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    NMFC
    Earnings call· Jun 2026(Q2 FY26)

    New Mountain Finance Q2 FY26 earnings call NMFC

    Aug 4, 2026 Source

    Executive summary

    New Mountain Finance Corporation Q2 FY26 — Dividend Covered, Non-Accruals Improve

    New Mountain Finance Corporation delivered a quarter where adjusted net investment income covered its dividend, supported by a meaningful improvement in non-accruals and strategic share repurchases. Despite a slight decline in NAV and softer M&A activity impacting direct lending volumes, management expressed optimism for increased activity in the latter half of the year and highlighted progress towards portfolio diversification and monetization of equity positions. The company continues to focus on defensive sectors and maintaining a strong balance sheet.

    Highlights

    5

    • Adjusted net investment income of $0.26 per share covered the $0.25 per share dividend.

    • Non-accruals at fair value improved meaningfully from 2.6% last quarter to 1.5%.

    • Repurchased approximately $9 million of stock at approximately $8 per share, representing a 27% discount to book value.

    • Net debt-to-equity ratio of 1.11x is below the midpoint of the target range of 1.0x to 1.25x.

    • 88% of the portfolio carries a green risk rating, with red and orange categories declining.

    Concerns

    4

    • Net asset value per share declined $0.03 or 30 basis points to $10.89.

    • Total investment income was $61 million, down 11% from the prior quarter.

    • Muted Q2 M&A activity led to lower industry-wide direct lending volume, down approximately 55% from Q1.

    • The yellow risk category, representing modestly underperforming positions, saw an increase.

    Guidance & targets

    6
    CategoryTargetConfidence
    Q3 Dividend per Share
    $0.25
    high materiality
    High
    Dividend Coverage
    continue to cover the quarterly dividend
    high materiality
    High
    Future Share Buybacks
    predicated on having adequate excess capital as well as making sure that we are appropriately within our stated leverage range
    medium materiality
    Medium
    Unsecured Debt Market Activity
    remain active in the unsecured debt market
    medium materiality
    High
    Equity Position Monetization
    potential realization opportunities for many of our most concentrated positions
    high materiality
    Medium
    M&A Market Environment
    getting better
    medium materiality
    Medium

    Operational metrics

    40
    Adjusted net investment income per share
    $0.26covered $0.25 dividend
    Q2 FY26

    Adjusted NII per share covered the quarterly dividend.

    Dividend per share
    $0.25
    Q2 FY26

    Dividend paid in cash on June 30th.

    Net asset value per share
    $10.89declined $0.03 or 30 basis points compared to Q1
    June 30th

    Reflecting stable credit performance across the portfolio.

    Non-accruals at fair value
    1.5%improved meaningfully from 2.6% last quarter
    Q2 FY26

    Indicates an improvement in credit quality.

    Stock repurchased
    $9M
    Q2 FY26

    Repurchased stock at a significant discount to book value.

    Stock repurchased year-to-date
    $66M
    YTD FY26

    Total stock repurchased year-to-date.

    Remaining buyback capacity
    $80M
    June 30th

    Total remaining authorization for share repurchases.

    New Mountain ownership of shares outstanding
    18%increased 100 basis points sequentially and 400 basis points versus prior year
    June 30th

    New Mountain ownership has been increasing over time.

    Dividend yield
    15%approximately 2x as high as high-yield bond index averages
    annualized

    Based on Friday's closing stock price, with a sustainable dividend.

    Loan-to-value ratio
    49%
    Q2 FY26

    Includes the latest view of enterprise value at portfolio companies, recalculated quarterly.

    Total return to shareholders since IPO
    over $1.5Bgenerating an annualized return of approximately 10%
    since IPO in 2011

    Returned through the dividend program.

    Portfolio green risk rating
    88%
    Q2 FY26

    Represents positions with the lowest risk.

    Non-green names weighted average mark
    $0.67
    Q2 FY26

    Reflecting substantial de-risking already captured in current portfolio marks.

    Cumulative investments since IPO
    $10.6B
    since IPO

    Total investments made since the company's IPO.

    Cumulative realized losses net of gains since IPO
    $101M
    since IPO

    The company remains focused on reversing losses.

    Industry-wide direct lending volume
    -55%from the first quarter
    Q2 FY26

    Muted Q2 M&A activity led to lower direct lending volume.

    Industry-wide direct lending volume year-to-date
    -13%versus the first half of 2025
    YTD FY26

    Reflects year-to-date decline in direct lending activity.

    Direct lending spreads
    SOFR + 500 bpsstabilized
    Q2 FY26

    For sectors viewed as relatively insulated from AI disruption.

    Origination activity
    $73M
    Q2 FY26

    Origination activity was relatively light during the quarter.

    Sales and repayments
    $105M
    Q2 FY26

    Offset origination activity, effectively remaining fully invested.

    Portfolio senior nature
    80%broadly consistent with the prior quarter
    Q2 FY26

    Highlights the senior nature of the portfolio.

    Equity positions as % of portfolio
    6%
    Q2 FY26

    With the largest positions shown on the right side of the page.

    Top 10 single-name issuers as % of total fair value
    24%
    Q2 FY26

    Increasing portfolio diversification remains an important priority.

    Total investment income growth
    -11%from the prior quarter
    Q2 FY26

    Primarily due to the smaller but more senior and more diversified portfolio following the secondary sale.

    Effective incentive fee rate
    15%
    Q2 FY26

    Reflecting a voluntary waiver of $1.4 million of incentive fees ahead of the previously announced permanent reduction to 15% in 2027.

    PIK income from origination as % of total investment income
    13%
    Q2 FY26

    Generated by assets structured with PIK from origination.

    Modified PIK income as % of total investment income
    3%consistent with the prior quarter
    Q2 FY26

    Resulting from amendments or restructurings.

    Investments generating non-cash income weighted average fair value
    95%
    Q2 FY26

    Indicates the valuation of assets generating PIK income.

    Non-cash income from green-rated names
    89%
    Q2 FY26

    Percentage of non-cash income generated by green-rated names on the heat map.

    Net debt-to-equity ratio
    1.11x
    June 30th

    Below the midpoint of the target range.

    Total borrowing capacity
    over $2B
    June 30th

    Includes available credit facilities.

    Available under credit facilities
    $830M
    June 30th

    Subject to borrowing-based limitations.

    Unfunded commitments
    $160M
    June 30th

    Covered by available borrowing capacity.

    2027 maturities
    $160M
    2027

    Covered by available borrowing capacity.

    Corporate revolving credit facility extension
    2031
    after quarter end

    Proactive management of maturities.

    Outstanding debt maturing in 2029 or later
    nearly 60%
    June 30th

    Reflects laddering of maturities.

    Floating rate loan portfolio
    89%
    June 30th

    Composition of the loan portfolio.

    Fixed rate loan portfolio
    11%
    June 30th

    Composition of the loan portfolio.

    Floating rate liabilities
    74%
    June 30th

    Meaningfully increased to reduce asset-liability mismatches.

    Fixed rate liabilities
    26%
    June 30th

    Composition of liabilities.

    Deals & partnerships

    2
    Multiple (portfolio sale)Sale of a portfolio of assets to reduce PIK income and improve position diversity.

    The portfolio sale closed in late Q1 FY26.

    UndisclosedPrivate placement of debt to proactively manage upcoming maturities.$150M

    A $150 million private placement was closed during the second quarter with a delayed funding date.

    Risks & headwinds

    4
    Muted M&A activity and lower direct lending volumeQ2 FY26, YTD FY26

    Q2 volume down approximately 55% from Q1 and down about 13% year-to-date versus the first half of 2025.

    Mitigation: Cautiously optimistic about activity through the balance of the year, supported by a substantial backlog of potential private equity exits and an uptick in recent deal activity.

    Uncertain investing environmentCurrent

    Conflicting macroeconomic signals around inflation, consumer health, labor markets, and commodity prices; ongoing geopolitical conflicts; impact of AI and accelerating technological change; persistent valuation gaps.

    Mitigation: Differentiated underwriting strategy, deeper diligence, focus on sectors with New Mountain private equity experience and dedicated industry resources, and acquiring select positions in the secondary market at meaningful discounts.

    Write-down on non-accruing positionQ2 FY26

    Main driver of $0.03 NAV decline.

    Mitigation: Focus on reversing losses through pull-to-par improvements on certain loans and through aforementioned exits on equity positions.

    Oversold stock and marked-down loans due to market sentimentCurrent

    NMFC continues to be oversold; many well-performing loans marked lower based on negative market sentiments.

    Mitigation: Belief in potential upside as loans move back towards par, executing strategy of finding bargains in the secondary market, and optimism for catalysts from equity positions performing on or above plan.

    What to watch in Q3 FY26

    5

    Monetization of smaller equity positions

    Next quarter or two
    CurrentHigh optimism for exit
    TargetExit of positions

    Why it matters

    Will improve portfolio diversity and income quality, contributing to NAV.

    I would say on a couple of smaller positions that I referenced, we have high near-term—we have good optimism that over the near term we can exit some of those positions. And when I say near term, I would say the next quarter or two.

    Q&A highlights

    3

    Seeking details on the number of equity positions targeted for monetization and the expected timeline for these exits.

    John Kline expressed high optimism for exiting a couple of smaller positions within the next quarter or two. For larger, more concentrated positions, there are many active efforts, but the exact timing is uncertain. He emphasized that the focus is on executing value-accretive monetizations to improve portfolio diversity and income quality, leveraging the strong performance of underlying businesses.

    “I would say on a couple of smaller positions that I referenced, we have high near-term—we have good optimism that over the near term we can exit some of those positions. And when I say near term, I would say the next quarter or two.”

    asked by Finian O'Shea · answered by John Kline

    2 min read6 chapters

    Detailed Narrative

    01

    Portfolio Strategy and Credit Quality

    NMFC maintains a focused investment strategy, targeting defensive, non-cyclical sectors characterized by recurring or naturally reoccurring revenue models, stable margins, and strong cash flow generation. This approach is particularly emphasized given current economic risks such as supply chain disruption🌐s and persistent inflation. The company provides enhanced transparency into its industry niches. Credit performance improved significantly, with non-accruals at fair value decreasing from 2.6% to 1.5% quarter-over-quarter, and 88% of the portfolio rated green, indicating stable credit.

    02

    Net Asset Value and Share Repurchases

    The net asset value per share experienced a modest decline of $0.03, settling at $10.89, primarily due to a write-down on a non-accruing position in Convey. This was partially offset by unrealized gains and accretive share repurchases. During the quarter, NMFC repurchased $9 million of its stock at approximately $8 per share, representing a 27% discount to book value, with $80 million of remaining capacity. Management believes the stock is oversold and sees potential for upside as marked-down loans recover.

    03

    Dividend Coverage and Sustainability

    Adjusted net investment income of $0.26 per share exceeded the $0.25 per share dividend paid in Q2. The Board declared a $0.25 per share dividend for Q3, with management projecting continued coverage in upcoming quarters based on the portfolio's anticipated earnings power. The company's cash yield stands at 15% annualized, significantly higher than high-yield bond index averages, and is supported by a voluntary fee reduction to 15% effective in 2027.

    04

    Market Environment and Origination

    The second quarter saw muted M&A activity, leading to a 55% quarter-over-quarter decrease in industry-wide direct lending volume. Despite this, management is cautiously optimistic💬 for the balance of the year, citing a substantial backlog of private equity exits and recent upticks in deal activity. Origination activity was light at $73 million, balanced by $105 million in sales and repayments, maintaining a fully invested portfolio. Yields on new investments exceeded those on repayments, partly due to discounted secondary market purchases.

    05

    Balance Sheet and Liquidity

    NMFC maintains a strong balance sheet with a net debt-to-equity ratio of 1.11x, comfortably within its target range of 1.0x to 1.25x. The company boasts over $2 billion in total borrowing capacity, including $830 million available under credit facilities, which adequately covers $160 million in unfunded commitments and 2027 maturities. Proactive liability management included closing a $150 million private placement and extending the corporate revolving credit facility to 2031, with nearly 60% of outstanding debt maturing in 2029 or later.

    06

    Portfolio Diversification and Equity Monetization

    Increasing portfolio diversification remains a key strategic priority, building on progress made with a portfolio sale in late Q1. Management has line of sight into further advancements over the coming quarters, including potential realization opportunities for concentrated equity positions within the next year. These exits are expected to enhance portfolio diversity, reduce PIK income, and contribute to value-accretive outcomes for shareholders, with a strong focus on executing these monetization events.

    AI-generated summary of the company’s earnings call. Not investment advice.