New Mountain Finance Corp Q2 FY2024 earnings call

• Adjusted net investment income of $0.36 per share covered the $0.32 per share regular dividend, and a sixth consecutive variable supplemental dividend of $0.02 per share was declared. - Plan to permanently reduce base management fee and extend dividend protection program for 2025-2026. - New Mountain has over 250 members, manages over $55 billion of assets, private equity funds with no bankruptcies. - NMFC has low net realized losses and paid over $18 per share in cumulative dividends. - Portfolio in defensive growth industries, senior management owns ~12% of shares. - Direct lending strategy in diversified defensive non-cyclical sectors, minimal cyclical exposure. - Portfolio internal risk ratings improved, 97% green-rated. - NAV change due to core credit performance offset by declines in Northstar and Edmentum. - Non-accrual performance: ~$3.2B in investments, $44M non-accrual (1.4%), adjusted to exclude $54M UniTek preferreds. - Cumulative credit performance since IPO: ~$10B investments, average annualized net realized loss 12 basis points. - Economic performance since IPO: ~$1.3B net investment income, $69M net realized losses, $30M net unrealized depreciation, $1.2B value created for shareholders. - Sponsor-backed M&A picked up but below normal, defensive growth verticals active. - Syndicated markets open, direct lending still preferred. - Q2 originations $437M, repayments ~$300M. - Asset mix rotated more senior, average yield 11.1%. - Borrowers' weighted average EBITDA increased, leverage decreased, interest coverage flat. - Diversified portfolio across 123 companies, top 15 ~41% of fair value.

Adjusted net investment income for the quarter was $0.36 per share, in line with implied guidance. Net asset value per share was $12.74, roughly flat with a $0.03 decline (0.2%). Revenue contribution details not broken down by product segments as it's a finance company focused on direct lending. The portfolio has exposure to defensive growth industries, with internal risk ratings improving to 97% green-rated, and key performance stats like weighted average EBITDA of borrowers at $180 million, loan-to-value at 44%, etc.

• Q3 regular dividend of $0.32 per share and variable supplemental dividend of at least $0.01 per share payable in Q4 2024. - Plan to permanently reduce base management fee to 1.25% for 2024 and beyond. - In 2025-2026, incentive fee reduced to 15% or percentage needed to achieve adjusted NII $0.32 to support regular dividend.

• Uncertainty around variables affecting variable supplemental dividend payments and financing spreads. - Market conditions and economic factors impacting credit performance. - Syndicated market spread compression and supply-demand imbalance risks. - Second lien market being out of favor due to unitranche preference and tight pricing.

Q: Any ATM capital raise below NAV and posture if stock reaches NAV again?

A: Small subsidies to ensure net NAV on ATM shares, will continue to utilize ATM program to invest in direct lending loans if stock trades well.

Q: Color ratings explanation, Transcendia's green rating.

A: Transcendia reset to green post-restructuring, color ratings reset based on restructuring.

Q: Size of one-time dividend and recurring income.

A: One-time dividend ~$2M, other income increase due to portfolio velocity. Over 90% of income recurring historically.

Q: ALM strategy on swapping fixed rate.

A: Swapped investment-grade bond issuance to floating rate, will continue evaluating case-by-case.

Q: Second lien market outlook and returns.

A: Second lien out of favor due to unitranche preference, tight pricing, relative value poor. May consider again if market improves with lower base rates.

Q: Pipeline and M&A timing.

A: Pipeline decent for back half of 2024, M&A activity may pick up in 2025.

Q: Support for restructured equity positions.

A: Credit team involved, but operating change driven by private equity team.

Q: Origination activity PIK utilization.

A: New originations have small PIK flexibility, plan to reduce PIK over next year via refinancing catalysts.

Q: Add-on deals in portfolio.

A: Largely M&A-driven, buy and build strategy, refi activity also involved.