Q1 2025 New Mountain Finance Corp Earnings Call
Good day and welcome to the New Mountain Finance Corporation First Quarter 2025 earnings conference call. All participants will be in lesson only more. 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 star then one on your turn phone. To withdraw your question, please press star
Speaker Change: Please note, this event has been recorded. I would now like to turn the conference over to Mr. John Kline, President and Chief Executive Officer. Please go ahead.
John Kline: Thank you, and good morning everyone. Welcome to New Mountain Finance Corp First quarter, 2025 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.
John Kline: 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.
Kris Corbett: Thanks, John . Good morning, everyone. Before we get into the presentation, I would like to advise everyone that today's call and webcast are being recorded. Please note that they are the property of New Mountain Finance Corporation and that any unauthorized broadcast in any form is strictly prohibited.
Kris Corbett: Information about the audio replay of this call is available in our May 5th earnings press release. I would also like to call your attention to the customary Safe Harbor disclosures in our press release and on pages 2 and 3 of the slide presentation regarding forward-looking statements.
Kris Corbett: Today's conference call on Webcast may include forward-looking statements and projections, and we asked you to 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.
Kris Corbett: We do not undertake to update our forward-looking statements or projections unless required to by law. To obtain copies of our latest SEC filings and to access the slide presentation that we will be referencing throughout this call, please visit our website at www.newmountainfinance.com
Speaker Change: At this time, I'd like to turn the call over to Steve Kalinsky and MFC's Chairman who will give some highlights beginning on page 5 of the slide presentation. Steve?
Steve Klinsky: Thanks, Chris. It's great to be able to address you all today, both as NMFC's Chairman.
and it's a major fellow shareholder.
Steve Klinsky: Adjusted net investment income for the quarter was $0.32 per share, covering our $0.32 per share dividend that was paid in cash on March 31st.
Steve Klinsky: Met Investment Income was supported by consistent recurring income from our loan portfolio, no new non-accruals, and a 1.5 million permanent waiver of incentives in connection with the
Steve Klinsky: Our net asset value per share of $12.45, decline 10 cents or 80 basis points, demonstrating relatively stable credit performance across our portfolio.
Steve Klinsky: Importantly, there were also notable strengths in at least two key areas.
Steve Klinsky: First, over 96% of our portfolio is green on our heat map with no red names.
Steve Klinsky: 2nd, according to analyst estimates, NMFC has only 2% exposure to the sector's most at risk for tariffs, versus a 13% exposure for our peers on average.
Steve Klinsky: NMFC lends chiefly insectors such as healthcare information technology, software, insurance services and infrastructure services, which generally have very low direct exposure to tariffs, federal funding changes and other potential regulatory impacts.
Steve Klinsky: NMFC's portfolios loan to value, stands at just 43%, our lending lines are being refinanced at lower rates, and our percentage of first-line assets is growing while our pick income and second-lead income is falling.
Looking forward to Q2.
Steve Klinsky: We would like to announce a 32-cent dividend payable on June 30th to shareholders of record on June 16th.
Steve Klinsky: Our Q2 dividend will be supported by our strong recurring earnings, better fee income from increased portfolio activity compared to Q1, and if necessary, the dividend protection program, which can provide up to two cents of extra dividend support per quarter.
Steve Klinsky: Our current stock price implies a 21% discount to book value.
Steve Klinsky: and the dividend of $0.32 quarterly or $1.28 annually represents a 13% yield all with a 14-year track record of just seven basis points of net realized loss per year.
Steve Klinsky: I and my fellow managers at New Mountain are the largest shareholders of NMFC and have steadily increased our ownership level over time. We believe that NMFC's current trading levels do not reflect the intrinsic or valid value of the NMFC portfolio.
Steve Klinsky: and has previously announced our Board has authorized to stock repurchase program that enables us to buy back up to $47 million of NMFC shares.
Steve Klinsky: In recent weeks we have been in a blackout period but we plan to be active in the market at these levels as soon as our purchasing window opens later this week.
Steve Klinsky: We believe that our current share price represents a compelling entry point for prospective investors as we seek to deliver stable, consistent yield and exhibits clear opportunity for equity upside in the months ahead through further advancing our strategic comparatives.
Steve Klinsky: stepping back to view New Mountain Capital at the institutional level, we successfully raised our $15.4 billion private equity fund seven last year, which was one of the very largest PE fundraisers of any firm anywhere.
Steve Klinsky: and was up from 9.6 billion in size for the previous fund.
Steve Klinsky: 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.
Steve Klinsky: We employ over 90,000 people at our PE portfolio companies in the field and our new mountain team has now grown to over
Steve Klinsky: Our goal is to apply all this same PE business building skill and knowledge to benefit NMFC as well. For example, when NMFC inherited control of Unitech Corp, Unitech was a failing provider of direct TV satellite dish services.
Steve Klinsky: The earnings power of Unitech has grown very substantially under New Mountain's oversight, and the company has emerged as a leading service supplier to broadband companies and to a rapidly growing universe of AI data centers.
Steve Klinsky: NMFC received 42 million of capital from a partial sale of Unitech last quarter, realized a gain and monetized accrued pick income. Our goal at both New Mountain and at NMFC is to continuously improve each year.
Steve Klinsky: We thank you for your ownership and partnership and we are working diligently to serve your interests in the months and years ahead With that, let me turn the call to John
John Kline: Thank you, Steve. I would like to begin by offering a brief review of our direct lending investment strategy. Starting on page 8, we highlight our exposure to a diversified list of defensive, non-cyclical sectors.
John Kline: These sectors map to the industries where New Mountain has made successful private equity investments and where our firm's knowledge is the strongest.
John Kline: As Steve highlighted, our sector focused, our sector focused, advantage underwriting model, and strong shareholder alignment are key strengths that will drive our future success.
Robert Dodd, Paul Johnson, Steven Klinsky.
John Kline: Page 9 addresses NMFC's exposure to tariffs, which in our view is negligible.
John Kline: When we consider the overall direct lending market, we believe that most tariff exposure can be found in the gray area of the pie charts on the top of the
John Kline: which include more capital intensive sectors like industrial materials, consumer goods and building products, all sectors that we actively avoid.
John Kline: Based on a comprehensive review of NMFC's portfolio, we have identified only one position which represents just 0.6% of total fair value, which is materially impacted by the current level of foreign tariffs.
John Kline: Conversely, over 99% of our portfolio is relatively insulated from this volatility given our
John Kline: NMFC's tariff exposure stands in stark contrast to the overall BDC sector, which has approximately 13% exposure to tariff sensitive industries.
John Kline: Page 10 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 our shareholders.
John Kline: Since our IPO in 2011, NMFC has returned approximately $1.4 billion to shareholders through our dividend program, generating an annualized return of approximately 10% with a current dividend yield of 13%.
John Kline: Turning to page 11, NMFC continues to make great progress on strategic priorities that we outline back in February .
John Kline: During the first quarter, we increased senior-oriented assets from 75% of the portfolio in Q4 to 77% as of the close of Q1.
John Kline: On the position diversity front, we continue to focus on reducing our top positions to less than 2% of fair value.
John Kline: In Q1, we had material partial repayments in Unitech and Kaseya, formerly two of our largest positions, and we have line of sight on a full repayment of office ally, which is a 2.5% position.
John Kline: Our liability stack continues to improve as we executed a repracing of the Wells Fargo Credit Facility from SOPR plus 215 to SOPR plus 195.
John Kline: In the income category, with the announced sale of Office Ally during Q2, we will monetize approximately 15 million of non-yielding equity, which will be redeployed into cash yielding loans.
John Kline: Our cost basis on this investment is $2 million and as of Q4, NMFC marked a position at just $8 million.
John Kline: Finally, our percentage of pick income decreased this quarter from 19% to 17%, primarily as result of the exits shown in detail on page 19.
John Kline: We expect continued steady improvement in pick income over the remainder of the year.
Robert Dodd, Paul Johnson, Steven Klinsky, John Kline,
John Kline: As shown on pages 12 and 13, the internal risk ratings of our portfolio were consistent with the prior quarter at 96.5% green rated.
John Kline: Similar to the prior quarter, we have no companies rated red and importantly we had no negative risk rating migrations during the quarter.
John Kline: Our most challenged names, marked orange, represent only 1.2% of NMFC's fair value, making them a negligible part of our portfolio.
[inaudible]
John Kline: Turning to page 14, we provide a graphical analysis of NAV changes during the quarter, resulting in a book value of $12.45
a 10 cent decline compared to last quarter.
John Kline: Overall, the quarter benefited from good core credit performance, improvements at help systems, a $7 million write-up in our equity position in office ally, offset by must declines in the value of certain equity positions, the largest of which relates to unitech.
John Kline: While we held the company's enterprise valuation at the recent deal value, the board implemented an updated management incentive plan which modestly reduced NMSC's holding value.
John Kline: Cor operating performance at UNITEC continues to be on plan, and we are hopeful for continued momentum throughout the course of the year.
here.
Page 15 addresses NFC's not a cruel performance.
John Kline: On the left side of the page, we show that non-acruals continue to be very low with only 38 million or 1.2% of the portfolio on non-acrual.
John Kline: During that time, NMFC has made nearly 10.2 billion investments while realizing losses of just $29 million dollars.
John Kline: This represents an average annualized net realized loss rate of approximately seven basis points since IPO.
John Kline: On page 16, we present NMFC's consistent and compelling returns over the last 14 years.
John Kline: Kimotively, NFC has earned 1.4 billion in net investment income while generating only 29 million of cumulative net-realized losses and only 98 million of cumulative net unrealized appreciation resulting in nearly 1.3 billion of value created for shareholders.
John Kline: 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.
Laura Holson: Thanks, Ron. Episodic new deal activity continued in Q1, but our expectation for a significant uptick in M&A has largely been dampened by recent market events.
Laura Holson: We've seen a pause in most M&A activity, although certain high-quality assets continue to trade and the backlog remains exceptionally full, given the extended hold times for many PE-owned assets.
Laura Holson: We believe direct lending remains an attractive asset class in today's market and continues to provide attractive risk adjusted returns relative to other asset classes.
Laura Holson: The direct lending market is inherently more insulated from volatility as compared to other markets, given the senior oriented and floating rate nature, as well as low loans of values.
Laura Holson: A certainty of execution that it offers sponsors also positions at well as a financing source relative to the broadly syndicated market, which has effectively closed at times recently due to market volatility.
Laura Holson: Fred's, while tighter than 12 months ago, have stabilized at these lower levels, even post-liberation day.
Laura Holson: We attribute that to the lack of supply associated with a lower deal flow environment and the significant drive powder across direct lending.
Laura Holson: We continue to find opportunities in our defensive growth verticals where we can make loans that attach a dollar one in the capital structure at 9-10% unlevered returns.
Laura Holson: Deal structures remain compelling with significant sponsor equity contribution representing the vast majority of the capital structures.
Laura Holson: Page 18 presents an interest rate analysis that provides insight into the effective base interest rates on NMFC's earnings.
Laura Holson: The NMSC loan portfolio is 85% floating rate and 15% fixed rate while our liabilities are 50% floating rate and 50% fixed rate.
Laura Holson: Proforma for the 2022 Convert and 2021 Unsecured Notes Maturities over the next nine months we expect our Maxwell shift toward 75% floating and 25% fixed.
Laura Holson: As shown in the bottom table, 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.
Laura Holson: Moving on to page 19, in Q1, we originated $121 million of assets offset by $187 million of repayments and sales.
Laura Holson: Notable repayments in the quarter included preferred equity investments in Unitex, Nordanglia, and Kaseya, all of which represented an opportunity to collect our previously accrued pick in full.
Laura Holson: Turning to page 20, approximately 77% of our investments, inclusive of first-lean FELPs and net lease are senior in nature, up from 75% in the prior quarter.
2nd Lean Physicians represent just 6% of our portfolio of our portfolio.
Laura Holson: Approximately 8% of the portfolio is comprised of our equity positions, the largest of which are shown on the right side of the page.
Laura Holson: 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, our ability to own and operate businesses is a key differentiator.
Laura Holson: We leverage the full operating capabilities of our private equity team and approach our private equity positions, like any other New Mountain capital owned business.
Laura Holson: As mentioned earlier, we have a strategic imperative to decrease our overall non-yielding equity position.
Laura Holson: We think examples like Office Ally are successful case studies of our ability to identify attractive equity-coinvestment opportunities alongside unitrange loans, monetize them at a significant gain, and then re-deploy into cash yielding assets.
Laura Holson: H-21 shows that the average yield of NMFC's portfolio decreased modestly to 10.7% for Q1 due to the downward shift in the forward sofa curve and repayment of higher yield preferred equity investments.
Laura Holson: Generally speaking, even though spreads are tighter as evidence by lower yields on our origination compared to on our repayments.
Total yields remain attractive for the risk.
Laura Holson: Page 22 highlights the scale and positive credit trends of our underlying borrowers.
Laura Holson: The weighted average EBITDAV, our borrowers, decreased in the first quarter to $170 million due to the realization of some larger companies during the quarter, partially offset by underlying growth at the individual companies we lend to.
Laura Holson: We also show the relevant leverage and interest coverage stats across the portfolio.
These metrics have remained consistent over the last several quarters.
Laura Holson: Lone to values continue to be quite compelling and the current portfolio has an average loan to value of 43%.
Laura Holson: Finally, as illustrated on page 23, we have a diversified portfolio across 119 portfolio
Laura Holson: Excluding our investments in the SLPs and net lease funds, the top 10 single name issuers account for 26% of total fair value and represent our highest conviction name.
Laura Holson: As mentioned earlier, following the partial monetization of Unitech, that position decreased from 3.5% to just 2.2% of Fairmark Evalue.
Laura Holson: Kaseya also decreased from 2.8% to 0.4% given the refinancing that occurred. And we expect office allied to be removed from our top ten list following that transaction close.
Laura Holson: I will now turn the call over to our Chief Financial Officer, Kris Corbett, to discuss our Financial Results.
Kris Corbett: Thank you, Laura. For more details, please refer to our quarterly report on Form 10Q that was followed yesterday with the SEC.
Kris Corbett: As shown on slide 24, the portfolio had over $3 billion in investments at fair value on March 31 and total assets of $3.2 billion with total liabilities of $1.9 billion, of which total statutory debt outstanding was $1.5 billion.
Kris Corbett: Net asset value of approximately 1.3 billion, or $12.45 per share, was now slightly compared to prior quarter.
Kris Corbett: At quarter end, our statutory debt to equity ratio was 1-spot 1-5-1 and 1-spot 0-9-1 net of available cash from the balance sheet, which is in the middle of our target range of 1-1.25 times.
On Slide 25, we show our quarterly income statement results.
Kris Corbett: For the current quarter, we earned total investment income of 86 million 5% decrease over prior year. Total net expenses of 51 million decreased 4% versus prior year, inclusive of the fee waiver previously mentioned.
Kris Corbett: Our adjusted net investment income for the quarter was 32 cents per weighted average share, which covered our Q1 dividend.
Kris Corbett: Slide 26 highlights that 96% of our total investment income is recurring in the first quarter.
Kris Corbett: for Q1. Pick Interest Income represented only 8% of total investment income down from 10% in the fourth quarter.
Kris Corbett: Non-cash dividend income from our preferred equity investments represented 9% of total investment income consistent with prior quarter and aligned with our strategy to selectively invest and attractive high conviction junior capital positions where the risk of just returns are especially compelling.
Kris Corbett: Importantly, investments generating non-cash income during the first quarter are marked at a weighted average fair value of 92% of par and over 97% of this income is generated from our green rated names [inaudible]
Kris Corbett: Additionally, over 80% of this income generated by physicians that included take-from-inception to best enable these borrowers to execute on their strategic growth plans.
Kris Corbett: In the first quarter, we collected 32 million of pick income associated with the partial exits of Unitek and Kaseya and full exit of Nordanglia. We continue to make progress in monetizing pick income and see continued opportunities to do so in the coming quarters.
Kris Corbett: Turning to slide 27, the red line shows the coverage of our dividend for Q2 2025 or Board of Directors has again declared a dividend of 32 cents per share.
Kris Corbett: On slide 29, we highlight our various financing sources and diversified leverage profile. Taking into account SBA guaranteed adventures, we have three billion in total borrowing capacity with nearly 1.2 billion available on our revolving lines, subject to borrowing based limitations
Kris Corbett: This more than covers our unfunded commitments of 250 million and represents a substantial cushion in the event of continued volatility.
Kris Corbett: As previously mentioned, we successfully mentioned or amended our Wells ABL facility which reduced our spread from SOFR plus 2.15, the SOFR plus 1.95.
Kris Corbett: Additionally, we extended the maturity of the facility by 17 months to March 2030. We believe this successful repracing represents best in-class execution. We are thankful for Wells long-term partnership and confidence in NFC's platform.
Kris Corbett: Looking forward to the remainder of 2025, the facilities outlined in red represent opportunities we see to reduce finance and reduce our cost of financing in the medium term.
Kris Corbett: 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 and early 2026.
Kris Corbett: Notably, over 65% of our debt maturers in or after 2027, with near-term maturities representing an opportunity to continue to access the investment grade bond market.
John Kline: With that, I would like to turn the call back over to John .
Thank you, Chris.
Speaker Change: NMST's investment portfolio is very well positioned in today's market environment.
Speaker Change: We are invested in the right sectors and our team continues to make material progress on our strategic priorities.
Speaker Change: We once again would 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 August .
Speaker Change: I will now turn things back to the operator to begin Q&A. Operator?
Thank you.
Speaker Change: We will now begin the question and answer session. To ask a question you may press star then one on your touch tone phone.
Speaker Change: If you're using the speaker phone, please pick up your hand cell before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two.
Speaker Change: The first question comes from Finian Osher with Wells Fargo, please go ahead.
Finian O'shea: Hey everyone, good morning, congrats on the rotations announced. I actually wanted to ask about Unitak, which looked pretty complicated so bear with me, let me try. It looked like
The warrants appreciated meaningfully, those were realized as a gain.
that those also...
their cost basis was rolled into new preface but it...
Finian O'shea: that there should still be recovery there pursuant to the cost basis.
Finian O'shea: Yes, thank you for the question. Yes, Unitec Capital Structure is very complicated and we appreciate the question and we're happy to walk anyone on this call through on a separate call. But big picture, I'll try to...
Finian O'shea: to make sense of this all. You know, big, big, big picture we have about $52 million of cash.
invested from NMSC into Unitech across all the different tranches.
Finian O'shea: With the transaction, 42 million was paid to NMFC.
and we retain a stake of $67 million.
Finian O'shea: So, that's about $109 million of value that either we've received or we have, we're holding on the balance sheet. So, that's a very big picture. The complication on UNTech comes from two things, one, we have all these different layers of preferred stock.
Finian O'shea: that basically represent different periods of time where we put new money into the deal.
Finian O'shea: and then the most complicated but also the most value-enhancing thing that we did was in 2020 when a lot of businesses were really struggling.
Finian O'shea: to take up to 50% of all the different tranches, all the different tranches it preferred, 50% of the company in other words. And so the way that second-line work was, the second-line gets the greater of...
Finian O'shea: Power Plus Acrood on the second lean, or 50% of the company. So when we exercise, when we, when we, when we,
when we entered into this transaction.
Finian O'shea: The value of 50% of the company was greater than par plus accrued on the second lean. So we basically took a grossed up value of all the tranches across.
Finian O'shea: and the entire capital structure, and that's what we now hold, so that was the way the warrant was effectively converted.
and so in the appendix, we did try to show-
Finian O'shea: The pre-transaction amounts, you know, par basis of all the different tranches. We tried to show the warrant conversion and then we think we very clearly showed the paydown of 42 million and then the residual fair value of $67 million.
When we think about what is sort of...
Finian O'shea: What are the operable securities in the capital structure? It's really the super senior preferred.
Preferred.
Finian O'shea: where we have $56 million of power value and then we value that that crunch at about $45 million and then we have the senior preferred which has no pick rated all on it which we value at about $21 million.
Finian O'shea: Hopefully that helps explain a complicated situation, but big picture, we have about $52 million of cash in this investment, we've accrued some pick, we've paid out 42 and we retain evaluation of 67 million on the securities that we currently hold.
Speaker Change: Okay, we'll appreciate that. I think I'll have to study the transcript, but the income was pre-stable overall, is that what we should still expect going forward on Unitec?
Speaker Change: Yeah, so we're a growing income on just the super senior press which is the largest part of what we own in Unitech as shown in the appendix and in the SOI.
Speaker Change: Okay. And then I guess just one high level follow up on the on the control legacy names.
Speaker Change: Yeah, there's interest, Steven, and other income parts to all of them.
High-level is that?
Speaker Change: How close to those numbers that you earn, the BDC earns, reflect cash operating earnings?
Speaker Change: Or is this more based on some long-term exit value more of a capital appreciation type income stream? Thanks.
Speaker Change: In that final question, are you talking about how we value for all the control and affiliate names, like how you derive the income?
Speaker Change: like, you know, there's interest components, there's dividend components, a little bit of other income across, say the big four names, like to those.
Speaker Change: Quarterly amounts that you earn from your control book. How close are those tied to underlying cash operating earnings?
Securities in the Capital Stacks. [inaudible]
Speaker Change: Stack, and we will take that contractual rate as long as we deem it to be collectible and well within the bounds of reason as it relates to valuation, and that's where we stand on.
Speaker Change: as it relates to Unitech and Benavis and any other control name.
Speaker Change: But is it fair to say that when you deem that collectible, that's based on, you know, a long-term exit, that under, you know, improved conditions?
Speaker Change: No, I mean, I think we deem a collectible based on fair market value today, so we think it's all very much collectible when we think about those names.
Speaker Change: So, we're not projecting forward. It's collectible based on the valuation that we have the names at today.
Okay, I'll hop back in the queue, thanks so much.
Speaker Change: Thank you. Again, if you have a question, please press star then one.
Speaker Change: The next question comes from Robert Dodd with Raymond James, please go ahead.
Robert Dodd: Hi guys. On the, I don't like the marker out of it. I think, Laura said, you know, spreads have compressed over time, but they've stabilized.
Robert Dodd: Post kind of Liberation Day. Are you seeing any evidence of spread widening with the current market volatility? I mean, I've heard mixed messages on this, on the one hand, there's
Robert Dodd: You know, dry pad is a bit employed on the other hand there's not a lot of activity so I mean any color on what you see in kind of like live as we speak. [inaudible]
Robert Dodd: Yeah, I would say live what we're seeing is spreads and pricing be pretty stable.
Robert Dodd: Maybe at the margin, we've seen a little bit incremental OID on new deals that we're looking at but again it's kind of around the edges and I do think that's largely driven by the technicals that I alluded to which is just a lot, a lack of supply overall and a lot of cash on the sidelines so that's overseeing live but again.
Robert Dodd: Even at these tighter levels, we do think that the opportunity to generate 9% to 10% on Robert returned at sub 40% loan to value in high-quality businesses is still pretty attractive.
Speaker Change: Got it. Got it. Thank you. Oh, kind of a big question. And obviously the dividend protection plant came kicked in kind of a bit this quarter. You know, fee income wasn't super high, but when we look at the forward curve, obviously.
Speaker Change: You know, rates for the quarter were effectively in the low fours and the forward curve, you know, a year from now it's kind of in the low threes. Do you think you have?
Speaker Change: Enough Levers between things like Ally, you know, the investing non-income producing equity between, you know, on the capital stack, your leverage isn't super high, it's not low, but it's not super high. Do you think you have enough levers between all of those kind of tools?
Speaker Change: faced up against what it looks like we're going to see on sofa with the forward curve that the dividend protection plan is sufficient.
Speaker Change: to cover the dividend as we go through that part of a declining late cycle.
Speaker Change: I mean, you've got a lot of tools, but you've got a, you know, we've got basefights.
I mean, any thoughts? Yeah.
Speaker Change: Sure. We see a really good opportunity to optimize some of our financing. We've talked about that one area that we haven't talked quite as much about is we...
Speaker Change: We think we have a real opportunity to optimize financing on the SLP, the senior loan programs, which is a material part of our portfolio. So I think that's a lever we have.
Office ally is a lever. We do...
Speaker Change: Strangely enough, you know, see good portfolio activity in Q2 despite the volatility.
Speaker Change: So I think what we see is we do see good companies have the ability to refinance and also do new deals. So we see pretty good velocity right now in Q2, of course the dividend protection which we talked about.
and then...
Speaker Change: I think it's unclear what way the market is going to go over the next three to four months. Right now, as Laura said, it does feel like spreads are tighter than they should be, just given the amount of cash that we see in the market, but I think there could be some really good opportunities to deploy time will tell. We'll just have to see on that.
You know, long-term...
Speaker Change: When we look at the forward curve, it's tough to read too much into it and there's just so much volatility. I don't think we spend a lot of time stressing about it. There's no doubt that if if base rates are pressured,
Speaker Change: Upfront fees are pressured and spreads are to stay a little bit compressed.
Speaker Change: that's going to be a return on equity headwind for the entire industry and of course we'll be affected by that as well but I think we do have a lot of levers that I outlined.
Speaker Change: and the other thing that will be interesting for us is...
Speaker Change: We do have some high cost debt or higher cost debt that is coming due so we have a little bit of a hedge there if base rates come down that could provide us with a good opportunity to refinance some of that debt it will see but that's another thing that we're watching
Speaker Change: on it. Thank you. And then if I can have one more kind of flipping back to Finn's question on Unitech, and I'm looking at the appendix. I mean, to that point on the June you preferred, obviously it was three transactions, it was 15 million bucks.
Speaker Change: It accounted for a large chunk of the allocation from the one conversion.
Speaker Change: and so now it's it's par 140, I'm sorry 148, with zero fair value. Is there to that point it's like
Speaker Change: Is there a reason to not realize the loss on that? I mean, it's basically, I mean, there can be legal reasons, there can be all sorts of reasons from a structural perspective to not realize that or is basically bottom line. It's kind of zero.
Speaker Change: The recovery from that, and if it is, why not take the realized loss on that now?
Speaker Change: NSS, some kind of other structural reason not to do that.
Speaker Change: Sure. When we look at the, you know, the common, the junior preferred, the amount of dollars we have in those, the cash dollars are actually very low. We haven't been accruing on them for a while. They are part of the capital structure, so I think we're...
Speaker Change: from a county perspective, we do have the duty to show them.
Speaker Change: but the loss is just aren't that great and basically you can see that all the value really shifts.
in the super senior preferred and senior preferred.
Speaker Change: You know, we have co-investors across the capital stack, so if we controlled this just unilaterally we could clean a lot of the stuff up and it would make my life a lot easier. But we do have, you know, different ownership percentages of minority investors across this stack.
Speaker Change: So we can't just wipe it away. But there aren't big, big losses that haven't been taken. We have conservative marks on the junior part of the Campbell structure and you can see that the value really resides in the more senior crafts.
Anything I missed, Kris or Laura? I think that's it.
I appreciate that. Thank you.
Yeah
Thank you.
Speaker Change: The next question comes from Art Winston with pilot advisors, please go ahead.
Thank you, and thanks for the continued credit performance.
Speaker Change: Obviously thanks. It's a seven year shareholder. Thanks for the dividend protection program and happy to see that hope you go after the stock repurchase program that you can do aggressively. I just had two less sophisticated questions. Number one.
Speaker Change: What you suggested on the pick income, I think the implication is that the pick income should go down going forward is what you were trying to suggest.
Speaker Change: Yes, yes. We've really, you know, we think we've been hit hard from a stock perspective based on our pick levels, and we've acknowledged that they're higher than we want them to be.
Speaker Change: To some degree, we feel like we've gone out of fashion a little bit. We have a lot of really good pick investments that are going to make our shareholders a good amount of money, but really I think what the market wants are lower pick levels and we understand that and we're working to deliver that so we made good progress. Let's get started.
this quarter in moving our total pick income down and based on our
Speaker Change: on our deal expectations, our repayment funnel. We really see continued progress on that front so that we can be more in the low.
Speaker Change: The low teens, so 10 to 12% would be a target that we've talked about in the past. We're at 17 today so we're not yet there, but we really, we're driving hard to get there.
Speaker Change: I think what you're suggesting is that everything else being equal the opportunity to refine in some of the debt means that the balance should improve fully but surely going forward in terms of magic.
Yes, I'm Eden.
Speaker Change: I have Laura give some comments, but we think our balance sheet is in great shape. We have a massive amount of liquidity.
Speaker Change: A lot of undrawn credit lines. We're laddered very effectively and we have I think a near-term opportunity to potentially refinance certain of our unsecured debt trotches at better rates. So...
Speaker Change: We're excited about the direction that we're headed and we really think we have made a lot of progress on the right side of balance sheet.
Speaker Change: Just one last question. Could you just quickly review the extent that the dividend protection program can last? What are the timing on that that can continue?
Yeah, it's in place for full year 2025 and 2026.
We'll have calendar 26.
Craig. Thank you. Thank you very much.
Thank you.
Speaker Change: This concludes a question and answer session. I would like to turn the conference back over to Mr. John Kline for any closing remarks.
Speaker Change: Great. Well, thank you for joining our call today. Thank you for the questions and we look forward to speaking to you after RQ-2. Have a great day.
Robert Dodd, Paul Johnson, Steven Klinsky, John Kline,