New Mountain Finance NASDAQ: NMFC reported third-quarter adjusted net investment income of $0.26 per share, covering its $0.25 per-share cash dividend, while net asset value declined 2% sequentially to $10.67 per share amid broader market movements and credit-specific markdowns.
The business development company said its board declared a fourth-quarter dividend of $0.25 per share, payable Dec. 31 to shareholders of record on Dec. 17. Chairman Steve Klinsky said the company believes the dividend is sustainable and noted that the stock was trading at approximately 65% of book value as of the period discussed on the call.
Net Asset Value Declines on Market and Credit Movements
Net asset value per share fell $0.22 from $10.89 in the second quarter to $10.67 at Sept. 30. President and CEO John Kline said roughly $0.12 of the decline was driven by broader market movements, including higher discount rates on leveraged-loan assets. The remaining $0.10 reflected credit-specific movements in a handful of investments, including insightsoftware, DECA Dental and RLG.
Klinsky said the NAV decline was largely tied to mark-to-market changes in a limited number of idiosyncratic credits, particularly quoted assets. He added that several larger portfolio companies, including Benevis, UniTek and Novus Process Systems, formerly known as Permian, recorded double-digit earnings growth during 2026.
New Mountain Finance’s portfolio heat map showed 86% of investments rated green at quarter-end, down from 88% in the prior quarter. Yellow-rated investments increased to 11.7% from 10.2%. Kline said the yellow and orange categories carried a weighted-average mark of about $0.70, indicating that meaningful de-risking had already been reflected in the company’s NAV.
Non-accruals at fair value rose 30 basis points sequentially to 1.8%, driven by the addition of a small investment. However, the company exited Convey early in the fourth quarter, which Kline said should reduce non-accruals by 0.1% at fair value and 0.6% at cost, all else equal.
Company Targets More Cash-Paying, Diversified Portfolio
Management reiterated its priorities of monetizing equity positions, reducing payment-in-kind income and increasing portfolio diversification. Kline said the company expects to redeploy proceeds from potential exits into first-lien, cash-paying investments to improve both diversification and income quality.
Laura Holson, New Mountain Finance’s COO and interim CFO, said equity and PIK-yielding positions have generally been performing well, but management is focused on achieving the appropriate outcome rather than forcing sales. In response to an analyst question about muted M&A activity, Holson said the company does not need to wait for a “prolific” deal environment to execute its monetization strategy, although a stronger M&A market would be constructive.
Holson said M&A activity through 2026 remained below 2025 levels, with industrywide direct-lending volume down approximately 28% year to date, according to PitchBook. Still, she said New Mountain Finance continued to see steady deal flow in its defensive-growth focus sectors.
The company originated $10 million of investments during the quarter, offset by $44 million of sales and repayments, as it remained fully invested. The average yield of the portfolio increased to 12%, with yields on new investments exceeding those on repayments.
- Approximately 80% of the portfolio was senior in nature, including first-lien investments, senior loan programs and net-lease investments.
- Equity positions represented about 6% of the portfolio.
- The portfolio was diversified across 110 companies.
- Excluding investments in senior loan programs and net-lease funds, the top 10 single-name issuers represented 24.8% of total fair value.
Income, Fees and Balance Sheet
Total investment income was $60 million in the third quarter, down 1.8% from the prior quarter. Total net expenses were approximately $36 million, down 1.4% sequentially. The company’s effective incentive-fee rate was 15%, reflecting a voluntary waiver of $1.4 million in incentive fees ahead of a previously announced permanent reduction to 15% in 2027.
PIK income from investments structured with PIK at origination represented 15% of total investment income, while modified PIK income tied to amendments or restructurings accounted for another 5%. Holson said the increase in PIK income reflected compounding and one loan moving from cash pay to PIK during the quarter. Investments generating non-cash income were marked at a weighted-average fair value of about 94% of par, and 81% of that income came from green-rated investments.
At Sept. 30, New Mountain Finance reported total assets of $2.4 billion, total liabilities of $1.3 billion and net asset value of $1 billion. Its net debt-to-equity ratio was 1.15x, within its target range of 1x to 1.25x. Following quarter-end repayments from Thorne and Mercer Advisors, the company’s statutory net debt-to-equity ratio declined to 1.09x on a pro forma basis.
The company said it had more than $2 billion of total borrowing capacity, including approximately $760 million available under credit facilities, subject to borrowing-base limitations. It also said a $150 million private placement announced in the second quarter funded on Oct. 1, and that existing liquidity and the issuance had covered its 2027 maturities.
As of quarter-end, 88% of the loan portfolio was floating rate, while 77% of liabilities were floating rate. Holson said the company had surpassed its target of maintaining more than 75% floating-rate liabilities and would continue working to limit potential asset-liability mismatches.
About New Mountain Finance (NASDAQ:NMFC)
New Mountain Finance Corporation NASDAQ: NMFC is a business development company that provides financing to middle-market businesses. The company is externally managed by New Mountain Finance Advisers, an affiliate of New Mountain Capital, an investment firm focused on growth-oriented companies in industries such as business services, healthcare, software and technology.
New Mountain Finance primarily invests in debt securities, including first-lien, unitranche, second-lien and unsecured loans.
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