodd

the And it. increase in Would you of -- lien, Got then areas want obviously I mix loan it. -- you same? more? in Or increase terms Got senior, is just, I first is mean, those the like keep you X you those one of net particular to know the you'd allocation, funds, there expectation between lease. talked which to

John Kline

think I within would the category, mix say that -- it's this. No, will we stay safe that to

Robert Dodd

then at look spreads, do temporary the or or Got you kind trends you through? think market. depends obviously like your where But out, things leveled do going thing on they what of in bottom are that are but recalibrate think the on it like-for-like thoughts market we're of be may is it. just -- that And a of kind overall, you that kind do

don't that, was risk active? much is some And then much do to potentially appropriate. just of away how you kind think there How that's walked vulnerable repricings the you because portfolio credit to repricing left, of think tied from

Laura Holson

Yes.

to there on circumstances. high-quality honest, we're I for around have XXX, And spreads, point do area a XXX depending stabilized. feel they we've unit the the like hovering in we all be been while. On for first seeing to the companies XXX now tranches mean

seen we meaningful haven't movement. So

pick the I -- expected alongside starts material reasonably pick seen back up think spreads particularly feel further will don't the And to up have we extent confident and to up we we that. not, the that way back we expect again. would that not if to, M&A we M&A picks pressure downward. we But hope to

repricing, just we have repricings of To certainly the your second question seen in syndicated waves market. multiple about

our I portfolio, have could exercise. that majority within gone the think that of specifically, deals through this probably point reprice at

that mind, their in to opportunities. keep They our mean, have capture are teams to best markets of lot a portfolios pretty make I sophisticated. are those really capital doing their all clients sure mining sponsor they're

through is least the But so And rolled vast I think on at kind so feel already. good point. really majority reasonably we of that

Operator

this questions, further question-and-answer no will seeing I'm session. Instructions] our conclude [Operator

the for to like would to remarks. Kline turn back John any over I closing conference

John Kline

and you, look you our very you. earnings forward to soon thank QX for joining Well, XXXX everyone, May. we speaking Thank call, to Great. in

Operator

Thank for The conference today's attending has you presentation. now concluded.

disconnect. now may You

New Mountain Finance (NMFC) 27 Feb 252024 Q4 Earnings call transcript