Q4 2023 New Mountain Finance Corporation Earnings Call

Operator: Good day, and welcome to the New Mountain Finance Corporation fourth quarter 2023 earnings conference call. All participants will be in listen-only mode.

Good day and welcome to the New Mountain Finance Corporation fourth quarter 2023 earnings Conference call.

All participants will be in listen only mode.

Operator: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press the star key, then one on your telephone keypad.

Should you need assistance, please signal specialists by pressing the star followed by zero.

After todays presentation, there will be an opportunity to ask questions.

To ask a question you May press Star then one on your telephone keypad.

Operator: And to withdraw your question, please press star, then two. Please note, today's event is being recorded. I'd now like to turn the conference over to John Klein, President and CEO of New Mountain Finance Corporation. Please go ahead, sir.

To withdraw your question. Please press Star then two.

Please note today's event is being recorded.

I'd now like to turn the conference over to John Kline, President and CEO of New Mountain Finance Corporation. Please go ahead Sir.

John Klein: Thank you and good morning everyone. Welcome to New Mountain Finance Corporation's fourth quarter 2023 earnings call. On the line with me here today are Steve Klinsky, Chairman of NMFC and CEO of New Mountain Capital, Laura Holson, COO of NMFC, and Chris Corbett, CFO and treasurer of NMFC. We are pleased to officially welcome Chris, who joins us from Blackstone Credits, where he was Senior Vice President and Treasurer of Blackstone's BDC. Steve is going to make some introductory remarks, but before he does, I'd like to ask Chris to make some important statements regarding today's call. Thanks, John. Good morning, everyone.

Thank you and good morning, everyone welcome to New Mountain Finance Corporation's fourth quarter 2023 earnings call on.

On the line with me here today are Steve <unk>, Chairman of NMFC, and CEO of New Mountain capital, Laura Halston and C O O N F C.

Chris Corbett CFO and treasurer of NMFC we.

We are pleased to officially welcome Chris who joins US from Blackstone credits, where he was senior Vice President and Treasurer of Blackstone's Bdcs.

Steve is going to make some introductory remarks, but before he does I'd like to ask Chris to make some important statements regarding today's call.

Thanks, John Good morning, everyone.

Chris Corbett: 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 February 26th earnings press release. I would also like to call your attention to the customary Safe Harbor disclosure in our press release and on page 2 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.

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 on our February 26 earnings.

<unk> 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.

We do not undertake to update our forward looking statements or projections unless required to by law to.

Steve Kalinske: To obtain copies of our latest SEC filings and to access the slide presentation that we will be referencing throughout this call, please visit our website at www.newmountainfinance.com. At this time, I'd like to turn the call over to Steve Kalinske, NMFC's Chairman, who will give some highlights beginning on page 5 of the slide presentation. Thanks, Chris.

To obtain copies of our latest SEC filings and to access the slide presentation that we will be referencing throughout this call. Please visit our website at www Dot New Mountain finance Dot com at this time I'd like to turn the call over to Steve Glinski, Nmfc's, Charman, Chairman, who will give some highlights beginning on page five.

The slide presentation Steve.

Thanks, Chris.

Steve Kalinske: It's great to be able to address you all today, both as NMFC's chairman and as a major fellow shareholder. Fourth quarter financial results were in line with preliminary estimates released in January. Adjusted net investment income for the quarter was $0.40 per share, more than covering our $0.32 per share regular dividend that was paid in cash on December 29. Our earnings increased by $0.05 compared to Q4 of last year, and we're in line with Q3. Our net asset value per share decreased slightly to $12.87, a $0.09 decline compared to last quarter, excluding the impact of the $0.10 special dividend paid on December 29, demonstrating continued stable credit performance across our portfolio. Given our earnings of $0.40 per share this quarter, we will make our fourth consecutive variable supplemental dividend payment. The variable supplemental dividend for this quarter will be 4 cents per share, which is equal to half of the amount of our Q4 quarterly earnings in excess of our regular dividend of 32 cents. NMFC will pay these distributions on March 29th to holders of record as of March 15th.

It's great to be able to address you all today, both as Nmfc's chairman and as a major fellow shareholder.

Fourth quarter financial results were in line with preliminary estimates released in January.

Adjusted net investment income for the quarter was <unk> 40 per share more than covering our 32 cents per share regular dividend that was paid in cash on December 29.

Our earnings increased by five cents compared to Q4 of last year.

And were in line with Q3.

Our net asset value per share decreased slightly to $12 87 nine.

Nine cent decline compared to last quarter, excluding the impact of the 10 cents special dividend paid on December 29th.

Demonstrating continued stable credit performance across our portfolio.

Given our earnings of <unk> 40 per share this quarter, we will make our fourth consecutive variable supplemental dividend payment.

The variable supplemental dividend for this quarter will be four cents per share, which is equal to half of the amount of our Q4 quarterly earnings in excess of our regular dividend of 32 cents.

NMFC will pay these distributions on March 29 to holders of record as of March 15th.

Steve Kalinske: The remainder of the excess earnings will remain on our balance sheet and may be paid out in the future. For the year, we generated total dividends of $1.53 per share, inclusive of the $0.10 special distribution paid in Q4 that was a result of realized gains from our investment in Haven Midstream Holdings. These cumulative dividends represent an annual distribution yield of over 12%. Looking forward to Q1, in addition to our regular $0.32 dividend, we expect to generate a variable supplemental dividend of at least $0.02 per share, payable in the second quarter of 2024. This incremental payout is supported by expected strong credit performance and continued elevated base rates, which continue to be a substantial positive for our quarterly earnings. Subsequent to year-end, on February 1st, the company issued a $300 million, five-year investment-grade bond with very strong execution for NMFC's first issuance of this kind. We would like to thank those investors who participated in the offering, and we remain focused on accessing this market for future liquidity needs. We believe the strength of New Mountain and of NMFC is driven by the quality of our team. New Mountain overall now numbers 245 members.

The remainder of the excess earnings will remain on our balance sheet and may be paid out in the future.

For the year, we generated total dividends of $1 53 per share inclusive of the 10 cents special did but distribution paid in Q4 that was a result of realized gains from our investment in Haven Midstream holdings.

<unk> cumulative dividends represent an annual distribution yield of over 12%.

Looking forward to Q1 in addition to our regular 32 cent dividend, we expect to generate a variable supplemental dividend of at least two cents per share payable in the second quarter of 2020 for this incremental payout is supported by expected strong credit performance and continued ela.

Weighted base rates, which continue to be a substantial positive for our quarterly earnings.

Subsequent to year end on February 1st the company issued a 300 million dollar five year investment grade bond with very strong execution for Nmfc's first issuance of this guide we would like to thank those investors who participated in the offering and we remain focused on accessing this.

Market for future liquidity needs.

We believe the strength of new mountain and of NMFC is driven by the quality of our team New Mountain overall now numbers 245 members and the firm has developed specialties and attractive defensive growth that is a cyclical growth sectors, such as life science supplies.

Steve Kalinske: The firm has developed specialties in attractive defensive growth, that is, cyclical growth sectors, such as life science supplies, healthcare information technology, software, infrastructure services, and digital engineering. When pursuing our credit investing efforts, we utilize our extensive group of industry experts to provide unique knowledge and expertise that allows us to make very informed, high-conviction underwriting decisions. Over the last year, we have continued to expand the quality of our overall team. New Mountain's private equity funds have never had a bankruptcy or missed an interest payment, and the firm now manages over $50 billion in assets.

Health care information technology Saul.

Software infrastructure services and digital engineering.

When pursuing our credit investing efforts, we utilize our extensive group of industry experts to provide unique knowledge and expertise that allows us to make very informed high conviction underwriting decisions over the last year. We have continued to expand the quality of our overall team.

New mountain's private equity funds have never had a bankruptcy or missed an interest payment and the firm now manages over $50 billion of assets. Similarly, NMFC has experienced only three basis points of average annualized net realized losses, and it's nearly 13 years as a.

Steve Kalinske: Similarly, NMFC has experienced only three basis points of average annualized net realized losses in its nearly 13 years as a public company. We believe our loans are well positioned overall in defensive growth industries that we think are right at all times and particularly attractive in less certain economic times. Finally, we as management continue as major shareholders of NMFC. Senior management and employee share ownership has been rising over time, and we now own approximately 13% of NMFC's total shares. With that, let me turn the call over to Jeff.

Public company.

We believe our loans are well positioned overall in defensive growth industries that we think are right in all times, and particularly attractive and less certain economic times. Finally, we as management continue as major shareholders of NMFC Senior management and employee share ownership has.

Been rising over time, and we now own approximately 13% of N M. F. She's Nmfc's total shares personally with that let me turn the call to jobs.

Jeff: Thank you, Steve. I would like to begin by offering some more details on our Direct Lending Investment Strategy and Track Record. Starting on page 8, we highlight our Discipline 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 secularly-challenged industries, which could be riskier areas to invest in given today's higher-rate environment.

Thank you, Steve I would like to begin by offering some more details on our direct lending investment strategy and track record.

Starting on page eight 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 separately challenge industries, which could be riskier areas to invest given today's higher rate environment.

Jeff: Our strategy has been consistent over our nearly 13 years as a public company, and it allows us to operate with confidence in any economic environment. Page 9 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 minimizing credit losses and distributing virtually all of our excess income to shareholders. Since our IPO in 2011, NMFC has returned over $1.2 billion to shareholders through our dividend program, generating an annualized return of approximately 10%. Our current portfolio invests in companies within high-quality industries that are performing well and where our last dollar of risk is approximately 40 percent of the purchase price paid for the business. We lend primarily to businesses owned by financial sponsors who are sophisticated and supportive owners with significant capital that is junior to the loans that we make.

Our strategy has been consistent over our nearly 13 years as a public company and it allows us to operate with confidence in any economic environment.

Page nine 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 minimizing credit losses, and distributing virtually all of our excess income to shareholders.

Since our IPO in 2011, NMFC has returned over 1.2 billion to shareholders through our dividend program generating an annualized return of approximately 10%.

Our current portfolio invest in companies within high quality industries that are performing well and where our last dollar of risk is approximately 40% of the purchase price paid for the business.

We learned primarily to businesses owned by financial sponsors who are sophisticated and supportive owners with significant capital that is junior to the loans that we make.

Jeff: Turning to page 10, the internal risk ratings of our portfolio improved quarter over quarter, with 95% of our portfolio rated green compared to 93% last quarter. Our most challenged names within the orange and red categories represent less than 2% of NMFC's fair value, and we have de-risked our book by marking our red names to 13% of face value and our orange names to 69% of face value. At these valuation levels, our weaker names do not represent material future downside risk to our book value. The updated heat map is shown in its entirety on page 11.

Turning to page 10, the internal risk ratings of our portfolio improved quarter over quarter with 95% of our portfolio rated green compared to 93% last quarter.

Our most challenged names within the Orange and red categories represent less than 2% of Nmfc's fair value.

And we have Derisked, our book by marking a red names to 13% of face value in our orange named to 69% of face value.

At these valuation levels are weaker names do not represent material future downside risk to our book value.

The updated heat map is shown in its entirety on page 11.

Jeff: Given our portfolio's orientation towards defensive sectors like software, business services, and healthcare, we believe our assets are well positioned to continue to perform no matter how the economic landscape develops. Overall, we had positive credit migration in the quarter, with one exception related to a small position in Charismatic Brands, a medical apparel distributor which filed for Chapter 11 bankruptcy protection after quarter end. From Q3 to Q4, this position declined in value by $13 million and is currently marked at $1 million of fair value. However, positive credit developments include the full repayment at par of Eagle Pitcher's second lien during Q4, which was previously a yellow-named mark at $0.70, and the full repayment at par during Q1 of our $37.5 million second lien position in Franklin Energy, a yellow rated name marked at $0.91 as of 12-31. Additionally, two companies moved from yellow to green during Q4 as a result of improved performance.

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.

Overall, we had positive credit migration in the quarter with one exception related to a small position and charismatic brands a medical apparel distributor, which filed for chapter 11 bankruptcy Protection Act.

After quarter end.

From Q3 to Q4 this position declined in value by $13 million and is currently marked at 1 million a fair value.

Positive credit developments include the full repayment at par of Eagle picture second lien during Q4, which was previously a yellow named markets marked at 70 cents and.

And a full repayment at par during Q1 of our 37 and a half million dollars second lien position and frankly energy a yellow rated name marked at 91 cents as of 12 31.

Additionally, two companies moved from yellow to Green during Q4 as a result of improved performance.

Jeff: As these paydowns and materially positive credit movements demonstrate, we continue to believe that many of our non-green names have the ability to migrate back to green over time. Turning to page 12, we provide a graphical analysis of NAV changes during the quarter. Starting on the left, credit-specific movements represented a 24-cent decrease in book value, the majority of which is represented by charismatic brands.

As these pay downs and material positive credit movements demonstrate we continue to believe that many of our non green names have the ability to migrate back to green overtime.

Turning to page 12, we provide a graphical analysis of N. A V changes during the quarter.

Starting on the left credit specific movements represented a 24 cent decrease in book value. The majority of which is represented by charismatic brands.

Jeff: Broad credit market movements were a $0.15 book value tailwind as credit spreads tightened during Q4 due to generally strong market conditions, while excess earnings, the aforementioned special dividend, and other items bridged us to the $12.87 hook value as of 12-31. Page 13 addresses NMFT's non-accrual performance. On the left side of the page, we show the current state of the portfolio, where we have $3 billion of investments at fair value, with $52 million, or 1.7% of the portfolio, currently on non-accrual. In Q4, Transcendia, an orange name with a fair value of just $7 million, was placed on non-accrual, while our investment in Ansera was realized, leaving us with six companies on non-accrual Most are from much older vintages, have been written down materially, and have a good chance of exiting the portfolio in the medium term.

Broad credit market movements were a 15 cent book value tailwind as credit spreads tightened during Q4 due to generally strong market conditions.

All excess earnings the aforementioned special dividend and other items bridge us to the 12 87 book value as of 12 31.

Yes.

Page 13 addresses Nmfc's nonaccrual performance on the left side of the page we show the current state of the portfolio, where we have $3 billion of investments at fair value with $52 million or one 7% of the portfolio currently on non accrual.

In Q4, transcend Dia and Orange name with a fair value of just $7 million was placed on non accrual.

Our investment in an hero was realized leaving us with six companies on non accrual.

Of the names on non accrual Moshe from much older vintages have been written down materially it had a good chance of exiting the portfolio in the medium term.

Jeff: On the right side of the page, we show our cumulative credit performance since IPO, where NMFC has made $9.3 billion of investments while realizing losses of only $26 million. This represents an annualized net loss rate of approximately three basis points since IPO. This is consistent with our value proposition of preserving principal value and distributing nearly all of our net investment income through predictable quarterly dividends. On page 14, we present NFC's overall economic performance since IPO, showing that we have delivered consistent and compelling returns. Cumulatively, NMFC has earned $1.2 billion in net investment income while generating only $26 million of cumulative net realized losses and only $60 million of net unrealized depreciation, netting to over $1.1 billion of value created for shareholders.

On the right side of the page we show our cumulative credit performance since IPO, where NMFC has made $9 3 billion of investments while realizing only.

While realizing losses of only $26 million.

This represents an annualized net loss rate of approximately three basis points since IPO.

This is consistent with our value proposition of preserving principal value and distributing nearly all of our net investment income from predictable quarterly dividends.

On page 14, we present Mfc's overall economic performance since IPO, showing that we have delivered consistent and compelling returns.

Cumulatively NMFC has earned $1 2 billion in net investment income, while generating $26 million of cumulative net realized losses, and only 60 million of net unrealized depreciation netting to over $1 1 billion of value created for shareholders.

Laura Holson: Page 15 shows a stock chart detailing NMFC's equity return since IPO. Over this period, NMFC has generated a compound annual return of approximately 10 percent, which represents a very strong cash flow-oriented return, well in excess of both the high yield index and 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, Laura Holson, to discuss current portfolio construction. Thanks, John.

Page 15 shows our stock chart detailing nmfc's equity returns since IPO over this period M. A C has generated a compound annual return of approximately 10%, which represent a very strong cash flow oriented return well in excess of both the high yield index, 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, Laura Olson to discuss our current portfolio construction.

Thanks, John we continue to believe the outlook for 'twenty 'twenty four and the sponsor backed direct lending market is positive.

Laura Holson: We continue to believe the outlook for 2024 and the sponsor-backed direct lending market is positive. Deal flow continues to be episodic, but there are pockets of activity in our defensive growth verticals where we have the opportunity to make loans at attractive yields while remaining very selective. Steel structures remain compelling with leverage meaningfully below peak levels and significant sponsor equity contributions representing the vast majority of the capital structure. We remain bullish on the medium and long-term outlook for M&A activity given the magnitude of dry powder for private equity and the ongoing need to return capital to LPs as well as more attractive financing markets for borrowers and the expectation of rate cuts. Syndicated loan and high-yield markets have reopened, and we have seen modest spread compression related to the increased competition for fewer opportunities.

Deal flow continues to be episodic, but there are pockets of activity in our defensive growth in article or we have the opportunity to make loans at attractive yields while remaining very selective.

Youll structures remain compelling with leverage meaningfully below peak levels and significant sponsor equity contributions representing the vast majority of the capital structures.

We remain bullish on the medium and long term outlook for M&A activity, given the magnitude of dry powder for private equity and the ongoing need to return capital to L. T as well as more attractive financing markets for borrowers and the expectation for rate cuts.

Syndicated loan and high yield markets have reopened and we have seen modest spread compression related to the increased competition for fewer opportunities.

Laura Holson: However, we expect the supply, demand, and balance to normalize as soon as we see a more regular deal flow environment return. Despite the reopening of the syndicated markets, the direct lending market generally remains the financing market of choice for sponsors, as the majority of sponsors still recognize the benefits of the direct lending solution, including more certain execution, more flexibility around creating a bespoke capital structure, and the ability to hand-select lenders.

However, we expect the supply demand imbalance to normalize as soon as we see a more regular deal flow environment return.

Despite the reopening of the syndicated markets the direct lending market generally remains the financing market of choice for sponsors as the majority of sponsors do recognize that that has had a direct lending solution, including more certain execution more flexibility around creating a bespoke capital structure and the ability to have.

Select lenders.

Laura Holson: In addition to new activity, our large portfolio of over 100 unique borrowers provides an ongoing opportunity set to make incremental loans to existing, well-performing portfolio companies seeking to pursue creative M&A. Page 17 presents an interest rate analysis that provides insight into the effect of base rates on NMFC's earnings. As a reminder, the NMFC loan portfolio is 88% floating rate and 12% fixed rate, while our liabilities are 59% fixed rate and 41% floating rate as of year end.

In addition to new activity a large portfolio of over 100 unique borrowers provides an ongoing opportunity set to make incremental loans to existing well performing portfolio companies seeking to pursue accretive M&A.

Page 17 presented an interest rate analysis that provides insight into the effects of base rates on Nmfc's earnings.

As a reminder, Dan and I've seen loan portfolio is 88% floating rate and 12% fixed rate, while our liabilities are 59% X rate and 41% floating rate as of year end.

Laura Holson: Moving on to page 18, in Q4, we saw an uptick in portfolio velocity. We originated $142 million of assets, offset by $257 million of repayments and sales as we continued to modestly de-lever towards the middle of our 1 to 1.25 times debt to equity range. Our originations consisted of investments in our core defensive growth power alleys such as veterinary services, enterprise software, and infrastructure products.

Moving on to page 18 in Q4, we saw an uptick in portfolio velocity.

We originated $142 million of assets offset by $257 million of repayments and sales as we continued to modestly delever towards the middle of our one to 1.25 times debt to equity range.

Our originations consisted of investments in our core defensive growth power alleys, such as veterinary services enterprise software and infrastructure products.

Laura Holson: I'd highlight that four of our repayments were second-lane positions, and we have line of sight into a few additional second-lane repayments as the portfolio continues to migrate more senior over time. Turning to page 19, we show our asset mix, where approximately 68% of our investments, inclusive of Ursuline, SLTs, and net lease, are senior in nature. As I mentioned, this continues to skew more senior over time; second lane positions decreased from 17% last quarter to 15% this quarter. Our second lane exposure is largely a function of the length of our operating history.

I'd highlight that four of our repayments are second lien positions and we have line of sight into a few additional second lien repayments in the portfolio.

<unk> continues to migrate more senior overtime.

Turning to page 19, we show our asset mix were approximately 68% of our investments inclusive of our sling S. L. Ts and net lease are senior in nature.

As I mentioned this continues to skew more senior overtime.

Second lien position decreased from 17% last quarter and 15% this quarter.

Our second lien exposure is largely a function of the length of our operating history.

Laura Holson: As a reminder, our credit business began in 2008 when private equity firms primarily financed their buyouts with first lien and second lien capital structures. Over time, this has largely been replaced by the Unitron structure, and as a result, we expect the percentage of first-line and Unitrons in our portfolio to continue to increase over time, as long as the Unitron structure remains the preferred solution by sponsors. Approximately 8% of the portfolio is comprised of our equity positions, the largest of which are shown on the right side of the page. As mentioned in prior quarters, we hope to monetize certain of these equity positions in the medium term and rotate those dollars into cash-yielding assets. Page 20 shows that the average yield of NMSU's portfolio decreased from 11.8% in Q3 to 10.9% in Q4, primarily due to the downward shift in the base rate curve.

As a reminder, our credit business began in 2008 and private equity firms, primarily financed or buyouts with first lien second lien capital structures.

Over time this has largely been replaced by the unit tranche structure and as a result, we expect the percentage of first lien and unit tranche in our portfolio to continue to increase over time as long as the unit tranche structure remains the preferred solution by sponsors.

Approximately 8% of the portfolio is comprised of our equity positions the largest of which are shown on the right side of the page.

As mentioned in prior quarters, we hope to monetize certain of these equity positions in the medium term and rotate those dollars into cash yielding asset.

Page 20 shows that the average yield of Nmfc's portfolio has decreased from 11, 8% in Q3 and 10, 9% from Q4, primarily due to the downward shift in the base rate cards.

Laura Holson: Generally speaking, even though spreads are tighter, yields remain attractive and support our net investment income target. Page 21 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 $155 million.

Generally speaking, even though spreads are tighter yields remain attractive and support our net investment income target.

Page 21 highlights the scale and credit trends of our underlying borrowers.

As you can see the weighted average EBITDA of our borrowers have increased over the last several quarters to $155 million.

Laura Holson: This is primarily attributable to sequential EBITDA growth at the individual companies we lend to, and to a lesser extent, portfolio churn. While we first and foremost concentrate on how an opportunity maps 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 decreased slightly over the last two quarters. Loan-to-values continue to be quite compelling, and the current portfolio has an average loan-to-value of 42 percent. Interest coverage ratios have stabilized as expected, and the weighted average interest coverage on the portfolio was flat at 1.5 times this quarter.

This is primarily attributable to sequential EBITDA growth at the individual companies, we lend to and to a lesser extent portfolio churn.

While the first and foremost concentrate on how an opportunity knocks 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.

Portfolio company leverage has decreased slightly over the last two quarters loans.

Loan to values continue to be quite compelling in the current portfolio has an average loan to value of 42%.

Interest coverage ratios have stabilized as expected and the weighted average interest coverage on the portfolio was flat at 1.5 times corner.

Chris Corbett: We've seen sponsors continue to proactively support company liquidity and continued M&A activity. This is a great indication that our portfolio consists of companies that are performing well and are able to attract additional investment at healthy valuations. Finally, as illustrated on page 22, we have a diversified portfolio across 111 portfolio companies. The top 15 investments, inclusive of our SLP funds and net lease, account for approximately 43% of total fair value and represent our highest conviction names. I will now turn the call over to our Chief Financial Officer, Chris Corbett, to discuss our financial results. Thank you, Laura.

We've seen sponsors continuing to proactively support company liquidity and continued M&A activity.

This is a great indication that our portfolio consists of companies that are performing well and are able to attract additional investment in healthy valuations.

Finally, as illustrated on page 22, we have a diversified portfolio across 111 portfolio companies.

The top 15 investments inclusive of our F. L. P funds and net leased account for approximately 43% of total fair value and represents our highest conviction name.

I will now turn the call over to our Chief Financial Officer, Chris Corvette to discuss our financial results.

Yeah.

Thank you Laura for more details please refer to our annual report on Form 10-K that was filed yesterday with the SEC.

Chris Corbett: For more details, please refer to our annual report on Form 10-K that was filed yesterday with the SEC. As shown on slide 23, the portfolio had approximately $3 billion in investments at fair value on December 31st and total assets of $3.2 billion with total liabilities of $1.8 billion, of which total statutory debt outstanding was $1.5 billion, excluding $300 million of drawn SBA-guaranteed debentures. The net asset value of $1.3 billion, or $12.87 per share, was down slightly compared to the prior quarter.

As shown on slide 23, the portfolio had approximately 3 billion in investments at fair value on December 31, and total assets of $3 2 billion with total liabilities of $1 8 billion of which total statutory debt outstanding was $1 5 billion, excluding 300 million of drawn SBA guaranteed debentures.

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Net asset value of $1 3 billion or $12 87 per share was down slightly compared to the prior quarter.

Chris Corbett: At quarter end, our statutory debt-to-equity ratio is 1.14 to 1 and 1.10 to 1 net of available cash on the balance sheet, consistent with the balance sheet deleveraging mentioned previously. On slide 24, we show our quarterly income statement results. For the current quarter, we earned total investment income of $92.8 million, a 77% increase over the prior year. Total net expenses were approximately $52.1 million, a 2% increase over the prior year.

At quarter end, our statutory debt to equity ratio was 1.14 to one at 1.10 to one net of available cash on the balance sheet consistent with the balance sheet deleveraging mentioned previously.

On Slide 24, we show our quarterly income statement results.

For the current quarter, we earned total investment income of $92 8 million or 77% increase over prior year total net expenses were approximately $52 1, million% to 2% increase over prior year.

Chris Corbett: As a reminder, the Investment Advisor has committed to a management fee of 1.25% for the 2024 calendar year. The Investment Advisor has also pledged to reduce its incentive fee if and as needed during this period to fully support the $0.32 per share regular quarterly dividend. Based on our forward view of the earnings power of the business, we do not expect to use. It is important to note that the investment advisor cannot recoup fees previously waived. Our adjusted net investment income for the quarter was $0.40 per weighted average share, which meaningfully exceeded our Q4 regular dividend of $0.32 per share.

As a reminder, the investment advisor has committed to a management fee of 1.25% for the 'twenty 'twenty four calendar year.

The investment advisor has also pledged to reduce its incentive fee if and as needed. During this period to fully support the 32 cent per share regular 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 adviser cannot recoup fees previously waived.

Our adjusted net investment income for the quarter was 40 cents per weighted average share, which meaningfully exceeded our Q4 regular dividend of <unk> 32 cents per share.

Chris Corbett: Our investment in Ansera, which had been previously marked down over prior periods, was exited during the fourth quarter, crystallizing a realized loss. Consistent with our prior practices, we elected to rebate $1.3 million of incentive fees related to PIC income accrued from Ansera, which resulted in a $0.01 per share increase to our NII for the quarter. As shown on slide 25, we earned total investment income of $373.8 million for the year, which represents an increase of 23 percent over the prior year. Total net expenses of $214.9 million increased 21 percent over the prior year.

Our investment in and Cero, which had been previously marked down over prior periods was exited during the fourth quarter crystallizing, a realized loss consistent with our prior practices, we elected to rebate, our shareholders $1 3 million of incentive fees related to Pik income accrued from N cero, which resulted in a one cent per share increase to our NII for the quarter.

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As shown on slide 25, we earned total investment income of $373 8 million for the year, which represents an increase of 23% over the prior year total net expenses of 214th but $9 million increased 21% over prior year.

As slide 26 demonstrates 97% of our total investment income is recurring this quarter given the minimal fees earned in Q4, 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.

Chris Corbett: As slide 26 demonstrates, 97% of our total investment income is recurring this quarter, given the minimal fees earned in Q4. Historically, you will see 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 99% of our quarterly non-cash income is generated from our green-rated names. Turning to slide 27, the red line shows the coverage of our regular dividend. This quarter, adjusted net investment income exceeded our Q4 regular dividend by $0.08 per share.

Consistency shows the stability and predictability of our investment income.

Importantly over 99% of our quarterly noncash income is generated from our green rated names.

Turning to slide 27, the Red line shows the coverage of our regular dividend this quarter adjusted net investment income exceeded our Q4 regular dividend by eight per share for Q1 2024, our board of directors again declared a regular dividend up 32 cents per share as well as a supplemental dividend of <unk>.

<unk> per share.

On slide 28, we highlight our various financing sources and diversified leverage profile taking into account SBA guaranteed debentures, we have $2 6 billion of total borrowing capacity was $768 million available on our revolving lines subject to borrowing base limitations.

Chris Corbett: For Q1 2024, our Board of Directors has again declared a regular dividend of $0.32 per share, as well as a supplemental dividend of $0.04 per share. On slide 28, we highlight our various financing sources and diversified leverage profile. Taking into account SBA-guaranteed debentures, we have $2.6 billion of total borrowing capacity with $768 million available on our revolving lines subject to borrowing-based limitations.

As a reminder, covenants under both our Wells Fargo and Deutsche Bank credit facilities are generally tied to operating performance of the underlying businesses that we lend to rather than the marks of our investments at any given time, which we think is particularly important during more volatile times.

Finally on slide 29, we show our leverage maturity schedule over the last four months, we've had a number of positive developments with respect to our liabilities and liquidity profile, including successfully extending both our wells Fargo and Deutsche Bank credit facilities, doubling and extending our management company revolver and issuing over 400.

Chris Corbett: As a reminder, covenants under both our Wells Fargo and Deutsche Bank credit facilities are generally tied to operating performance of the underlying businesses that we lend to rather than the values of our investments at any given time, which we think is particularly important during more volatile times. Finally, on slide 29, we show our leveraged maturity schedule. Over the last four months, we have had a number of positive developments with respect to our liabilities and liquidity profile, including successfully extending both our Wells Fargo and Deutsche Bank credit facilities, doubling and extending our management company revolver, and issuing over $400 billion of unsecured notes, including a baby bond and our first investment-grade bond. As a result, nearly 70% of our debt matures in or after 2027.

<unk> billion of unsecured notes, including a baby bond and our first investment grade bond as a result, nearly 70% of our debt matures in or after 2027 in the future we plan to be repeat issuers in the investment grade markets to 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 Chris as we look forward to the rest of 2024, we remain confident in the continued strong performance of Nmfc's portfolio and believe we are on track to continue to deliver great risk adjusted returns to our shareholders.

Chris Corbett: In the future, we plan to be repeat issuers in the investment-grade markets to further ladder our maturities in the most cost-efficient manner. With that, I would like to turn the call back over to John. Thank you, Chris.

Once again, we'd like to thank all of our stakeholders for the ongoing partnership and support and look forward to maintaining our dialogue throughout the year.

I will now turn it back to the operator to begin Q&A operator.

Thank you Sir.

John Klein: As we look forward to the rest of 2024, we remain confident in the continued strong performance of NMFC's portfolio and believe we are on track to continue to deliver great risk-adjusted returns to our shareholders. We once again would like to thank all of our stakeholders for the ongoing partnership and support and look forward to maintaining our dialogue throughout the year. I will now turn it back to the operator to begin Q&A. Operator?

We'd like to ask a question. Please press Star then one on your telephone keypad.

If your question has already been addressed and like to withdraw. Your question. Please press Star then two at this time, we'll pause momentarily to assemble our roster.

And so the first question comes from Arizona with hardly group. Please go ahead.

Good morning, everyone I'm.

Wanted to start out with just because I was kind of looking through slide 17, and I'm thinking about the potential for a rate cut short term interest rate cuts later in the year wondering if you could just share your thoughts on the potential use of swaps to reduce the asset sensitivity of the balance sheet.

Operator: Thank you, sir. If you'd like to ask a question, please press star then 1 on your telephone keypad. If your question has already been answered, and you'd like to withdraw your question, please press star then 2.

Yeah, sorry, I'm not going to take this one so I mean, obviously I think we can all look at the South Florida, So for curve and see what's indicated them.

Operator: At this time, we'll pause momentarily to assemble our roster. And today's first question comes from Eric Zwick with the Hovde Group. Please go ahead. Good morning, everyone.

As it relates to rate cuts over the balance of 'twenty 'twenty, four and beyond and we did try to provide some insight as to what that could do from an earnings perspective, as he said as outlined on page 17.

Eric Zwick: I wanted to start off just because I was kind of looking through slide 17 and thinking about the potential for rate cuts, short-term interest rate cuts later in the year. I wonder if you could just share your thoughts on the potential use of swaps to reduce the asset sensitivity of the balance. Yeah, sure. I'm happy to take this one.

It is something that we've talked about when we look at in our hedging both on the asset side and on the liability side.

We've found you know based on the work that we've done that it's just not economic really a practical to do on the asset side that you are exploring it though on the liability side, specifically as it relates to our recent investment grade bond issuance again, just given where we think rates are likely to be probably probably makes sense.

Chris Corbett: So, I mean, obviously, I think we can all look at the forward SOFR curve and see what's indicated, you know, as it relates to rate cuts over the balance of 2024 and beyond. We did try to provide some insight as to what that could do from an earnings perspective, as you said, as outlined on page 17. It is something that we've talked about when we look at kind of hedging both on the asset side and on the liability side. But we've found, based on the work that we've done, that it's just not economical, really, or practical to do on the asset side.

And on the liability side, but that that's kind of how we approach our hedging both on the asset and liability side.

One thing I'd add is if you. If you do think we're heading into a lower base rate environment into 'twenty. Five we think we have a major opportunity to refinance both our converts at all and also it's notable that our baby bond is callable in late 'twenty five so we think theres actually in a lower rate environment could be a really good.

Chris Corbett: We are exploring it, though, on the liability side, specifically as it relates to our recent investment-grade bond issuance. Again, just given where we think rates are likely to be, it probably makes sense on the liability side. But that's kind of how we approach hedging, both on the asset and liability sides.

<unk> opportunity to refinance some of those instruments at lower rates.

Yeah.

Understood. Thank you.

And then actually just looking at the next slide as I look at the spreads on the new origination versus what exited.

Exited versus repayment and it looks like spreads are tightening a little bit that would be consistent with what you know is being absorbed in the market. So curious just about your thoughts in terms of kind of the direction for that with a weighted average yield for the portfolio over maybe the course of 'twenty 'twenty four.

Chris Corbett: One thing I'd add is if you do think we're heading into a lower base rate environment into 25, we think we have a major opportunity to refinance both our converts, and also, it's notable that our baby bond is callable in late 25. So we think there's actually, in a lower rate environment, could be a really good opportunity to refinance some of those instruments at lower rates.

Sure I can take a shot at that overall as I'm sure you know spreads are a little bit tighter at this moment in time.

One of the biggest challenges we face as a as a direct lending industry as deal flow is a little bit lower right now than I think we all would like but we think theres a big opportunity for deal flow to increase in the coming quarters, and we think that would be supportive of a good spreads in the market. So.

Eric Zwick: And then actually, just looking at the next slide, as I look at the spreads on the new origination versus what exited versus repayment, it looks like, you know, spreads are tightening a little bit, and that would be consistent with what, you know, is being absorbed in the market. So, curious just about your thoughts in terms of the kind of direction for the weighted average yield for the portfolio over, maybe, the course of 2024. Sure. I can take a shot at that.

That that'd be the first comment I would make the second comment is that overall spreads are still pretty healthy. If you look at our our our spreads on the new deals that we've we brought into the portfolio. There's still very good and when you when you're basically at a sofa rate in the mid five to those spreads are we think it represents really great risk adjusted return.

On the repayments it would be fair to say that we are losing assets with higher spread but were also.

Laura Holson: Overall, as I'm sure you know, spreads are a little bit tighter at this moment in time. One of the biggest challenges we face as a direct lending industry is that deal flow is a little bit lower right now than we all would like. But we think there is a big opportunity for deal flow to increase in the coming quarters, and we think that would be supportive of good spreads in the market. So that would be the first comment I would make.

Getting refinanced out of a lot of our second lien portfolio, and we think theres a great opportunity to actually in this environment.

Originate new first lien and unitranche loans that have spreads almost as good as the second lien loans while.

Reducing the overall risk in the portfolio. So we feel like that is a positive trend and a potential real win for our shareholders.

Laura Holson: The second comment is that, overall, spreads are still pretty healthy. If you look at our spreads on the new deals that we've brought into the portfolio, they're still very good. And when you basically add a SOFR rate in the mid-five to those spreads, we think it represents a really great risk-adjusted return. On the repayments, it would be fair to say that we are losing assets with higher spreads, but we're also getting refinanced out of a lot of our second lien portfolio, and we think there's a great opportunity to actually, in this environment, originate new first lien and So we feel like that is a positive trend and a potential real win for our shareholders. No, you're right.

No you're right that that's a good point, that's all I have today, thanks for taking my questions.

Thank you. Thank you and our next question comes from Bryce Rowe with B Riley. Please go ahead.

Thanks, Good morning.

Good morning.

John maybe I'll, maybe I'll start with.

The leverage profile, obviously, you all have been.

I would guess somewhat intentional about.

<unk> seen leverage on the balance sheet come down here over the course of 'twenty. Four you dealt any noted in your prepared remarks, you've dealt with.

A good bit of maturities within the debt capital structure. So you know trying to get a feel for where you think kind of leverage goes from here do you want to continue to work at lower or are we at a point now where maybe we will see some stabilization.

Sure.

There were some quarters you know in the past where it felt like we were always at the high end and that wasn't necessarily intentional or our leverage target is as stated is between one and 1.25 times on a statutory basis and that truly is our target. So in general we would seek to operate on average in the middle.

Eric Zwick: That's a good point. That's all I have today. Thanks for taking my question. Thank you. Good morning.

Price: Hey John, maybe I'll start with just the leverage profile. Obviously, you all have been, I would guess somewhat intentionally, seeing leverage on the balance sheet come down here over the course of 24. You've dealt with, and you noted in your prepared remarks, you've dealt with, you know, a good bit of maturities within the debt capital structure. So, you know, trying to get a feel for where you think the kind of leverage goes from here. Do you want to continue to work it lower?

The range may be upper middle of the range, but just given all the portfolio movements that we face as portfolio managers, it's it's difficult to get too precise so we feel very comfortable and anywhere within that range and and different quarters will have different dynamics.

But certainly being in the middle of the range feels very good and I think we've conditioned all of our stakeholders.

To to being on average in the middle to upper middle of the range.

John Klein: Or are we at a point now where, you know, maybe we'll see some stability? Sure. There were some quarters in the past where it felt like we were always at the high end, and that wasn't necessarily intentional.

Okay, Okay, and I guess a related question in terms of.

Looking at.

Deal flow and repayment activity over the last five or six quarters.

John Klein: Our leverage target is stated as between 1 and 1.25 times on a statutory basis, and that truly is our target. So, in general, we would seek to operate on average in the middle of the range, maybe in the upper middle of the range. But just given all the portfolio movements that we face as portfolio managers, it's difficult to get too precise. So we feel very comfortable anywhere within that range, and different quarters will have different dynamics. But certainly, being in the middle of the range feels very good, and I think we've conditioned all of our stakeholders to being, on average, in the middle to upper middle of the range. Okay. And I mean, and I guess a related question in terms of, Looking at deal flow and repayment activity, you know, over the last five or six quarters, you know, is the, I guess the slower pace of origination, is that more a function of the deal environment than it is? I guess the desire to get closer to the middle point of that leverage range. When I think about NMFC, we've been within that range for a little while. We don't have a tremendous excess of dry powder.

I guess the slower pace of originations is that more a function of kind of deal environment than it is.

I guess the desire to.

To get closer to the middle Middle point of that of that leverage range.

When I think about you know NMFC.

No we've been within the range for a little while we don't have tremendous excess dry powder, we've been able to access the ATM and in small and small size, but in general the the the low velocity environment in terms of deal flow I think it has hurt our overall activity now we are private.

Funds, where we're actively investing in and being more aggressive on the origination front.

But going forward I really see Ah I think there'll be a big opportunity and we're seeing it real time, we're seeing a lot of repayments in the portfolio. We're seeing a lot of second liens repay and and that is going to enable that enable us to have plenty of dry powder to to invest into what we think will be a busier calendar going into Q2.

In Q3.

Okay, Okay, and then maybe one more for me.

<unk> improved internal risk ratings more.

Or your debt debt investments moving into that Green category.

John Klein: We've been able to access the ATM in small sizes. But in general, the low-velocity environment in terms of deal flow, I think, has hurt our overall activity. Now, we have private funds where we're actively investing and being more aggressive on the origination front. But going forward, I really see. I think there'll be a big opportunity. And we're seeing it in real time.

Relative to I guess negative migration can you talk a little bit of doubt.

The English specific kind of driving that.

Portfolio companies for since specific just dealing with the <unk>.

Some of the constraints here of the recent past and getting out and getting a handle on that just any commentary on that would be helpful. Thanks.

Sure Yeah, when I think about the shift in the in the heat map you had two names specifically move.

John Klein: We're seeing a lot of repayments in the portfolio. We're seeing a lot of second liens repay, and that is going to enable us to have plenty of dry powder to invest in what we think will be a busier calendar going into Q2 and Q3. Okay.

Into the Green category this quarter.

And you know in one situation one with.

I'm kind of really recovering from you know some some supply chain and some kind of post COVID-19 hangover type issues in and really just overall performance has improved nicely on that particular name and on the other name, which is a smaller name and.

Similarly, just an idiosyncratic business performance has improved there as well.

Price: And then maybe one more for me, you noted, you know, improved internal risk ratings more. More of your debt investments moving into that green category, relative to, I guess, negative migration. Can you talk a little bit about, you know, is anything specific kind of driving that?

Wouldn't say any kind of overarching trends I mean, there's obviously been a challenging several years. When you think about just all the headwinds faced by kind of the macro economy and we continue to think our portfolio is really well positioned and 95 per cent Green, we think that that's reflective of just the defensive growth strategy and the conviction.

Laura Holson: portfolio companies specific to dealing with maybe some of the constraints here of the recent past and getting a handle on that; just any commentary on that would be helpful. Sure. Yeah, when I think about the shift in the heat map, you know, we had two names specifically move into the green category this quarter.

And that with which we underwrite based on the platform and the depth of knowledge that we have in these sectors.

And then just the underlying characteristics of these types of businesses, which generally I think are more resilient and.

So hopefully that gives you a flavor for the migration.

Yeah. That's helpful. Thanks, a lot.

Sure I'll start.

Laura Holson: And, you know, in one situation, one was kind of really recovering from, you know, some supply chain and some kind of post-code hangover type issues, and really, just overall performance has improved nicely on that particular name. And on the other name, which is a smaller name, similarly, just some idiosyncratic business performance has improved there as well. But I wouldn't say there were any kind of overarching trends.

Thanks, Chris.

As a reminder, star then one on if you have a question.

Our next question comes from Paul Johnson with VW. Please go ahead.

Yeah.

Hello, Paul Your line open perhaps.

Mr. Johnson.

And it appears we don't have any audio from Mr. Johnson. So once again, if you have a question. Please first part of them. One at this time, we will pause momentarily to assemble our roster.

And it looks like Mr. Johnston.

Please proceed Mr. Johnson.

Yeah can you hear me okay.

Yes, sorry to come through loud and clear now thank you.

Laura Holson: I mean, it's obviously been a challenging several years when you think about just all the headwinds faced by kind of the macro economy, and we continue to think our portfolio is really well positioned and ninety five percent green. We think that that's reflective of, you know, just the defensive growth strategy, the conviction that we underwrite based on the platform and the depth of knowledge that we have in these sectors. And then just the underlying characteristics of these types of businesses, which, generally, I think are more resilient, but hopefully that gives you a flavor for a bit of the migration.

Great. Thanks.

Yes. My first question was just on the guide.

For next quarter or the implied guide of 36 says.

Obviously below this quarters 40, or so I'm. Just curious is that just kind of due to the spread compression that we experienced.

This quarter or is there any kind of.

One time items that would be running G&A or anything like that.

Sure I can take that and congrats on the new role Paul.

So when we think about the lower guided it's a bunch of little things at the margin you know as I mentioned, we are seeing repayments in the portfolio. So our average leverage is a little bit lower.

Price: That's helpful. Thanks, Laura. Thanks for your time.

Operator: Thanks, Price. Thank you. And as a reminder, it's Starvin1 if you have a question. Our next question comes from Paul Johnson with KBW. Please go ahead. Hello, Paul, is your line open, or is your line muted, perhaps, Mr. Johnston?

That's what we see right now so we want to be conservative about our outlook.

The we did we are losing some income from from charismatic brands, which we talked about on the call. We also lost a little bit of income from a haven management fee, we no longer get that fee as we've exited that investment the leverage costs on our portfolio is a little bit.

Operator: All right, it appears we don't have any audio from Mr. Johnson, so once again, if you have a question, please press star 1 at this time. We will pause momentarily to assemble our roster. And it looks like we have Mr. Johnston again. Please proceed, Mr. Johnston. Yeah, can you hear me okay?

Higher than it has been so that's just another little little next to talk about and.

Paul Johnson: Yes, sir. You're coming through loud and clear now. Thank you. My first question was just on the guide for next quarter or the implied guide of $0.36, obviously below this quarter's $0.40 or so.

The velocity of deal flow, which creates fee income is a little bit lower than we would expect at some point that should should come back and really help us from a net investment perspective, but right now we see that as a little bit lower.

Paul Johnson: I'm just curious, is that just kind of due to the spread compression that we experienced this quarter, or is there any kind of one-time items that would be running through G&A or anything like that? Sure, I can take that, and congratulations on the new role, Paul. When we think about the lower guide, it's a bunch of little things.

And then of course, there is a mix issue that you can see and we talked about on page 18, where you know we are being repaid on on a lot of second liens and we we tend to find great opportunities in first lien and unit tranche in this environment and so at the margin that's a little bit of a negative from an income perspective, but a huge positive from you.

John Klein: At the margin, as I mentioned, we are seeing repayments in the portfolio, so our average leverage is a little bit lower. That's what we see right now, so we want to be conservative about our outlook. We are losing some income from Charismatic Brands, which we talked about on the call. We also lost a little bit of income from the Haven management fee. We no longer get that fee as we've exited that investment.

Our risk perspective overall, so it's it's a bunch of little things that are contributing to that that slight a slight decline in outlook, but still feel very good about the outlook.

Got it appreciate that that's very helpful.

And then on.

On the on the Haven equitation or monetization. This quarter I was wondering if you could just kind of walk me through that I'm looking at in your slide one cent gains roughly from the.

Laura Holson: The leverage cost on our portfolio is a little bit higher than it has been, so that's just another little nick to talk about. The velocity of deal flow, which creates fee income, is a little bit lower than we would expect. At some point, that should come back and really help us from a net investment perspective, but right now, we see that as a little bit lower. Of course, there is a mixed issue that you can see, and we talked about on page 18, where we are being repaid on a lot of second liens, and we tend to find great opportunities in the first lien and unit tranche in this environment. At the margin, that's a little bit of a negative from an income perspective, but a huge positive from a risk perspective overall. There are a bunch of little things that are contributing to that slight decline in outlook, but I still feel very good about the outlook. I got it.

Hey, Ben but.

I'm not sure if it's the.

Fleet number or not but for sensors so tax charges.

Is that all related to hany van I'm, just kind of trying to parse out.

You know what the actual net gain was from that investment.

Sure.

Laura May Bill add some details, but but haven is there's a little bit it's not really this quarter's news, it's really something that we've we've exited over the course of 'twenty three and there was a haven was the sort of the route of the special dividend of 10 cents, where we had some.

Some gains that we had did have to pay out as it relates to the net investment income this quarter, a haven didn't have too big impact other than that takes some tax related items and of course, the afore mentioned special dividend.

Paul Johnson: I appreciate that. That's very helpful. And then on the Haven equitization or monetization... I was wondering if you could just kind of walk me through that, you know, I'm looking at, in your slide, the cent gain, roughly, from the Haven, but, you know, I'm not sure if it's the complete number or not, but $0.04 or so from tax charges, is that all related to Haven? I'm just kind of trying to parse out, you know, what the actual net gain was from that investment. And, Lauren, maybe I'll add some details, but Haven is a little bit, it's not really this quarter's news.

Laura Let me know if I'm missing yeah, and I think that was a good summary, so apologize I'm on page 12, and I think what you were saying the ones and that's just.

Q4 impact of D. Then unbuilt value and as John said that the benefit of kind of the Haven monetization happened over the course of 2023 and you can see kind of that show up in page 35 on the realized gain a row, which the vast majority of that does relate to haven.

Got it appreciate that thanks for clarifying.

And then last one is just kind of more broadly just on the net lease portfolio.

Paul Johnson: It's really something that we've exited over the course of 2023. And there was Haven was the sort of the root of the special dividend of 10 cents where we had some gains that we did have to pay out. As it relates to net investment income this quarter, Haven didn't have too big an impact other than, I think, some tax-related items and, of course, the aforementioned special dividend. Laura, let me know if I'm missing anything. Yeah, no, I think that was a good summary.

Hi.

Relevant to what's going on in the CRE market I'm, just wondering if I can kind of get your thoughts on.

The portfolio there kind of how it's performing I'd imagine most of those assets have been underwritten.

Years ago.

In the middle of zero rate under a very different environment.

Is there any sort of maturity risk in that book and.

Just I guess, how would that would you describe that as.

John Klein: So, Paul, just on page 12, and I think where you're seeing the one cent, that's just the Q4 impact of Haven on book value. And as John said, the benefit of Haven monetization will happen over the course of 2023. And you can see that show up on page 35 on the realized gain row, the vast majority of which does relate to Haven. I appreciate that. Thanks for clarifying. And the last one is just kind of more broadly on the net lease portfolio, relevant to what's going on in the CRE market. I'm just wondering if I can kind of get your thoughts on how it is performing.

How would you describe the differentiation between that net lease.

Folio and kind of the traditional CRE market.

Sure well the punch line is and we've talked about this a little bit but it's a common question I'm really happy you asked it but.

But generally when we think about our net lease portfolio. We look at all of our borrowers first of all we have no tenant risk because or or very limited tenant risk because we essentially have long term leases on what is mission critical real estate for our core tenants and and our tenants are performing you know very well by and large.

Type of real estate that we own and that we're leasing out to these tenants tends to be related to light manufacturing and we have a lot of life Sciences exposure are mission critical warehouse facilities and other sorts of of industrial type asset. So when we think about the the exact place.

Paul Johnson: I imagine, you know, most know, just I guess how would you describe that as, how would you describe the differentiation between that net lease portfolio and kind of the traditional CRE market? Sure. Well, the punchline is, and we talked about this a little bit, but it's a common question.

John Klein: I'm really happy you asked that. But generally, when we think about our net lease portfolio, we look at all of our borrowers. First of all, we have no tenant risk or very limited tenant risk because we essentially have long-term leases on what is mission-critical real estate for our core tenants, and our tenants are performing very well, by and large. The type of real estate that we own and that we're leasing out to these tenants tends to be related to light manufacturing.

You want to be in this environment in this commercial real estate environment, We just feel like our little portfolio couldnt be better positioned are the average length of the lease I believe is close to 10 years I could follow up with an exact number and as I've mentioned the tenant quality is high and the real estate criticality is also high.

So and then I guess, when we think about the valuation and how we feel about just the cash flow is coming from from this portfolio is diversified portfolio, we feel very good and in fact as interest rate rates have risen we've seen some valuation compression in the portfolio because the cap rates.

John Klein: We have a lot of life sciences exposure, mission-critical warehouse facilities, and other sorts of industrial-type assets. So when we think about the exact place you want to be in this environment, in this commercial real estate environment, we just feel like our little portfolio couldn't be better positioned. The average length of the lease, I believe, is close to 10 years. I could follow up with an exact number.

Have gone up in the market and we've had to reflect that in the in the value where we hold. These these assets if any if anything we see cap rates coming back down which makes our assets more valuable most of our assets have individual financing at the asset level.

John Klein: And as I mentioned, tenant quality is high, and the real estate criticality is also high. And then, I guess, when we think about the valuation and how we feel about just the cash flows coming from this diversified portfolio, we feel very good. And in fact, as interest rates have risen, we've seen some valuation compression in the portfolio because the cap rates have gone up in the market, and we've had to reflect that in the value where we hold these assets. But, if anything, we see cap rates coming back down, which makes our assets more valuable. Most of our assets have individual financing at the asset level, which tends to be a fixed rate.

It tends to be fixed rate.

And that has provided pretty good you know pretty good stability over over the last couple of years and we value that fixed rate.

That.

And then of course Ah.

Long term these cash flows are growing.

Because in general in general, we have 2% to 3% escalators on the individual leases, which provides a really good good tailwind over long periods of time.

John Klein: And that has provided pretty good stability over the last couple of years, and we value that fixed-rate debt. And then, of course, long-term, these cash flows are growing because, in general, we have 2 percent to 3 percent escalators on the individual leases, which provides a really good tailwind over long periods of time. So we feel very good when we think about our worries in the world.

So we feel very good when we think about our our worries in the world. This portfolio of properties is not high on my list.

And.

What are your thoughts about.

You kind of expect to sort of keep what you have in that book or whereas there.

John Klein: This portfolio of properties is not high on my list, and, What are your thoughts about, do you kind of expect to keep what you have in that book, or are there more origination opportunities? New Mountain Finance Corp. New Mountain Finance Corp. Sure. Really, the new origination opportunities go to another dedicated fund.

More original origination opportunities.

In the near future terrorists, something we would expect to kind of roll off over time.

Sure most of the they're really the new origination opportunities go to another dedicated fund when we think about the role that we played in in in <unk>.

John Klein: When we think about the role that we played in this net lease business that we have here at New Mountain, NMFC really got the business off the ground. And we continue to benefit from getting the business off the ground because we have these really long-term assets that tend to grow in value with the lease escalators. So, I really see this portfolio as being a little bit more static, but a really valuable source of income. And potentially, if things go our way over long periods of time, I think it can be a source of principal gains for us. But we're not actively investing in new properties within NMFC.

In this net lease business that we have here at New Mountain is is NMFC really got the business off the ground and and we continue to benefit from getting the business off the ground because we have these really long term assets that they tend to grow in value with the with the lease escalators. So I really see this portfolio as as being a little bit more static.

But but but really valuable really valuable source of income and potentially if things go our way over a long periods of time I think it can be a source of a principal gains for us, but we don't we're not actively in.

Investing in new new properties within NMFC, we're doing that in other private funds that we have here under the new mountain umbrella.

John Klein: We're doing that in other private funds that we have here under the New Mountain umbrella. Got it. Appreciate it. Thanks for taking my question. Thanks, Paul.

Got it I appreciate it thanks for taking my questions.

Thanks, Paul.

John Klein: Thank you. This concludes our question and answer session. I'd like to turn the conference back over to John Klein for closing remarks. All right. Well, thank you for joining us on our call, and we look forward to speaking to you again very shortly. Have a great day. Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day and a self-help guide for home guys.

Thank you. This concludes our question and answer session I would like to turn the conference back over to John Klein for closing remarks.

Great well, thank you for joining us on our call and we look forward to speaking you again very shortly have a great day.

Thank you Sir This concludes today's conference call. Thank you all for attending today's presentation you may now.

Now to socialize and have a wonderful day.

Yeah.

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Okay.