New Mountain Finance Q2 Earnings Call Highlights

New Mountain Finance (NASDAQ:NMFC) reported second-quarter adjusted net investment income of $0.26 per share, covering its $0.25 per-share cash dividend, while net asset value declined modestly and non-accruals improved from the prior quarter.

Chairman Steve Klinsky said the business development company’s net asset value was $10.89 per share at June 30, down $0.03, or 30 basis points, from $10.92 at the end of the first quarter. He attributed the relatively stable book value to portfolio credit performance, though the quarter included a write-down on non-accruing borrower Convey.

The company’s board declared a third-quarter dividend of $0.25 per share, payable Sept. 30 to shareholders of record Sept. 16. Klinsky said management expects net investment income to continue covering the quarterly dividend in coming quarters.

Credit Metrics and Portfolio Activity

Non-accruals at fair value improved to 1.5% of the portfolio from 2.6% in the first quarter. John Kline, President and CEO, said 88% of the portfolio carried the company’s green risk rating at quarter-end. The red and orange categories, representing the most challenged positions, both declined during the quarter, while the yellow category of modestly underperforming investments increased.

Non-green investments were marked at a weighted-average value of about $0.67 on the dollar, Kline said, reflecting what management views as substantial de-risking already incorporated into portfolio marks.

During the second quarter, NMFC originated $73 million of investments and recorded $105 million of sales and repayments, according to Laura Holson, the company’s chief operating officer, interim chief financial officer and treasurer. Holson said the activity left the company effectively fully invested. Yields on new investments exceeded those on repayments, partly due to purchases of discounted secondary-market positions.

The portfolio included investments in 113 companies as of June 30. About 80% of the portfolio, including first-lien investments, SLPs and net lease investments, was senior in nature, while equity positions represented approximately 6% of the portfolio. Excluding SLP and net lease fund investments, the company’s 10 largest single-name issuers represented 24% of fair value.

Kline said portfolio diversification remains a priority following a portfolio sale completed late in the first quarter. Management expects potential exits from concentrated investments and smaller preferred and common equity holdings to further improve diversification and reduce PIK, or payment-in-kind, income.

Income, Expenses and PIK Exposure

Total investment income was $61 million in the second quarter, down 11% from the preceding quarter. Holson said the decline primarily reflected a smaller, more senior and more diversified portfolio after the secondary sale.

Total net expenses were about $37 million, broadly unchanged from the first quarter. Lower interest expense was offset by the resumption of an incentive fee that had been fully waived in the first quarter. NMFC’s effective incentive fee rate was 15% in the second quarter, including a voluntary waiver of $1.4 million ahead of a previously announced permanent reduction in the incentive fee rate to 15% in 2027.

PIK income from investments structured with PIK at origination represented 13% of total investment income, while modified PIK from amendments or restructurings accounted for 3%. Investments generating non-cash income were marked at a weighted-average fair value of roughly 95% of par, and 89% of that income came from investments rated green, Holson said.

Buybacks, Balance Sheet and Financing

NMFC repurchased approximately $9 million of stock during the quarter at about $8 per share, representing an approximately 27% discount to book value, Klinsky said. Year to date, the company repurchased roughly $66 million of shares and had about $80 million of remaining repurchase capacity.

Klinsky said future repurchases will depend on excess capital and keeping leverage within the company’s stated range. He added that New Mountain executives’ ownership rose by 100 basis points sequentially and 400 basis points from a year earlier to approximately 18% of shares outstanding as of June 30.

At quarter-end, NMFC had total assets of $2.4 billion, total liabilities of $1.4 billion and net asset value of $1 billion. Its net debt-to-equity ratio was 1.11 times, below the midpoint of its target range of 1.0 to 1.25 times.

The company had more than $2 billion of total borrowing capacity, including approximately $830 million available under credit facilities, subject to borrowing-base limitations. That capacity exceeded its roughly $160 million in unfunded commitments and 2027 debt maturities, Holson said.

NMFC completed a $150 million private placement with a delayed funding date during the quarter and, after quarter-end, extended the maturity of its corporate revolving credit facility to 2031. Nearly 60% of outstanding debt matures in 2029 or later. As of June 30, 89% of the loan portfolio was floating rate, compared with 74% of liabilities.

Management Sees Improving Deal Environment

Holson said muted merger-and-acquisition activity reduced industry direct-lending volume in the second quarter. PitchBook LCD data showed second-quarter volume declined approximately 55% from the first quarter and 13% year over year for the first half of 2026.

Still, management said it sees signs of improving activity. Holson cited a substantial backlog of potential private-equity exits, sponsor dry powder and an increase in deal activity in recent weeks. She said spreads for sectors viewed as insulated from artificial-intelligence disruption had stabilized around SOFR plus 500 basis points.

During the question-and-answer session, Kline said NMFC expects some smaller equity positions could be exited over the next quarter or two, while management is pursuing monetization opportunities for several larger holdings. He said the timing remains uncertain, but management believes a number of the businesses are performing well and could be exited in a manner that adds value for shareholders.

About New Mountain Finance (NASDAQ:NMFC)

New Mountain Finance Corp. is a closed-end, externally managed business development company (BDC) that provides customized debt and equity capital solutions to U.S. middle-market companies. As a BDC organized under the Investment Company Act of 1940, New Mountain Finance invests in sponsor-backed and founder-led businesses that span a range of industry sectors, with a focus on companies demonstrating resilient growth and recurring revenue streams.

The company’s investment portfolio typically includes first-lien senior secured loans, second-lien and junior debt instruments, mezzanine financing and equity co-investments.