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) under the Investment Company Act of 1940. 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 September 30, 2024.
Key Financial Metrics
| Metric | Q3 2024 (Three Months) | YTD 2024 (Nine Months) | Q3 2023 (Three Months) | YTD 2023 (Nine Months) |
|---|---|---|---|---|
| Total Investment Income | $95.3 million | $280.5 million | $94.3 million | $281.8 million |
| Net Investment Income | $35.4 million | $111.4 million | $40.7 million | $119.0 million |
| Net Realized and Unrealized Losses | ($11.5 million) | ($24.6 million) | ($12.0 million) | ($10.4 million) |
| Net Increase in Net Assets from Operations | $23.9 million | $86.8 million | $28.7 million | $108.6 million |
| Basic Earnings Per Share | $0.22 | $0.81 | $0.28 | $1.07 |
| Diluted Earnings Per Share | $0.22 | $0.78 | $0.27 | $0.98 |
| Net Asset Value (NAV) per Share | $12.62 | $12.62 | $12.87 | $13.06 |
| Total Investments at Fair Value | $3,265.3 million | $3,265.3 million | $3,011.3 million | $3,011.3 million |
| Total Borrowings (Net) | $1,993.0 million | $1,993.0 million | $1,785.4 million | $1,785.4 million |
| Cash and Cash Equivalents | $61.9 million | $61.9 million | $70.1 million | $70.1 million |
| Asset Coverage Ratio | 179.2% | 179.2% | 182.7% | 182.7% |
Material Changes vs. Prior Period
- Investment Income: Total investment income remained relatively flat year-over-year for the nine-month period ($280.5 million vs. $281.8 million). The decrease in interest income was offset by an increase in dividend income, driven by higher cash dividends from joint ventures (SLP III and SLP IV) and increased PIK dividends.
- Expenses: Net expenses increased by approximately $6.3 million for the nine months ended September 30, 2024, compared to the prior year. This was primarily due to higher interest and financing expenses resulting from the acceleration of deferred financing costs upon the termination of the DB Credit Facility and higher SOFR rates on floating-rate facilities.
- Realized and Unrealized Gains/Losses: The company reported a net realized and unrealized loss of $24.6 million for the nine months ended September 30, 2024, compared to a loss of $10.4 million in the prior year. This was driven by realized losses in New Trojan Parent, Inc., TMK Hawk Parent, Corp., and Transcendia, as well as unrealized depreciation in Edmentum, Permian, and New Benevis Holdco, Inc.
- Debt Structure: On September 30, 2024, the company repaid and terminated the DB Credit Facility ($186.4 million outstanding at year-end 2023). Conversely, the company issued $300 million of 6.200% Unsecured Notes in September 2024 and $300 million of 6.875% Unsecured Notes in February 2024, increasing total unsecured notes to approximately $993.6 million.
- Portfolio Activity: The portfolio grew to 127 companies with a fair value of $3.265 billion, up from 110 companies valued at $3.011 billion at year-end 2023. New investments totaled $777.2 million in the first nine months of 2024.
Guidance, Outlook, and Risks
- Distributions: On October 23, 2024, the Board declared a fourth-quarter 2024 distribution of $0.32 per share and a supplemental distribution of $0.01 per share, payable on December 31, 2024. The company intends to distribute approximately all net investment income quarterly to maintain Regulated Investment Company (RIC) status.
- Capital Resources: The company maintains an At-The-Market (ATM) equity distribution agreement with $258.0 million remaining available for issuance as of September 30, 2024. It also has significant capacity remaining under its Holdings Credit Facility ($322.4 million) and NMFC Credit Facility ($583.5 million).
- Interest Rate Risk: Approximately 84.9% of the investment portfolio consists of floating-rate investments. While a high-interest environment increases investment income, it also raises the cost of funds. The company utilizes interest rate swaps to hedge fixed-rate debt obligations.
- Portfolio Risk Ratings: As of September 30, 2024, 97.3% of the portfolio by fair value held a "Green" risk rating. No portfolio companies held a "Red" rating. Specific investments on non-accrual status include positions in National HME, American Achievement Corporation (AAC), and UniTek Global Services, Inc.
- Contingencies: The company holds a collateralized agreement to resell with a private hedge fund (PPVA Fund, L.P.) currently in liquidation in the Cayman Islands. The fair value of this position ($13.5 million) reflects the increased risk, and the company has filed a claim with the liquidators.
Investor Verification Checklist
- Debt Maturities: Verify the repayment schedule for the new 6.200% and 6.875% Unsecured Notes and the impact of the terminated DB Credit Facility on future liquidity.
- Non-Accrual Assets: Review the specific details and fair value adjustments for investments on non-accrual status, particularly AAC and UniTek, to assess potential future credit losses.
- Fee Waivers: Confirm the duration and terms of the management fee waiver agreement, which is currently extended through December 31, 2024, reducing the effective fee to 1.25% of gross assets.
- Joint Venture Performance: Analyze the contribution of SLP III and SLP IV to net investment income, as these joint ventures are significant drivers of dividend income.
- Collateralized Agreement: Monitor the status of the liquidation proceedings for PPVA Fund, L.P., and the potential recovery value of the $30 million cost basis investment.