New Mountain Finance Corporation (NASDAQ: NMFC), also known as “New Mountain” or the “Company,” has released its financial results for the second quarter ending June 30, 2024.
Second Quarter Highlights:
- Net Investment Income: $38.2 million, or $0.36 per weighted average share
- Net Asset Value (NAV): $12.74 per share, slightly down from $12.77 as of March 31, 2024
- Management Fee Reduction: Plans to permanently reduce the base management fee to 1.25%
- Dividend Protection: Amending and extending the dividend protection program
- Credit Performance: Approximately 97.0% of the portfolio rated green on the internal risk rating system, up from 96.5% at March 31, 2024
- Portfolio Activity: $437.3 million in gross originations, $299.1 million in repayments, and $5.5 million in asset sales
- Loan Originations: Significant first lien loan originations contributed to an improved asset mix
- Credit Facility Repricing: Successfully repriced the Wells Fargo Credit Facility, reducing the spread from S + 2.50% to S + 2.15%
- Distributions: Declared a regular third quarter 2024 distribution of $0.32 per share and a supplemental distribution of $0.02 per share, payable on September 30, 2024, to holders of record as of September 16, 2024
Financial Summary:
| Q2 2024 | Q2 2023 | |
|---|---|---|
| Net Investment Income per Weighted Average Share | $0.36 | $0.39 |
| Dividends Paid per Share | $0.34 | $0.35 |
| Annualized Dividend Yield | 11.0% | 11.0% |
| Investment Portfolio | $3,227.3 million | $3,086.5 million |
| NAV per Share | $12.74 | $12.77 |
| Statutory Debt/Equity | 1.21x | 1.08x |
| Statutory Debt/Equity (Net of Available Cash) | 1.14x | 1.03x |
Management Comments:
Steven B. Klinsky, NMFC Chairman, noted, “Our second quarter results reflect another good quarter for NMFC. NMFC’s consistent book value and dividend coverage reflect the benefit of our disciplined, defensive growth strategy focused on end markets that perform well across economic cycles.”
John R. Kline, CEO, added, “We delivered solid performance with stable sequential net investment income (NII) and strong originations totaling more than $437 million in the second quarter. NMFC remains well-positioned to capitalize on high-quality investment opportunities in our core defensive growth power alleys. Further, we have maintained strong credit performance, improved our asset mix, and reduced the interest rate on our core credit facility.”
Portfolio and Investment Activity:
As of June 30, 2024, the Company’s NAV was $1,374.1 million, with a portfolio fair value of $3,227.3 million spread across 123 portfolio companies, yielding a weighted average yield to maturity (YTM) at cost of approximately 11.1%. In Q2 2024, the Company generated $437.3 million in originations, $299.1 million in cash repayments, and $5.5 million in asset sales.
Portfolio and Asset Quality:
NMFC primarily targets high-quality, defensive growth middle-market businesses, consistent with New Mountain’s private equity platform. These businesses typically exhibit characteristics like acyclicality, sustainable growth drivers, niche market dominance, recurring revenue, strong free cash flow, flexible cost structures, and seasoned management teams.
Portfolio Industry Composition (based on Fair Value):
- Software: 32.0%
- Business Services: 20.3%
- Healthcare: 17.7%
- Other Industries: 30.2%
Risk Rating of Portfolio Companies:
| Risk Rating | Cost | Percent | Fair Value | Percent | Weighted Average Mark |
|---|---|---|---|---|---|
| Green | $3,078.3 million | 95.1% | $3,130.3 million | 97.0% | 98.1% |
| Yellow | $87.0 million | 2.7% | $58.2 million | 1.8% | 66.8% |
| Orange | $59.4 million | 1.8% | $35.8 million | 1.1% | 74.3% |
| Red | $12.9 million | 0.4% | $3.0 million | 0.1% | 36.2% |
| Total | $3,237.6 million | 100.0% | $3,227.3 million | 100.0% |
As of June 30, 2024, the majority of investments in the Company’s portfolio had a Green Risk Rating, except for a few investments rated Yellow, Orange, or Red.
Investment Portfolio Composition (as of June 30, 2024):
| Category | Amount ($ in millions) | Percent of Total |
|---|---|---|
| First Lien | $2,017.6 | 63% |
| Senior Loan Funds & NMNLC | $376.0 | 12% |
| Second Lien | $290.5 | 9% |
| Subordinated | $106.8 | 3% |
| Preferred Equity | $224.4 | 6% |
| Common Equity and Other | $212.0 | 7% |
| Total | $3,227.3 | 100% |
Liquidity and Capital Resources:
As of June 30, 2024, NMFC had cash and cash equivalents of $119.6 million and total statutory debt outstanding of $1,659.5 million, with a statutory debt to equity ratio of 1.21x. The Company also had $300.0 million in SBA-guaranteed debentures outstanding and $498.1 million in available capacity on its credit facilities. Additionally, NMFC sold 1,562,122 shares of common stock under its equity distribution agreement, netting approximately $19.8 million in proceeds.
