New Mountain Finance Corporation 8.250% Notes due 2028

What they do

NMFC invests in debt and equity securities of middle-market businesses, focusing on defensive growth companies in industries such as business services, healthcare, software, and financial services technology. It operates through wholly owned subsidiaries, including three SBIC entities licensed by the U.S. Small Business Administration and New Mountain Net Lease Corporation, a majority-owned REIT subsidiary that acquires commercial real estate under triple net leases. The company is regulated as a BDC under the Investment Company Act of 1940 and elects to be treated as a regulated investment company for tax purposes.

Revenue drivers

• Debt Investments — The largest portion of the portfolio consists of first lien, second lien, and subordinated debt investments in middle-market companies. As of June 30, 2026, the portfolio had a fair value of $2,295.5 million across 113 portfolio companies, with a weighted average yield to maturity at cost of approximately 11.1%.
• Equity Investments — NMFC holds equity and equity-related investments in portfolio companies, often alongside its debt positions. Management has stated a strategic priority to sell certain equity positions, indicating these holdings can be a meaningful but non-core component of the portfolio.
• Net Lease Real Estate — Through New Mountain Net Lease Corporation (NMNLC), a majority-owned consolidated REIT subsidiary, NMFC acquires commercial real estate properties subject to triple net leases. This segment generates rental income and operates as a REIT within the corporate structure.

Recent performance

For the quarter ended June 30, 2026, NMFC reported adjusted net investment income of $24.7 million, or $0.26 per weighted average share, compared to $0.32 per share in the second quarter of 2025. Net asset value per share was $10.89 as of June 30, 2026, down slightly from $10.92 as of March 31, 2026. The investment portfolio had a fair value of $2,295.5 million at quarter-end, down from $2,319.1 million at March 31, 2026. Non-accruals decreased from 2.6% of fair value in the first quarter to 1.5% in the second quarter, and 88% of the portfolio was rated green on the company's internal heatmap. For the full year 2025, net income was $16.5 million, or $0.16 per diluted share, a significant decline from $113.4 million, or $1.03 per diluted share, in 2024.

Strategy

Management's stated priorities include selling certain equity positions, reducing payment-in-kind (PIK) income, and increasing portfolio diversification. The company focuses on defensive growth businesses with acyclicality, sustainable secular growth drivers, niche market dominance, recurring revenue, and strong free cash flow. During the second quarter of 2026, NMFC originated $73.3 million of investments, offset by $61.0 million of repayments and $43.4 million of sales. The company extended the maturity date of the NMFC Credit Facility to July 2031. NMFC declared a third quarter 2026 distribution of $0.25 per share, payable on September 30, 2026.

Risks

• Capital Markets Disruption — Disruptions in the capital markets have increased spreads between risk-free and higher-risk securities and resulted in illiquidity in parts of the capital markets, which could limit NMFC's investment originations and increase funding costs.
• Credit Quality — Non-accruals were 1.5% of fair value at June 30, 2026, and while this represents an improvement from 2.6% in the prior quarter, any deterioration in portfolio company performance could lead to increased non-accruals and realized losses.
• Leverage — As of June 30, 2026, NMFC's statutory debt-to-equity ratio was 1.16x (1.11x net of available cash), and the company's ability to raise debt on favorable terms is critical to generating returns for equity investors.
• Dividend Coverage — The third quarter 2026 distribution of $0.25 per share exceeds the second quarter adjusted net investment income of $0.26 per share on an annualized basis, which may pressure the company's ability to maintain distributions if earnings decline.

Outlook

Management believes NMFC remains undervalued, citing a dividend yield of 15% based on a recent closing share price and noting that insider ownership represents 18% of shares outstanding. The CEO highlighted a focus on selling certain equity positions, reducing PIK income, and increasing portfolio diversification. The company extended the maturity of the NMFC Credit Facility to July 2031, providing longer-term funding flexibility. No specific earnings guidance was provided in the latest release.