New Mountain Finance (NMFC) 1 Mar 222021 Q4 Earnings call transcript

[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 Fourth Quarter Earnings Call for 2021.

CFO me CEO are John NMFC. of of Shiraz with of Klinsky, Kline, line , NMFC; and and NMFC New Kajee, the here COO Steve today Chairman President Laura On Holson, NMFC; of of Mountain Capital; was February and a COO has team for effective the member of credit to over promoted been Laura XX core XX years. ask statements make some he like to before regarding introductory does, important some call. but to Shiraz remarks, going make is Steve today's to I'd

everyone. morning, Good Rob. Thanks,

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

you quarter. Thanks, Net guidance. able December the dividend share, fourth a on Shiraz. fully covering I'll the NMFC start quarter both of all per was of Chairman approximately per major of It's that income great the as as highlights and investment fellow our above to share today for the covering address and $X.XX our $X.XX paid prior be shareholder. to in was cash by of XX

value our of a value, last asset and at net per was for share, QX continued $XX.XX Our per X.X% Edmentum share. appreciation by II estimated on $X.XX based share asset driven net again The positions. in per regular $X.XX dividend equity from quarter's XXXX was REIT increase set primarily net

As control Mountain's have downside protection always we been discussed New our previous on of mission. and earnings founding calls, part risk

Our of firm $XX assets people. manages billion team total now with a over a over in as whole XXX

private our an had or the of payment a have never missed work. equity in We history bankruptcy interest

defensive These business protection and secular with We acyclical we points team in strategy growth such credit a began have we attractive types in of by of portfolio and efforts. NMFC all technology. ones since difficult on particularly to industries this only enterprise XXXX. an our tailwinds, our same and average and focus well year default in We X defensive times right the applied as that are investment in sectors loans growth NMFC's the care believe to downside and operation software, net our evidenced is positioned due are loss be think continues strength times. basis are that credit and great bulk The tech-enabled health services of to services

origination market ratings sourcing Our share nonaccruals new increasing strength quarter lending our since active market broadly, of this a remained direct portfolio The given capabilities. quarter. of unchanged and record more the combined business the company last fourth for have call with represented we earnings risk no had quarter our generally credit and overall our

Lastly, a update discussed I on initiatives last the would several like quarter. provide to quick

strong we dividend. of support want our Given earnings dividend per share the and have remind not but our our needed program, to of shareholders existence $X.XX profile, we protection its

and start Additionally, NMFC program activities. NMFC's New net million and with Together, or in $XXX to shareholders. credit since proceeds Mountain's I it invested into of management at-the-market approximately our million stock off is over personally $XX November. Mountain nice as largest ATM New a launched have professionals remain

continued have Rob, back the John in sold and me share. months, last to positions turn to call and add With never have We that, XX to the I let our a personal Rob.

you, Thank Steve.

past risk portfolio we each update $XX company had the migration discussed maps to some summarized As the throughout crisis, issuer FX X in from COVID heat the of portfolio and broadly. have on the insurance scores million continue heat business have and map our We X. challenges on outlined faced more overall. COVID has well criteria migration as some this company headwinds to Page segments and X in quarter using believe show be continues positioned very this our updated space. the same we negative The on slightly as negative of services Pages net the XX Certain with

revolver orange map. we heat the these from performance with on yellow maturity, combined risk an our migrated upcoming to Given challenges,

We near updated with XX. are in Page is in map the and hope sponsor on shown have a The an regarding discussions to heat the update solution active term. potential

sectors our the portfolio's software, can economic public vast health assets no we bias like the of very services our landscape matter and perform to and care, majority defensive see, believe develops. positioned health how given towards to strong business you As well are continue

value. significant names, fair on at remaining which our energy to represents and our continue spend of We X% time portfolio red just and orange

performance in to positively leverage recede corresponding ahead, positive continues hopefully is Page map. months and the these the heat optimistic of impact momentum some on seen map. our several are of portfolio on as relative and these color the and the of based EBITDA credits underlying have credit to view pandemic to migrate shaded names the LTM our in company will benefit heat XX of We a that

As either see, in leverage the green-rated cases, majority increases you results with shown or, that vast minor can of underwriting consistent our exhibiting very leverage many are decreases. positions projections, have our very

we we the These and On for in of well-documented of to have more With red and believe economy. a all negative that, portfolio portion have reasonable side volatility improved that correspond group our From it conditions small which page, show X yellow, of market adequate to resources John XXXX. most X.X represent other drift, orange a partially I have by liquidity to that and companies a due of important to turns over the than the of underperformed, lower in their certain performance a perspective, that X metrics. performance right will the to pursue a post-COVID turn companies caused rated prospects business adverse names. companies parts of conditions have plans discuss leverage

Rob. Thanks,

rate we and fixed concerns, in year, this equity instability. many markets, interest of and the geopolitical far by income supply driven volatility have chain disruptions parts seen So

are secured rates floating given the healthy, interest that remains lending direct structures debt and to inherent asset However, class.

in sponsors increased a part powder of to seasonal While lull in amount significant weeks, normal of the XXXX. dry deploy as market activity recent first experienced in the QX, have direct lending we seen a seek has

tranches execution, expect of we the the direct trend this the overall in and for very and in as has prices believe debt single backdrop acquisitions. lending course continue we attractive lenders. its future capital share industries our Over Operating years, financing healthy last a sponsor for sponsors XXXX market, growth strong, loan-to-value which ease ratios resulting of few core of performance trends committed that across defensive has purchase seek increased remain for created to

for last as quarter, there lending solutions quality. pricing a have regardless evaluate tight spreads reported As is of range we credit that deals very similar most we direct

quality to rate XX is impact defensive dynamic, future of interest changes well presents little where plays financing incentive to in best-in-class our Page rate earnings. very stretch industries. how there analysis potential show base could on in an credit the which this we companies Given NMFC’s strategy

this than time recent for has any in memory. base Given increases, relevant analysis expectation the become more rate

liabilities As shown, assets floating loans our are while rate rate our fixed XX% and majority are of the vast rate. floating XX%

our its to expected to there the per offers is hedge and earnings Given consistent All and LIBOR mix, stable X%. interest offers NMFC or which annual rise rates under in base against the material investment U.S. X%. will shareholders months, income. near NMFC’s X%, if base XX economy. equal, all being scenarios rates which the where this positive to or rates share could rise upside across If balance next future, to happen optionality occur meaningful sheet things an in provides SOFR rate remain net above earnings return higher increase potential by enhancement $X.XX within This attractive X%, shareholders is

Page to XX. the recovered the over nicely the performance last we book began, X pandemic COVID of present value course portfolio We Turning years. since our show that where the

today, is of core debt on right been the than largest of in higher page. of the recovery are value an appreciation the book was equity driven it the our the value fact, increase our has which of portfolio by preceding fair This crisis. In X% health in positions, nearly certain quarter the and shown side

positions equity addresses continue and inception. solid operating increase could XX assuming Page long-term in valuation these to environment, performance NMFC’s a forward, Going credit value. since its performance supportive

at the X% the current portfolio we have of investments of the left $XX less nonaccrual. portfolio fair currently we $X.X or on On than side of million billion value, with the where show of page, state our

cumulative year over a over investments, Page On on our since chart course perhaps been tracks the the XXXX, remain $XXX million We IPO most investors. across the for Of page, period long since billion our which The the nonaccrual. only to to the the in of performance nonaccruals, $XX these metrics right Limiting $X.X manager. present of is XXXX. disclosing that company’s shows metric placed important NMFC’s credit committed our of transparently have million total become losses realized in performance we XX-plus time on have inception side of only overall XX its a history. losses economic credit

$XXX As million listing, $XXX paid fully dividends supported see since of of of our income. net been top you NMFC have by which has page, the initial shareholders, our investment to can million the regular at

loss is rates losses through primarily risk-free It XX a potential represents remain where Page highlight fraction date materially that have a total strong years nearly fixed dividend very equity which forward, that this NMFC lower items net have have million positions. half NMFC’s On XX just $XX of a very the realized environment million, we return losses quarter. focus inception, since long improvement income page, compound exceeded unrealized where of been of annual index of $XX in and and averaged the X%. have. its IPO last at as reversing on returns look payouts gains that a below-the-line detailing as less ago. well tiny chart to since we these XX.X%, to shows on generated we this stock return show remains an Over period, we peers aggregate has on a NMFC’s than equity we important as as from public has an is least we cumulative that of the focused which our high-yield BDC index as performance of

and well and compared more originations on environment very to call Holson months, track. that recent have Laura we I now income a current over to in fixed the recent and NMFC peers will details our risk for our COO, turn assets, Additionally, its construction. during equity performed discuss challenging the portfolio BDC to markets

John. Thanks,

our balanced exits, XX portfolio within $X.X record and for was quarter were QX keeping fully deployment XX well aggregate which of outline a the and previewed, platform NMFC, Pages diverse invested target us Steve direct and within As our strong origination range. with lending leverage billion. originations with

flow lead included originations club and companies. mandates, colead add-on investments portfolio deal and Our into existing

with X and month range. Page on the expanded targeting January highest high-quality momentum sourcing of February. of economy quarter by we book we Net within during as million, Since and continue and we new sourcing deals have We we leverage have niches our within great to the of XX, end, $XXX remain where our continued our conviction. financings the repayments, target shown success

fully well deal program. incremental Looking as repayments any our proceeds ahead, ordinary we to our course capital flow expect through loan as raised ATM any from absorb

evenly quarter-end in split our slightly our X.X% first-lien product, structure is QX while the to that were an capital Turning yield repayments shows our to net as where Page portfolio to maintain inclusive we and QX X.X% XX, of assets. show to interest originations portfolio migrate continued that between nonfirst-lien our and X/X sales are nature. lease our from first-lien, plan loans asset to heavily were in unitranche We increasing weighted NMFC's approximately the SLPs first-lien due average that sponsor up in Page towards with senior XX of investments of for portfolio, QX. the mix in consistent and increased

of the spreads is market income environment supportive deals investment remain our While target. competitive, for the high-quality net

of and these comes inflationary power Page the diversity these detailed insight environment show along an services within XX, of industry given believe breakouts chart the margin and exposure, the positioned The tech care the surrounding center into in to shows health sectors charts with give we overall while significant the NMFC's largely exposure. software, our pie We sectors. industry industries. that Turning well profile more nature pie are pricing services and

see, troubled industries, within the the all maintaining exposure you defensive have the avoided As successfully high most most can of U.S. while to we nearly sectors economy.

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

single X.X% technology largest obligor, performance tailwinds Our education as and the the due underlying space. value to Edmentum, appreciate company value strong secular in now the business of to fair continues in represents

Shiraz of account now XX a a building ago, that, case recovery financial of inclusive our business the drive top The With our reminder, investments realize Edmentum fair model Kajee, study for will we our to statement. we it SLP and Shiraz? value. over years of many to great upside. funds discuss employed to XX% that a to CFO, business a is turn I As total equity significant capabilities structured and

you, Thank Laura.

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

quarter. of total to to portfolio line. turn above $X.X that performance. losses with investment at attention be $X.X income of our ago. line, and we is NII ratio value highlights the up of of credit XX. the to had and was impact On drawn I'd the Slide billion $X.X X.XX:X. At losses our the XX the dividends. and our cumulative December below results. appropriate fair statutory total assets our minimizing Slide our asset from historical $X.XX We XX, which billion special million current the $XXX $X.X The net a net leverage most $XX.XX was NAV from stable billion, XXXX, the December This investments value Net billion of cash generate available years that would maintaining prior has SBA-guaranteed balance debentures. slide forma that Now dividends, the for debt excluding ratios $X NAV of XX, at liabilities statement like value billion approximately the was see of of Consistent On pro show of show we total for your share adjusted be we outstanding IPO with and on our per sheet, were XX, surpassed debt-to-equity stable ratio NAV income long in quarterly historical from leverage depths recovered X.XX:X our statutory and book volatile XX, special adjusted and quarterly goal has of over our measure and gains continue while believe term, unrealized almost you will realized can Slide COVID,

from decrease XXXX XXXX, net a for income a discussed million, December as years. ended quarter-over-quarter. quarter the a fee on increase XXXX, investment approximately slight $XX.X the to investment $XX.X management committed X.XX% million, XXXX calendar of were expenses adviser Total quarter. and And XX, total of the has Focusing prior slight

and quarterly to of It during This dividend. weighted dividend to $X.XX per period adviser this fees per investment note reduce is to regular fully results which incentive We the that fee waived. average share in or the fourth placed needed have per exceeded important as share, support if quarter our recoup cannot previously NII million of QX share. $XX.X $X.XX $X.XX our also

quarter, Slide for of assets our summary annual in unrealized net with a On of in appreciation net give to XXXX. XX, like quarter result XX, operations December of I'd $XX.X resulting increase from performance ended brief an the a the As XXXX, the for million.

For XX from predominantly regular dividend December In in paid share million. Slide ended income net investment This operations $XXX XXXX, in of net had million. more ended XX, total demonstrates $XXX expenses of XX, in the and a approximately recurring XXXX. in cash. our or in results total, nature $XXX per $X.XX XXXX adjusted total assets covered the million approximately million and for which resulting year with $XXX total than XXXX, weighted investment net income investment total year December net income paid of our $X.XX is we average total increase of

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

to Slide Turning XX.

earlier, briefly dividend. quarter on per Based our discussed estimates, expect preliminary our approximately $X.XX exceeded As share. NII will fourth we NII be XXXX the QX for our QX

our dividend declared our QX will XX, On on paid to Given record XXXX. XXXX, of of we quarter total over $X.X $XXX per highlight account SBA borrowing $X.XX subject million shareholders capacity Directors various XX, base debentures, to Taking share, be on billion end Board lines that, our has March XXXX XX, March Slide of of available guaranteed with sources. a revolving at financing over borrowing which into limitations. we had on

upsize closed decreasing maturity revolver, we management quarter, a facility points. in $XX basis NMFC while fourth XXXX, pushing our our spread to amended XXX extended out and the company materially by the million applicable credit on During and our

to underlying the time. a Deutsche any As facilities the marks investments at generally of Bank are lend Fargo and operating our than the covenants businesses to both given that credit of Wells rather our reminder, we performance tied

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

at been our maturities liquidity matures to our issuance, XXXX. debt successful laddering and we've of As we've our debt over XX% better manage after diversified

million continue in retire can to to a most to the maturing explore in various our access I cost-efficient markets over further multiple current unsecured have the maturities we We to the with that Rob. capacity back note our With to $XX July investment-grade debt we revolving like ladder our us call ratings that turn unsecured facilities. manner. provide that, Furthermore, would credit in comfortably credit

in closing, In are for about Shiraz. the prospects NMFC and Thanks, years months we ahead. optimistic the

to health an your of our and transparent by continue look dialogue wish strong growth turn I you focus on ahead. will good supported things in interest, forward again to and support and continuing serve lending to with for you now businesses days maintaining long-standing all Our thank should once begin We Operator? Q&A. to us all the open sponsors well. the back operator to stakeholders defensive

comes first from Paul KBW. Instructions] [Operator with Our question Johnson

So Mountain Mountain couple know any made guys about slightly be there or on would last on year-to-date? you you quarters, New of Adviser. with the I alongside you equity investments or in private quarter developments Have last there? any the making discussed the Is coinvestments just the New

Yes.

I We've debt has of see of a had -- We so promises. haven't lot over last to one And capital. our multiple been strong. capital. be the so far We going degree, course available investments some on. quite the selective. XXXX, year-to-date. But quarter origination make going been just our to in also traditional nothing early a We're to be expect So of but no did it's function to would also available

higher, color investment? about from net going then just then be guess, I and growth kind your, from program the that and on if asset how of of that the talk I'm affect there? the rates return intentions class little class? rising a would Any benefit lease profile sort curious also are you asset yield Sure. just helpful. And the the just And what bit does that rates wondering I'm could with

a Yes, question. it's good

really So as attractive out as down. double-digit appreciation been I gotten go cap well the the significant of net us mean income as very of we've lease an current as return capital source space program has rates in incredibly it for both

Obviously, of increasing cap recently, -- So which although have, two, around, hedge, assets, we of very of of excuse me. premia things, low; the rates the real a the start and the decreasing as been cap as turn rates, and as X until an because hedge estate risk see some function value value risk continue an to rates inflation rates of have very base investment are premia. risk -- right, decline we to

So possibility the the a of we monetizing of are, portion though, portfolio. exploring material

extent So that. new exposed we extent are not rate not exposed the that we're in to so the a we're to cycle to

think our well there'll if more both say So of and have the XX% returns But income equity you across in the about portfolio north over of XXXX. appreciation total I that to the investment. been be course of factor current

performer So a very very, good it's been for us.

And nature. Appreciate more portfolio, it's your that. in and then know I defensive service-oriented

curious inflation just or guess I'm companies seeing I So of of companies flow types expect today? like those do that, and kind see we through generally maybe for you're does what how what to more

especially Sure, Paul. think We sciences material. software, on you hit business I lot I John. of life technology-enabled This financed it. is a services, mean

look protection our well inflation So environment. think to businesses businesses so these across pricing all really will think inflation. growth-oriented our in not I with they the just there's think but think we last against that when saying general, that if I'd competitors, an to I'm yes, have we in characteristics portfolio our you regard power. really no think given inflationary are up businesses I mentioned. good really suffer I and impact, about very And like I They're stacks

And portfolio, that. the that of you've that one several is appreciate is for years your just you the over curious, in this talked have an EBITDA know of me. guys so? time I'm course over the last I about don't you have past. did that the last changed And if for or portfolio today? I average something But

modestly that mean, up. have the want I’m I would on see, flipping larger. gotten just I I as businesses say can dig some – to would let’s balance, I we But say have just data So to We make – sure.

bit as all a we’ve comfort think a we into market. spots. larger I middle upper think are call the deeper the our we those today, I And in little about on of seen deals take sweet unitranche talked in lot businesses. private equal, the penetrate else And

so been there. participating we’ve And

so but low cover from, million $XXX-plus borrower, increase multi-hundred average the million call EBITDA million that $XX-or-so the revenue on we of all And the will our the end, the way end. EBITDA EBITDA, on waterfront up modestly still it, higher of borrowers of to dollar

Our Hovde next comes with question from Rowe Bryce Group.

how wanted just here today million one may an the whether comment so little in it secured Shiraz around a obviously and 'XX. position going are given and up maybe $XX bit? think of any with made, a like in just tranche versus a just level base notes on early where feel secured type to you that about a comfortable 'XX of keeping thoughts bit small on -- moved there I from Just the spreads up ask you of on little that how have upcoming There about shifting about sounds couple unsecured more looking have unsecured into unsecured been you due facilities to So more you're those rates may market. rate notes possibly of higher instrument these moved unsecured? comes obviously maturities a a are eye want for the feel that get

the capital. unsecured it. expect at crack I the mix. provided we would by think change like the We to take really materially don't I'll flexibility do a

X%, XX-XX and and going or up X that mix we're be move it that have, wake to we minus by not roughly day but plus unsecured. XX% So XX% may secured

incredibly between we will unless markets think we're cost running So the and and are to it's just flexibility evaluating got cost. flexibility, constantly marginal the with think versus And us very we're roughly maintain ratios marginal both we trade-offs I right but open cost the prohibitive, now, today.

part activity Okay. stayed about by wider new pricing? if sound great, typically spreads just a you you've whether Rob. competitive in didn't the pricing, of necessarily been what seen in in environment question any And here of and there's have active the really or sales. like and all do in seen Have some offset any then 'XX, but terms shift repayments or early shift it, you tighter the you That's the being kind in just maybe curious of of

of I that competitive, just haven't and in seeing we market. deals really the spreads we do say, the where any the like. the seen remain market sectors And kind general pretty equilibrium kind we've environment last John material know in at of No, of largely more largely seen I equilibrium but high-quality definitely largely deals would in moment. talked the those due in couple changes. the is about quarters, consistent to broadly we're think,

are dynamic some it so think, are ultimately we'll mix, absolutely they I'd is a thing interesting see. time, through a not of I spread that, only SOFR lived in total The low if materially X.X, Yes. long year, to nearly spread that, haven't think, LIBOR, year, and again, and I my to but back you'll I course all return people add of X, be, turn? really above is Or over and the like X, to the next think of in it. it's the question given But starts gets getting will we as even maybe early guess interesting one see have that compression, an Xs

Yes, how plays comment. out shorter for It sure. see be will the the especially rates and appreciate year. I to this interesting end

you. Thank Great.

Instructions] question-and-answer are Rob remarks. closing This for like to further to I Hamwee back session. would no questions. [Operator There any over turn conference the concludes our

everyone. thanks, And you. Thank Great.

and As and the attention support. time always, appreciate the

you. here speaking quarter. answer we’re a to day. Thank again know, look course if questions and to the next Have you forward quarter, directly great As everyone to always of not over the

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

disconnect. now may You