Inquiring about expectations for borrowing spreads on unsecured debt given upcoming maturities in 2027 and 2028.

Laura Holson views the rotation of the liability stack as a significant opportunity. She believes that successful execution of strategic initiatives, such as equity monetization and portfolio diversification, will positively impact future access to the unsecured market and help reduce the overall cost of financing, especially as some maturing debt is not currently low-cost. “I do think that'll pay benefits when we think about, you know, going back to the unsecured market in the relatively near future. And again, I think the good news is, you know, a lot of our maturing debt, you know, is not the most low-cost debt. So when we think about, you know, going back to the unsecured market, we do view it as an opportunity, hopefully, to really reduce that cost of financing over time.”

Asking about expectations for the pacing of repayments and originations for the remainder of the year, and any catalysts beyond the M&A market.

John Kline identified an improving market environment as the primary catalyst for the second half of the year, contrasting with a light first half for direct lending. He noted increased activity in the pipeline, which is expected to drive both new originations and facilitate exits of full companies from the portfolio, indicating a generally better environment for deal-making. “I think the biggest catalyst when we think about the back half of the year is just what we see as a better environment. So the first half of the year for direct lending was not a great environment. Not a lot of M&A, there's just volatility around the SaaSpocalypse. And I think as we look forward into our pipeline, there's just, there's just more activity.”

NMFC

New Mountain Finance (NMFC) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Financials· Aug 4, 2026

Source: earnings call transcript

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

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

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

Category	Target	Timeline	Confidence
Q3 Dividend per Share	$0.25 high materiality	Q3 · FY26	High
Dividend Coverage	continue to cover the quarterly dividend high materiality	upcoming quarters	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	future	Medium
Unsecured Debt Market Activity	remain active in the unsecured debt market medium materiality	future	High
Equity Position Monetization	potential realization opportunities for many of our most concentrated positions high materiality	over the next year	Medium
M&A Market Environment	getting better medium materiality	Q3 · FY26	Medium

Deals & partnerships

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.

Undisclosed Private 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

Muted M&A activity and lower direct lending volume Q2 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 environment Current

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 position Q2 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 sentiment Current

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

Monetization of smaller equity positions

Next quarter or two

Current High optimism for exit

Target Exit 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.

Find out whether NMFC delivers this. Inve re-checks your case every morning.

Q&A highlights

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 read 6 chapters

Detailed narrative

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 disruptions 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.

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.

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.

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.

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.

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.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.