Q4 2024 New Mountain Finance Corp Earnings Call

Operator: Good day, and welcome to the New Mountain Finance Corporation's fourth quarter 2024 earnings call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by a zero.

Good day and welcome to the New Mountain Finance Corporation's fourth quarter 2024 earnings call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero.

Operator: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touchtone phone. And to withdraw your question, please press star and then two. Please note that this event is being recorded.

After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on a touchtone phone and to withdraw your question. Please press Star then two please.

Please note that this event is being recorded.

John Kline: I would now like to turn the conference over to John Kline, President and CEO of New Mountain Finance Corporation. Please go ahead, sir. Thank you and good morning everyone.

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

Speaker Change: Thank you and good morning, everyone welcome to New Mountain Finance Corporation's fourth quarter 2024 earnings call.

John Kline: Welcome to New Mountain Finance Corporation's fourth quarter 2024 earnings call.

John Kline: 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 Kris Corbett, CFO and Treasurer of NMFC.

Speaker Change: On the line with me here today are Steve <unk>, Chairman of NMFC, and CEO of New Mountain capital, Laura Holsten T O O O NMFC, and Chris Corbett, CFO and treasurer of NMFC.

Kris Corbett: Steve is going to make some introductory remarks, but before he does, I'd like to ask Kris to make some important statements regarding today's call. Thanks, John. Good morning, everyone. Before we get into the presentation, I'd 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 like to call your attention to the customary Safe Harbor disclosures in our press release and on page 2 and 3 of the slide presentation regarding forward-looking statements.

Speaker Change: 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.

Speaker Change: Thanks, John Good morning, everyone.

Speaker Change: 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 26 earnings press release.

Speaker Change: I would like to call your attention to the customary safe Harbor disclosures in our press release and on page two and three of the slide presentation regarding forward looking statements.

Kris Corbett: 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.

Speaker Change: 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.

Kris Corbett: To obtain copies of our latest SEC filings and access the slide presentation that we will be referring to throughout this call, please visit our website at www.newmountainfinance.com.

Chris: Filings and access the slide presentation that will be route that we will be referring to 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 Kalinsky, Nmfc's, Chairman, who will give us some highlights beginning on page five of the slide presentation, Steve Thanks, Chris.

Steven Klinsky: At this time, I'd like to turn the call over to Steve Kalinsky, NMFC's Chairman, who will give us some highlights beginning on page 5 of the slide presentation. Steve? Thanks, Chris. It's great to be able to address you all today, both as NMFC's chairman and as a major fellow shareholder. Adjusted net investment income for the quarter. All in all, we have a total of $3.32 per share, covering our $0.32 per share regular dividend that was paid in cash on December 31st. are net asset value per share of $12.55. declined 7 cents or 0.6%, demonstrating relatively stable credit performance across our portfolio.

Steve Kalinsky: Great to be able to address you all today, both as Nmfc's chairman and as a major fellow shareholder.

Steve Kalinsky: Adjusted net investment income for the quarter.

Steve Kalinsky: <unk> per share.

Steve Kalinsky: [noise] covering our <unk> 32 per share regular dividend that was paid in cash on December 31st.

Steve Kalinsky: Our net asset value per share of $12.55 declined.

Steve Kalinsky: <unk> declined seven or 0.6%.

Demonstrating relatively stable credit performance across our portfolio.

Steven Klinsky: Importantly, we had no new non-accruals during the quarter and no red names on our heat map.

Steve Kalinsky: Importantly, we had no new non accruals during the quarter and no red names on our heat map.

Steven Klinsky: Looking forward to Q1, we would like to announce a $0.32 dividend payable on March 31st to shareholders of record on March 17th. Our core dividend continues to be supported by our strong recurring earnings, and if necessary, the Dividend Protection Program that we renewed in 2024.

Steve Kalinsky: Looking forward to Q1, we would like to announce a 32 cent dividend payable on March 31 to shareholders of record on March 17th.

Steve Kalinsky: Our core dividend continues to be supported by our strong recurring earnings and if necessary the dividend protection program that we renewed in 2024.

Steven Klinsky: So far, 2025 is off to a very good start for NMFC, and I would like to announce an important transaction that aligns with our strategic priorities. On February 25th, we sold a stake in Unitec Global Services to BTG Paxual Strategic Capital. BTG invested $90 million through a convertible preferred security, valuing Unitec at approximately $370 million, which implies over a two-times multiple on our original cost basis, and is above our Q4 mark. This transaction returned $42 million to NMFC through full redemption of Unitech's PIC second lien tranche and PIC Senior Preferred II tranche. This partial exit aligns with our goal of monetizing accrued PIC income while we also retain the combined 31% ownership stake in the company through both NMFC and another New Mountain Credit Fund.

Steve Kalinsky: So far 2025 is off to a very good start for NMFC and I would like to announce an important transaction that aligns with our strategic priorities.

Steve Kalinsky: On February 25th we sold the stake in Unitek Global services to BTG Pactual strategic capital.

Steve Kalinsky: BTG invested $90 million through a convertible preferred security.

Steve Kalinsky: Valuing unitek at approximately $370 million, which implies over a two times multiple on our original cost basis and is above our Q4 Mark.

Steve Kalinsky: This transaction returned 42 million to NMFC through full redemption of unit tests pick second lien tranche and Pik senior preferred two tranche.

Steve Kalinsky: This partial exit aligns with our goal of monetizing accrued Pik income while we also retained a combined 31% ownership stake in the company through both NMFC and another new Mountain credit fund.

Steven Klinsky: Looking forward, we believe that Unitech has meaningfully improved its prospects under New Mountain's leadership, including major new wins in the data center space.

Steve Kalinsky: Looking forward, we believe that unitek has meaningfully improved its prospects under new mountains leadership, including major new wins in the data center space.

Steven Klinsky: We will offer more details on this transaction and other highlights on the Q1 call in early May. New Mountain's private equity funds have never had a bankruptcy or missed an interest payment, and the firm now manages over $55 billion of assets. Similarly, NMFC has experienced only 12 basis points of average annualized net realized losses in its nearly 14 years as a public company, while paying out almost $19 per share of cumulative dividends. We believe NMFC's loans today are well-positioned overall in defensive growth industries. that we think are right in all times and particularly attractive in less certain economic times.

Steve Kalinsky: We will offer more details on this transaction and other highlights on the Q1 call in early May.

Steve Kalinsky: New mountain's private equity funds have never had a bankruptcy or missed an interest payment and.

Steve Kalinsky: And the firm now manages over $55 billion of assets.

Steve Kalinsky: Similarly, NMFC has experienced only 12 basis points of average annualized net realized losses, and it's nearly 14 years as a public company, while paying out almost $19 per share of cumulative dividends.

Steve Kalinsky: We believe nmfc's loans today are well positioned overall in defensive growth industries that we think are right in all times, and particularly attractive and less certain economic times.

Steven Klinsky: As the Unitech example also shows, in those very few cases where we have had loan defaults, NMFC seeks to use the core business-building competency of New Mountain Capital to make gains on these once-troubled positions. New Mountain's team now numbers over 270 members and the firm believes we have achieved over $87 billion of enterprise value gains at our private equity companies for all shareholders. New Mountain seeks to be stronger every year in the carefully selected sectors where we have chosen to both lend and acquire, such as life science supplies, healthcare information technology, software, and infrastructure services.

Steve Kalinsky: As the Unitek example, also shows in those very few cases, where we have had loan defaults.

Steve Kalinsky: <unk> seeks to use the core business building competency of new mountain capital to make gains on these once troubled positions.

Steve Kalinsky: New Mountains team now numbers over 270 members and the firm believes we have achieved over $87 billion of enterprise value gains that are private equity companies for all shareholders.

Steve Kalinsky: Mountain seeks to be stronger every year and the carefully selected sectors, where we have chosen to both land and acquire such as life science supplies healthcare information technology software and infrastructure services.

Steven Klinsky: The strength of our P.E. efforts are fully applied as strength for our credit efforts and for NMFC. Finally, we as management continue as major shareholders of NMFs. During Q4, I and other members of the NMFC team increased our holdings by 1.6 million shares. We now own about 14% of NMFC as compared to about 12% last quarter.

Steve Kalinsky: The strength of our <unk> efforts are fully applied as strength for our credit efforts and for NMFC.

Steve Kalinsky: Finally, we as management continue as major shareholders of NMFC.

Steve Kalinsky: During Q4.

Steve Kalinsky: And other members of the NMC team increased our holdings by one 6 million shares we now own about 14% of NMFC as compared to about 12% last quarter.

John Kline: With that, let me turn the call to John. Thank you, Steve. I would like to begin by offering a broader review of our direct lending investment strategy and long-term track record. Starting on page eight, we highlight our exposure to a diversified list of defensive non-cyclical sectors. These sectors map to the industries where New Mountain has made successful private equity investments and where our firm's knowledge is the strongest. We seek to make investments in companies with durable growth drivers, predictable revenue streams, margin stability, and strong free cash flow conversion. As you can see from the industry pie chart on page 8, we have virtually no exposure to cyclical, volatile, and sectorally challenged industries.

Jeff: With that let me turn the call to Jeff.

Jeff: Thank you, Steve I would like to begin by offering a broader review of our direct lending investment strategy and long term track record.

Jeff: Starting on page eight we highlight our exposure to a diversified list of defensive non cyclical sectors. These sectors map to the industries, where new mountain has made successful private equity investments and where our firm's knowledge is the strongest.

Jeff: We seek to make investments in companies with durable growth drivers predictable revenue streams margin stability and strong free cash flow conversion.

Jeff: As you can see from the industry Pie chart on page eight we have virtually no exposure to cyclical volatile and secondarily challenged industries Mauro.

John Kline: Moreover, we believe that our portfolio has limited exposure to companies dependent on various forms of government spending and limited exposure to tariffs on foreign goods. Our strategy has been consistent over our nearly 14 years as a public company, and it allows us to operate with confidence in any economic environment. Page 9 provides key performance statistics showing 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 approximately $1.4 billion to shareholders through our dividend program, generating an annualized return of 10%.

Jeff: Moreover, we believe that our portfolio has limited exposure to companies dependent on various forms of government spending and limited exposure to tariffs on foreign goods.

Jeff: Our strategy has been consistent over our nearly 14 years as a public company and it allows us to operate with confidence in any economic environment.

Jeff: Page nine provides key performance statistics, showing a long term track record of delivering consistent enhance yield to our shareholders by minimizing credit losses, and distributing virtually all of our excess income to shareholders.

Jeff: Since our IPO in 2011, and MFC has returned approximately $1 $4 billion to shareholders through our dividend program.

Speaker Change: <unk> generated an annualized return of 10%.

John Kline: Our dividend yield is approximately 11%, or nearly 700 basis points over short-term risk-free interest rates. NMFC's current portfolio invests 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 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.

Speaker Change: Our dividend yield is approximately 11% or nearly 700 basis points over short term risk free interest rates.

Speaker Change: <unk> current portfolio invest in companies with a high quality industries that are performing well and where our last dollar of risk and approximately 40% of the purchase price paid for the business we.

Speaker Change: 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.

John Kline: Turning to page 10, we would like to give a bit more detail on the strategic areas of focus for NMFC. We have successfully evolved our portfolio mix to 75% senior-oriented assets, and from here, we would like to maintain or increase that heavily senior-oriented mix. Within this category, we have our core first lien and unit tranche loans, our well-performing senior loan funds, and our net lease subsidiary, which owns a diversified group of mission-critical real estate occupied by defensive growth-oriented businesses. While senior lending represents the vast majority of our portfolio, many of our most profitable investments come from high-conviction junior capital positions.

Speaker Change: Turning to page 10, we would like to give a bit more detail on the strategic areas of focus for NMFC.

Speaker Change: We have successfully evolved our portfolio mix to 75% senior oriented assets and from here, we would like to maintain or increase that heavily senior oriented mix.

Speaker Change: Within this category, we have our core first lien and Unitranche loans are well performing senior loan funds.

Speaker Change: Our net lease subsidiary, which owns a diversified groups group of mission critical real estate occupied by defensive growth oriented businesses.

Speaker Change: While senior lending represents the vast majority of our portfolio many of our most profitable investments come from high conviction junior capital positions.

John Kline: We selectively make these investments in instances where we have particularly high-conviction investment views informed by the broader NMC platform and where risk-adjusted returns are especially compelling. This strategy has been effective for us in the past and we believe it will be accretive to shareholder value going forward. Additionally, we see a clear opportunity to increase the diversity of the portfolio, particularly within the top ten positions. Over time, we seek to have each of our portfolio companies represent less than 2% of total AUM. We also continue to have a sharp focus on optimizing the cost, duration, and quality of our liabilities.

Speaker Change: We selectively make these investments in instances, where we have particularly high conviction investment views informed by the broader NMC platform and where risk adjusted returns are especially compelling.

Speaker Change: This strategy has been effective for us in the past and we believe it will be accretive to shareholder value going forward.

Speaker Change: Additionally, we see a clear opportunity to increase the diversity of the portfolio, particularly within the top 10 positions.

Speaker Change: Over time, we seek to have each of our portfolio companies represent less than 2% of total AUM.

Speaker Change: We also continue to have a sharp focus on optimizing the cost duration and quality of our liabilities are.

John Kline: Our team has made great progress over the last year and sees more opportunity to improve the right side of our balance sheet throughout 2025. Over the next 12 months, we expect that our liabilities will be approximately 75% floating rate, inclusive of hedges, and we remain committed to building a high-quality, laddered mix of unsecured bonds. Finally, in addition to the Unitech partial sale, we expect to have future opportunities to sell certain equity stakes and pick investments. While our PIC portfolio has strong credit quality and generates attractive shareholder returns, we remain committed to maintaining prudent overall levels of PIC income.

Speaker Change: Our team has made great progress over the last year and she has more opportunity to improve the right side of our balance sheet throughout 2025.

Speaker Change: Over the next 12 months, we expect that our liabilities will be approximately 75% floating rate inclusive of hedges and we remain committed to building a high quality ladder mix of unsecured bonds.

Speaker Change: Yeah.

Speaker Change: Finally in addition to the unitek partial sale, we expect to have future opportunities to sell certain equity Stakes and Pik investments.

Speaker Change: While our pic portfolio has strong credit quality and attractive and generates attractive shareholder returns, we remain committed to maintaining prudent overall levels of pik income.

John Kline: Turning to page 11, the internal risk rating of our portfolio were roughly consistent with the prior quarter at approximately 97% green rated. Similar to prior quarter, we have no companies rated red, and importantly, we had only $17 million of fair market value, or one company moved negatively on our risk rating scale. Our most challenged names, marked orange, represent only 1.2% of NMFC's fair market value, making them a negligible part of our portfolio. The updated heat map is shown in its entirety on page 12, with 97% of our assets rated green. We believe our portfolio is well positioned to continue to perform no matter how the economic landscape develops.

Speaker Change: Turning to page 11, the internal risk rating of our portfolio, we're roughly consistent with the prior quarter.

Speaker Change: 97% Green rated.

Speaker Change: Similar to prior quarter, we have no companies rated Red and importantly, we had only $17 million of fair market value or one company move negatively on our risk rating scale.

Speaker Change: Our most challenged names marked orange represent only one 2% of Nmfc's fair market value, making them a negligible part of our portfolio.

Speaker Change: Yeah.

Speaker Change: The updated heat map has shown in its entirety on page 12, with 97% of our assets re green. We believe our portfolio is well positioned to continue to perform no matter how the economic landscape develops the vast majority of our investments continued to experience both top and bottomline growth consistent with.

Kris Corbett: The vast majority of our investments continue to experience both top and bottom line growth, consistent with our underwriting.

Speaker Change: Our underwriting.

Kris Corbett: Turning to page 13, we provide a graphical analysis of NAV changes during the quarter, resulting in a book value of $12.55, a $0.07 decline compared to last quarter. Overall, the quarter benefited from good core credit performance offset by modest declines in the value of inventum and health systems. Health Systems, a business that operates in the cybersecurity market, was the largest single-name decrease during the quarter. The trading levels of this loan declined due to concerns around two of its smaller business segments that are facing headwinds from extended sales cycles and increased competition. We remain relatively positive on the prospects for the overall business as the company's most important division continues to grow.

Speaker Change: Turning to page 13, we provide a graphical analysis of niv changes during the quarter, resulting in a book value of $12 <unk>.

Speaker Change: And 55 cents, a seven cent decline compared to last quarter.

Speaker Change: Overall, the quarter benefited from good core credit performance offset by modest declines in the value of the dimension and health systems.

Speaker Change: Health systems, a business that operates in the cyber security market with the largest single name decreased during the quarter.

Speaker Change: The trading levels of this loan declined due to concerns around two of its smaller business segments that are facing headwinds from extended sales cycles and increased competition.

Speaker Change: We remain relatively positive on the prospects for the overall business as the company's most important division continues to grow.

Kris Corbett: Page 14 addresses NMFC's non-accrual performance. On the left side of the page, we show the current state of the portfolio, where we have approximately $3.1 billion of investments at fair market value, of which only $38 million, or 1.2% of the portfolio is currently on non-accrual. We show these statistics pro forma for the Unitech transaction, after which we'll have no non-accruing positions in that capital structure. On the right side of the page, we show our cumulative credit performance since IPO. During that time, NMFC has made nearly $10.1 billion of investments while realizing losses of $67 million.

Speaker Change: Page 14 addresses nmfc's non accrual performance on the left side of the page we show the current state of the portfolio, where we have approximately $3 1 billion of investments at fair market value of which only $38 million or one 2% of the portfolio is currently at.

Speaker Change: On non accrual.

Speaker Change: We show these statistics pro forma for the unitek transaction after which we will have no not no non accruing positions in that capital structure.

Speaker Change: On the right side of the page we show our cumulative credit performance since IPO during that time NMFC has made nearly $10 1 billion of investments, while realizing losses of $67 million. This represents an average annualized net realized loss rate of approximately 12.

Kris Corbett: This represents an average annualized net realized loss rate of approximately 12 basis points since IPO.

Speaker Change: Basis points since IPO.

Kris Corbett: On page 15, we present NMFC's consistent and compelling returns over the last 13 plus years. Cumulatively, NMFC has earned nearly $1.4 billion in net investment income, while generating only $67 million of cumulative net realized losses and only $49 million of cumulative net unrealized depreciation, resulting in over $1.2 billion of value created for shareholders.

Speaker Change: On page 15, we present MFC is consistent and compelling returns over the last 13 plus years cumulatively NMFC has earned nearly $1 4 billion in net investment income, while generating only $67 million of accumulative net realized losses, and only $49 million of cumulative.

Speaker Change: Net unrealized depreciation resulting in over $1 2 billion of value created for shareholders.

Laura Holson: I will now turn the call over to our Chief Operating Officer, Laura Holson, to discuss the current market environment and provide more details on NMFC's quarterly performance. Thanks, John. 2024 concluded in similar fashion to the rest of the year, with episodic new deal activity. Spreads have tightened over the last 12 to 18 months, as we've been in a less active deal flow environment, and the syndicated market has been aggressive. That said, we believe direct lending remains an attractive asset class in today's market. We have consistently found opportunities in our defensive growth verticals where we can make loans that attach at $1 in the capital structure at 9-10% unlevered returns.

Speaker Change: I will now turn the call over to our Chief operating officer, Laura Holsten to discuss the current market environment and provide more details on Nmfc's quarterly performance.

Speaker Change: Thanks, John.

Speaker Change: 2024 concluded in similar fashion to the rest of the year with episodic new deal activity.

Speaker Change: Spreads have tightened over the last 12 to 18 months as we've been in a less active deal flow environment and the syndicated market has been aggressive.

Speaker Change: That said, we believe direct lending remains an attractive asset class in today's market.

Speaker Change: We have consistently found opportunities and our defensive growth verticals, where we can make loans that attach at dollar one in the capital structure at 9% to 10% Unlevered return.

Laura Holson: Deal structures remain compelling, with significant sponsor equity contribution representing the vast majority of the capital structure. We continue to expect an increased volume of M&A activity in 2025 for the reasons we've previously discussed, including the magnitude of dry powder for private equities, the ongoing pressure to return capital to LPs, as well as attractive financing markets for borrowers. The bid ask gap remains the question, as many of the higher multiple deals from the 2021 timeframe age into maturity. However, there are also a fair amount of pre 2021 deals that we expect sponsors are focused on exiting.

Speaker Change: Deal structures remain compelling with significant sponsor equity contribution representing the vast majority of the capital structures.

Speaker Change: We continue to expect an increased volume of M&A activity in 2025.

Speaker Change: And as we've previously discussed.

Speaker Change: Including the magnitude of dry powder for private equity.

Speaker Change: The ongoing pressure to return capital a L. P S as well as attractive financing markets for borrowers.

Speaker Change: The bid ask gap remains a question as many of the higher multiple deals from the 2021 timeframe agent in the charity.

Speaker Change: However, there are also a fair amount of pre 2021 deal that we expect sponsors are focused on exiting.

Laura Holson: The counter to the expected pickup in M&A activity is a backdrop of volatility and uncertainty across political and regulatory headlines and a continued high base rate environment, which is a tailwind to returns but a headwind to deal activity. We believe we're as well positioned as we can be. However, credit selection remains critical, particularly as there is minimal pricing and structural differentiation between borrowers.

Speaker Change: The counter to the expected pickup in M&A activity is a backdrop of volatility and uncertainty across political and regulatory headlines and a continued high base rate environment, which is a tailwind to returns, but a headwind to deal activity.

Speaker Change: We believe we're as well positioned as we can be however, credit selection remains critical particularly as there is minimal pricing and structural differentiation between borrowers.

Laura Holson: Page 17 presents an interest rate analysis that provides insight into the effect of base rates on MMFC's earnings. The NMFC loan portfolio is 86% floating rate and 14% fixed rate, while our liabilities are 49% floating and 51% fixed rate. Pro forma for the 2022 convert and 2021 unsecured notes maturities over the next 12 months, we expect our mix will shift towards 74% floating and 26% fixed.

Speaker Change: Page 17 presents an interest rate analysis that provides insight into the effect of base rates on Mfc's earnings.

Speaker Change: Thank you God MFC loan portfolio is 86% floating rate and 14% fixed rate.

Speaker Change: All our liabilities are 49% floating and 51% fixed rate.

Speaker Change: Pro forma for the 2020 to convert in 2021 unsecured notes maturities over the next 12 months, we expect our mix will shift towards 74% floating and 26% in fixed.

Laura Holson: We highlight our sensitivity to interest rates on the bottom chart. While we would expect to see earnings pressure in the scenarios where base rates decrease, we are evolving our capital structure to help offset some of that pressure. Namely, we have been swapping our new fixed rate exposure to floating rates, and we also have some opportunities to potentially refinance some shorter-dated, higher-cost fixed rate debt. Our 7.5% converts mature in October 2025, and our 8.25% baby bonds are callable in November 2025, both of which represent opportunities to hopefully refinance at a lower rate.

Speaker Change: We highlight our sensitivity to interest rates on the bottom chart.

Speaker Change: While we would expect to see earnings pressure in the scenarios where base rates decrease we are evolving our capital structure to help offset some of that pressure.

Speaker Change: Namely we have been swapping our new fixed rate exposure to floating rate and we also have some opportunities to potentially refinance some shorter dated higher cost fixed rate debt.

Speaker Change: Our seven 5% converts maturing October 2025, and our 8.25% baby bonds are callable in November of 2025, both of which represent opportunities to hopefully refinance at lower rates.

Laura Holson: Moving on to page 18, in Q4 we originated $33 million of assets offset by $218 million of repayments and sales. driving deleveraging to the middle of our target leverage range. Notable repayments in the quarter included Recorded Future, a software business that was acquired by a strategic, as well as two second lien assets. While I've mentioned the challenges of spread compression and direct lending, these market environments can be beneficial for de-risking. We've been able to take advantage of the hot market and exit a handful of assets that have opportunistically repriced, where we believed recent performance either didn't warrant a repricing or underwriting informed a negative change in our credit view.

Speaker Change: Moving on to page 18 in Q4, we originated $33 million of assets offset by $218 million of repayments and sales driving deleveraging to the middle of our target leverage range.

Speaker Change: Notable repayments in the quarter include a recorded future our software business that was acquired by a strategic as well as two second lien assets.

Speaker Change: Well I've mentioned the challenges of spread compression in direct lending these market environments can be beneficial for derisking.

Speaker Change: We've been able to take advantage of the hot market and exit a handful of assets that have opportunistically repriced, where we believed recent performance either didn't warrant repricing or re underwriting informed a negative change in our credit deal.

Laura Holson: The depth of knowledge in our core defense of growth power alleys allows us to continuously refresh our thinking and stay close to an evolving landscape. Turning to page 19, similar to last quarter, approximately 75% of our investments, inclusive of first lien, SLPs, and net lease, are senior in nature. Second lane positions represent just 7% of our portfolio, down from 8% last quarter and 15% in Q4 of last year. Approximately 8% of the portfolio is comprised of our equity positions, the largest of which are shown on the right side of the page. We continue to dedicate meaningful time and resources to business building at these companies, all of which we believe are making positive progress.

Speaker Change: The depth of knowledge in our core defensive growth power alleys allows us to continuously refresh our thinking and stay close to an evolving landscape.

Speaker Change: Turning to page 19, similar to last quarter, approximately 75% of our investments.

Speaker Change: Of our first lien SLP and net lease are senior in nature.

Speaker Change: Second lien positions represent just 7% of our portfolio down from 8% last quarter and 15% in Q4 of last year.

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

Speaker Change: We continue to dedicate meaningful time and resources to business building at these companies all of which we believe are making positive progress.

Laura Holson: As evidenced by the Unitech strategic transaction announced earlier, our ability to own and operate businesses is a key differentiator. We leverage the full operating capabilities of our private equity team and approach our credit equity positions like any other New Mountain Capital owned business.

Speaker Change: As evidenced by the unitek strategic transaction announced earlier, our ability to own and operate businesses is a key differentiator.

Speaker Change: Average the full operating capabilities of our private equity team and approach our credit equity positions like any other new mountain capital owned the business.

Laura Holson: Page 20 shows that the average yields of NMFC's portfolio increased to 11% for Q4, primarily due to the higher-for-longer shift in the forward SOFR curve. Generally speaking, even though spreads are tighter, as evidenced by lower yields on our originations compared to on our repayments, total yields remain attractive for the risk.

Speaker Change: Page 20 shows that the average yields of Nmfc's portfolio increased to 11% from Q4, primarily due to the higher for longer shift and the foreign sales curve.

Speaker Change: Generally speaking, even though spreads are tighter as evidenced by lower yield on our originations compared to on a repayments total yields remain attractive for the risk.

Laura Holson: Page 21 highlights the scale and positive credit trends of our underlying borrowers. The weighted average EBITDA of our borrowers decreased slightly in the fourth quarter to $184 million due to the realization of some larger companies during the quarter, partially offset by underlying growth at the individual companies we lend to. 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 come down slightly over the last several quarters.

Speaker Change: Page 21 highlights the scale and positive credit trends of our underlying borrowers.

Speaker Change: Weighted average EBITDA of our borrowers decreased slightly in the fourth quarter to $184 million due to the realization of some larger companies during the quarter, partially offset by underlying growth at the individual companies we lend to.

Speaker Change: While the 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.

Speaker Change: We also show the relevant leverage and interest coverage stats across the portfolio.

Speaker Change: Portfolio company leverage has come down slightly over the last several quarters.

Laura Holson: Loan-to-values continue to be quite compelling, and the current portfolio has an average loan-to-value of 41%. The weighted average interest coverage on the portfolio increased to 1.8 times this quarter. 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.

Speaker Change: Loan to values continue to be quite compelling and the current portfolio has an average loan to value of 41%.

Speaker Change: The weighted average interest coverage on the portfolio increased to one eight times this quarter.

Speaker Change: We've seen sponsors continue to proactively support company liquidity and continued M&A activity.

Speaker Change: This is a great indication that our portfolio consist of companies that are performing well and are able to attract additional investment at healthy valuations.

Laura Holson: Finally, as illustrated on page 22, we have a diversified portfolio across 121 portfolio companies. Excluding our investments in the SLPs and net lease funds, the top 10 single name issuers account for 27% of total fair value and represent our highest conviction names.

Speaker Change: Finally, as illustrated on page 22, we have a diversified portfolio across 121 portfolio companies.

Speaker Change: Excluding our investments in the Mlps and net lease funds. The top 10 single name issuers accounted for 27% of total fair value and represent our highest conviction name.

Laura Holson: Taking into account the partial monetization of Unitech, that position decreases from 3.5% to just 2.2% of fair market value.

Speaker Change: Taking into account the partial monetization of unitek that position decreases from three 5% to just two 2% a fair market value.

Kris Corbett: I will now turn the call over to our Chief Financial Officer, Kris Corbett, to discuss our financial results. Thank you, Laura. For more details, please refer to our quarterly report on Form 10-K that was filed yesterday with the SEC. As shown on slide 23, the portfolio had over $3 billion of investments at fair value on December 31st and total assets of $3.2 billion with total liabilities of $2 billion, of which total statutory debt outstanding was $1.6 billion. Net asset value of approximately $1.4 billion, or $12.55 per share, was down slightly compared to prior quarter. At quarter end, our statutory debt-to-equity ratio was one spot one, five to one, and one spot one, one to one net of available cash on the balance sheet, which is in the middle of our target range of one to 1.25 times.

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

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

Speaker Change: As shown on slide 23, the portfolio had over $3 billion of it investments at fair value on December 31, and total assets of $3 2 billion with total liabilities of 2 billion of which total statutory debt outstanding was $1 6 billion net asset value of approximately $1 4 billion or $12 55 per share was down slightly.

Speaker Change: Per the prior quarter.

Speaker Change: At quarter end, our statutory debt to equity ratio was one spot one five to one in one spot one one to one net of available cash on the balance sheet, which is the middle of our target range of one to 1.25 times.

Kris Corbett: On slide 24, we show our quarterly income statement results. For the quarter, we earned total investment income of $91 million, or a 2% decrease over prior year. Total net expenses of $57 million decreased 9% versus the prior year. This increase in expenses was a product of higher financing costs. Our adjusted net investment income for the quarter was $0.32 per weighted average share, which covered our Q4 regular dividends. As shown in slide 25, we earned total investment income of $371 million for the year, which represented a decrease of 1% over the prior year. Total net expenses of $225 million increased 4% over the prior year.

Speaker Change: On Slide 24, we show our quarterly income statement results for the quarter. We earned total investment income of $91 million or 2% or 2% decrease over prior year, although net expenses of $57 million decreased 9% versus the prior year.

Speaker Change: This increase in expenses was a product of higher financing costs.

Speaker Change: Our adjusted net investment income for the quarter was 32 cents per weighted average share which covered our Q4 regular dividend.

Speaker Change: As shown in slide 25, we earned total investment income of $371 million for the year, which represented a decrease of 1% over the prior year total net expenses of $225 million increased 4% over the prior year.

Kris Corbett: Slide 26 highlights that 96% of our total investment income is recurring in the fourth quarter. For Q4, PIC interest income represented only 10% of total investment income, whereas non-cash dividend from our preferred equity investments represented 9% of total investment income. This aligns with the asset mix strategy John mentioned earlier. Importantly, positions generating non-cash income during the fourth quarter are marked at a weighted average fair market value of 94% of par, and over 94% of this income is generated from our green-rated name. Additionally, over 75% of this income is generated by positions that included pick from inception to best enable these borrowers to execute on their strategic growth plan.

Speaker Change: Slide 26 highlights that 96% of our total investment income is recurring in the fourth quarter.

Speaker Change: For for Q4 pick interest income represented only 10% of total investment income, whereas noncash dividend from our preferred equity investments represented 9% of total investment income this aligns with our asset mix strategy John mentioned earlier.

Speaker Change: Fortunately positioned positions generating noncash income during the fourth quarter are marked at a weighted average fair market value of 94% of par and over 94% of this income is generated from our green rated names.

Additionally over 75% of this income is generated by positions that included pick from inception to best enable these borrowers to execute on their strategic growth plans.

Kris Corbett: Turning to slide 27, the red line shows the coverage of our regular dividend.

Speaker Change: Turning to slide 27, the Red line shows the coverage of our regular dividend for Q1 2025, our board of directors again declared a dividend of 32 cents per share.

Kris Corbett: For Q1 2025, our Board of Directors has again declared a dividend of $0.32 per share. On slide 29, we highlight our various financing sources and diversified leverage profile. Taking into account SBA-guaranteed debentures, we have $3 billion of total borrowing capacity with $1.1 billion available on our revolving lines subject to borrowing-based limitations. This represents our most significant availability since the inception of our business and more than covers our unfunded commitments of $244 million.

Speaker Change: On slide 29, we highlight our various financing sources and diversified leverage profile taking into account SBA guaranteed debentures. We have 3 billion of total borrowing capacity with $1 1 billion available on our revolving lines subject to borrowing base limitations. This represents our most significant availability since the inception of our business and more than cover.

Speaker Change: Our unfunded commitments of $244 million.

Kris Corbett: 2024 marked a significant evolution of our capital structure. We issued our first two investment grade bonds. We enhanced our corporate revolver by increasing its capacity and extending its maturity while also lowering its spread. We also streamlined our asset based credit facilities by lowering the cost of our Wells Fargo credit facility and fully repaying our higher cost Deutsche Bank credit facility. This resulted in an increase of our floating rate liabilities mix from approximately 40% at December 31st, 2023, to 50% at December 31st, 2024, to more closely match our floating rate assets, while during the same period, increasing our unsecured debt percentage from 51% to 79%, excluding SBA debentures.

Speaker Change: 2024 marked a significant evolution of our capital structure.

Speaker Change: Issued our first two investment grade bonds, we enhanced our corporate revolver by increasing its capacity and extending its maturity while also lowering its spread.

Speaker Change: We also streamlined our asset based credit facilities by lowering the costs of our wells Fargo credit facility and fully repaying our higher cost Deutsche Bank credit facility.

Speaker Change: This resulted in an increase of our floating rate liabilities mix from approximately 40% at December 31, 2023% to 50% at December 31, 2024 to more closely match, our floating rate assets, while during the same period, increasing our unsecured percent Mick unsecured debt percentage from 51% 79%.

Speaker Change: Excluding SBA debentures.

Kris Corbett: Looking forward to 2025, the facilities outlined in red represent opportunities to refinance and reduce our cost of financing in the medium term. Further, we are targeting to increase our floating rate liability mix over the course of the next 12 months to approximately 75 percent. Finally, on slide 30, we show our leveraged maturity schedule. We continue to ladder our maturities and have sufficient liquidity to manage upcoming maturities in 2025 and early 2026. Notably, over 60% of our debt matures in or after 2028, with near-term maturities representing an opportunity to continue to access the investment-grade bond market.

Speaker Change: Looking forward to 2025, the facility's outlined in red represent opportunities to refinance and reduce our cost of financing in the medium term.

Speaker Change: Further we are targeting to increase our floating rate liability mix over the course of the next 12 months to approximately 75%.

Speaker Change: Finally on slide 30, we show our leverage maturity schedule, we continue to ladder, our maturities and have sufficient liquidity to manage upcoming maturities in 2025 in early 2026, notably over 60% of our debt matures interact or 2028 with near term maturities, representing an opportunity to continue to access the investment grade bond.

Speaker Change: Yes.

John Kline: With that, I would like to turn the call back over to John. Thank you, Kris. We are pleased to have a strong start to 2025 with the Unitech sale as an important catalyst. Credit quality remains good, our portfolio is more senior than ever before, and we have made substantial positive changes to our liability structure with more opportunity ahead.

John Kline: With that I would like to turn the call back over to John.

Chris Corvette: Chris We are pleased to have a strong start to 2025 with a unitek sale as an important catalyst credit quality remains good our portfolio is more senior than ever before and we have made substantial positive changes to our liability structure with more opportunity ahead.

John Kline: In closing, once again, we'd like to thank all of our stakeholders for the ongoing partnership and support, and look forward to speaking to you again on our next call in May.

Speaker Change: In closing, we once again, we'd like to thank all of our stakeholders for the ongoing partnership and support and look forward to speaking to you again on our next call in May.

Operator: I would now like to turn things over to the operator to begin Q&A. Operator? Thank you.

Chris Corvette: I would now like to turn things over to the operator to begin Q&A operator.

Speaker Change: Thank you.

Operator: We will now begin the question-and-answer session. To ask a question, you may press star, then 1 on your touch-tone phone. If you are using a 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, and then 2 on your touch-tone phone.

Speaker Change: 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 are using a speakerphone. Please pick up your handset before pressing the keys.

Speaker Change: At anytime your question has been addressed and you would like to withdraw your question. Please press Star and then two.

Operator: At this time, we will pause for just a moment to assemble our roster.

Speaker Change: At this time, we will pause for just a moment to assemble our roster.

Robert Dodd: And your first question today will come from Robert Dodd with Raymond James. Please go ahead.

Speaker Change: And your first question today will come from Robert Dodd with Raymond James. Please go ahead.

Robert Dodd: Hello everybody, and congrats on the quarter, particularly Unitech. So, well, at the quarter end. On Unitech, if I can, I realize you said there'd be more details on the Q1 call, but at the exit valuation of Unitech, not exit, but partial realization, how does that enterprise value stack up with the enterprise value used to inform the mark at Q3? Sure, as Steve mentioned, it's modestly higher, but overall, the big picture, yeah, it would be in line to modestly higher. Got it, got it. Thank you.

Speaker Change: Hello, everybody and congrats on the quarter, particularly unitek.

Speaker Change: Well after quarter end.

Speaker Change: On Unitek, Quebec, Canada, I realize you said that would be more company in more detail on the Q1 call but.

Speaker Change: The valuation of unitek the exit offshore.

Speaker Change:

Speaker Change: How does that enterprise value stack up with the enterprise value used to inform the mark at Q4.

Sure. It is as Steve mentioned, it's modestly higher, but but overall big picture.

Speaker Change: Yes. It was it would be in line to modestly higher.

Speaker Change: Got it thank you.

Robert Dodd: And then on, you know, one of the other themes, I think, you know, in the prepared remarks, I think it was, well, I said that there's, you know, some uncertainties in the market. Maybe it's going to slow activity a little bit in the early parts of the year 2025, and that's kind of a recurring theme from your competitors this quarter. In light of that, potentially, how comfortable do you still feel about, Unitec aside, lowering your peak exposure as we go through the year? Because obviously that was a target, but it's partly informed by the fact that you thought there would be an active market this year.

Speaker Change: And then on.

Speaker Change: One of the other things I think.

Speaker Change: In the prepared remarks, I think it was well.

Speaker Change: Well I said that there's some uncertainties in the bulk maybe maybe it's going to slow activity a little bit in the near term.

Speaker Change: The early parts of 2025, and that's kind of a recurring theme.

Speaker Change: Our competitors this quarter.

Speaker Change: Good.

In that in light of that potentially how comfortable do you still feel about unitek aside lowering.

Speaker Change: You pick the exposure as we go through the year. So we just had with target.

Speaker Change: It's partly informed by the fact that you thought it would be an active market. This year. So how do you think those things go together.

Robert Dodd: So how do you think those things go together? I think we, along with many of our competitors, think that this year will be active, but I think it is fair to say it's been a slower start than we would have expected. And so, when we think about the opportunity to reduce some of the pick positions, I think we will have we will be able to show some progress based on what we're seeing on the Q1 call. So, we feel good about it. And beyond Q1, we'd be opportunistic that we can continue to work down pick positions.

Speaker Change: I think we along with many of our competitors think that this year will be active.

Speaker Change: But I think it is fair to say, it's been a slower start than we would've expected.

Speaker Change: And so when we think about the opportunity to reduce some of the tech positions I think we will have.

Speaker Change: We will be able to show some progress based on what we're seeing on the Q1 call. So we feel like we feel we feel good about it and beyond Q1, we'd be opportunistic that we can continue to work down take position. So I wouldn't say the market environment has changed our view or our outlook for for that strategic.

Robert Dodd: So, I wouldn't say the market environment has changed our view or our outlook for that strategic goal. Got it, got it, thank you.

Speaker Change: <unk>.

Speaker Change: Got it got it. Thank you and then just I mean in.

Robert Dodd: And then just, I mean, in... In terms of allocation, you want to increase senior, which is obviously first lien, loan funds, net lease. Is the expectation you'd keep the mix between those three the same or is there one of those areas in particular you'd like to increase more? No, I think it's safe to say that within that category, the mix will stay the same. Thank you.

Speaker Change: In terms of allocation I know you talked you want to increase C, which is obviously first lien loan funds net lease.

Would you.

Speaker Change: Is the expectation you keep the mix between those three the same or is there one of those areas in particular that you'd like to increase more.

Speaker Change: No I think it's safe to say that we would within that category. The mix will will stay the same.

Speaker Change: Got it. Thank you and then just you know overall.

Robert Dodd: And then just, you know, overall, you know, any kind of, you know, market spreads do look like they may be leveled out, but do you think that is that a temporary thing while things and President Trump. Thank you very much. Do you think that's potentially vulnerable to kind of repricing? Yeah, and on the first point around spreads, we do feel like they have stabilized. I mean, we're seeing unit tranches now, you know, for high-quality companies in the 450, 475 to 500 area, depending on, you know, all the circumstances. And to be honest, they've been hovering there for a while.

Speaker Change: Any kind of argue your markets look like they may be leveled out, but do you think that.

Speaker Change: Is that a temporary.

Speaker Change: Things.

Speaker Change: Recalibrate or do you think.

Speaker Change: Kind of the bottom on like for likes that some of the trends where you're out in the market but.

Speaker Change: What are your thoughts on that going in.

Speaker Change: And then just tied to that how much.

Speaker Change: You walked away from some repricing excuses and credit risk was appropriate how much of the portfolio is left do you think that.

Speaker Change: Essentially vulnerable Kurt.

Speaker Change: So kind of repricing activity.

Speaker Change: Yeah on the first point around spreads we do feel like they have stabilized I mean, we're seeing unit tranches now for high quality companies in the 450 475 to 500 area, depending on the circumstances and to be honest they've been hovering there for a while so we haven't seen.

Robert Dodd: So, we haven't seen, you know, meaningful movement. I think to the extent that M&A picks up the way we expect it to, we would hope and expect the spreads to pick back up alongside that. But we have not seen, you know, material further pressure downward. And we feel reasonably confident that we will not, particularly if M&A starts to pick back up again.

Speaker Change: A meaningful movement I think.

Speaker Change: To the extent that M&A picks up the way we expect it to.

Speaker Change: We would hope and expect the spreads to pick back up alongside that.

Speaker Change: But we don't we have not seen material further pressure downward and and we feel reasonably confident that we will not particularly is M&A starts to pick back up again.

Robert Dodd: You know, to your second question about just repricings, we certainly have seen multiple waves of repricings in the syndicated market. I think within our portfolio specifically, you know, the majority of deals that could reprice, probably at this point, have gone through that exercise. I mean, keep in mind, you know, a lot of our sponsor clients are pretty sophisticated. They have capital markets teams that are really, you know, mining their portfolios to make sure they're doing their best to capture all those opportunities. And so, I think, you know, the vast majority has really kind of rolled through already.

Speaker Change: To your second question about just re pricings and we certainly have seen multiple waves of re pricings in the syndicated market I think within our portfolio specifically.

Speaker Change: Majority of deals that could reprice, probably at this point have gone through that exercise I mean keep in mind, yeah, a lot of our sponsor clients are pretty sophisticated they have capital markets teams that are really.

Mining third portfolios to make sure they are doing their best to capture all those opportunities and so I think.

Speaker Change: The vast majority is really kind of rolled through already.

Robert Dodd: But so, we feel reasonably good, at least on that point. Got it. Thank you. Sure. Thank you.

But and so we feel reasonably good at least on that point.

Speaker Change: Got it thank you.

Speaker Change: Sure. Thank you.

Operator: Again, if you have a question, please press star and then 1. Please stand by as we poll for questions. Seeing no further questions, this will conclude our question and answer session.

Speaker Change: Again, if you have a question. Please press star and then one please.

Speaker Change: Please standby as we poll for questions.

Speaker Change: Seeing no further questions. This will conclude our question and answer session I would like to turn the conference back over to John Klein for any closing remarks.

John Kline: I would like to turn the conference back over to John Kline for any closing remarks. Great. Well, thank you, everyone, for joining our Q4 2024 earnings call, and we look forward to speaking to you very soon in May. Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Speaker Change: Great well. Thank you everyone for joining our Q4 2024 earnings call and we look forward to speaking to you very soon in May. Thank you.

Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Speaker Change: Okay.

Speaker Change: [music].