New Mountain Finance Corp. ((NMFC)) has held its Q4 earnings call. Read on for the main highlights of the call.
New Mountain Finance Corp. (NMFC) recently held its earnings call, showcasing a robust performance marked by a successful transaction with UniTek, stable dividends, and strong credit performance. Despite facing challenges such as a decline in net asset value, decreased investment income, and a slower-than-expected M&A environment, the company remains optimistic due to its strategic focus and strong recurring earnings.
Successful UniTek Global Services Transaction
The earnings call highlighted a significant transaction involving UniTek Global Services, where BTG Pactual Strategic Capital invested $90 million, valuing UniTek at $370 million. This transaction resulted in a two times multiple on the original cost basis for NMFC and returned $42 million through the full redemption of UniTek’s debt tranches.
Stable Dividend and Strong Recurring Earnings
NMFC reported an adjusted net investment income of $0.32 per share for the quarter, effectively covering the regular dividend of $0.32 per share. A dividend of the same amount was announced for March 31, supported by the company’s strong recurring earnings and a renewed dividend protection program.
Strong Credit Performance and Low Non-Accruals
The company maintained strong credit performance with no new non-accruals during the quarter, and only 1.2% of the portfolio was on non-accrual. Over nearly 14 years, NMFC has experienced only 12 basis points of average annualized net realized losses.
Increase in Senior-Oriented Assets
NMFC’s portfolio mix evolved to 75% senior-oriented assets, focusing on maintaining or increasing this mix. This includes first lien and unitranche loans, aligning with the company’s strategic priorities.
Consistent Performance and Dividend Returns
Since its IPO in 2011, NMFC has returned approximately $1.4 billion to shareholders, generating an annualized return of 10% and a dividend yield of approximately 11%.
Decline in Net Asset Value
The net asset value per share declined by $0.07, or 0.6%, attributed to modest declines in the value of Inventum and Health Systems, with particular concerns around Health Systems’ smaller business segments.
Decreased Total Investment Income
Total investment income for the quarter was $91 million, marking a 2% decrease over the prior year, with a 1% decrease for the year overall.
Challenges in M&A Activity
The M&A environment has been slower than expected in early 2025, affected by ongoing uncertainty across political and regulatory headlines, and a continued high base rate environment impacting deal activity.
Spread Compression in Direct Lending
Spreads have tightened over the last twelve to eighteen months, affecting deal structures despite compelling opportunities in defensive growth verticals.
Forward-Looking Guidance
Looking ahead, NMFC announced a $0.32 dividend for Q1 2025, with plans to pay it on March 31 to shareholders of record as of March 17. The company completed a strategic transaction involving the sale of a stake in UniTek Global Services, resulting in a $42 million return and retaining a 31% ownership stake. NMFC is committed to maintaining a senior-oriented asset portfolio and optimizing liabilities, aiming for 75% of its liabilities to be floating rate over the next year.
In conclusion, New Mountain Finance Corp.’s earnings call reflected a positive sentiment despite some challenges. The company’s strategic focus on senior-oriented assets, strong recurring earnings, and successful transactions like the UniTek deal underpin its optimistic outlook. Investors can look forward to consistent dividend returns and a stable financial performance.