New Mountain Finance (NMFC) 7 May 202020 Q1 Earnings call transcript

Good morning and welcome to the New Mountain Finance Corporation First Quarter 2020 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Rob Hamwee, CEO. Please go ahead.

Thank you and good morning, everyone, and welcome to New Mountain Finance Corporation's First Quarter Earnings Call for 2020.

and me CEO are John of and of with of Klinsky, Kline, line of COO and CFO NMFC New NMFC the here Steve today Chairman President NMFC. On Kajee, Shiraz Mountain Capital;

staying around Before that on to that and diving remain our our safe, public crisis community we want a everyone taking and a recognize that in across into is and update, the living significant you do hope your business good health in the is globe. we We are human that country toll families health.

business, is some to Steve ask Turning statements make to like before make to call. Klinsky important some but introductory remarks, Shiraz I'd regarding to does, he today's going

Good Rob. Thanks, morning everyone.

is would call that that is broadcast advise any I Information Before audio of the in like customary the press to and about to press and to form forward-looking the are of attention note Please the we Mountain today's slide X replay also your Page disclosure get they call presentation recorded. are New available this in on I unauthorized in any being property everyone would release statements. the release. our Corporation safe-harbor X, of webcast prohibited. like earnings May into Finance strictly presentation, our and regarding call

I'd unless could undertake law. you projections statements Steve? that to We this X we referencing highlights SEC do most factors latest recent the projections. like our beginning Page Today's our to Klinsky, conference to access the to required from obtain call actual call on to we for to those and update forward-looking time, webcast who the differ www.newmountainfinance.com. our may Steve slide slide give NMFC’s throughout presentation materially important include visit refer of of will and over and ask that will To filings forward-looking statements please this results presentation. not at by Chairman and or some that website statements projections and SEC to turn At copies filings be with call, our cause

great COVID all as It's crisis the to that caused your and The of both a shareholder. pandemic Shiraz. of human Thanks, nation able you both all speak great first NMFC hopes has to terms. of and our and The fellow for economic a families I own in today be as you are Manager express to safe. want

charts throughout stay X Second, I NMFC to explain this want secure working the Page is Page safe and overview and period. to on to X X, summarize how Page itself

bit of XXXX, career has Sachs As the crashes COVID background, the personal junk own bond crash, a of this my began crisis. XXXX, to the XXXX in internet first the the XXXXs, and the crash Russian Drexel of great recession XXXX and of the fall Goldman now in crash, XXXX the XXXX and at nation included XXXX recession

survive unexpected Given has these returns experiences, and that defensive can as explicitly market as safety has downside upside downturns. to emphasized growth emphasize best explicitly organization as well always Mountain control and sought New risk industries therefore an

per XX, bankruptcy over million with our company effort. equity a of the NMFC credit. have XX share public about dividends as million in control Meanwhile, only XXXX rate total NMFC went significant more since in now started our equity paid dividends mission. loss or Mountain was of or we private of losses private credit. billion had and or interest Similarly, $XX we XXX arm we never had PE and history and founding both New $XX.XX XX XXXX gains Happily, private default in our portfolio total we equity just Risk the December and of than X.X% part an debt, assets ago payment of years had private credit $X of beginning both manages XXXX. have missed bought of a realized has since including in equity cash billion in have all.

greatest that you. our mistakes private in industry managers, belief the melts the beneath come equity investment when As credit or general is

in a fighting loan a example, with salvageable. not For to be toy may the store mall Amazon

in service even of However, It dollars a in that of a top to PE the optometry provides millions hundreds a sponsor company dental of a loan structure to is practice recover. a quality position, or better if even a has millions is tens necessary or high-quality which in top this. position equity beneath capital quality is a

mind, with was long in growth before defensive and believe risk-controlled hit. I COVID built industries NMFC

exposed X discretionary states, manufacturing, and consumer is total X% our leisure, products. portfolio hospitality, gyms, of the As to only home commercial Page in of heavily XX% home impacted About closed sheltered COVID building is about restaurants, automotive loan downs. by portfolio currently aviation,

which However, practices care these dental, cheaply the consists believe as to recover and of we reopens. necessary eye services dermatology country ultimately position are

in are tech-enabled might best repetitive enterprise loans NMFC’s be services as described as of such business software. bulk that great areas The

These Our users have the difficult companies day-in types are large ones all attractive in right their client growth bases and and often service we the of times. repeat depend particularly think times are day-out. on defensive in of installed who industries that

the of of non-accrual for positions. the XXXX. currently be anticipated per for this share. borrowers was investment March guidance ending background, Net specifics have placed QX placed previously which assets quarter that dividend let to turn QX on our their to income of paid $X.XX for per one one $X.XX our Every interest on high-end and of restructured XXXX is $X.XX Slide With our earning me junior non-accrual, of Only exceeding to asset both first XXXX. of at per of cash the $X.XX been XXXX Only share and share additional XX, X report. two of are tranches

of on per cash XXXX. share XX, $X.XX The regular XXXX paid was QX dividend March in

per share. net and movements value driven in $X.XX company Notably, $XX.XX interest XXXX of by XX, per overall the per book and portfolio credit $XX.XX underlying primarily share, by the share decrease problems in change XXXX March is valuations December, in itself. a the rate value NAV economy Our the not from asset was of

per QX $X.XX set was June of June share on share for income $X.XX of to net at investment XXXX $X.XX dividend record XX estimated on as payable per XXXX XXXX. XX, regular The be and holders to will of based

majority approximately million rather future lower strong the rates non-accruals. lower of and economy of to NMFC's interest change and needs. in The NMFC’s of by the quarterly expected fee is immediately driven liquidity by cash income handle by by position be income the $XXX significant currently have as liquidity base balance for generally, than available we deleveraging sheet remains to own transaction

been Manager as has highly supportive Mountain New NMFC. of The

$XX at revolving a to $XX million provided cost. have premium NMFC’s original stock credit common We the REIT approximately have NMFC purchased million in to a NMFC’s unsecured facility and we of

deferred also QX and have We QX XXXX XXXX both and payments. management fee incentive

strong Mountain, significant support New at NMFC including a Manager resources balance New sheet to further itself. The Mountain has

team very and NMFCs long-term Founder, of personal as to ownership I deep feel commitment Manager, approximately company I the to be largest management NMFC’s continue a Shareholder. shareholder XX%. the of with success and a

is because In COVID tragic crisis hopeful along minimize a prospects. seen COVID my financial life the work I competitive crisis, remain conclusion, career crisis. to team return future that the issues. maybe portfolio I day-to-day the way in still withstand I remain NMFC’s I've credit traditional want so advantages worst medical with in our its about to the the proud carefully With to did and of unpredictable. own said, building that in no

turn me CEO let Rob of that, to With back the call Hamwee, NMFC.

Thank you, Steve.

on seven and on impact and pages into value standard on getting quarterly income. and review are While of eight to crisis’s our our quarter, liquidity this asset detailed NMFC highlights investment like my on key detail time I net migration, asset leverage quality, the net more would and focus respectively,

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to $XX Page $XX of our per to a million million estimate bridge million income QX net to or per QX our or XX $X.XX share $X.XX gives investment current share. of preliminary from $X.XX $XX

of prudent Lower anticipated de followed sales, and by current see also decreased the activity. this and prepayments period projected decrease income asset are can believe NII origination in an repayment from we rates non-accrual. by You uncertainty, minimis fee characterized in NII lower in largest as is and environment the which modestly base

and first likely we are environment to crisis, three reverse should headwinds the whenever begins the normalize. become and While ultimately moderate during tailwind of remain earnings the length to factors the

turn Kline the business. of I over discuss John? to that, will it market conditions John With elements other to and

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trading levels an borrowers risk Secondary in the have premiums increase declined and stressed across board. also reflecting higher

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we of rates. are as LIBOR LIBOR expect to unfloored the further and as XX% rates. of earnings extent, X% Given borrowings, increases one, to benefit our To well floating well we be assets, materially with floors above don't from our exposure to limiting on the downside impacted floating lower LIBOR rate positioned between X% zero rising presence rate

addresses Page XX historical credit performance.

the fair are side million have where the non-accrual. show $X we about of current the value, we $XX which of state on billion at On of left investments the page of portfolio

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to will key it our over the that, With statements metrics financial Kajee and Shiraz discuss financial now to I trust. Shiraz? CFO, turn

Thank John. you,

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

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

debt X.X as our March times possible. we back XXst, earlier, our ratio to X.X X. ratio of as are of And to range getting Rob target times to soon equity as that mentioned to within X.XX was committed As statutory

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continue investment to net stable income the generate above We line.

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that, XXXX, our share, has June QX to on Directors holders paid a Board on XX, $X.XX be which of dividend will Given declared of record per of June XXXX XXXX. XX,

at billion debentures, capacity XX, financing end. over had total $X.X account Taking Slide guaranteed we On highlighted into SBA borrowing sources. we of our quarter various

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

our issuance, at near-term laddering successful As no we've our diversified we maturities we've currently maturities. been debt and have

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

Shiraz. Thanks

focus NMFC by and lending longstanding us months we quarters. environment, businesses the A to cautiously on ahead. well serve should the prospect in and years optimistic closing, the likely remain supported to In defensive sponsors about upcoming strong characterize recessionary uncertainty in for growth

our our your to you ahead. in more more of times. and and and and risks thank well for you the continuing again than environment. good unequivocally dialogue is once scenarios. health Wish discount challenging the these an We cannot believe forward maintaining all we suited in Our stakeholders look past current We transparent days interest with elevated open in are the model support for difficult all

back Q&A. to turn now to begin the things will I operator Operator?

ahead. [Operator Finian of Please comes question Fargo Wells first Instructions] The go from Securities. O'Shea

Finian. Hey,

Hi. Good morning. How are you?

there? in Hanging

Good. Good.

on and question want time. These earnings appreciating impact and first leverage impacts you you the with Just the color your course taxable over of gave transitory LIBOR. on out dividend, the pay income to are

Or a do might number? into a leverage Is impairment parameter? we about as change incorporated transitory as more such earning it how principal into a what should there of this, we view degree contraction permanent So fundamentally? think analysis more and this

Yes.

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Fin? sense, make that Does

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hop Okay. in the I'll taking back Thanks my questions. queue. for

Fin. Great. Thanks

go from ahead. The Kotowski next comes of Chris Please Oppenheimer. question

Hi, Fin’s – envision or? under you yes. discount meaningful you circumstances a raise a to guess, equity, you on just and would is scenario I question. mean, that, I can can what follow-up that

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have be be have to possible – every we We prepared to for potentiality.

Yes.

benefit. I for with Okay. a $X And fee $XX drags then of Page chart the wondering on XX, $X for how your and the million account of the you that. XX accounts up million, remaining you if incentive your can million guess of on up What would three? add around came deconstruct XX% I'm kind to

Yes.

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about and don't XX of anticipate have they're months shutdown you're talking if XX, liquidity, we that So right? that, businesses

six up. up broadly start things open let's these we and for January. months But We're actually things closed handful already of going a to to assume see in starting opening businesses say be December, are

of multiple billion name of got for big put anything. without who have with do having these to Again, the billion, top periods on sponsor equity $X the You've funds the sponsors are of $XX up that, coverage on sponsor liquidity structure. capital just And majority then you have the support.

starts in that, burn of to So of scenario. significant combination it's all liquidity even shutdown it a with a full the a relative but

All Thank for Okay. me. you. That's right. it

Chris. Thanks Yes.

Instructions] [Operator Lynch comes from Please KBW. The question of go Ryan ahead. next

Ryan. Hey

all Thanks team. hope questions you are and for Rob well. taking Hey and doing my guys

you. Thank Yes.

too. You

just of wanted XX several you particularly out that these say, that I as great provided XX, think presentation excellent. I detail guys' some slides was insights on guys a you of the into I your lot others guys to put and thought Slides well First, as real business. provide some

detail really granular appreciate you guys number level the So provided, one. of I

you outsized Number that your million two, if sheet, $XX you million and million looked when was then your position, guys it on looked X/XX $XX like revolver through had net New like $XXX had May. $XXX about facility, of your the capacity facility. XX guys because guys Mountain post-quarter Bank balance on by just the through million end And million mid-March, I bit wealth early million you repayments, can on May. you XX had liquidity a of Deutsche to it was early provide at maybe I as numbers, that of about confused you the little cash look decompose your

I would than a based So XXX looking was that liquidity numbers larger at the I felt million. the like have position the on been X/XX

of break So that what early can you the is composition just down XXX million May? in

that going to be the that cash, currently So honest the those cash be million drawn there's the and to keep we is facility. On Shiraz, – largely undrawn that then main a the going components. have little facility is that Goldman on are well the cash, the XXX manager but here, X/XX, have. the and to million me we we XX bit we pay And of down composition shut

the So those main components that. are of

have our XXX remember hundred that's facility, driver is was companies portfolio and that significant extent steps of between million And the a out there's that into can gets those to $XX the incremental basis there a repayment, And the which the And repayment, liquidity. deal couple what's difference have of one we we a main to excludes sold and week. in put near-term and million. we then assets, that the closing drawn the million size of new March next borrowing us on the obviously of and but the total facilities those in develop

any sheet no, put I assets guys, there borrowing increase you unsecured can of already the that have you would additional all? those but assume are that? level would at Do facilities given your into that debt is unencumbered you answer Or guys to the on base balance done

We've some we don't facilities are done some that are there extent some things are some There there there those made things things could fit. some they are that to are to – – unencumbered, – largely clearly to be are that. haven't that into are are unencumbered the There fit. ways things put that

think any assumption need that its fit to that properly will I and that incremental create follow-on creates in extent, Again potential right we fit working presumably that make but asset now sit the that things investments facilities. own So most are an have the easily that liquidity. we the flexibility, or of is to

there easily into assets, don't the but are point. this existing unencumbered facilities So fit they at definitely

going facility, bought supportive the fit a guys are to be the or including price markdowns tight, the unprecedented this you in Okay. to the wondering Had stock income. has increase negative so there waiving you fees when received first and the we've assets your leverage advisor guys, and sure, just quarter taken regarding to to actions higher a negative there's with the being net had, an times we're given considered up up have current [indiscernible]. portfolio given line been of discussions have have environment the big the those the line incentive any put the past lot first in quarter? in I'm BDC you lot In of fee you this write-downs the you of pretty I waiver, liquidity that offering, in, full you despite senior and think fee, that made obviously in given results guys incentive actions associated the been guys guys you secondary some were doing original past that

Yes.

company history left friendly. and mean eight we're a received of or said and company of stuck think not lot like weeks I I like year, we've I lot guess years, a And in for we're. to a our QX. nine for guess seven shareholder been but of So, doing supportive that a of the I haven't fee as QX, be or the think And demonstrated feels eight but we It things houses you of we've the have we all anything, to because into generally it. perceived – be I as to unfold crisis things just continue technically the kind that in the than also considering

on the lot permanent. And the what extent on tools think proposition depending transient a to I overall continue over economic how on I – thing more where right of become out think do table, we shareholders diminishes coming may the still to and we'll how value the quarters now the have they vis-à-vis works depending the the be

think going look our in at share to the I economic that of we'll certainly pie. overall terms of

is having it's is so from liquidity the day, payment would the mean, performance going I Okay. paid liquidity I very I the New standpoint, Mountain, important. say you would But performance that's during to be Yes. but incentive on performance fee. quarter quarter, you tight, incentive a eventually. are the have by it's quarter, negative Because, this with with poor of it's negative helpful in end made earned the moved and at doubt the that deferral no yes, a in all BDCs know still of not that still and advisor

the particularly a talk know Slide about within conversations we're helpful should and with on, businesses talk very in you that of slide. you but Tier retail equity private really the can retail good Can businesses, knowing you've some which needed this you more, a willingness is the are And having that Can ability businesses then may these caveat that X that eventually to very I one that and of return. the fluid about with situation of columns again healthcare we going those just the the but some need back to these column capital was or some of coming months conversations quarters companies the sponsors support about the have healthcare? early XX, you're potentially that had talk

provide? any be on for to helpful would early you So conversations

absolutely. Yes,

mentioned in four So healthcare working XA, the just period Chris, of all of liquidity time keeps retail they on yellow the companies things – not those column, closed really will unlikely companies unless up quarters. highly measured those years, in the as need it's very, for the just again there's not it's I very Tier with crisis the that maybe significant circle, one, in support businesses the a two in

that times, said will cushion. of those an because long-term businesses are That XX it's absolutely XX with valuable plus to they times businesses traded support at, sponsors they believe average they are that equity a that all traded These these they not cash XX% probably spoken and again businesses. those businesses all multiple question said, have we've at

question I health retail XA, company. about think don't care So the there's Tier any

and to XXXX bucket, things, have going the long measured the capital capability perception in make put can need it again, that But businesses, this lots have was to saying, as businesses to Tier that certainly three capital the saying would sponsor, those say in. measured certainly and closed it. years, they to and medium cheap, for but them that they're put in, the orange liquidity sponsors is XB, very high of into event Moving unlikely goes And that expect again, support again have quarters. don't they if share on sponsors, talk the they would to in multiple term, in it's strong in I are still but businesses we multiple you these to sense that they're but strong are probably they

statement. also it's logical So a they're saying but it,

to the in expect we And sponsors. and – red, in three then two their The of the control so issues. is positions put material let's three do one, two aside. is those the red $X really million weaker, actually sponsors it's position three two, the are because one the restructure. smaller But sponsors that really, it. It's own they're the have They that

business that lease Fortunately the controlling we'll likely the first although so year, wind we're in negotiations are up still ongoing.

company good other sponsor, in a but business. very also and And actually then a the one company smaller a is a smaller with red liquidity that it's the has also

to again down has indicated that that would support Just shut now and sponsor it, needed. like they if

is yellow. little acknowledge sponsor help? And so the liquidity have I up it a the would the Does and that a than and clearly orange not but expect have there, sponsor that one because you orange smaller we they restructuring, a than put to to be less

very is, and that informative. helpful that's detailed very Yes,

So appreciate I that. really

and So the time I and safe stay you all hope my up, those are guys appreciate really stay today all well. questions.

same you, thank you. Great, so much. to Thanks

over Mr. closing for back [Operator call no questions I Hamwee are to remarks. turn further And the Instructions] there will

Operator. you, Thank

being So that to thanks hope do safe for participating. in regular stays again environments do dialogue I to evolves. globe We everybody challenging look-forward everybody and world as said, these we the in as

bye. you with all speak So thanks everyone and will we soon. Bye,

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

now may disconnect. You