• Adjusted Net Investment Income: $0.34 per share.
• Regular Dividend: $0.32 per share.
• Net Asset Value (NAV) per Share: $12.62, a decline of $0.12 or 0.9%.
• Variable Supplemental Dividend: $0.01 per share.
• Total Investment Income: $96 million, a 2% increase over the prior year.
• Total Net Expenses: Approximately $59 million, a 9% increase versus the prior year.
• Portfolio Fair Value: Over $3 billion as of September 30th.
• Statutory Debt to Equity Ratio: 1.26:1.
• Non-Accrual Investments: $37 million or 1.1% of the portfolio.
• Average Yield of Portfolio: 10.5% for Q3.
• Investment Grade Bond Issuance: Second $300 million bond maturing in October 2027.
• Revolving Line Availability: $896 million.

• Warning! GuruFocus has detected 4 Warning Sign with NMFC.

Release Date: October 31, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Adjusted net investment income for the quarter was $0.34 per share, exceeding the regular dividend of $0.32 per share.
• No new nonaccruals were reported during the quarter, indicating stable credit performance.
• The company declared a supplemental dividend of $0.01 per share, marking the seventh consecutive variable supplemental dividend payout.
• New Mountain Finance Corp (NASDAQ:NMFC) has a diversified portfolio with 97.3% of assets rated green, the highest level since 2020.
• The company successfully issued its second investment-grade bond and reduced the spread on its Wells Fargo credit facility, improving its liability structure.

Negative Points

• Net asset value per share declined by $0.12 to $12.62, reflecting a decrease in book value.
• The average yield of NMFC's portfolio decreased to 10.5% due to a downward shift in the forward SOFR curve.
• The company does not expect to pay supplemental dividends in the coming quarters based on current market conditions.
• There is a higher than desired level of PIK (payment-in-kind) exposure in the portfolio, which the company aims to reduce.
• Sponsor-backed M&A activity remained below normal levels, impacting deal flow and potentially limiting new investment opportunities.

Q & A Highlights

Q: Can you provide insights on the decrease in leverage within the portfolio from the beginning of 2023? A: Laura Holson, COO, explained that the decrease in leverage is due to a combination of factors, including constrained leverage due to interest coverage and the types of businesses being underwritten. The focus remains on loan-to-value ratios, which have improved, providing a strong equity cushion.

Q: What is the strategy regarding the reduction of PIK (Payment-in-Kind) exposure in the portfolio? A: John Kline, CEO, stated that the reduction of PIK exposure is expected due to the maturity of investments made three to four years ago. The plan is to replace PIK repayments with cash-oriented assets to reduce the PIK ratio to below 10-12%.

Q: Can you explain the discrepancy between the income and dividends from the Senior Loan Programs (SLPs)? A: Laura Holson, COO, noted that the discrepancy is primarily due to timing-related factors. The SLPs continue to perform well, and the dividend variations are due to underlying nuances in the portfolios.

Q: How are you addressing the current spread environment for new investments? A: John Kline, CEO, mentioned that the current spread environment reflects a tighter market with lower deal velocity. However, the pipeline is showing signs of normalization with average spreads around 550 basis points, indicating a potential improvement in deal flow post-election and into 2025.

Q: What is the company's approach to stock buybacks given the current stock price and NAV? A: John Kline, CEO, emphasized that the stock buyback program is in place to be used if it benefits NMFC and its shareholders. The company is focused on strengthening its performance and is open to using the buyback program if deemed beneficial.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.