New Mountain Finance Corporation (NASDAQ: NMFC) (“New Mountain,” “New Mountain Finance” or the “Company”) today announced its financial results for the quarter ended June 30, 2023. The Company reported second quarter net investment income ("NII") of $0.39 per weighted average share, a 26% increase in year-over-year NII, and net asset value (“NAV”) per share of $13.14, in line with prior quarter NAV of $13.14. The Company also announced that its board of directors declared a third quarter regular distribution of $0.32 per share and a supplemental distribution of $0.04, which will be payable on September 29, 2023 to holders of record as of September 15, 2023.
Selected Financial Highlights
(in thousands, except per share data) | June 30, 2023 | |
Investment Portfolio1 | $ | 3,195,965 |
Total Assets | $ | 3,296,981 |
Total Statutory Debt2 | $ | 1,623,483 |
NAV3 | $ | 1,326,101 |
NAV per Share | $ | 13.14 |
Net Investment Income per Weighted Average Share | $ | 0.39 |
Regular Second Quarter Distribution Paid per Share | $ | 0.32 |
Supplemental Distribution Paid per Share | $ | 0.03 |
Statutory Debt/Equity | 1.22x | |
Statutory Debt/Equity (net of available cash) | 1.19x | |
Management Comments on Second Quarter Performance
“New Mountain Finance Corporation delivered strong second quarter operating results, highlighted by net investment income of $0.39 per share and resilient credit performance,” said Steven B. Klinsky, NMFC Chairman. “New Mountain continues to benefit from our disciplined, defensive growth strategy that is focused on end markets that perform well in all economic cycles.”
“We are pleased to report stable book value in Q2, which was supported by our high-quality portfolio of loans to issuers in defensive growth industries,” said John R. Kline, President and Chief Executive Officer. “New Mountain is positioned to deliver enhanced risk-adjusted returns and continue our track record of returning capital to our fellow shareholders through our regular and supplemental dividend programs.”
Portfolio and Investment Activity1
As of June 30, 2023, the Company’s NAV was $1,326.1 million and its portfolio had a fair value of $3,196.0 million in 114 portfolio companies, with a weighted average YTM at Cost4 of approximately 11.6%. For the three months ended June 30, 2023, the Company generated $29.5 million of originations5, $119.9 million of asset sales and cash repayments5 of $3.9 million.
Consolidated Results of Operations6
The Company’s total investment income for the three months ended June 30, 2023 and 2022 was $95.2 million and $72.8 million, respectively. The Company’s total net expenses, after income tax expense, for the three months ended June 30, 2023 and 2022 were $55.5 million and $41.4 million, respectively. The Company's NII for the three months ended June 30, 2023 and 2022 was $39.7 million and $31.4 million, respectively. The Company's NII per share for the three months ended June 30, 2023 and 2022 was $0.39 and $0.31, respectively, which represents a 26% increase year-over-year. For the three months ended June 30, 2023 and 2022, the Company recorded $4.8 million and $15.4 million, respectively, of net realized and unrealized losses.
Liquidity and Capital Resources
As of June 30, 2023, the Company had cash and cash equivalents of $45.9 million and total statutory debt outstanding of $1,623.5 million2. The Company's statutory debt to equity was 1.22x as of June 30, 2023. Additionally, the Company had $300.0 million of SBA-guaranteed debentures outstanding as of June 30, 2023.
Portfolio and Asset Quality1
The Company monitors the performance and financial trends of its portfolio companies on at least a quarterly basis. The Company attempts to identify any developments within the portfolio company, the industry or the macroeconomic environment that may alter any material element of the Company’s original investment strategy. As described more fully in the Company's Quarterly Report on Form 10-Q filed with the U.S. Securities and Exchange Commission, the portfolio monitoring procedures are designed to provide a simple, yet comprehensive analysis of the Company’s portfolio companies based on their operating performance and underlying business characteristics, which in turn forms the basis of its Risk Rating. The Risk Rating is expressed in categories of Red, Orange, Yellow and Green, with Red reflecting an investment performing materially below expectations and Green reflecting an investment that is in-line with or above expectations.
The following table shows the Risk Rating of the Company’s portfolio companies as of June 30, 2023:
(in millions) | As of June 30, 2023 | |||||||||||
Risk Rating | Cost | Percent | Fair Value | Percent | ||||||||
Red | $ | 54.6 | 1.7 | % | $ | 9.0 | 0.3 | % | ||||
Orange | 86.5 | 2.7 | % | 51.1 | 1.6 | % | ||||||
Yellow1 | 182.7 | 5.6 | % | 142.8 | 4.5 | % | ||||||
Green7 | 2,924.4 | 90.0 | % | 2,993.1 | 93.6 | % | ||||||
Total | $ | 3,248.2 | 100.0 | % | $ | 3,196.0 | 100.0 | % | ||||
As of June 30, 2023, all investments in the Company’s portfolio had a Green Risk Rating, with the exception of nine portfolio companies that had a Yellow Risk Rating, five portfolio companies that had an Orange Risk Rating and three portfolio companies that had a Red Risk Rating.
The following table shows the Company’s investment portfolio composition as of June 30, 2023:
(in thousands, except per share data) | ||||||
Investment Portfolio Composition | June 30, 2023 | Percent of Total | ||||
First Lien | 1,703,788 | 53.4 | % | |||
Second Lien1 | 579,833 | 18.1 | % | |||
Subordinated | 84,683 | 2.6 | % | |||
Preferred Equity | 195,279 | 6.1 | % | |||
Investment Fund | 252,400 | 7.9 | % | |||
Common Equity and Other7 | 379,982 | 11.9 | % | |||
Total | $ | 3,195,965 | 100.0 | % | ||
Recent Developments
On July 27, 2023, the Company’s board of directors declared a regular third quarter 2023 distribution of $0.32 per share and a supplemental distribution related to Q2 earnings of $0.04 per share, each payable on September 29, 2023 to holders of record as of September 15, 2023.
Second Quarter 2023 Conference Call
New Mountain Finance Corporation will host an earnings conference call and webcast at 12:00 pm Eastern Time on Thursday, August 3, 2023. To participate in the live earning conference call, please use the following dial-in numbers or visit the audio webcast link. To avoid any delays, please join at least fifteen minutes prior to the start of the call.
- United States: +1 (877) 443-9109
- International: +1 (412) 317-1082
- Live Audio Webcast
A replay of the conference call can be accessed one hour after the end of the conference call through November 3, 2023. The full webcast replay will be available through August 3, 2024. To access the earnings webcast replay please visit the New Mountain Investor Relations website.
- United States: +1 (877) 344-7529
- International: +1 (412) 317-0088
- Access Code: 3039293
For additional details related to the quarter ended June 30, 2023, please refer to the New Mountain Finance Corporation Quarterly Report on Form 10-Q filed with the SEC and the supplemental investor presentation which can be found on the Company's website at http://www.newmountainfinance.com.
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(1) | Includes collateral for securities purchased under collateralized agreements to resell. | ||
(2) | Excludes the Company’s United States Small Business Administration (“SBA”) guaranteed debentures. | ||
(3) | Excludes non-controlling interest in New Mountain Net Lease Corporation (“NMNLC”). | ||
(4) | References to “YTM at Cost” assume the accruing investments, including secured collateralized agreements, in the Company's portfolio as of a certain date, the “Portfolio Date”, are purchased at cost on that date and held until their respective maturities with no prepayments or losses and are exited at par at maturity. This calculation excludes the impact of existing leverage. YTM at Cost uses the London Interbank Offered Rate (“LIBOR”), Sterling Overnight Interbank Average Rate ("SONIA”), Euro Interbank Offered Rate ("EURIBOR") and Secured Overnight Financing Rate (“SOFR”) curves at each quarter’s respective end date. The actual yield to maturity may be higher or lower due to the future selection of SONIA, EURIBOR and SOFR contracts by the individual companies in the Company’s portfolio or other factors. | ||
(5) | Originations exclude payment-in-kind (“PIK”); originations, repayments, and sales excludes revolvers, unfunded commitments, bridges, return of capital, and realized gains / losses. | ||
(6) | Excludes net income related to non-controlling interests in NMNLC. For the quarter ended June 30, 2023 and 2022, $0.2 million and $0.3 million, respectively, of dividend income is excluded from investment income, $0.0 million and $0.0 million, respectively, of net direct and indirect professional, administrative, other general and administrative is excluded from net expenses, and $0.0 million and $(1.1) million, respectively, of realized gains and unrealized losses is excluded from net realized and unrealized losses. | ||
(7) | Includes investment held in NMNLC. | ||
New Mountain Finance Corporation Consolidated Statements of Assets and Liabilities (in thousands, except shares and per share data) (unaudited) | |||||||
June 30, 2023 | December 31, 2022 | ||||||
Assets | |||||||
Investments at fair value | |||||||
Non-controlled/non-affiliated investments (cost of $2,486,589 and $2,523,522, respectively) | $ | 2,364,179 | $ | 2,400,425 | |||
Non-controlled/affiliated investments (cost of $104,459 and $85,971, respectively) | 149,260 | 130,787 | |||||
Controlled investments (cost of $627,156 and $650,474, respectively) | 666,026 | 690,035 | |||||
Total investments at fair value (cost of $3,218,204 and $3,259,967, respectively) | 3,179,465 | 3,221,247 | |||||
Securities purchased under collateralized agreements to resell (cost of $30,000 and $30,000, respectively) | 16,500 | 16,539 | |||||
Cash and cash equivalents | 45,930 | 71,190 | |||||
Interest and dividend receivable | 40,528 | 36,154 | |||||
Receivable from unsettled securities sold | 683 | — | |||||
Other assets | 13,875 | 9,797 | |||||
Total assets | $ | 3,296,981 | $ | 3,354,927 | |||
Liabilities | |||||||
Borrowings | |||||||
Holdings Credit Facility | $ | 574,263 | $ | 618,963 | |||
Unsecured Notes | 391,500 | 531,500 | |||||
Convertible Notes | 377,104 | 316,853 | |||||
SBA-guaranteed debentures | 300,000 | 300,000 | |||||
DB Credit Facility | 186,400 | 186,400 | |||||
NMFC Credit Facility | 91,290 | 40,359 | |||||
NMNLC Credit Facility II | 2,926 | 3,785 | |||||
Deferred financing costs (net of accumulated amortization of $50,855 and $47,531, respectively) | (15,183 | ) | (17,199 | ) | |||
Net borrowings | 1,908,300 | 1,980,661 | |||||
Interest payable | 18,797 | 19,627 | |||||
Management fee payable | 10,481 | 10,524 | |||||
Incentive fee payable | 9,982 | 6,296 | |||||
Payable for unsettled securities purchased | 4,897 | — | |||||
Deferred tax liability | 3,080 | 8,487 | |||||
Payable to affiliates | 93 | 78 | |||||
Other liabilities | 3,389 | 3,063 | |||||
Total liabilities | 1,959,019 | 2,028,736 | |||||
Commitments and contingencies | |||||||
Net assets | |||||||
Preferred stock, par value $0.01 per share, 2,000,000 shares authorized, none issued | — | — | |||||
Common stock, par value $0.01 per share, 200,000,000 shares authorized, and 100,937,026 and 100,937,026 shares issued and outstanding, respectively | 1,009 | 1,009 | |||||
Paid in capital in excess of par | 1,305,798 | 1,305,945 | |||||
Accumulated undistributed earnings | 19,294 | 7,519 | |||||
Total net assets of New Mountain Finance Corporation | $ | 1,326,101 | $ | 1,314,473 | |||
Non-controlling interest in New Mountain Net Lease Corporation | 11,861 | 11,718 | |||||
Total net assets | $ | 1,337,962 | $ | 1,326,191 | |||
Total liabilities and net assets | $ | 3,296,981 | $ | 3,354,927 | |||
Number of shares outstanding | 100,937,026 | 100,937,026 | |||||
Net asset value per share of New Mountain Finance Corporation | $ | 13.14 | $ | 13.02 | |||
New Mountain Finance Corporation Consolidated Statements of Operations (in thousands, except shares and per share data) (unaudited) | |||||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | ||||||||||||
Investment income | |||||||||||||||
From non-controlled/non-affiliated investments: | |||||||||||||||
Interest income (excluding Payment-in-kind ("PIK") interest income) | $ | 64,649 | $ | 41,089 | $ | 125,407 | $ | 78,533 | |||||||
