10-Q: New Mountain Finance Reports Q3 Decline Amid Rising Non-Accruals

Sentiment:

Quarterly Report 3 November 2025 4:44 PM

📋All filings for New Mountain Finance CORP

New Mountain Finance Corporation reported a decrease in net investment income and earnings per share for the nine months ended September 30, 2025, alongside an increase in net realized and unrealized losses, though maintaining strong asset coverage.

Capital raiseThe company has an equity distribution agreement for at-the-market (ATM) offerings, with approximately $258.0 million of common stock remaining available for issuance and sale.The company may from time to time enter into additional debt facilities or issue additional debt securities, including unsecured debt and/or debt securities convertible into common stock.

Worse than expectedTotal investment income decreased by 11% for the nine months ended September 30, 2025, compared to the prior year.Net investment income decreased by 7.3% for the nine months ended September 30, 2025, compared to the prior year.Net realized and unrealized losses increased significantly to $59.5 million for the nine months ended September 30, 2025, from $24.6 million in the prior year.Basic and diluted earnings per share both declined by approximately 50% for the nine months ended September 30, 2025, compared to the prior year.Net asset value per share decreased from $12.55 at December 31, 2024, to $12.06 at September 30, 2025.The increase in non-accrual investments, particularly Notorious Topco, LLC (BIG) being placed on non-accrual status in Q3 2025, indicates deteriorating credit quality in parts of the portfolio.

Summary

Total investment income decreased by 11% to $249.7 million for the nine months ended September 30, 2025, compared to $280.5 million in the prior year period.
Net investment income for the nine months ended September 30, 2025, was $103.3 million, an 7.3% decrease from $111.4 million in the same period of 2024.
Net realized and unrealized losses significantly increased to $59.5 million for the nine months ended September 30, 2025, compared to $24.6 million in the prior year period.
Basic earnings per share declined to $0.40 for the nine months ended September 30, 2025, from $0.81 in the corresponding 2024 period.
Diluted earnings per share also decreased to $0.40 for the nine months ended September 30, 2025, from $0.78 in the corresponding 2024 period.
Net asset value per share was $12.06 as of September 30, 2025, down from $12.55 at December 31, 2024.
The company's asset coverage ratio remained strong at 179.1% as of September 30, 2025, well above the 150% minimum regulatory requirement.
Weighted average yield to maturity at cost for income-producing investments was approximately 10.4% as of September 30, 2025.
Weighted average yield to maturity at cost for all investments was approximately 10.0% as of September 30, 2025.
Approximately 85.50% of investments at fair value are floating-rate, with 14.50% being fixed-rate as of September 30, 2025.
The portfolio consists of 126 companies with a fair value of $2,943.6 million as of September 30, 2025.
The top five industry concentrations are Software (27.90%), Business Services (17.65%), Healthcare (14.80%), Investment Funds (9.36%), and Consumer Services (6.39%).

Sentiment

Score: 4

Explanation: The sentiment is moderately negative due to significant declines in key financial performance metrics (investment income, net income, EPS, NAV) and a substantial increase in net realized and unrealized losses. The rise in non-accrual investments, including a new red-rated non-accrual, indicates deteriorating credit quality in parts of the portfolio. While the company maintains strong asset coverage and has taken steps to enhance liquidity and shareholder returns (share repurchase, credit facility extension), the overall financial results for the period are concerning.

Positives

The company maintains a strong asset coverage ratio of 179.1%, significantly above the 150% regulatory minimum, indicating robust financial stability.
A new $100.0 million share repurchase program was authorized, signaling confidence in the company's valuation and a commitment to shareholder returns.
The Unsecured Management Company Revolver maturity date was extended to December 31, 2030, enhancing long-term liquidity and financial flexibility.
The Investment Adviser voluntarily waived base management fees and incentive fees, demonstrating alignment with shareholder interests and efforts to manage expenses.
The company's portfolio is primarily composed of floating-rate investments (85.50%), which positions it favorably in a rising interest rate environment, though recent rate decreases could impact this.
The company expects to meet current liquidity needs through cash flows from operations and other activities.

Negatives

Total investment income decreased by 11% for the nine months ended September 30, 2025, primarily due to a lower invested asset base and slightly lower portfolio yields.
Net investment income decreased by 7.3% for the nine months ended September 30, 2025, reflecting reduced overall profitability.
Net realized and unrealized losses increased significantly to $59.5 million for the nine months ended September 30, 2025, compared to $24.6 million in the prior year, indicating substantial portfolio valuation declines.
Basic and diluted earnings per share both declined by approximately 50% for the nine months ended September 30, 2025, compared to the prior year period.
Net asset value per share decreased to $12.06 from $12.55, reflecting a decline in underlying asset values.
Several investments are on non-accrual status, including American Achievement Corporation ($31.4 million cost, $18.0 million fair value), National HME, Inc. ($7.9 million cost, $3.0 million fair value), and Notorious Topco, LLC ($21.8 million cost, $13.7 million fair value), indicating concerns about collectability.
The collateralized agreement to resell ($30.0 million cost, $13.5 million fair value) remains on non-accrual status and is guaranteed by a private hedge fund in liquidation, posing a risk of further loss.

Risks

Investments are subject to the risk of non-payment of scheduled interest or principal, leading to potential reductions in income and fair valuations.
The portfolio may be concentrated in a limited number of industries, making it susceptible to adverse developments in those sectors (e.g., Software, Business Services, Healthcare).
Debt investments are almost entirely rated below investment grade or unrated, carrying higher credit risk and speculative characteristics.
Illiquidity in the market for certain securities may make it difficult to value and liquidate investments.
Subordinated debt investments carry additional risk as cash flow may be insufficient to meet payments after senior obligations.
The use of leverage magnifies potential gains or losses and increases exposure to interest rate risk, potentially causing greater changes in net asset value and income.
The company is subject to a 4.0% nondeductible U.S. federal excise tax on certain undistributed income if it fails to meet distribution requirements.
The collateralized agreement to resell is guaranteed by a private hedge fund currently in liquidation, with a claim filed to resolve the matter, indicating ongoing uncertainty and potential for further loss.
The company's ability to service debt depends on financial performance, which is subject to economic conditions and competitive pressures.

Future Outlook

The company expects to meet its current liquidity needs through cash flows from operations and other activities. It may also pursue additional debt facilities or issue new debt securities in the future. The board has authorized a new share repurchase program, signaling a continued focus on shareholder value. The Unsecured Management Company Revolver's maturity has been extended to December 31, 2030, providing enhanced long-term financial flexibility.

Management Comments

Management's judgment is applied to determine the ultimate collectability of interest or dividend payments on non-accrual investments, which may be recognized as income or applied to principal.
Management continually refines its outlook for each portfolio company and forms valuations based on operating performance, underlying business characteristics, and market environment.

Industry Context

The company operates as a Business Development Company (BDC) specializing in direct lending to U.S. upper middle-market companies, particularly those backed by private equity sponsors. Its focus on 'defensive growth' businesses, characterized by acyclicality, sustainable secular growth, and niche market dominance, aims to mitigate risks inherent in the middle market. The portfolio's high concentration in floating-rate debt (85.50%) reflects a common strategy among BDCs to benefit from rising interest rates, though recent rate decreases could temper this advantage. The overall decline in investment income and EPS may reflect broader economic pressures or specific challenges within its portfolio segments, despite the defensive growth strategy.

Comparison to Industry Standards

Management Changes

Role	Previous Person	New Person	Effective Date	Reason
NA	NA	NA	NA	No management changes were explicitly detailed in the filing.

Corporate Governance

Change Type	Description	Effective Date	Impact Assessment
Policy Re-approval	The Investment Management Agreement and Administration Agreement were re-approved by the board of directors for a period of 12 months commencing on March 1, 2025.	2025-03-01	Ensures continuity of investment advisory and administrative services under existing terms, subject to ongoing board oversight.
Fee Structure Amendment	Amendment No. 2 to the Investment Management Agreement, effective January 29, 2025, reduced the base management fee from 1.4% to 1.25% of gross assets.	2025-01-29	Potentially reduces operating expenses, aligning with shareholder interests by lowering management costs.
Co-investment Policy Update	A new Exemptive Order from the SEC, granted on May 13, 2025, superseded a prior order, permitting co-investing with affiliates under specific conditions and board approvals.	2025-05-13	Enhances flexibility for investment opportunities with affiliates while maintaining regulatory compliance and board oversight to manage potential conflicts of interest.

Legal Proceedings

The company, its consolidated subsidiaries, the Investment Adviser, and the Administrator are not currently subject to any material pending legal proceedings as of September 30, 2025.
A claim has been filed with the Cayman Islands joint official liquidators regarding the collateralized agreement to resell, as the private hedge fund guarantor is in liquidation. The joint official liquidators have recognized the company's contractual rights.

Related Party Transactions

The company has an Investment Management Agreement with New Mountain Finance Advisers, L.L.C., a wholly-owned subsidiary of New Mountain Capital, which receives base management and incentive fees.
The Investment Adviser voluntarily waived base management fees and incentive fees during the period, demonstrating alignment with shareholder interests.
An Administration Agreement exists with New Mountain Finance Administration, L.L.C., a wholly-owned subsidiary of New Mountain Capital, for administrative services, for which the company reimburses allocable expenses.
A royalty-free Trademark License Agreement with New Mountain Capital grants the company use of the 'New Mountain' name and logo.
The company co-invests with other funds managed by the Investment Adviser or certain affiliates, subject to an Exemptive Order from the SEC.
Transactions with New Mountain Net Lease Corporation (NMNLC), a majority-owned consolidated subsidiary, including an affiliate of the Investment Adviser purchasing and selling NMNLC common stock.
An Unsecured Management Company Revolver with NMF Investments III, L.L.C., an affiliate of the Investment Adviser, provides a discretionary revolving credit facility.
An intercompany promissory note exists between NMFC and SBIC I to fund the repayment of SBA guaranteed-debentures, with all related balances and transactions eliminated in consolidated financial statements.

Stakeholder Impact

Shareholders: Impacted by declining NAV per share, reduced EPS, and lower distributions per share. The new share repurchase program could provide support for the stock price and return capital.
Creditors: The company maintains an asset coverage ratio well above the minimum, indicating a strong ability to meet debt obligations, which is positive for creditors.
Employees/Management: The Investment Adviser and Administrator, affiliates of New Mountain Capital, continue to provide services, with fee waivers demonstrating some alignment with company performance.
Portfolio Companies: The company's continued investment activity and credit facilities provide ongoing financing solutions to its middle-market portfolio companies, though some are experiencing performance issues leading to non-accrual status.

Next Steps

The company will continue to monitor the liquidation process of PPVA Fund, L.P. to resolve the collateralized agreement to resell matter.
The new $100.0 million share repurchase program is expected to be in place until December 31, 2026, or until the full amount is repurchased.
The company may enter into additional debt facilities, increase the size of existing facilities, or issue additional debt securities.
The board of directors declared a fourth quarter 2025 distribution of $0.32 per share, payable on December 31, 2025.

Key Dates

Date	Description
2010-06-29	Company originally incorporated in Delaware.
2011-05-19	Company completed its initial public offering (IPO).
2013-05-03	Company entered into a collateralized securities purchase and put agreement with PPVA Black Elk (Equity) LLC.
2014-08-01	SBIC I received its license from the SBA to operate as an SBIC.
2014-08-01	Company received a $20.5 million payment under the SPP Agreement from PPVA Black Elk (Equity) LLC.
2014-11-05	Company received exemptive relief from the SEC to modify asset coverage requirements for SBA-guaranteed debentures.
2016-02-04	Board of directors authorized the Old Repurchase Program for up to $50.0 million of common stock.
2017-08-01	SBIC II received its license from the SBA to operate as an SBIC.
2017-08-01	Trustee for Black Elk informed the company of intent to assert a fraudulent conveyance claim.
2017-12-22	Company settled the Trustee's $20.5 million claim for $16.0 million.
2017-10-24	Company entered into the Third Amended and Restated Loan and Security Agreement (Holdings Credit Facility).
2018-06-08	Shareholders approved modified asset coverage requirements, reducing the minimum ratio to 150%.
2018-04-25	NMFC Senior Loan Program III LLC (SLP III) commenced operations.
2018-05-02	SLP III entered into its revolving credit facility with Citibank, N.A.
2018-12-14	Company entered into the Loan Financing and Servicing Agreement (DB Credit Facility).
2019-04-30	Company issued $116.5 million of 2019A Unsecured Notes.
2020-03-30	Affiliate of Investment Adviser purchased NMNLC common stock; NMNLC redeemed shares from NMFC.
2020-03-30	Company entered into an unsecured revolving credit facility with NMF Investments III, L.L.C.
2020-05-04	Company entered into Amended and Restated Uncommitted Revolving Loan Agreement, increasing facility to $50.0 million.
2021-01-29	Company issued $200.0 million of 2021A Unsecured Notes.
2021-02-26	NMNLC entered into the NMNLC Credit Facility II.
2021-03-31	Fee waiver agreement with Investment Adviser became effective.
2021-04-06	NMFC Senior Loan Program IV LLC (SLP IV) formed.
2021-05-05	SLP IV commenced operations and entered into a revolving credit facility with Wells Fargo Bank, National Association.
2021-11-01	Amendment No. 1 to the Investment Management Agreement became effective, reducing base management fee to 1.4%.
2021-11-03	Company entered into an equity distribution agreement for ATM offerings.
2022-06-15	Company issued $75.0 million of 2022A Unsecured Notes.
2022-11-02	Company closed a private offering of $200.0 million of 2022 Convertible Notes.
2023-03-14	Company issued an additional $60.0 million of 2022 Convertible Notes.
2023-10-31	Company entered into Second Amended and Restated Uncommitted Revolving Loan Agreement, increasing facility to $100.0 million and extending maturity to Dec 31, 2027.
2023-10-31	DB Credit Facility maturity date amended to March 25, 2027.
2023-11-13	Company closed a public offering of $115.0 million of 8.250% Unsecured Notes due 2028.
2024-02-01	Company issued $300.0 million of 6.875% Unsecured Notes due 2029.
2024-02-05	Company fully repaid $116.5 million of 2019A Unsecured Notes.
2024-03-22	Company entered into an interest rate swap for the 6.875% Unsecured Notes.
2024-06-27	Company increased the maximum amount of shares to be sold through the ATM program from $250.0 million to $400.0 million.
2024-07-01	NMNLC purchased 63,575 shares of its common stock from an affiliate of the Investment Adviser.
2024-08-01	Company entered into Amendment No. 4 to the Distribution Agreement, adding Citizens JMP Securities, LLC as an Agent.
2024-09-23	Company entered into an interest rate swap for the 6.200% Unsecured Notes.
2024-09-26	Company issued $300.0 million of 6.200% Unsecured Notes due 2027.
2024-09-30	Company repaid and terminated the DB Credit Facility.
2024-09-30	Second Amended and Restated Senior Secured Revolving Credit Agreement (NMFC Credit Facility) became effective.
2024-10-29	NMNLC Credit Facility II maturity date amended to December 2, 2024.
2024-11-14	NMNLC and NM CLFX LP repaid all amounts outstanding under the NMNLC Credit Facility II.
2024-11-22	NMNLC Credit Facility II terminated.
2025-01-21	Company launched a tender offer to purchase up to $260.0 million of 2022 Convertible Notes.
2025-01-29	Board of directors re-approved the Investment Management Agreement and Administration Agreement for 12 months.
2025-01-29	Amendment No. 2 to the Investment Management Agreement became effective, reducing base management fee to 1.25%.
2025-02-19	2022 Convertible Notes Tender Offer expired.
2025-02-24	Settlement of 2022 Convertible Notes Tender Offer.
2025-02-28	SBIC I repaid $37.5 million of SBA-guaranteed debentures.
2025-03-28	Holdings Credit Facility maturity date extended to March 28, 2030.
2025-05-07	All outstanding borrowings attributed to Non-Extending Lenders of NMFC Credit Facility fully repaid and commitments terminated.
2025-05-13	Company, Investment Adviser, and affiliates granted a new Exemptive Order for co-investing.
2025-06-27	Company was notified of conversion of $7 of 2022 Convertible Notes to common stock.
2025-07-02	Transaction settling conversion of 2022 Convertible Notes to common stock.
2025-07-11	SLP IV investment period extended until July 11, 2028, and revolving credit facility maturity extended to July 11, 2030.
2025-07-15	Earliest date company could redeem 2022 Convertible Notes.
2025-08-06	SLP III investment period extended until August 7, 2028, and revolving credit facility maturity extended to August 7, 2030.
2025-08-29	SBIC I repaid $66.3 million of SBA-guaranteed debentures.
2025-09-30	End of the quarterly reporting period.
2025-10-08	Old Repurchase Program terminated upon repurchase of $50.0 million of common stock.
2025-10-15	Company repaid outstanding principal and accrued interest on 2022 Convertible Notes.
2025-10-23	Board of directors authorized a new $100.0 million share repurchase program.
2025-10-27	Company entered into Third Amended and Restated Uncommitted Revolving Loan Agreement, extending maturity to Dec 31, 2030.
2025-10-28	Board of directors declared a fourth quarter 2025 distribution of $0.32 per share.
2025-12-17	Record date for Q4 2025 distribution.
2025-12-31	Payment date for Q4 2025 distribution.
2026-12-31	Expected termination date for the new share repurchase program.
2027-12-31	Maturity date for the Unsecured Management Company Revolver (prior to Oct 27, 2025 amendment).
2028-11-15	Maturity date for the 8.250% Unsecured Notes.
2029-02-01	Maturity date for the 6.875% Unsecured Notes.
2030-03-28	Maturity date for the Holdings Credit Facility.
2030-12-31	Maturity date for the Unsecured Management Company Revolver (after Oct 27, 2025 amendment).

Recommendation

hold

The company's financial performance for the nine months ended September 30, 2025, shows a notable decline in investment income, net investment income, and earnings per share, coupled with a significant increase in net realized and unrealized losses. The decrease in NAV per share and the rise in non-accrual investments, including a new red-rated non-accrual, are concerning indicators of portfolio health. However, the company maintains a strong asset coverage ratio, has taken steps to manage expenses through fee waivers, and has enhanced liquidity by extending credit facilities and authorizing a new share repurchase program. These mitigating factors suggest underlying stability despite the recent performance headwinds. A 'hold' recommendation is appropriate as investors should monitor the effectiveness of these measures and the trajectory of portfolio credit quality before making further investment decisions.

Keywords

Business Development Company, BDC, SEC Filing, 10-Q, Financial Results, Investment Income, Net Investment Income, Earnings Per Share, NAV, Portfolio Investments, Debt Investments, Equity Investments, Leverage, Asset Coverage Ratio, Non-Accrual Loans, Share Repurchase Program, Credit Facility, Private Equity, Middle Market Lending, Floating Rate Loans, Fixed Rate Loans, Software Industry, Business Services Industry, Healthcare Industry, Risk Management

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