New Mountain Finance Corporation Q1 2023 Earnings Call
Good day and welcome to the New Mountain Finance Corporation first quarter 2023 earnings call all participants will be in listen only mode.
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Please note. This event is being recorded I would now like to turn the conference over to John Kline, President and CEO . Please go ahead.
Thank you and good morning, everyone welcome to New Mountain Finance Corporation's first quarter 2023 earnings call.
On the line here with me today are Steve Quincey, Chairman of NMFC, and CEO of New Mountain capital, Robert Hanley, Vice Chairman of NMFC.
And Laura Holsten C O O and interim CFO of NMFC.
Steve is going to make some introductory remarks, but before he does I'd like to ask Laura to make some important statements regarding today's call. Thanks, John Good morning, everyone.
Before we get into the presentation I would like to advise everyone that today's call and webcast are being recorded. Please note that they are the property of New Mountain Finance Corporation and that any unauthorized broadcast in any form is strictly prohibited.
Information about the audio replay of this call is available in our May eight earnings press release.
I would also like to call your attention to the customary safe Harbor disclosure in our press release and on page two of the slide presentation regarding forward looking statements.
Today's conference call and webcast may include forward looking statements and projections and we ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from those statements and projections, we do not undertake to update our forward looking statements or projections unless required to by law.
To obtain copies of our latest SEC filings and to access the slide presentation that we will be referencing throughout this call.
Visit our website at Www Dot New Mountain Finance dotcom.
At this time I'd like to turn the call over to Steve Kuczynski, Nmfc's, Chairman, who will give some highlights beginning on page four of the slide presentation.
Thanks, Laura.
It's great to be able to address you all today.
Both as Nmfc's, chairman and as a major fellow shareholder.
I believe we have some good news to report.
Adjusted net investment income for the first quarter was 38 cents per share more than covering our 32 cent dividend per share that was paid in cash on March 31.
Our earnings improved by eight cents compared to Q1 of last year and three cents sequentially over Q4 of 2022.
Our net asset value was $13.14 per share.
12 cent or 0.9% increase compared to last quarter.
The fair value increase is reflective of continued strong credit performance combined with modestly tighter market spreads, which positively affected the valuation of our assets.
We believe our loans are well positioned overall in defensive growth industries that we think are right in all times and particularly attractive in the challenging macro conditions are today.
New mountain's private equity funds have never had a bankruptcy or missed an interest payment.
And the firm now manages over $37 billion of assets.
Similarly, as shown on page 13 of the presentation Q.
Cumulatively NMFC has experienced no net realized default losses since inception are.
Eight basis points per year of net realized default loss had been more than offset by realized gains elsewhere.
The rising rate environment continues to be a substantial positive for our quarterly earnings since we chiefly lend on floating rates.
As page 12 of the presentation shows we expect to continue to significantly out earn our 32 cents per share base dividend at current interest rates if all other factors hold constant.
Given our earnings up 38 cents per share this quarter, we will make our first variable supplemental dividend in the amount of three cents per share.
This is equal to half of the Q1 quarterly earnings in excess of our base dividend of <unk> 32.
This additional three cent dividend will raise the total dividend to 35 cents per share all in for this quarter, which was at the high end of the range.
I'm F C will pay these distributions on June 30 to holders of record as of June 16th the.
The remainder of the excess earnings will remain on our balance sheet and may be paid out in the future.
Our annualized dividend yield at 35 cents represents approximately a 12% current dividend yield.
Looking forward to Q2 in addition to our base 32 cent dividend, we expect to generate a variable supplemental dividend of three to four cents per share payable in Q3.
This incremental payout is supported by expected strong credit performance and continued elevated base rates.
We believe the strength of new mountain and NMFC is driven by the quality of our team.
New Mountain overall now numbers 220 members and the firm has developed specialties and attractive defensive growth that is a cyclical growth sectors, such as life science supplies health care information technology software infrastructure services and digital engineering.
When pursuing our credit investing efforts, we utilize our extensive group of industry experts to provide knowledge and expertise that allows us to make very informed high conviction underwriting decisions.
Over the last six months, we have continued to expand the quality of our overall team.
Regarding our credit team, specifically, we would like to welcome back our C O L and interim CFO Lora Holsten from maternity leave. Additionally, we have hired multiple new credit team members in the areas of business development operations and fund finance.
Finally, we as management continue as major shareholders of NMFC owning approximately 13% of Nmfc's total shares personally.
Rob John Lauren I have never sold a share of Nmfc's, even as we have been buying.
With that let me turn the call to John .
Thank you Steve Good morning, again, everyone and thank you for joining us today I.
I would like to offer some more details on our overall investment strategy portfolio construction and performance metrics.
Starting on page seven we highlight our disciplined industry selection, which shows.
Exposure to a diversified list of defensive non cyclical sectors.
These sectors and industry niches are characterized by durable growth drivers predictable revenue streams margin stability and great free cash flow conversion.
We have successfully avoided cyclical volatile and secondly challenge industries, which are certain to underperform in today's more difficult economic landscape.
Our strategy has been consistent over our 12 years as a public company and it allows us to operate with confidence in any economic environment.
Page eight provides a high level snapshot of our business, where we show a long term track record of delivering consistent enhanced yield to our shareholders by avoiding losses and paying out 100% of excess income to our shareholders.
Our current portfolio is exposed to companies in good industries that are performing well and where our last dollar of risk is approximately 40% of the purchase price paid for the business.
We then primarily to businesses owned by financial sponsors who are sophisticated and supportive owners with significant capital there is junior to the loans that we make.
Turning to page nine the internal risk rating of our portfolio improved last quarter.
We now have over 93% of our portfolio within our green risk rating up from over 91% last quarter.
Meanwhile, exposure to yellow orange and Red names decreased as a percentage of the portfolio.
Overall in the quarter, we had $59 million of ratings improvement and only $16 million of rating decline.
Our most challenged names within the Orange and Red categories represent only 2% and then I see as fair value.
And we have Derisked, our book by marketing these names down to less than 50% of par.
So even though the performance of these names continues to be challenge they do not represent material risk to our book value.
The updated heat map is shown in it in its entirety on page 10.
Given our portfolio's orientation towards defensive sectors like software business services and health care.
We believe our assets are well positioned to continue to perform no matter, how the economic landscape develops.
Our team continues to spend significant time and energy on our remaining red and Orange names with the goal of either exiting individual positions or finding ways to improve the performance of the underlying businesses as we have at unitek and Permian.
Both of these companies had headwinds as recently as 12 to 18 months ago.
But are now in our green category due to significant operational improvements, which have led to increased earnings and much better future prospects.
Both businesses grew at over 30% in 2022, and we believe that momentum will continue in 2023.
As shown on the upper right of the heat map, we did put one name great expressions on non accrual this quarter, representing just $3 million on fair value.
Turning to page 11, we provide an N. A V bridge showing the 12 cent per share or 0.9% increase in book value.
Starting on the left credit specific movements represented a one cent positive change in book value.
Consistent with my earlier comments unitek valuation drove a 12 cent per share increase in book value offset by an aggregate of 11 cent per share decline in great expression, and then HERA both red names.
A slight improvement in credit spreads spreads over the quarter and earnings in excess of the base dividend accounted for an additional 11, a book value per share.
It's important to note that we were to value all of our green rated loans at par and keep the balance of the portfolio at current fair value our book value would be $13 82, compared to our actual NAV of $13.14 at $3 31.
Page 12 addresses nmfc's long term credit performance since its inception on the left side of the page. We show the current state of the portfolio, where we have $3 3 billion of investments at fair value with $56 million or one 7% of the portfolio currently on non accrual.
And then I see cumulative credit performance shown on the right side of the page remain strong.
Since our inception in 2008, we have made almost $10 billion of total investments of which only 354 million had been placed on non accrual.
Non accruals only $104 million or about 1% of total investments had become realized losses over the course of our 14 year history.
Total realized losses did increase this quarter as we proactively allocated $29 million of NH Emmy, representing 75% of our original investment in.
And 21 million of Ventura, representing 50% of our initial investment into our realized default loss category.
We made this change so we could clearly disclose to our shareholders and we do not expect that we do expect to suffer an impairment when we exit these loans.
Offsetting these movements when they re categorization.
25 million of Permian out of realized loss given the dramatic turnaround in Permian business. We now have line of sight to a full recovery on that investment and possibly a material gain.
As we show on the next page these default losses have been more than offset by realized gains elsewhere in the portfolio.
On page 13, we present Nmfc's overall economic performance since IPO.
Its inception, we have paid 1.1 billion of total dividends to show shareholders, while generating $14 million of cumulative net realized gains.
And only $74 million of net unrealized depreciation netting to over 1 billion of cumulative value created for shareholders.
The detailed performance analysis is included in the appendix of this deck.
Page 14 shows our stock chart detailing NMFC equity return since its IPO 12 years ago over this period NMFC has generated a compound annual or annual return of 9%, which represents a very strong cash flow oriented return well in excess of both the high yield index.
On an index of BDC peers, who have been public at least as long as we have.
I will now turn the call over to our Chief operating officer, and interim Chief Financial Officer, Laura Olson to discuss our current portfolio construction and financial results.
Thanks, John the outlook for 2023, and the sponsor focused direct lending market continues to look positive.
Deal flow is down overall, the direct lending market remains the primary financing market available for sponsors and there are pockets of activity, where we have the opportunity to make loans at attractive yields while remaining very selective there.
Also continuing to see good opportunities to make incremental loans to existing well performing portfolio companies seeking to pursue accretive M&A.
He'll structures remain more lender friendly across the board, although there is increasing bifurcation in the market based on perceived credit quality.
Page 16 presents an interest rate analysis that provides insight into the positive effect of increase in base rates on amnesties earnings.
As a reminder, the NMFC loan portfolio is 89% floating rate and 11% fixed rate.
Liabilities are 56% fixed rate and 44% floating rate.
Given this capital structure mix, we are long LIBOR slashed, so far and thus have material positive exposure increasing rates.
We've previously discussed the lagging flow through base rates, particularly on the asset side.
In Q1, we saw base rates closer to current levels with an average base rate on our assets of four 6% versus current so far of about 5% and about 10 basis points lower than the average rate on our liabilities.
To the extent rates continue to rise, we expect to see further benefit to NII.
If rates follow the projected LIBOR slash, though for curve and settle in the 3% to 3.5% area. We would still expect our net investment income to exceed our regular dividend as shown on the bottom chart all else equal.
Moving onto origination activity on page 17 in Q1, we originated $77 million of new loans in our core defensive growth verticals, including software health care services and consumer services.
We primarily funded these originations with repayments keeping us fully invested and at the high end of our target leverage range.
Turning to page 18, we show that our asset mix is consistent with prior quarters were slightly more than two thirds of our investments inclusive of first lien that's all peas and net lease are senior in nature.
Approximately 8% of the portfolio is comprised of our equity positions the largest of which are shown on the right side of the page.
Assuming solid operating performance and a supportive valuation environment. We believe these equity positions could continue to increase in value and drives book value appreciation.
We hope to monetize certain of these equity positions and the medium term and rotate those dollars into cash yielding assets.
As an example, we have realized a gain of just over $19 million and our restructured Hainan position through March 31st.
And we will recognize an additional about $10 million from another distribution received just this past Friday.
We expect the remainder to be fully realized over the next few quarters.
Page 19 shows that the average yield of Nmfc's portfolio has decreased slightly from 11, 3% in Q4 and 10, 9% for Q1, given the shift in the base rate curve as well as the repayment on our high yielding asset.
Generally speaking spreads remain wider and the supply demand imbalance in the market continues to favor lenders, which helps support our net investment income target.
Page 20 highlights the scale and credit trends of our underlying borrowers as you can see the weighted average EBITDA of our borrowers has increased over the last several quarters to a $141 million.
While we first and foremost concentrate on how an opportunity that's against our defensive growth criteria and internal new mountain knowledge, we believe that larger borrowers tend to be marginally safer all else equal.
We also show the relevant leverage and interest coverage stats across the portfolio.
Portfolio company leverage has been consistent over the last three quarters.
Loan to values continue to be quite compelling in the current portfolio has an average loan to value of just over 41%.
From an interest coverage perspective, we've seen modest compression as base rates rise.
The weighted average interest coverage on the portfolio declined slightly to one eight times from one nine times last quarter.
We do expect interest coverage to move lower over the rest of 2023 and so for contracts reset at today's rates.
Finally, as illustrated on page 21, we have a diversified portfolio across 112 portfolio companies.
F 15 investments inclusive of our S. O P funds account for 39% of total fair value and represents our highest conviction names.
I will now cover our financial results for more details. Please refer to our quarterly report on the Form 10-Q that was filed last evening with the SEC.
As shown on slide 22, the portfolio had $3 $3 billion in investments at fair value at March 31st and total assets of $3 $4 billion with total liabilities of $2 $1 billion of which total statutory debt outstanding was $1 $7 billion, excluding $300 million.
Of drawn SBA guaranteed debentures.
Net asset value of $1 $3 billion at $13.14 per share was up 12 cents or <unk>, 9% from the prior quarter.
At quarter end, our statutory debt to equity ratio was 1.29 times to one.
However, net of available cash on the balance sheet net leverage is 1.26 times to one at the high end of our target leverage range.
On Slide 23, we show our quarterly income statement results.
As a reminder, we believe that our adjusted NII is the most appropriate measure of our quarterly performance.
This slide highlights that while realized and unrealized gains and losses can be volatile below the line. We continue to generate stable net investment income above the line.
For the current quarter, we earned total investment income of $91 $7 million.
$5 million increase from the prior quarter.
The increase was primarily driven by higher interest income from base rate resets.
Total net expenses were approximately $53 $6 million and $2 $4 million increased quarter over quarter, due primarily to higher base rates on our floating rate debt.
As a reminder, the investment advisor has committed to a management fee of 1.25% for the 23 calendar year.
We have also pledged to reduce our incentive fee if and as needed. During this period to fully support the 32 cents per share quarterly dividend.
Based on our forward view of the earnings power of the business, we do not expect to use this pledge.
It is important to note that the investment advisor cannot recoup fees previously waived.
Our adjusted NII for the quarter was 38 cents per weighted average share, which meaningfully exceeded our Q1 regular dividend of 32 cents per share.
As slide 24 demonstrates 98% of our total investment income is recurring in this quarter.
You will see historically that over 90% of our quarterly income is recurring in nature and on average over 80% of our income is regularly paid in cash.
We believe this consistency shows the stability and predictability of our investment income.
Importantly over 93% of our quarterly Pik income is generated from our green rated names.
Turning to slide 25, the Red line shows the coverage of our regular dividend.
This quarter adjusted NII exceeded our Q1 regular dividend by six cents per share.
For Q2 2023, our board of Directors again declared a regular dividend of 32 cents per share as well as a supplemental dividend of three cents per share, which will be paid on June 30th 2023 to shareholders of record on June 16th.
As a reminder, our supplemental dividend program pays out at least 50% of any earnings in excess of the regular dividend.
Since our Q1 earnings exceeded the regular dividend by six cents per share we are paying a supplemental dividend of three cents per share alongside the Q2 regular dividend.
On slide 26, we highlight our various financing sources.
Looking into account SBA guaranteed debentures, we had almost $2 $4 billion of total borrowing capacity at quarter end with $369 million available on our revolving lines subject to borrowing base limitations.
We have a valuable mix of fixed and floating rate debt and the 56% of fixed rate debt continues to be an earnings tailwind in this rising base rate environment.
As a reminder, both our wells Fargo and Deutsche Bank credit facility covenants are generally tied to the operating performance of the underlying businesses that we lend to rather than the marks of our investments at any given time.
Finally on slide 27, we show our leverage maturity schedule.
We've diversified our debt issuance, we've been successful at ladder, our maturities to manage liquidity and over 85% of our debt matures interact or in 2025.
During the quarter, we upsized, our 2022 convertible notes ahead of our 2020 three maturities.
Additionally, our multiple investment grade credit ratings provide us access to various unsecured debt markets and we continue to explore further ladder, our maturities and the most cost efficient manner.
With that I would like to turn the call back over to John .
Thank you Laura.
As we look out over the course of 2023, we remain confident in the quality of our investment portfolio and believe we are on track to deliver great risk adjusted returns for our shareholders.
We once again, thank you for your support and look forward to maintaining an open and transparent dialogue.
With all of our stakeholders.
I'll now turn things back to the operator to begin Q&A operator.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if you're using your speakerphone. Please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Yeah.
At this time, we're showing no questions I would like to turn the conference back over to John Klein for any closing remarks.
I think I see one question in the queue Oh, there is one question somebody just popped up.
Hi, I'm going to announce Ryan Lynch with <unk>.
Go ahead.
Hey, good morning, Thanks for taking my questions.
The first one I had I just want to make sure I heard this correctly did you say you received a 10 million dollar distribution from one of your equity investments did I get that correctly and then.
If so what investment was that from and how should we expect that to be accounted for in the second quarter.
Yeah, Yeah, you did hear that correctly Ryan. So this was from our Haven position, which was an equity distributions. In addition to the payments that we've already received through Q1. This was one that we received on this past Friday for an additional $10 million.
And so that'll show up as an equity distribution in Q2.
Okay with that.
That show up as a like how would that be accounted for whether it be a realized gain will it come through the dividend income line.
And it'll be a realized gain.
Okay.
Perfect.
And Ryan this is John it's worth noting that in rent in round terms. The devaluation. We had for Q1 is a correct valuation so there won't be a change, but it's a realized.
Which is great.
Totally get it.
And then I wanted to talk about an item for a minute.
That to me the education.
Content.
Space Ah Theres been some some headwinds from some of the publicly traded education.
Software companies out there Hum.
Most recognizable being chegg.
With some of the disruption that potentially artificial intelligence is causing to that business.
Love if you could just provide a little bit of background, maybe on on on the details of of.
What I'd mentioned role is in the education space and how if any do you think the potential for artificial intelligence.
That business.
So Ryan Rob Hamlin Who's with US today sits on the board so I'll turn to turn that question to him.
Yeah. Thanks, John Yeah, Hey, Brian It's a good question, it's actually something I I actually addressed yesterday at our at our weekly staff meeting.
Because it is it is so topical and interesting but the headline is that Ed mentioned is actually very well positioned to benefit from the trends and artificial intelligence obviously theirs.
Tremendous volatility around that statement, because how quickly things are moving but it mentum is is is a digitally native provider of curriculum and assessment, primarily for the K 12 market and because they're digitally native they've been.
They're there.
Their software first and they've been thinking about.
For for a long time and they are their most recent product incorporated non generative AI in a material way.
And in the recent months the company has been really front footed on incorporating a generative AI into the product set and the truth is when you think about chegg right like that's a consumer facing product our products, our enterprise facing right we sell to districts.
So the districts. They don't move as quickly as you know a 14 year old Kid.
Embracing jet GPT for assessment and curriculum, but they they will they will get there and so it's funny right now the what they're requesting from advent them is to accept the requesting anything in most alright, but they're requesting.
Help on the plagiarism side.
And where we are there to provide that but as we look out two or three years, we do believe that the the biggest.
Driver is going to be the ability to evolve assessment beyond <unk>.
Visitation of facts and writing papers in and we.
We believe there are ways to use our software to allow districts to provide an effective answer to that as well as using our software to provide.
Personalized tutors to children. So so.
Long winded answer, but we're we're pretty excited about the ability of of generative AI to be a tailwind for <unk> and going forward.
That's helpful.
Just a follow up question on that though I mean, it sounds like you know right now it's pretty well you know I must say protected but it's in a pretty good spot. There was some maybe some different headwinds facing change because it's more direct to student, but do you think that given how quickly things are changing.
Artificial intelligence.
That space that that could potentially even though the business is doing fine today that could weigh on the multiple on that business just as potential sponsors are uncertain of what the world in this space looks like a year or two from now so they're going to have a pretty low multiple on those businesses going forward.
Does that is that a concern of yours.
I mean, it's always a concern Ryan, but I I actually I think again, I think given our our positioning and the ability to articulate a multiyear road map as to how.
Integrating AI into our product suite will actually drive revenue as opposed to as opposed to revenue being negatively impacted by it.
At the end of the day right multiples are a function of growth and I do think we can we can articulate you know when we do go to exit this position.
And as well not just articulate but have actual real world evidence of how AI is a.
As a potential tailwind bird met them again, no guarantees right Ryan It's brand new it's a brand new <unk>.
Development, but I do think.
We're very well positioned.
To be a beneficiary as opposed to a victim.
And I think ultimately.
The ability to demonstrate that both.
Actual evidence in our roadmap is what will drive multiple up or down depending on how successful we are.
Yeah, Okay, I appreciate that and yeah I fully understand it.
You know very fluid situation that changes by the day, but I do appreciate the comments on that one question I had is as you guys you know.
You had a nice tailwind in and an operating ROE is from from higher rates I just wanted to know do you.
You guys have this thought process at all when you manage the business regarding to leverage that base.
Base rates have increased so much at this point.
It's been a big tailwind for you know operating Rovs.
We're obviously heading into 12 more shakier credit period, more certain macroeconomic environment I understand the deal environment is really good for the deals that are getting down there is just not a lot of deals getting done.
Would you ever consider lowering leverage levels.
From where you are today as we head into that environment and given that base rates are still so high today that that does a lot of the work for you for generating such a high operating ROE and then if there is a further dislocation in the marketplace and the fed has cut rates at that point.
Obviously rates would be working against your favorite, but you would have further leverage to deploy and probably a better environment do you think about the business at all like that if that counterbalance versus leverage and in base rates.
Yeah, It's something we talk about a lot Ryan and I'm glad you brought it up I think one thing that's happened over the course of the last couple of quarters as we just see no or very little or limited portfolio velocity. So to the extent we are entering into an environment, where we start to get more repayments and and I think it's fair to say that we should get more reach.
Payments over the next 12 months and a lot that would be my my bold prediction.
But we could see using that money, partially to deploy into new new assets, but partially to delever.
We would be very comfortable being inside of our range right. Now is as Laura mentioned, we're right at the high end of our range from a leverage perspective.
So yeah, I think that could be a move that we could make.
We probably won't go to the low end of the range, but if we could be in the middle of the range over the course of the next couple of quarters that would be a very comfortable place for us to date.
Got it.
Then maybe.
Maybe I'll just ask one more because I don't know if anybody else was in the queue.
You know obviously the topic Du jour right now is kind of the whole banking crisis and any banking crisis going on.
I don't really believe that that that banks are probably our primary competitor in your space in the direct lending market place. Although there was there's indirect impact.
He holds CLO paper and those sorts of things, which helped fund the CEO .
The broadly syndicated loan market, which can be a competitor in all that I would just love to hear if there is a sort of pull back in and banks lending both large and regional banks I'd love to just a year European of what sort of impact if at all it could have in your marketplace. Both from the where you can pay you compete in.
As well as even even from your borrower standpoint, or are you guys being able to obtain credit on your liability stack.
Sure sure I mean, a big picture I think everyone. In this room feels there is a great place for regional banks in the U S economy. They provide a lot of service to small and middle market businesses throughout the U S and that's really valuable for our economy, when I think about the leveraged finance market, particularly the sponsor oriented.
You know leverage finance market.
<unk> banks, and even though the larger banks from a balance sheet perspective aren't arent big players and they haven't been for a while I think you might have touched on it but.
Clearly a lot of the bigger banks are very supportive of overtime generally supportive of CLO structures.
And and that that can be really valuable for the syndicated market, but in general I think right now we're in a period of time on and I know you know this but we're in a period of time, where there's just not a lot of competition for direct lenders and generally speaking we think that's a good thing if there are fresh new buyouts to be done by our sponsor clients.
You know most of the deals that we see are really going to do two direct lenders.
And and and there is a I think a lot of capital being raised by direct lenders and we think it's going to be a great period of time and as you know in this vintage upfront.
From fees are our better.
Leverages lower and in the documents or are better I would say on the CLO market as we sit here right now that that's the biggest I think source of competition that we may see its not not not to come back from the regional banks or from the large banks and and right now we're not seeing robust CLO formation.
And so that just makes me even more confident that as deal flow comes in 2023 direct lenders will be a big part of that.
Okay.
I appreciate those comments that's all for me today.
Yeah.
The next question comes from Erik Zwick with.
Hub group. Please go ahead.
Thanks, Good morning, I wanted to first just ask about the pipeline and curious if you could provide any commentary in terms of the.
Current mix in terms of the.
Industries that you are seeing to be maybe more prominent and whether there's any that you're staying away from now just because it appears that maybe the short or midterm prospects are not as attractive today given the.
The current uncertainty over the economic environment today.
We see deal our deal pipeline picking up slowly as I mentioned in my earlier comments. It has been over the last 12 months, it's been a little bit depressed, but based on what we see across multiple businesses here at New Mountain. We do think it's getting better it continues to be a good environment for add on.
Add on investments a lot of our best companies are seeing this current environment is one where they can buy do M&A it at better prices and so we look to support the best businesses within our portfolio that want to do that.
I would say you know we are starting to see we have seen good activity in software I I do expect that to continue and we've also seen some some interesting deals recently in the health care space, particularly health care technology, that's a little little real time insight into our portfolio.
In terms of industries as we stay away from you know really we that hasn't really changed when we think about our our defensive growth philosophy I think it's really tailor made for environments like today, where we're really focused on buying great businesses in the best sectors.
That are sponsor backed.
And and these businesses have a revenue drivers have margin stability and they they they have growth even in this sort of environment and so we wanted to we want to focus as much as ever on the sectors that we've defined as being attractive.
But it also makes us feel very good about our existing portfolio. We don't have a lot of bad industries that are making us nervous in our existing portfolio.
Thanks, that's helpful and then just.
Second one for me in terms of the upcoming.
Debt maturities I think 50 in June and $117 million in August I think you previously mentioned that.
If you have sufficient capacity in our revolver to pay that down.
You also raised $60 million of notes in March and then mentioned some repayments coming through it looks like cash position was maybe actually down quarter over quarter. So just curious is it still kind of be intent to use the revolver to pay down.
Or to kind of repay those maturities as they come due or has something changed since your last comments.
Yeah, No I think you've summarized it well so you know in 2022, Oh, we obviously raised the chunk of convertible notes, we upsize that this past quarter.
As you alluded to so between the capital from that as well as just availability on our revolving lines, we feel pretty comfortable we're in a good position to address the upcoming maturities.
That's helpful. And then just maybe as a bit of a follow on to that last question.
It seems like you know the revolvers are typically funded by banks and all indications that the banks are getting a little bit tighter on their willingness to land that if we go into environments, where.
You know maybe investors are a little bit more skittish, if we go into a more severe economic environment. Just curious about your thoughts kind of mid to longer term.
If we were to go into a protracted recession you your thoughts about funding the business over that term.
Okay.
Yeah, I mean, I think historically, we've had very strong relationships with a couple of the bank and Wells Fargo Deutsche Bank et cetera, and we feel pretty good that we're you know we've termed out financing and you can see the maturities on the revolving lines.
Between that and the access to the capital markets more broadly and we are obviously, we have our investment grade credit ratings.
We feel pretty good that we'll be in a reasonably good position to access the markets as need be but it's definitely something that we're watching and keeping a close eye on and just making sure we're being very proactive about just keeping the dialogue ongoing with the banks.
And just keeping our our strong relationships there.
I appreciate the color there Laura thanks for taking my questions today.
Okay.
The next question comes from Bryce Rowe with B Riley. Please go ahead.
Okay.
Thank you good morning.
Wanted to maybe touch on the topic of monetization of certain equity investments, obviously, you've had some success here.
With with Haven.
Recently, but curious of those that are listed on page page 18, how do you. How do you guys handicap, which ones are better candidates versus versus not and I kind of asked that question thinking about now.
Unitek and Permian having.
Having improved as much as they have in the last 12 months to 18 months, just kind of curious what gets them to the point, where they're ready for monetization or you'd rather just continue to hold hold them as equity investments.
Sure well the first thing I would note is that we have significant control over the monetization of unitek Ben at this Permian It Mentum, it's worth, noting we're a minority and we're in with others.
And I would say that you know, while it's not a perfect M&A environment.
I think sponsors do you Wanna and other buyers frankly are getting eager to buy good well performing assets I think we mentioned that unitek in Permian, where too on this list that are that are growing nicely and and and have some some really compelling structurally advantageous tailwind.
And so where we think that among this list there could be a another name on this list that over the medium term, we could seek to exit.
That's great John I appreciate that.
And then maybe a bit of a follow up.
Yeah, you have the categorization green yellow orange Red and I think for the first time, perhaps in the.
In the deck, you've you've shown where each bucket is marked relative to par in.
It's kind of an interesting interesting thing to think about.
All of the Green bucket market 90, 594% of par.
Is that is that primarily just.
Spread changes that we've seen over the last 12 to 18 months that have put it put it at that level of a mark.
Yeah, that's right. So obviously, you know every quarter, where I'm comparing the marks.
Are the spreads of the underlying asset light comparable syndicated loans and doing kind of a fulsome valuation process. So as you alluded to.
As spreads have widened a little bit in the market over the last 12 or so months in some of these assets just even though they're all performing and we think there ultimately still recoverable them at par.
Get marked down from kind of a technical perspective, and I think John touched on the statistic that if you did mark you know all of the Green names apart book value would be kind of in excess of where we're showing the portfolio today, yeah got it thanks, Brian .
Oh, sorry, the only other comment I want to make is and I've made this comment but I want to reemphasize. It is is that when names do go to yellow orange and red we reflect that underperformance in the Mark, which I, which I think is is we want to make sure that our shareholders are very aware of that and I think it's healthy for our book an end and we will be transparent about how we we we.
Handle that fair value.
Exercise Yep great.
Great I appreciate I appreciate the comments.
Thanks, Brad.
This concludes our question and answer session I would like to turn the conference back over to John Klein for any closing.
Thank you for joining us on our call today, and we look forward to speaking to you all again next quarter.
Conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
Yeah.