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New Mountain Finance Corp (NMFC)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 delivered steady results: net investment income (NII) of $34.5M ($0.32 per share), covering the regular dividend; NAV per share declined modestly to $12.55 from $12.62 in Q3, reflecting minor marks and stable credit quality (97% green; no new nonaccruals) .
  • Liability optimization and deleveraging progressed: statutory debt/equity fell to 1.15x (1.11x net of cash), with $1.146B revolver capacity and opportunities to refinance 2025 maturities to lower rates, positioning earnings resilience if base rates decline .
  • Portfolio mix continues to skew senior (≈75%) and yields improved to ~11% on higher-for-longer base rates; weighted average borrower EBITDA $184M, interest coverage 1.8x, loan-to-value ~41%—supporting credit durability .
  • Catalyst: partial exit of UniTek at ~$370M EV, returning $42M and reducing PIK exposure; NMFC and affiliates retain 31% ownership, signaling value realization and business-building capability amid data center/AI infrastructure tailwinds .
  • Outlook: Management reaffirmed focus on diversifying top positions, optimizing liabilities (target ~75% floating mix), and reducing PIK; Q1 2025 dividend set at $0.32. Wall Street consensus (S&P Global) was unavailable, limiting estimate comparisons . Values retrieved from S&P Global were unavailable.

What Went Well and What Went Wrong

What Went Well

  • Dividend coverage and credit quality: “Adjusted net investment income for the quarter was $0.32 per share covering our $0.32 per share regular dividend… Importantly, we had no new nonaccruals during the quarter” .
  • Balance sheet and funding flexibility: $1.146B of revolver availability and diversified maturities; over 60% of debt maturing in or after 2028; continued plan to increase floating-rate liabilities to ~75% and refinance higher-cost paper .
  • Strategic value realization: UniTek partial sale valued at ~$370M EV (above Q4 mark), returning $42M and reducing PIK exposure while retaining 31% ownership for future upside in data center/AI infrastructure .

What Went Wrong

  • Modest NAV decline and specific mark-downs: NAV per share fell $0.07 QoQ to $12.55, with declines at Edmentum and HelpSystems amid extended sales cycles and competition in smaller segments, despite growth in the key division .
  • Spread compression headwind: Direct-lending market spreads stabilized at tighter levels (unitranche ~450–500 bps), pressuring originations economics; management focused on derisking/exit of repriced assets where performance did not warrant repricing .
  • Lower portfolio fair value and originations: Fair value decreased to $3.104B with only $33.1M originations vs. $158.9M repayments and $58.9M asset sales, reflecting episodic deal flow and active portfolio pruning .

Financial Results

MetricQ2 2024Q3 2024Q4 2024
Total Investment Income ($USD Millions)$94.588 $95.327 $91.0
Net Investment Income ($USD Millions)$38.439 $35.388 $34.5
NII per Share ($)$0.36 $0.33 $0.32
Adjusted NII per Share ($)—$0.34 $0.32
NAV per Share ($)$12.74 $12.62 $12.55
Statutory Debt/Equity (x)1.21x 1.26x 1.15x
Regular & Supplemental Dividends Paid per Share in Quarter ($)$0.34 $0.34 $0.33
NII Margin (%)40.7% 37.1% 37.9%

Notes:

  • NII Margin (%) calculated as NII / Total Investment Income, using cited values for numerator and denominator.

YoY Snapshot (Q4 2024 vs Q4 2023):

  • NII per share: $0.32 vs $0.40 (down)
  • Total Investment Income: down ~2% YoY (management commentary)

Segment/Composition

Investment Portfolio Composition ($USD Millions)Q3 2024% of TotalQ4 2024% of Total
First Lien$2,072.5 63.2% $1,956.6 62.9%
Senior Loan Funds & NMNLC$397.3 12.1% $387.2 12.5%
Second Lien$264.4 8.1% $210.6 6.8%
Subordinated$109.8 3.3% $102.0 3.3%
Preferred Equity$235.1 7.2% $247.3 8.0%
Common Equity & Other$199.8 6.1% $200.8 6.5%
Total Fair Value$3,278.8 100.0% $3,104.5 100.0%

Risk Ratings

Risk Rating (Fair Value, $USD Millions)Q3 2024%Q4 2024%
Green$3,189.0 97.3% $2,996.7 96.5%
Yellow$53.0 1.6% $70.3 2.3%
Orange$36.8 1.1% $37.5 1.2%
Red— —— —
Total$3,278.8 100.0% $3,104.5 100.0%

KPIs

KPIQ3 2024Q4 2024
Nonaccrual (Fair Value, $M)~$37 ~$38; pro forma UniTek reduces nonaccruing positions in that structure
Weighted Avg Portfolio Yield10.5% 11.0%
Weighted Avg Borrower EBITDA$189M $184M
Interest Coverage (Weighted Avg)1.7x 1.8x
Average Loan-to-Value~41% ~41%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Regular Dividend per Share ($)Q1 2025$0.32 (ongoing) $0.32 payable Mar 31, 2025; record Mar 17, 2025 Maintained
Supplemental Dividend2025 outlookQ3 2024: “Do not expect to pay supplemental dividends” going forward No supplemental indicated for Q4/Q1; regular dividend only Maintained (no supplemental)
Liability Mix TargetNext 12 monthsEvolve to ~76% floating, 24% fixed (Q3) Target ~74–75% floating inclusive of hedges Maintained/Refined
Refinancing Opportunities20257.5% converts mature 2025; 8.25% baby bonds callable Nov 2025 Same; intent to refinance at lower rates if possible Maintained
PIK Exposure Strategy2025Reduce PIK exposure materially over 2025 Executing: UniTek partial sale reduced PIK tranches; continue opportunistic reductions Progressing

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3)Current Period (Q4)Trend
Dividend coverage & protectionQ2/Q3 covered; variable supplemental paid in Q3; protection program renewed; future supplemental unlikely Q4 covered at $0.32; Q1 2025 $0.32 declared; no new supplemental Stable coverage; supplemental paused
Credit quality97.0–97.3% green; no red; nonaccrual ~1.1% FV ~97% green; no red; nonaccrual ~$38M FV; stable Stable/strong
Asset mix (senior orientation)Senior ~75%; second lien down from 17% to ~8% by Q3 Senior ~75%; second lien 7% in Q4 Continuing de-risk
Spreads & marketSpreads tightened; pipeline unitranche ~550 bps (Q3 view) Spreads stabilized ~450–500 bps; expect wider with M&A pickup Stabilized; potential widening
PIK exposurePlan to reduce materially in 2025 Executed UniTek monetization; further reductions targeted Improving
Liability optimizationIssued IG bonds; upsized revolver; increased floating liabilities (50% at YE Q4) Target ~75% floating; refinance opportunities in 2025; $1.146B availability Ongoing improvement
AI/data center infrastructureLimited prior explicit mentionsUniTek positioned for data center wins; AI infrastructure cited by Chairman Emerging positive theme

Management Commentary

  • “Adjusted net investment income for the quarter was $0.32 per share covering our $0.32 per share regular dividend… Importantly, we had no new nonaccruals during the quarter” — Steven Klinsky, Chairman .
  • “On February 25, we sold a stake in UniTek… valuing UniTek at approximately $370 million… This transaction returned $42 million to NMFC… This partial exit aligns with our goal of monetizing accrued PIK income” — Steven Klinsky .
  • “We have successfully evolved our portfolio mix to 75% senior-oriented assets… we see a clear opportunity to increase the diversity of the portfolio, particularly within the top 10 positions” — John Kline, CEO .
  • “We expect our liabilities will be approximately 75% floating rate inclusive of hedges… opportunities to potentially refinance shorter-dated, higher-cost fixed-rate debt” — Laura Holson, COO .

Q&A Highlights

  • UniTek valuation vs mark: EV at partial realization “in line to modestly higher” than Q4 mark—supports mark credibility and potential further upside .
  • PIK reduction path: Despite a slower start to 2025 deal flow, management expects progress on PIK reductions by Q1 and beyond; strategy unchanged .
  • Spreads & repricing: Unitranche spreads stabilized ~450–500 bps; majority of repricing vulnerability already realized; expect spreads to widen with M&A normalization .
  • Mix across senior assets: Within senior bucket (first lien, loan funds, net lease) mix expected to remain similar—focus on overall senior orientation rather than specific sub-mix tilts .

Estimates Context

  • Wall Street consensus (S&P Global) for Q4 2024 EPS and Revenue was unavailable due to service limits; estimate comparisons cannot be provided this quarter. Values retrieved from S&P Global were unavailable.

Key Takeaways for Investors

  • Dividend coverage remains intact, supported by $0.32 NII/share and strong recurring income; expect regular dividend continuity near-term .
  • Credit remains robust (97% green; minimal nonaccrual), and asset mix is more senior—favoring downside protection as macro uncertainties persist .
  • Liability structure is a source of alpha: rising floating-rate liability mix and potential 2025 refinancings can cushion earnings if base rates decline; $1.146B capacity enhances optionality .
  • PIK reduction is an actionable 2025 theme; UniTek monetization evidences execution—watch for further exits/monetizations to improve cash earnings quality and sentiment .
  • Spreads have stabilized but could widen with M&A normalization; NMFC’s discipline (derisking exits, avoiding reach for yield) is supportive for long-term ROE .
  • NAV drift modestly negative due to isolated marks (Edmentum, HelpSystems); management remains constructive on core divisions and portfolio fundamentals .
  • Near-term trading: Positive catalysts include additional PIK monetizations, liability refinancings, and pipeline-driven spread normalization; risks include slower deal activity and continued pressure from tight spreads .

Citations: Press release Q4 2024: Earnings call Q4 2024: 8-K Item 2.02 (Exhibit 99.1): Press release Q3 2024: Earnings call Q3 2024: Press release Q2 2024: