New Mountain Finance (NMFC) 8 Aug 232023 Q2 Earnings call transcript

Hello and welcome to the New Mountain Finance Corporation’s Second Quarter 2023 Earnings Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded.

I would like now to turn the conference over to John Kline, president and CEO. Please go ahead.

afternoon, good and you everyone. Thank Mountain Welcome earnings second XXXX Corporation’s to New call. quarter Finance

line today Capital; On chairman me of Laura with the here Interim and and Chairman NMFC; CFO of Holson, Vice COO of are CEO New Hamwee, Mountain Robert NMFC. of and NMFC Klinsky, Steve

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

John. afternoon, Good Thanks, everyone.

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

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

turn slide and some to on slide time, Chairman, to copies this website give X call, highlights the like www.newmountainfinance.com. that our Steve? filings over obtain Steve who will of latest page would throughout access at SEC I call NMFC's be this visit the beginning To will to please presentation. of our Klinsky, we presentation referencing the at

the per regular NMFC's It's great XXth. for was a and dividend our net $X.XX paid as in than per Chairman fellow as all June to Laura. both cash share investment shareholder. you quarter income share, to more second was covering on Adjusted major Thanks, today, $X.XX address able be that

last Our year earnings improved of QX over sequentially QX XXXX. $X.XX of and by $X.XX, compared to

Our strong positioned at right our industries credit stable remains particularly in net our well think that attractive economic are defensive compared less and certain demonstrating across continued quarter, we portfolio. growth in all asset value to We loans per overall last times. believe share performance $XX.XX times in are

never New of had billion the missed have a interest or Mountain's assets. an equity private payment, now bankruptcy funds manages over firm and $XX

its on inception depreciation this gains of XX XX a we chiefly Similarly, net as as rising the our our since years be substantial lend rates. unrealized investments. books for to rate quarterly the With presentation, only million $XX earnings, positive on across end all shown realized environment page floating continues since of of over on QX, experienced of credit NMFC has ago, of

XX we constant. page regular presentation interest $X.XX continue shows, current hold our of factors As rates per share expect dividend all the other to if outearn to significantly at

is and record guidance. may excess on The the of XXth. make holders paid will in in additional quarterly to equal which our Given all September balance these half share supplemental our the the we variable NMFC sheet our which of per earnings the XXth $X.XX. future. raise regular $X.XX our of excess total the dividend in the will share dividend amounts to will second $X.XX to quarter, QX $X.XX of this $X.XX high will as remain of distributions per This dividend at in previous of on dividend September per earnings share, of be of consecutive out for end this pay quarter, approximately our is of earnings supplemental remainder

current XX%. dividend annualized just of yield Our an dividend at represents over $X.XX

QX. to forward Looking

$X.XX of we elevated base expect dividend, supplemental continued of the of strong This dividend by In share and the in Mountain incremental performance regular payout NMFC of and rates. our payable to our believe team. expected supported per addition quality credit is generate is driven variable by to We $X.XX $X.XX to QX. strength a New

utilize conviction that And investing now digital and overall our of growth credit is allows attractive and very supplies, expertise firm has unique as such Mountain growth us defensive When industry high numbers the experts group New pursuing to XXX engineering. developed knowledge underwriting we in services life software, efforts, members. decisions. technology, acyclical that specialties science information healthcare, our sectors provide sectors, to make extensive informed, infrastructure

our have of overall continued the team. to Over expand we the six quality last months,

major Finally, total management has NMFC's shares approximately been and management ownership we over time rising NMFC. shareholders and own Senior of of personally. XX% as continue we as employee share now

that, to the Thank call Steve. me turn With John. you, let

afternoon performance for and strategy Good offer joining us I to like on you today. metrics. our Thank would again, details more some overall investment everyone.

of on conversion. Starting niches margin and industry to by durable page are free drivers, revenue our These industry predictable sectors. diversified X, a list defensive exposure streams, non-cyclical and great flow selection, cash growth highlight disciplined which we sectors stability characterized shows

and have to high-rate today's could challenged We environment. volatile which in cyclical, secularly industries, invest avoided successfully areas be riskier

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

where of income shareholders virtually of all distributing to avoiding show Page delivering our long-term our X shareholders. snapshot by record to our we and a losses provides yield consistent, a of enhanced high-level track business, excess

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

of approximately is in for the good to paid business. the last of is Our companies price current purchase portfolio are and well that industries XX% performing dollar our exposed where risk

and who of to platform owned we equity that capital companies great the able that capital attract to indication last healthy with primarily junior have the that valuations sophisticated This business to a XX% credit times. sponsors, capital bolster across additional loans portfolio our XX businesses and significant is are in liquidity is Notably, even attracted in to by financial supportive make. general well and pursue This over lend been of has companies We months. our owners our investment, portfolio additional deployed M&A, more challenging performing are consists are support to expansion. that

to internal the our ratings risk were quarter-over-quarter. Turning of stable X. portfolio relatively page

continue approximately of We our risk our portfolio green XX% to within rating. have

most Our of represent at average only within approximately categories the and on red and names fair challenged by have red our X% orange orange book marking value, NMFC's at $X.XX. names our $X.XX we and our derisked names

downside levels, our in risk represent do these its material The our entirety XX. At valuation heatmap to is future updated names value. book on page weaker not shown

to are towards landscape business how orientation software, to sectors Given and believe well healthcare, no matter economic continue perform like positioned our services we develops. the portfolio's our defensive assets

Our monitoring significant performance of and continues our time spend team to names. and non-green energy assessing

do majority believe yellow, of are some these time. have those ability migrate to over rated there present, particularly performance companies, While green we back the the headwinds to

the was of we names. and per Steve Broad movements quarter in credit the during Starting market a regular mentioned Turning QX. by orange share. a markdowns and in credit driven on left, and for graphical dividends analysis a overearned provide value NAV $X.XX tailwind the $X.XX represented $X.XX as decrease we red book primarily changes. supplemental XX. to page specific book movement value as by earlier, tightened spreads

would at of fair NAV were book green-rated at at we be note keep if current to actual our all value X/XX. portfolio of that to our loans to important $XX.XX, value value, our and of the par It's compared $XX.XX the balance

NMFC's Page XX non-accrual addresses performance.

X.X% side term. the the the older $XX much fair chance left these portfolio, are portfolio in with the the we billion medium show value written state good have most of from of the the have On at of or exiting million have materially we current of on page, $X.X of currently been down non-accrual. and vintages where of a portfolio investments names,

to worth tranches stake is in business. performance. on stock. new preferred cease we the but business, when our strong despite which had that older ownership the diluted the warrant, Unitech noting caused is was Unitech accrual It certain on increased a The which list recapitalized preferred, this of ago, money underperforming, Years recent NMFC

the is tranches more Today, now write-down that of on million, which older the preferred. $XX on at warrant books than NMFC's offsets held

the On $XX on all of million. of we achieved has net and $XX cumulative the inception, investments where show performance NMFC page, right realized positions our gains since of side made credit billion

with of our income consistent XX, consistent distributing showing we NMFC's present value economic nearly and investment all IPO, predictable delivered that principal value is net of and preserving overall On since compelling page This performance our dividends. proposition through have returns. we quarterly

net $X billion Cumulatively, NMFC dividends netting million of billion $X.X million generating unrealized gains, shareholders shareholders. total cumulative realized value of $XX only of while created depreciation, over paid for to has net $XX to in

very index been a return strong least period, have compound public equity of as have. chart XX returns since both of and its which represents flow-oriented an XX%, high BDC a a has stock index yield long Page in IPO. NMFC who return peers, we as NMFC's annual of the pound generated excess shows cash at Over this detailing

will Interim call to current turn portfolio construction and discuss Laura Chief Financial our Operating results. now and our financial Officer Chief I over the Holson to Officer,

remains Thanks, pockets of selective. the loans attractive for lending the have John. the We down very while at flow to sponsors. the and we believe XXXX is activity, direct remaining available market there lending overall, in be market opportunity rest for are deal financing positive, outlook the direct to the continues where sponsor-backed of primary market while make yields

magnitude the started dry We in medium-term for weeks. the have of and see private for given recent powder deal M&A, to remain bullish new equity activity pickup on outlook

M&A. also levels, loans significant portfolio majority leverage capital companies accretive contributions pursue representing vast the to opportunities the compelling equity to of deal see below seeking peak well-performing existing, good structures. to remain levels structures We and to with continue sponsor meaningfully incremental make

increasing the presents Page NMFC's insight provides rate interest on base analysis effect XX rates positive that of earnings. into an

As is floating XX% XX% our XX% and rate NMFC rate, portfolio loan fixed the and fixed XX% floating liabilities while a rate. rate reminder, are

rates to long rate lower dividend If curve than the liabilities. our projected settle still versus shown we structure and on of as XX thus have saw mix, our positive base basis equal. close expect increasing we investment would bottom current on the an about to all our average In SOFR capital rate X% our about this rates. rates with Given QX, the material in points current assets average we SOFR base of exceed else exposure area, SOFR follow chart, regular levels, are and on to income the X.X% and X.X% net average

Moving sheet. our new as our XX. $XX we quarter the at of we invested on in page assets during QX, fully million Notably, sold or above activity. repayment order the limited on to delever we $XXX during In opportunistically balance originated with were million about about to marks origination activity loans of quarter,

several to was range leverage felt prudent past target we of our modestly Xx the end the it of high and quarters, delever. For to operated at X.XXx

of minor our ability has regular impact the Given dividend. the environment, deleveraging not high outearn our base rate to significantly impeded

into discussed some that see in capital continue sight of market few into have should highest deals. line we and the available I for provide deployment As our overview, to compelling repayments opportunities conviction a

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

into and Assuming positions drive valuation of to to rotate positions hope book supportive these the believe yielding equity increase dollars in and value We solid operating term certain a continue these appreciation. environment, those could and performance assets. value monetize the we in cash medium equity

attractive Page average our longer XX.X% Generally base due net income portfolio for rate NMFC's in XX target. curve. QX, speaking, from the investment of to XX.X% in to QX and that primarily for increased shift the remain the higher has support spreads shows yield

credit highlights the trends underlying scale XX our borrowers. Page and of

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

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

to and portfolio an portfolio. values last continue current average XX%. to leverage relevant Portfolio has quite been interest value to across the the be quarters. consistent stats and over the the over loan compelling company loan several leverage of has just show also coverage We

The M&A but rise. declined to rates, move SOFR an seen From We company coverage expect reset last base John note average the to continue on perspective, portfolio outlined modestly coverage do we've from support coverage modest interest quarter. X.Xx continued interest we've sponsors rates interest proactively seen compression as slightly X.Xx and today's that lower to at as contracts liquidity activity earlier. weighted

account XX illustrated on a represent as SLP conviction The XX, Finally, for value XXX of and our across funds top our companies. page names. have of highest XX% portfolio investments fair diversified we inclusive portfolio total

now results. financial cover I our will

that with SEC. our filed please more on quarterly evening report refer last to was details, Form For XX-Q the

on assets value $X.X of total shown about outstanding billion XX was of fair slide June had of billion, guaranteed debt at portfolio As at $X.X million which $X.X with of in $X XX, billion, billion the investments SBA liabilities debentures. total drawn and total excluding $XXX statutory

or was with compared we our our At ratio Slide the to asset value results. previously. balance flat billion mentioned the end, to $XX.XX cash net statement X.XXx of quarter I of per $X.X sheet deleveraging statutory Xx, net to balance available Consistent sheet. prior XX, X.XXx quarter. show was and quarterly Xx share a debt-to-equity on On income

income The interest increase investment from total rate of primarily $XX.X earned million resets. from million, by quarter. the base driven increase $X.X income we higher prior was quarter, current the For

approximately a increase our debt. $XX.X $X million rate higher expenses due base Total on quarter-over-quarter net million, rates to floating were primarily

reminder, fee if fully XXXX support a to has investment committed a as X.XX% advisor needed $X.XX intends period to quarterly extend advisor also and this its commitments for these investment of share advisor one dividend. each year. The the during reduce calendar by As has The the year. incentive per pledged fee regular of to management to the

expect earnings do forward our of need business, advisor not waived. that advisor on dividend cannot of note the and previously important the to investment protection power it we based program, fees is the view recoup investment to this the

exceeded meaningfully regular of QX dividend weighted NII $X.XX share. adjusted per which quarter was share, $X.XX per our Our average the for

and We recurring investment shows income income in paid consistency [indiscernible]. nature, As Slide quarterly fees over our is of quarter earned our this regularly on given historically this XX% our the is is demonstrates, see and XXX% cash. investment income of that over the total predictability will minimal of of income. XX average, in you stability recurring our believe XX%

generated Importantly, green-rated over of XX% our from our income quarterly is names. PIC

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

adjusted share. our quarter by per exceeded NII This regular QX $X.XX dividend

again For will of a has on to a declared as September of as regular QX well XXXX, record share, shareholders our dividend on Board dividend which Directors be of XXth per September share, of paid supplemental $X.XX XXth.

exceeded $X.XX, of dividend supplemental the dividend a earnings XX% regular the regular As QX dividend. are out dividend pays paying any a at our regular reminder, program dividend. our excess in by least of of QX we Since alongside our supplemental earnings $X.XX

capacity available various financing sources. On an into $XXX debentures, to Taking quarter Slide have $X.X tailwind base rising debt and rate our our end borrowing subject SBA billion base to XX, XX% million we the be mix limitations. guaranteed we had fixed account, highlight revolving we at and debt, of fixed rate on lines total with environment. floating of a earnings this rate continues of in valuable borrowing

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

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

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

the later capacity For the facilities convertible notes month, utilize XXXX this will our revolving on to that we existing repay notes. mature credit

to As maturities. year, XXXX this upsized a help our earlier we XXXX notes convertible address the reminder, proactively

further to access various unsecured manner. ratings the that investment explore us our our we cost-efficient provide in credit Additionally, most ladder multiple markets continue to grade to maturities debt

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

Thank you, Laura.

confident in we shareholders. our great believe to on of XXXX, we portfolio investment out balance returns deliver look of the track the to are we our risk-adjusted As over remain quality and

support your of with and forward dialogue once again, thank all open stakeholders. things look and an Operator? transparent maintaining to begin now for turn to Q&A. will operator our I back We the you to

from [Operator Instructions] Group Bryce Our ahead. [ph]. comes question Hovde with Rowe the Go first

Hi. guess, good now. afternoon I

Bryce. Hey,

value around marks I of wanted and John, hey, the moving kind to orange wanted on names lower fair quarter-over-quarter. maybe the start comments on start the to on red-rated the --

lower your going to if conservatism fair or part portfolio there's specifically on of values. curious within a of Just companies on measure those something kind the just

environment. Sure. at I majority really think couple in we've quarter. the the portfolio higher our down. NMFC, that a just pleased of a was marked say guess, and performing they're be way about of And When they this weaker. interest we in are as what great There little the quarter, continue portfolio in when result, vast companies this rate been those to think it look we're a really is weaker, names I'd we with have we a

the the the have as we and good weaker it's so and simple is are names earnings that. few that. think reflect as really And is there good, really are think And that news a solid, I just really portfolio are to I

Got it.

kind selling just John. in investments comments pace trying sheet to around That's of then And to out Okay. leverage. and the some balance quarter the just the sheet possibly originations operate that you to helpful, market? Are opportunistically, in in you've of then range target reduce able balance of this to being set. thinking kind and but wanting you're certainly leverage sheet less balance how invest understand Thanks. about of leverage with

at a names and comments. the shot little Sure. the golden really lower the And sell, I that a I'm X.XX. we're just a we're high of as to middle we think flexibility. so I was now some good Laura where to in of bit prices, we at middle every not some of being achieve more very quarters, may we at of be think really mentioned, at Laura that extra end high we of end can yielding have had we at take but could opportunity like were it comfortable additional see And bit number range. a financial did I sure just the end a little appropriate our the that, quarter. felt range.

So and I expect going this our see. between very I think we're forward, comfortable to certainly, within operating X.XX, business to and that's what think be we'll and continue should you range. X.XX

John. it. great, Appreciate That's

thanks. Great,

ahead. from Our question with Go comes next KBW. Ryan Lynch

Hey. afternoon. good

commercial was, and had broadly portfolio? stronger can been your you of and lease give how I to question an your a being maybe lease going estate you not First net and fare, talk about us weaker been have office what Obviously, holding that overall, in sort net about obviously there's if discussions lot you just your could there's on your up? maybe sub-positions that's update real has of positions. portfolio and how are just of one the allocations But

yes. Sure, talk to like about Very much that.

So, when mission by operate portfolio. occupied lease thesis. of they're which we are many the the that property businesses for big we underwriting critical think a companies, need to that's a and is by own about lot sponsors. of assets strategy that And net of our owned part

the And assets, assets, of negative so or office think of about that Wall lot asset Street the has a a warehousing. about it but to things when the it's of classes lot you character exposure exposure Journal. we really in industrial the real read it's any no

assets where problems mission-critical about we we are leases. environment, good that feel the well massive even which And of asset is we owned long-term in areas do entering this different class, see an So, real and that by estate a class. asset strategy, into they're in is businesses that know very

that a there these lease long-term mentioned, just properties think valuable payments contractual have And about valuable. when make you gives They I we are our escalators more that every hopefully, So sense. leases.

our a it’s so good And portfolio. part of

obviously looking now? weaker And that are very helpful. changes, space, some are Are That’s this potentially more going with real out, then and Okay. or what some in guys there’s of guys estate dynamics opportunities playing is at given you of through kind the set sectors right some you space strong there’s sectors. kind you obviously, commercial some then have

And on as that We uni-tranche sheet, to we balance that's becomes like on backed opportunity plan we into have capital we loans. available what assets the invest we the balance position in great sponsor long-term our the that capital see that a direct we lending sheet. think net do. triple lease And that to own

I would way that question. the that's answer So,

Can to obviously it's some healthcare how having just labor overview, just one. contractual And you your services last us know speaking, rates maybe is broad portfolio broadly with I maybe performing? fixed costs broad a one a overview that's be give do of higher potentially sector a and of from but that, some could insurance. then hard challenges kind

love to fundamentals just get six improving, that So, they update I'd and three trending? to maybe months portfolio the is then Are ago? performing worsening versus how an are on how

you Capital one strongest mean an healthcare been think space really I Sure. yourself And Mountain verticals of differentiate a as start. probably can healthcare has New investor. I I I our for can think clearly, is that overall.

might So, add comments to some Steve that. addition have wants he in to

of our think I do practice between that better are physician we've credit than businesses. physician but have portfolio about nice within the some and when delineating I practice management healthcare type a management we So, really maybe done others. some services, job think sectors

dermatology, When and say exposure businesses dental sector, I are our would and do these look it's to have generally overall, really where mean, I et but a cetera. sectors and these to matters. we that lend reasonably so operationally-intensive at execution the I in well. have performed businesses. care we eye portfolio some

right say kind relying performance backing aggregate, the of as mindful sectors. And Capital tried expertise would we've us about on Mountain in New wise, we said, probably we been winners within in help the think I a that performance the as pick stronger And little that healthcare. in-house to have sponsors lately. within be I of to has bit losers So, these really and

seems definitely wage that. about you pressure do the of it's We've It's anything Steve, we seen that margin. gone, sector. services had healthcare But but to want previously not at some like add improving impacting seen the it the just

the owner for very thing operators. say and been I has technology very, many life best deep would space is I of equity very science the firm for private areas as years. no. one healthcare in one guess, We're our

ranked CLO many were example, markdowns of if to bad on our how from good the you distinguish try we where top safety, we're look for up very think, high distinguish at portfolio, because can and or I So, names.

it. just don't equity private let's say, credit. it's lot and use and we models that try we healthcare both a Just in There's specificity of to do for the healthcare,

that there's lot That's Understood. a I in me. individual time I all of portfolio. in the today. appreciate each there from nuance understand investment

Great. Thanks, Ryan.

[Operator Instructions] John to wait additional the any We'll further back for the closing a moment no for Mr. concludes any session. question-and-answer would this now questions, over questions. I like Kline to turn With conference remarks.

Great. conference day. Well, our thank you forward and a thanks great quarter on look will we November. much Thanks. speaking quarter you place to call, everyone, our who very to joined in second to And Have third today. us call on take which

attending This our Thank you presentation. for concludes conference. today's

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