NMFC

Business Context and Reporting Period

New Mountain Finance Corporation (NMFC) is a closed-end, non-diversified management investment company regulated as a Business Development Company (BDC). The company focuses on providing direct lending solutions to U.S. upper middle-market companies backed by private equity sponsors, primarily investing in senior secured loans and select junior capital positions. This report covers the quarterly period ended June 30, 2025.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Total investment income decreased by approximately $16.0 million (9%) compared to the prior year period, primarily due to a lower invested asset base and slightly lower portfolio yields. Dividend income also decreased, driven by a higher dividend balance in 2024 from a cash distribution related to OA Topco, L.P.
• Expense Reduction: Total net operating expenses decreased by approximately $9.2 million. This was driven by a $6.8 million decrease in incentive fees (net of waivers) and a $1.6 million decrease in interest and financing expenses due to lower outstanding borrowings.
• Unrealized Depreciation: The company reported a net realized and unrealized loss of $37.8 million for the six months ended June 30, 2025, compared to $13.1 million in the prior year. This was primarily driven by unrealized depreciation in UniTek Global Services, Inc., TVG-Edmentum Holdings, LLC, ACI Parent Inc., and New Permian Holdco, Inc.
• Share Repurchases: The company repurchased 925,216 shares of common stock for approximately $9.6 million during the period, reducing the share count from 107.9 million to 106.9 million.

Guidance, Outlook, and Risks

• Management Commentary: Management noted that the portfolio yield to maturity at cost for income-producing investments was approximately 10.6%. The company continues to focus on defensive growth businesses with strong free cash flow.
• Fee Waivers: The Investment Adviser waived approximately $4.1 million of incentive fees and $0.3 million of management fees for the six-month period to maintain a target fee level.
• Portfolio Risk Ratings: As of June 30, 2025, 94.8% of the portfolio fair value held a "Green" risk rating. However, specific investments such as National HME, Inc. and American Achievement Corporation (AAC) remain on non-accrual status with Orange risk ratings.
• Collateralized Agreement Risk: The company holds a collateralized agreement to resell with a cost basis of $30.0 million and a fair value of $13.5 million. The counterparty, a private hedge fund, is in liquidation in the Cayman Islands, and the agreement is on non-accrual status.
• Interest Rate Sensitivity: Approximately 85.7% of the investment portfolio consists of floating-rate investments. A 200 basis point decrease in interest rates is estimated to decrease net interest income by 16.44%.

Key Facts for Investor Verification

• Non-Accrual Status: Verify the status and potential recovery value of investments in National HME, Inc. (cost $7.9M, fair value $3.0M) and American Achievement Corporation (cost $31.4M, fair value $18.0M), which are on non-accrual.
• Collateralized Agreement: Monitor the liquidation proceedings of the PPVA Fund, L.P. hedge fund regarding the $30.0 million collateralized agreement currently valued at $13.5 million.
• Debt Maturities: Review the maturity schedule for the 2022 Convertible Notes ($258.8 million principal), which mature on October 15, 2025, and the 2021A Unsecured Notes ($200.0 million) maturing in January 2026.
• Fee Structure: Confirm the impact of the recent amendment to the Investment Management Agreement, which reduced the base management fee to 1.25% of gross assets effective January 29, 2025.
• Unfunded Commitments: Note the company has approximately $261.1 million in outstanding commitments to fund investments under undrawn revolving credit facilities and delayed draw commitments.