New Mountain Finance (NMFC) 9 Nov 222022 Q3 Earnings call transcript

Welcome to today's New Mountain Finance Corporation Third Quarter 2022 -- my apologies. Welcome to today's earnings call. [Operator Instructions]. I would now like to pass the conference over to our host, Rob Hamwee, CEO of New Mountain Finance Corporation. Please go ahead.

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

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

Thanks, Rob. Good morning, everyone.

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

dividend months. address to Chairman U.S. Net the investment as cash both paid for great and fellow more quarter be economic as that in major It's was today, share, good report difficult able believe, third shareholder. September we per recent to Shiraz. on $X.XX despite you a of was all Thanks, NMFC's news to the per have income conditions I than covering $X.XX share our XX.

asset overall think net individual share, believe, on some just the Our macro value helped growth rising offset we interest such in rate that as right as positioned are existing and on industries was X.X% $XX.XX conditions of rates a the in loans. despite positions Haven well are environment per today. loans the interest impact or attractive all in challenging of $X.XX rising decrease times our We defensive particularly gains

overall now including in per private default credit year a never of experienced $XX and net an our firm just points manages basis missed payment, had Mountain's loss or New since funds, interest began have the billion have our funds X Similarly, assets. efforts we of bankruptcy equity NMFC, XXXX.

maintain fees other calendar end through needed, XXXX. of words, current waive if $X.XX for per share, we the the rising. have the quarterly protection, to from this chiefly our can are that we forward, which are our increasing going $X.XX to announce been on positive Mountain, rates New And earnings Looking to fourth the will per in give dividend share, quarter. as at manager, year for rates, rise we substantial dividend a Accordingly, floating incentive be interest level up pleased the least land since in forward

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as engineering. New also key CEO NMFC Mountain XXXX, effort continue I information Chairman lead before. Vice X, And is effectively to a and as attractive rising XXX overall, overall we as now this firm Committee, within its effort will health Investment been care has January science continue and sectors, Mountain pleased this who working and team as Kline, we growth, John announce NMFC promotion. also credit Rob John members, specialties technology, such continue the the leader key infrastructure and and of developed services of since defensive have I to life that as of helped where growth named supplies, numbers New our will XXXX. of and Managing Talent digital has Chairman. the has NMFC end, Directors Hamwee Rob, are be team. as software, acyclical

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Steve. you, Thank

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structure capital mix, increasing LIBOR thus this Given we to have exposure rates. and material positive long are

reported at than we on reset lag last experienced quarter, a liabilities. As our assets our slower cadence we a have

to compared upper third on liabilities, out pace played rate assets points. right lag a of XX that this timing drag at resulting our the of the how we of increases during negative show in where side a On basis occurred the page, quarter, slower

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

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performance portfolio. been the elsewhere losses on next in default gains tracks page, its Page economic by offset the IPO chart realized have on XX the shown XXXX. company's since more than As The overall in

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

general gain $XX.X valuation page, On we quarter of this inception, $XX that where driven have which market. since below related by about widening on which increased million the depreciation which cumulative net by flat we changes This the offset spreads on in of we by is focus realized quarter. lower our largely cumulative line show is to was in million, blue, basically risk half unrealized portfolio, the $XX.X a realized gain of million, items, highlighted with last cumulative the

of and unrealized $X tiny net fraction income how stands just net billion page, remains our IPO. On of generated million, the we yellow, realized at we which bottom cumulative have since of in investment loss $XX the show a the that

indexes As and Page maintaining strong stock the rates shows XX compared public credit over and Holson, an of returns historically at generated the loss least index look chart years construction. best-in-class been return have Laura well that will and details materially this of a X.X%, NMFC's throughout more exceeded forward, year, BDC NMFC equity XX very as represents this now small equity its I team focused detailing a favorably our most a recent discuss an call long our as cash we have. been has have IPO performance annual This current index originations our remains since on of to NMFC's as environment cumulative turn ago. COO, very on period, Over risk-free which that has we reversing portfolio. where in return over flow-oriented has to portfolio to high-yield the as quality low. compound peers

John. Thanks,

defensive fully on consumer shown high keeping core repayments almost million invested As We of software, our Page growth modest primarily sales, in we originations these us XX, and of verticals, leverage the funded and amount end $XXX range. with and a services including originated services. our QX target in business at

of the continue issue. the has targeting end, to conviction the and remains overall the to somewhat economy but continue sourcing success great expertise. We have consistent, where and we have migrate high-quality quarter activity been to with deals market borrowers direct to highest new niches as Since market more deal lending the syndicated close

As always, remain credit widening a opportunity set. are we highest and on on focusing the in opportunities selective extremely quality

remain repayments. as any invested from to absorbs deal in leverage range expect loan target proceeds We flow our our ordinary course fully

of lease of with equity page. largest Page our of of more are of net are right senior to prior XX. which comprised X% slightly that of and Turning nature. investments the on is the is the asset side where show consistent quarters, our in than We the mix X/X portfolio shown inclusive lien, our Approximately SLPs first positions,

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and income continues QX, helps benefit which target. in remain proceeds the curve. equity support Page yield favor to of realize to our XX.X% supply/demand the average Haven from to As net portfolio we forward expect NMFC's be a as that the over of QX Spreads the due to example investment we this for shows XX QX. XX.X% and increased largely imbalance discussed increasing LIBOR near-term the earlier, QX of wider lenders,

breakouts show industry Page XX. We to of Turning NMFC's exposure. detailed

further industry diversity care enhanced significant We health disclosure software, within provide to have insight business our this our quarter more into sectors. and the services

cycle. largely nature along has needs In we these tech have the our our these cost focus As high and with we structures. we chart view, why sectors well and in characteristics inflationary believe developed stated, minimal such any environment, comes the differentiated profile CapEx working as of the EBITDA and flexible operate and sectors the expertise with in services given industries. power that confidence economic margins, cash we margin The demonstrates domain an team pricing attractive capital flow neatly and have on, shows positioned are

as on the following a more As of free we will I result, interest rates touch believe, rise, most page. cash interest cover our have flow which sufficient to borrowers increasing burden, on the

avoided sectors nearly U.S. volatile We this quarter to the well economy added our of more can perform XX trends macro highlight troubled most the high of defensive that exposure and most successfully industries We in the in Page borrowers. underlying the have we statistics to while within scale credit all the environments. believe maintaining

average $XXX you the our can weighted has increased EBITDA million. of quarters see, several last As over borrowers over the to

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

We we flow as today. is growth portfolio on think also weighted has to as show an lend coverage and has perspective, cushion. we average just current Loan the average cash to be portfolio been focus stats Xx we've profiles I on decent mentioned base rise. seen rates an interest the continue relevant the north portfolio. free consistent. coverage characteristics modest the From quite interest to compelling, compression leverage loan-to-value coverage the and XX%. earlier, themselves Leverage largely still values But interest The and across industries of the of of

total funds, Financial SLP Page I to Officer, on With diversified as financial investments, it XXX over represents Shiraz conviction names. The our companies. illustrated of over we Kajee, inclusive turn our Chief portfolio now the discuss value to and portfolio Finally, Shiraz? account XX that, across will for a our statement. have fair highest XX, XX% of top

Thank you, Laura.

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

debt or asset Now billion I'd At September with was total like debentures. $XX.XX of portfolio debt-to-equity $X.X X.XX:X. $XXX or XX. at had and over value investments $X.X fair total quarter. liabilities statutory to of total prior The down $X.X statutory SBA-guaranteed XX billion, of our turn million was your billion excluding $X.X attention at the Net $X.XX end, of outstanding which to billion, per drawn value in X.X% quarter from Slide $X share billion ratio of was assets

credit over IPO This statement far our of on net On Slide cumulative can target balance realized years cash our our line, most ratios is current impact income available back we minimizing X.XX:X, we the while for maintaining our quarterly off continue net that for net dividends. XX, On NAV adjusted NAV, that book sheet, unrealized We results. dividends that volatile generate of be performance. Consistent and of However, with ago. historical is special not below we goal from long stable a leverage XX above show will over measure stable the the to slide believe you the historical range. is of and see to quarterly leverage leverage losses our NII gains highlights Slide show the within and special XX, our line. appropriate our and term, losses investment NAV the income our value adjusted

due on a higher $XX.X $X.X net fee to $XX.X increase current income income to in higher rates For rate of by increase quarter. the This total approximately interest primarily were lower was $X.X quarter-over-quarter earned base floating our million million, due income rate Total million, from million resets, investment expenses debt. the the from quarter. we a base prior offset quarter,

the years. adviser fee for and investment has management to a the XXXX XXXX of calendar X.XX% discussed, committed As

of view use if pledge. that as pledged power $X.XX or QX share, a per per the recoup earnings expect of $XX.X as We net of the regular from period average NII to dividend needed, net cannot in weighted $X.XX income resulting this but unrealized assets to This exceeded Slide Based the investment not to have our incentive results It in is quarterly increase fees total reduce recurring of of we our share, demonstrates, previously waived. $X.X do also of XX per $X.XX in fee, support forward note million. important our quarterly an our during this dividend. of the operations XX% investment this the The fully result million and depreciation adviser share to quarter. which business, is quarter new our on

over nature, average, income this stability is regularly XX% cash. investment We is You over believe, in and shows income quarterly will see XX% paid historically, consistency on in predictability our of recurring our and on income. of our average, the of

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

program While NII needed. the dividend, coverage could additional protection QX dividend exceeded provided our have if

we mentioned, share. excess our expect previously QX will As our NII based of per be on estimates, in $X.XX preliminary

account SBA-guaranteed on various QX end Given total to or million that, borrowing we be has XX, Slide $X.XX Board highlight of XX. increase per a of subject over taking declared will quarter base X% on per $X.XX borrowing holders December available sources, into We our On of limitations. share to to at dividend financing our capacity lines, record paid Directors had $XXX $X.X on almost our in billion debentures. share, revolving with XX our which December

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

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

maturities the continue manner. would most like to private we've on will further back successful maturities of cost-efficient be X-year Rob. laddering issuance, With a manage our repay at tender quarter to to that, the XXXX or $XXX investment-grade at XXXX, will convertible call provide I credit been million over access successful placement to due us XX% turn proceeds Post in As note other for Furthermore, be debt of after a XXXX. we our we've the to that convertible diversified liquidity, note explore indebtedness. fixed better our issued over our used we outstanding to markets our X.X%. unsecured Proceeds matures and residual to ratings and end, rate our ladder various of in multiple any to used debt debt

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

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

[Operator Instructions].

The from first line Bryce question today the comes from of Rowe B. Riley.

wanted in given so start rates maybe the have a dividend. that the level dividend Nice put seek dividend a paid? fact, on some might it to the place stream. favorable comment to coverage the will, I the in earnings $X.XX. on to on Will in you Maybe in cushion excess of impact perspective, rise see and could of thinking how here dividend bit the future maybe here to especially you uptick from the you're little about be

Page to a as yes. little stay of for Yes, want bit little the on set with operate business so we the think going a shows stay slide think elevated dividend. all of coverage I way a you we the prospectively are period It's And the the some good gives and a they to to -- rates to, certainly but XX you sense to of is time. NII where up long question, material where

dividend our a to NII. the the intention run from meaningful to business with cushion certainly yes, So the

Rob. on maybe a that, follow-up then And Okay.

thought conditions go all within so floors you maybe of perhaps point but any higher and your they now in rate interest down transactions? are newer maybe of going the at seeing higher terms you right future, In now, originations. that up within some seeing With the with terms are back transactions? the floors type Are rates

haven't floors The No. really modified.

Now dislocated. overall spreads that is the are higher, the market

protection of So but deals, spread call hasn't higher the on floors. not base benefit just rate, in just one getting is the materially the changed of higher term generally. also better terms new and But that we're

from Ryan the from comes Lynch KBW. today question next line of The

congratulations John, the deserved. And Well promotion. on

deck. really -- The great other guys I a of you guys nice improvements have the congratulate -- first a on a complicated had you deck, one. made just wanted I question slide is but have love slide always also to really guys kind you I recently. My love

can of see to I and you those So kind show on I want trying to assume that of of the in was rates hopefully using XX, to was if me XX Slide in back kind effective kind your if envelope from combination. guys Slide it this. -- X.Xx your went to floor in follow excuse math do if LIBOR down X%, that of QX looks interest around rate it from through effective rate And to I LIBOR that X%-ish some on you XX, went of XX on your QX X.X% coverage have around you me, Slide Slide X.Xx. X.Xx like X that --

about rates in coverage increase, point decreased XXX-basis your a by around X.Xx. interest like that's So

potential reduces rate point end that's the versus third quarter, effective If I your coverage so you're rates, envelope XXX-basis interest at X.XXx. coverage was that of rising the by the And forward of my back a to the where roughly curve of points about increase, XXX equate which X% talking at it's almost about today your interest about would math X.Xx basis from at versus lower X.X X.X%, X% of today. X.X, the look

getting So interest to closer coverage down that level. Xx you're

There's guys below coverage the have just guys significantly average. have meaningfully probably that, interest course, that. who coverage and Of interest that's above

thinking kind just quality, And about, across your not are credit but space. math investors that of this how BDC the is the in portfolio so I think of

in pretty Now over we're talking is specifically, portfolio for your rates the substantial interest about coming up a year. increase positioned to hold

envelope portfolio? your the on And quick do thinking of back how So I'd as the about should well my rates. investors as you be your love to rising from in hear impact commentary that of sort feel math about how

inordinate it's been a of actually there. great Yes. I'm details get of some amount spending Ryan, into question. exactly that time an question. on to focusing Laura? Holson Laura We've the going let

time say, of you it's I a kind as that. as out, the agree. portfolio. It's and would Rob there's sensitizing we of I question. that as quite couple And good a said, No, isn't math lot laid a for draconian something what reasons the Yes. of across spend think

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sense can of a mentioned pull a comfortable the of other underlying direction. in the portfolio, you fact portfolio gives as the in -- this companies just it companies, there's the lot event items well levers to all I as that migrate we that we're there's of continue that think rates the the of hopefully, and within So why around characteristics

on about, capital on calls, call would and given that are our not to everything to sponsors which stays in sponsors fund of structures, to this the as kind else junior analysis cushions but reflect, of with step up is. in structure the So and sizable if XX, prior cost here. values Page that cushion on as both the the we you overlay think on think, side we growth I again, that time additional helpful, help things then do we is think point provide And and and -- the static, is that as again, a the side coverage. doesn't well lot while And just equity debt talked loan levers, and the something that

So some about hopefully, thinking it. sense we're for how that gives you

of of glad third what private so the I'm you trends It year-over-year companies sure in gives that from a you first had guys growth your had a there's growth software decline excuse July We've kind sense. X.X% months. some earnings profile. quarter for lag, another I'm and you or X% not on portfolio? report seeing are know basis. have, the the on some companies data care some -- statements. in a Yes. give particularly earnings out revenue current up in sort and curious, EBITDA just -- you of X decline the that And and health growth then from index the a months middle-market brought overall me other August, there index shows first a the X% decline quarter, and me, perspective month-to-month sort I I'm had are of technology seen guys financial what businesses monthly X

to quarter? what sort of about to data And prior most Are of hear, information? I'd love talking guys of your you recent seeing what talking data? I'd hear as we're sort you of love the sort what -- about we sort in any are Or the portfolio trends are current timeframe so about? of monthly talking And

borrowers would quarterly I us financial provide info. say, with Yes. most of our

QX. going full report of a and portfolio all material So within from we numbers QX seeing to companies, our start have week to companies portion next X weeks, the then we're of

on bit in talk growth. handful industries given don't a little But obvious services is of which is And line given nice area are the mix it's and nature, for far, continue to price bit. think tech numbers have say power saw the the I off margin and growth that volumes we QX so that and is the the line top largely but that very staffing, But in borrowers news side. we I of anything. really a then costs, are that right? of reasons. side still the ability within pricing the see volume, that, starting raw which lot Again, sectors costs, we It's the come that just flattened even actually price seeing numbers freight to if a have get top watch trends. in So to meaningful just I the would about on, aggregate, we'll the we're little again, seeing good seeing still on have on, inflation maybe a supply-chain and -- we're bit a labor more material to costs, the that focus which can anything strong of we of extent QX like inflation wage little around improvement and

still But relatively that to ability fact the of we're would begin that pressure. top little us little from line concerned bit summarize, but pressure, again, of margins I bit to and gives I say, the a So we're a margin nothing in high withstand margin aggregate. very strong about, growth with, to starting EBITDA if had

Okay. That's helpful.

wanted so interest growth at indexes revenue So largest been -- to companies, if the but for That's index. down is year-to-date, has I the mean and that coverage book sort does sector. your equity we and what completely not of EBITDA public software covered the trends. XX% and so -- software-related it like look that's I hear, just what understand, I

in to for have I'd have mean, they your been private multiples so And current love companies? much if that How does hear, middle-market software anything, And year-to-date? kind doing? portfolio compressed of businesses what what

want you do John, to that one? handle

multiples XXx in think saw to software, the all of, to I'd last use When the we Thanks, to when trade questions, think to Rob. public it businesses Sure. easy, market really year, we And happy about we revenue. on Ryan. handle many make for where I'm be multiples cases, about good in revenue great that. going businesses, XX just and software thanks

those to seen really come to So businesses this Xx year, low lot good in we've revenue markets. level -- as for a multiples down public the XXx of to to the

would buying year. many Xx revenue. XX% of in them cases, last through so we attachment unitranche case in better still, they're whole lot some to on businesses, loan to where points a paying when our looks were that X sponsor X like total a a cases, be And lot And value and, relative revenue, loan that. a to still our trading see great XXx to generally to software bargain clients worst maximum a than average, So these world-class businesses

I summarize, the is lender right in at top that multiples problem, it decrease a structure, yield. software a more the to really public of capital than is So earning good market's much in think a for unitranche the problem

just really quarter upgraded to the appreciate mismatch Again, trajectory of But kind the of Slide deck. both That's resets does. for also kind XX the have you updated the show slide -- third appreciated helpful earnings your the a great And always that the slide longer helpful. of from term what and guys LIBOR super kind slide, I Okay. I in is rate

for all that's today. the appreciate me So I time.

for Thanks, the it. appreciate Great. We Ryan, and comments. thanks

[Operator Instructions].

follow-up a Bryce Riley. from have We question Rowe B.

call to get and Sorry did asked. the thought, might they have belabor here. more a I couple

Let's see.

are the unsecured facilities feel little you kind notes repay In terms comfortable those? a Do on exploring debt how -- that can tackled are What's upcoming the you maturities, notes just the convertible this drawing of of unsecured you're larger credit here thinking point, kind XXXX? to truly about of in here. of bit coming due how market? offering Or talk one at kind the obviously, with you've the about you -- down

ahead, Shiraz. Go Yes.

we're now. are open, the is markets. very The Yes, closed It's is The they now. not but unsecured at think, market mean, rates attractive I on are. looking what right always Bryce. Yes, I the right unsecured market bond side,

We've think, the item convert confident. that's we coming sort year. due feel of We've tackled done. I the got major next

year, And availability as we're on maturities touched delever some coming we on up of We briefly lines the part it of take confident, that's earlier terms we to those. In could we positions. our evolving we also, feel get repayments have the earlier. of potentially the business coming enough and care in of

that's we something to well now have care unnatural. feel like right the So without for to having we to on as maturities enough of take us table consider. But do levers

Great.

terms one realizing Okay. me. year That's you helpful, guys some And Shiraz. I have then mean, more a gains. had for of maybe in good

curious that And so position. just estimated 'XX? spillover late over where are a now stand Or level some into event we here, Is of an or carry you distributable right 'XX bit of talking -- kind from about that early can 'XX? of kind you of

not have portfolio. real the our much we gains mean, some had losses prior that. to so estate of earlier right from We Yes, years did this I now. from year offset

right medium year. that into positions think, the earlier sort equity any next of going could bit some -- just few be in do spillover. term, now, Laura position. But on created potentially that above touched spillover year, we a flat, really of nothing was the there but we're have like So next not materialize we feel that not a little We flat, in big if we a but

closing Please questions Thank like you. pass over meeting this for back There additional are ahead. so time, I'd go to any to at Rob no remarks. Hamwee the conference

And again, it. Thank you. everybody, for We their do really once thanks, time. Great. appreciate

otherwise, ahead. months You and look for Have a everybody obviously know find Thanks. forward weeks potential day. And any to the to follow-up. where us in great speaking to

all conference today's your participation. you for Thank call. concludes This

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