New Mountain Finance Corporation Aktie

Good day, and welcome to the New Mountain Finance Corporation Third Quarter 2026 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to John Kline, President and CEO. Please go ahead.

Thank you, and good morning, everyone. Welcome to New Mountain Finance Corporation's Third Quarter 2026 Earnings Call. On the line with me here today are Steve Klinsky, Chairman of NMFC and CEO of New Mountain Capital; and Laura Holson, COO and Interim CFO of NMFC. Steve is going to make some introductory remarks, but before he does, I'd like to ask Laura to make some important statements regarding today's call.

Thanks, John. Good morning, everyone. Before we get into the presentation, I would like to advise everyone that today's call and webcast are being recorded. Please note that they are the property of New Mountain Finance Corporation and that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available in our November 2 earnings press release.

I would also like to call your attention to the customary safe harbor disclosure in our press release and on Pages 2 and 3 of slide presentation regarding forward-looking statements. Today's conference call and webcast may include forward-looking statements and projections, and we ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from those statements and projections. We do not undertake to update our forward-looking statements or projections unless required to by law. All materials referenced during today's call, including the earnings press release, earnings presentation and Form 10-Q are available on our website at www.newmountainfinance.com.

At this time, I'd like to turn the call over to Steve Klinsky, NMFC's Chairman, who will give some highlights beginning on Page 6 of the slide presentation. Steve?

Thanks, Laura. It's great to be able to address you all today, both as NMFC's Chairman and as a major fellow shareholder. Adjusted net investment income for the third quarter was $0.26 per share, covering our $0.25 per share dividend that was paid in cash on September 30. Looking forward to Q4, we would like to announce a $0.25 dividend payable on December 31 to shareholders of record as of December 17.

Our net asset value per share of $10.67 and declined 2% compared to Q2, largely due to mark-to-market movement on a handful of idiosyncratic credits, particularly on some of our quoted assets. Earnings in 2026 have grown at double-digit rates at some of our biggest positions, including Benevis, UniTek and the Novus Process Systems, formerly known as Permian. UniTek and Novus are also seeing new growth markets tied to the expansion of the electric grid and data centers. We think the current environment is a good time to enter the credit markets as risk-adjusted returns and direct lending appear to be attractive compared to the narrow market spreads of past years.

As discussed in past calls, we have pledged to voluntarily and permanently reduce our fees to be more shareholder friendly. Despite all these positives, and as I've said before, I believe NMFC continues to be oversold with the stock trading at approximately 65% of book value. At these trading levels, NMFC's book value would have to depreciate nearly $345 million versus our marks as of September 30, or about 15% of our portfolio at fair value to bring book value down to where the stock trades.

At Friday's closing stock price, NMFC is paying a cash yield of 14%, roughly 6 percentage points above the average yield of the high-yield bond index and we believe the dividend is sustainable. Shareholders who have been with NMFC since its public offering have received $20.95 of total cash back versus their initial price of $13.75 per share and also have the $10.67 of book value per share today. This equates to a 9.9% annualized return since NMFC's inception or 8.9% at the current depressed stock price, all at an annualized realized total net loss rate of just 6 basis points.

This 9.9% long-term return exceeds the high-yield bond index by approximately 4.5 percentage points. Long-term loyal shareholders have received all their investment back in cash, plus 103% and assuming a hypothetical sale at the current depressed stock price. Returns made by reinvesting these past cash dividends would be in addition to this amount. I and my fellow NMC executives remain the largest shareholders of NMFC stock and our ownership position has been increasing over time.

Overall, New Mountain ownership increased from approximately 14% last year to approximately 18% of total shares outstanding as of September 30. We thank you, as always, for your friendship and ownership, and we are working diligently to serve your interest in the months and years ahead.

With that, let me turn the call over to John for more details and comments.

Thank you, Steve. I'll begin on Page 7. Our direct lending strategy focuses on defensive sectors with sustainable tailwinds and on businesses with recurring revenue stable margins and strong cash flow across economic environments. Our strategy has been built to navigate current economic challenges like persistent inflation, supply chain volatility and weaker consumer confidence. We prioritize transparency and we seek to provide more granular disclosure of our industry niches, so investors can see exactly what we own.

Page 8 shows our long-term track record of delivering consistent, enhanced yield by minimizing credit losses and distributing virtually all of our excess income to shareholders. NMFC's loan-to-value ratio is 49%, which reflects our latest view of enterprise value at each portfolio company. We recalculate loan to value every quarter, so it reflects current market conditions.

Turning to Page 9. Our strategic priorities include monetizing equity positions, reducing PIK income and increasing position diversity. As Steve mentioned, many of our equity and pick yielding positions are performing well, and we continue to see potential catalysts for exits. We're focused on the right outcome for the portfolio, which sometimes requires patients. As opportunities materialize, our objective is to redeploy proceeds into first lien cash paying investments to improve portfolio diversification and income quality. Our liability structure remains well positioned with further opportunity in 2027 to extend near-term maturities.

On Page 10, 86% of the portfolio is rated green compared to 88% last quarter. We saw an increase in the yellow category from 10.2% to 11.7% in our yellow and orange names carry a weighted average mark of approximately $0.70, reflecting meaningful derisking already captured in the current NAV. This heat Mac migration is reflective of modest stress on certain older vintage investments which we continue to work through. We expect to make progress migrating to newer names in the upcoming quarters, which should be beneficial to overall portfolio quality.

Page 11 shows the NAV bridge. Book value per share ended the quarter at $10.67, down $0.22 from $10.89 in Q2. We of approximately $0.12 of the decline reflected broader market movements driven by higher discount rates on leveraged loan assets. While the remaining $0.10 reflected credit-specific movements in a handful of positions, including insightsoftware, Deca Dental and LG. While this is not the NAV rule we want, we do see positive catalysts on certain of these names and other discounted names in the portfolio.

Page 12 covers credit performance. Nonaccruals at fair value were 1.8%, up 30 basis points from last quarter as a very small position was added to the list. On the flip side, we exited convey early in Q4, which will reduce nonaccruals next quarter by 0.1% at fair market value and 0.6% at cost all things equal. On the right side of the page is our cumulative record since IPO, where we have invested $10.6 billion across 358 companies with net realized losses of approximately $101 million. We remain focused on recovering unrealized losses through pull to par on certain loans and through equity exits I mentioned.

I will now turn the call over to Laura to discuss the credit market environment and provide more details on the quarter.

Thanks, John. Turning to Page 13. M&A activity to date in 2026 remains below 2025 levels with industry-wide direct lending volume down approximately 28% year-to-date according to PitchBook. We still believe M&A activity will pick up at some point, given the backlog of private equity exits and pressure to return capital, but the current investment environment is full of cross currents. These include conflicting macroeconomic signals around inflation, consumer health, labor markets and commodity prices, ongoing geopolitical conflicts the impact of AI and the accelerating pace of technological change and persistent valuation gaps.

While we haven't seen the meaningful pickup that we've been predicting, our deal flow has been steady, particularly in the defensive growth sectors where we focus. We continue to think that direct lending offers attractive returns and compelling enhanced yield. As a floating rate asset class, our all-in return benefits from rising base rates. At the start of 2026, the forward curve was actually predicting base rate cuts. Today, base rates have remained higher for longer, and the forward curve is now pricing in rate increases over the next 12 months.

We believe this creates a tailwind. Additionally, we're seeing what we believe is a healthy bifurcation in the market around spreads. Throughout 2025, we noted on several of our earnings calls that most direct lending deals priced at SOFR plus 450 to 475 regardless of size, sponsor or asset quality. That made for a challenging investing environment and our strategy was really focused on staying safe. Today, spreads range from SOFR plus 475 on the tight end to SOFR plus 600 on the wider end Note that this is the case even in an environment where M&A remains somewhat muted.

I'd attribute this to a more balanced supply and demand dynamic. Even as deal flow is lower, less direct lending capital is available to chase deals, particularly on the heels of recent industry-wide redemptions. We've also seen this translate into more attractive capital structures with lower leverage and tighter documentation. To summarize, we think the combination of higher base rates more discerning spreads and safer capital structures provides attractive risk-adjusted returns in direct lending.

Turning to Slide 14. Origination activity was intentionally light in the quarter as we remained fully invested. We originated $10 million of investments offset by $44 million of sales and repayments. Slide 15 shows that the average yield of NMFC's portfolio increased to 12% during the quarter largely due to the upward shift in the forward curve. Although portfolio activity was modest, yields on new investments exceeded those on repayments. We continue to believe these yields are attractive for the risk.

Turning to Slide 16. Approximately 80% of the portfolio, including first lien investments, SLPs and net lease investments is senior in nature, consistent with the prior quarter. Equity positions represent approximately 6% of the portfolio with the largest positions shown on the right side of the page.

Slide 17 highlights the diversification of our portfolio across 110 companies. Excluding investments in the SLPs and net lease funds, our top 10 single name issuers represent 24.8% of total fair value. As John mentioned earlier, increasing portfolio diversification remains an important priority, and we believe we have line of sight into further progress over the coming quarters.

I will now review our financial results, beginning on Slide 18. For the third quarter, total investment income was $60 million, down 1.8% from the prior quarter. Total net expenses were approximately $36 million, down 1.4% from the prior quarter. NMFC's effective incentive fee rate for Q3 was 15%, reflecting a voluntary waiver of $1.4 million of incentive fees ahead of the previously announced permanent reduction to 15% in 2027. Adjusted net investment income for the quarter was $0.26 per share, more than covering our third quarter dividend. For the fourth quarter, our Board has declared a dividend of $0.25 per share.

Slide 19 provides additional detail on cash and PIK income. PIK income from assets structured with PIK and originations represented 15% of total investment income. Modified PIK resulting from amendments or restructurings, represented 5% of total investment income, up slightly from the prior quarter. The increase in total PIK income as a percentage of investment income reflects PIK compounding and 1 loan moving from cash pay to PIK in the quarter.

Importantly, investments generating noncash income during the quarter are marked at a weighted average fair value of approximately 94% of par and 81% of this income is generated by names rated green on our heat map. Reducing PIK income remains a strategic priority, and we continue to focus on improving the cash paying composition of our portfolio over time.

Moving to the balance sheet on Slide 20. As of September 30, the portfolio had total assets of $2.4 billion, total liabilities of $1.3 billion and net asset value of $1 billion or $10.67 per share. Our net debt-to-equity ratio was 1.15x, within our target range of 1 to 1.25x. Shortly after quarter end, we received a few sizable repayments, namely Thorne and Mercer Advisors. Pro forma for those repayments, our statutory net debt-to-equity ratio decreased to 1.09x.

On Slide 21, we highlight our diversified financing sources and leverage profile. We have more than $2 billion of total borrowing capacity, including approximately $760 million available under our credit facilities, subject to borrowing base limitations. This capacity more than covers our approximately $145 million of unfunded commitments as well as our 2027 maturities. During the second quarter, we priced a $150 million private placement with a delayed funding date, which funded on October 1. We expect to remain active in the unsecured debt market in line with our strategic priorities.

Turning to Slide 22, we show our debt maturity schedule. As mentioned, we have already covered our 2027 maturities through our recent unsecured issuance and existing liquidity. We continue to ladder our maturities with nearly 60% of outstanding debt maturing in 2029 or later.

Lastly, Slide 23 summarizes the floating and fixed state composition of our assets and liabilities. As of September 30, 88% of the NMFC loan portfolio was floating rate and 12% was fixed rate. Our liabilities were 77% floating rate and 23% fixed rate compared to 74% floating rate last quarter. This represents an important milestone as we have now exceeded our target of more than 75% floating rate liabilities. We intend to continue optimizing our liability mix to reduce potential asset liability mismatches.

With that, I will turn the call back over to John.

Thank you, Laura. In closing, we would like to thank all of our stakeholders for the ongoing partnership, and we look forward to speaking to you again on our fourth quarter 2026 earnings call in February.

I will now turn things back to the operator to begin Q&A. Operator?

[Operator Instructions] We'll take our first question from Robert Dodd with Raymond James.

A couple of questions. So I mean, 1 of the things you pointed out, obviously, you're seeking monetizations on the equity, which has been a theme. And yes, it takes a while. Does -- is the market just extremely uncooperative right now? I mean, to your point, M&A activity in general is down substantially. I mean, is it -- is it realistic that we're only going to see these monetizations and rotation to income producing assets. If the market is substantively more cooperative?

Or is it just -- I mean, obviously, these are case-by-case assets, but still the market doesn't seem to be helping you out here. So is that what we need to look for that be more optimistic if the market picks up that, that monetization could actually happen otherwise sit back and be patient.

I don't think it's so directly tied to the overall volume of M&A environment. Certainly, a more robust M&A environment is more constructive, of course, but it's not like there's no M&A happening right now. I think, in some of our prepared remarks, we talked about seeing steady opportunities for us in direct lending. And so I think that is a result of kind of steady M&A activity, which is not as robust as maybe we've seen in years past. I think it's most important, how the underlying companies are performing.

That's really what we've been focused on, and as Steve talked about in his remarks, we feel like those underlying companies are performing well. So I think that's a good place to start. And then we'll, obviously, as John said, I have to be a little bit patient to just find the right opportunities. But overall, we don't think that we need to wait for a prolific M&A environment in order to execute some of those strategic priorities.

Got it. Sort of related follow-on. I mean, as you point out, there's a lot of cross currents out there right now and later now seem to be on the way back up, which would be positive earnings if there's no secondary effects. When we look at the -- obviously, 1 of your larger markdowns on the credit side, this quarter was decadent. That's been a theme in the space, not just you. There's a lot of dental that's been having issues. There's a lot of veterinary and you've got exposure there as well.

Is there an issue that with how the consumer is right now mixed messages there as well. Is there an issue that there's only so much pricing power some of these businesses, be it dental or veterinary or others can pass through to a consumer but their cost structure and their interest expenses are still going through the same pressures. And so are we just going to see more and more of those kind of consumer sort of thought to be more robust businesses, but ones that have passed through the pricing power they can? Are we just going to see more and more problems on -- in that kind of segment of your and frankly other people's portfolio?

Sure. It's a great question. And from what we see is across the consumer is a bit of weakness on the low end and strength on the higher end. In general, when we think about the consumer exposure we have in NMFC, we think it's more on the defensive side because it's not overly discretionary. When we think about PET, we have some first lien exposure to veterinarian pet and in general, we think that while there's some discretionary aspects, it's relatively stable from a top line perspective even in a weaker consumer environment. So we feel okay about that.

On the dental side, I think the issues are less consumer and more operational and so any dental exposure that we have would be very focused on making sure the operations are running as smoothly and crisply as possible. And then just more broadly, when we think about the rest of our portfolio, the only other area that I can think of where there's material consumer exposure would be car wash, which we see as being pretty low ticket, and pretty stable when we look at the best car wash platforms out there, and we think we have good exposure to that niche. So that would be the way I would answer it.

We'll move to our next question from Ethan Kaye with Lucid Capital Markets.

You indicated there's some improving performance across some of the larger portfolio positions, which I think you just touched on. But I mean, can you kind of elaborate on that any further? And does that kind of change the pressure or like time line maybe with which you look to exit these positions?

I would say it's supportive of the time line that we seek to exit some of these positions. So I just think, as Laura said, it's good that we have momentum in some of our larger positions, some of our pick yielding positions, some of our equity positions. And we think that will give us an opportunity to exit at a good value.

Okay. And then I noticed there was a bit of a decline in income from the senior loan programs and the net lease. Can you just talk about maybe what drove that this quarter?

Sure. Yes. I mean these vehicles generally produce pretty consistent income we find, but there is a little bit of volatility quarter-to-quarter just based on underlying realizations or activity at those funds themselves. So we would expect to see a little bit of movement quarter-over-quarter. So nothing in particular that I would call out, just normal quarter-to-quarter volatility.

[Operator Instructions] It appears there are no further questions at this time. I'd like to turn the conference back over to John for any additional or closing remarks.

Great. Well, thank you, everyone, for joining our third quarter call, and we look forward to speaking to you again in the new year. Thank you.

This concludes today's call. Thank you again for your participation. You may now disconnect, and have a great day.

Thank you. Welcome to the New Mountain Finance Corporation's second quarter 2026 earnings call. Today's conference is being recorded. At this time, I would like to turn the conference over to John Kline, President and CEO. Please go ahead.

Thank you, and good morning, everyone. Welcome to New Mountain Finance Corporation's second quarter 2026 earnings call. On the line with me here today are Steve Klinsky, Chairman of NMFC and CEO of New Mountain Capital, and Laura Holson, COO, Interim CFO, and Treasurer of NMFC. Steve is going to make some introductory remarks, but before he does, I'd like to ask Laura to make some important statements regarding today's call.

Thanks, John. Good morning, everyone. Before we get into the presentation, I would like to advise everyone that today's call and webcast are being recorded. Please note that they are the property of New Mountain Finance Corporation and that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available in our August 3rd earnings press release.

We'd also like to call your attention to the customary safe harbor disclosure in our press release and on Pages 2 and 3 of the slide presentation regarding forward-looking statements. Today's conference call and webcast may include forward-looking statements and projections, and we ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from those statements and projections. We do not undertake to update our forward-looking statements or projections unless required to by law.

All materials referenced during today's call, including the earnings press release, earnings presentation, and Form 10-Q, are available on our website at www.newmountainfinance.com. At this time, I'd like to turn the call over to Steve Klinsky, NMFC's Chairman, who will give some highlights beginning on Page 6 of the slide presentation. Steve?

Thanks, Laura. It's great to be able to address you all today, both as NMFC's Chairman and as a major fellow shareholder. Adjusted net investment income for the second quarter was $0.26 per share, covering our $0.25 per share dividend that was paid in cash on June 30th. Looking forward to Q3, we would like to announce a $0.25 dividend payable on September 30th to shareholders of record as of September 16th. Consistent with our historical practice, we project that net investment income will continue to cover the quarterly dividend in the upcoming quarters.

Our net asset value per share of $10.89 declined $0.03 or just 30 basis points compared to Q1, reflecting stable credit performance across the portfolio. Notably, non-accruals at fair value improved meaningfully from 2.6% last quarter to 1.5%. During the quarter, we repurchased approximately $9 million of stock at approximately $8 per share, or about a 27% discount to book value. Year-to-date, we have repurchased approximately $66 million of stock, leaving us with approximately $80 million of total remaining capacity.

Future buybacks will be predicated on having adequate excess capital as well as making sure that we are appropriately within our stated leverage range. As I stated in the past, I believe that NMFC continues to be oversold. Overall, NMFC's book value has been stabilizing as evidenced by these recent quarterly results. We believe that blind fears of a universal SaaSpocalypse have been excessive. We have marked many of our well-performing loans lower based on negative market sentiments overall and pursuant to fair value accounting standards. I believe that there could be upside in the coming quarters as these loans move back towards par.

We are executing our stated strategy of finding bargains in the secondary market to build book value as they trade up. And we are optimistic that we will have catalysts upcoming for some of our equity positions in the portfolio if they perform on or above plan. We believe that risk-adjusted returns in direct lending are improving in this new market environment that is characterized by slightly higher pricing and lower average leverage multiples on new originations. We have pledged to voluntarily and permanently reduce our fees to be shareholder-friendly.

And finally, NMFC is paying a cash yield of 15% at Friday's closing stock price, which is a level that is approximately 2x as high as high-yield bond index averages and with a dividend which we feel is sustainable based on the anticipated earnings power of the portfolio for the foreseeable future. I and my fellow NMFC executives remain the largest shareholders of NMFC stock, and our ownership position has been increasing over time. Overall, New Mountain ownership increased by 100 basis points sequentially and 400 basis points versus prior year to approximately 18% of total shares outstanding as of June 30th.

We thank you as always for your ownership and partnership, and we are working diligently to serve your interests in the months and years ahead. With that, let me turn the call over to John for more details and comments.

Thank you, Steve. I would like to begin on Page 7, which offers an overview of our approach to direct lending. First and foremost, we focus only on select parts of the economy that we believe are defensive and have sustainable tailwinds. The businesses that we invest in tend to have recurring or naturally reoccurring revenue models, stable margins, and are cash flow generative in many different economic environments. Overall, NMFC's focus on stable, non-cyclical sectors is more important than ever as we consider current economic risks, which include supply chain disruptions, weak consumer confidence, and persistent inflationary pressure.

Importantly, NMFC provides heightened transparency around our industry niches, as opposed to the standard practice of using broad sector classifications. This practice provides our investors with more clarity into the specific types of companies that we invest in. Page 8 provides key performance statistics showing a long-term track record of delivering consistent enhanced yield by minimizing credit losses and distributing virtually all of our excess income to shareholders. Since our IPO in 2011, NMFC has returned over $1.5 billion to shareholders through our dividend program, generating an annualized return of approximately 10%.

Our dividend yield as of Friday's closing stock price is 15% annualized based on what we believe are sustainable earnings. Our loan-to-value ratio is just 49% and includes the latest view of enterprise value at our portfolio companies. Importantly, we recalculate this metric every quarter to ensure we are accurately reflecting evolving market conditions and their impact on the valuation of our borrowers. Turning to Page 9, we have made excellent progress on our strategic priorities so far this year. The portfolio sale, which closed in late Q1, reduced PIK income and improved our position diversity.

And on the liability side, we continue to actively term out the maturities of our debt stack. Looking forward, we remain focused on further improving these same metrics. Over the next year, we believe that there are potential realization opportunities for many of our most concentrated positions. These exits would catalyze more diversity in the portfolio and in many cases reduce PIK income. Additionally, there are several other smaller preferred and common stock positions that could be sold in the near term. We believe that ongoing momentum on the asset side of our balance sheet will position us well for continued improvement on our liability mix and cost of financing.

As shown on Page 10, 88% of the portfolio carries a green risk rating. The red and orange categories, which represent our most challenged positions, both declined this quarter. We did see an increase in the yellow category, which represents modestly underperforming positions. Non-green names carry a weighted average mark of approximately $0.67, reflecting substantial de-risking already captured in the current portfolio marks. Turning to Page 11, we provide a graphical analysis of changes during the quarter, resulting in a book value of $10.89, a $0.03 decline compared to $10.92 for Q1.

The main driver of the decline this quarter was a write-down on our non-accruing position in Convey, partially offset by a handful of unrealized gains, as well as accretive share repurchases. Page 12 addresses NMFC's credit performance. For the quarter, non-accruals at fair value stood at 1.5%, which was a meaningful improvement from 2.6% last quarter. Finally, on the right side of the page, we show our cumulative track record since IPO. During that time, NMFC has made $10.6 billion of investments while realizing losses, net of realized gains, of $101 million. We remain focused on reversing losses through pull-to-par improvements on certain loans and through aforementioned exits on our equity positions.

I will now turn the call over to Laura to discuss the current market environment and provide more details on NMFC's quarterly performance.

Thanks, John. Muted Q2 M&A activity led to lower industry-wide direct lending volume in the quarter. PitchBook LCD data indicates second quarter volume was down approximately 55% from the first quarter and down about 13% year-to-date versus the first half of 2025. That said, the backlog of potential private equity exits remains substantial, and sponsors continue to face pressure to deploy significant dry powder. As a result, we remain cautiously optimistic about activity through the balance of the year, which is further supported by an uptick in deal activity in recent weeks.

At the same time, several crosscurrents are contributing to an uncertain investing environment. These include conflicting macroeconomic signals around inflation, consumer health, labor markets, and commodity prices, ongoing geopolitical conflicts, the impact of AI and the accelerating pace of technological change, and persistent valuation gaps. Importantly, despite this uncertainty, we remain confident that direct lending offers attractive risk-adjusted returns and enhanced yields relative to other asset classes. Spreads have stabilized around SOFR plus 500 basis points for sectors viewed as relatively insulated from AI disruption, maintaining an attractive spread premium over liquid below-investment-grade assets, and delivering a higher, more defensible all-in yield than many other income-oriented investments.

We are also seeing an unusual dynamic in which some smaller companies can price debt more tightly than larger companies, in part because fewer lenders are required to complete those smaller transactions. Software and other AI-exposed sectors continue to... This environment reinforces the importance of our differentiated underwriting strategy, which enables us to conduct deeper diligence and identify compelling credit opportunities in both the primary and secondary markets. As a reminder, most of NMFC's portfolio sits in sectors where New Mountain has direct private equity experience and dedicated industry resources, which gives us an underwriting depth and real-time insights that we believe generalist lenders simply cannot replicate.

Turning to Slide 14, origination activity was relatively light during the quarter. NMFC originated $73 million of investments offset by $105 million of sales and repayments, effectively remaining fully invested. We continue to balance three priorities when thinking about origination: maintaining leverage within our target range, deploying capital into select high-conviction opportunities, and repurchasing our shares at a discount to book value. As discussed last quarter, we continue to acquire select positions in the secondary market at meaningful discounts, where we believe our differentiated perspective creates the potential for book value appreciation.

Although portfolio activity was modest, yields on new investments exceeded those on repayments, in part due to these discounted purchases, as shown on Slide 15. Returning to Slide 16, approximately 80% of the portfolio, including first lien investments, SLPs, and net lease investments, is senior in nature, broadly consistent with the prior quarter. Equity positions represent approximately 6% of the portfolio, with the largest positions shown on the right side of the page. We continue to devote meaningful time and resources to business building at these companies, and as John noted, believe we are making positive progress towards monetizing certain positions.

Slide 17 highlights the diversification of our portfolio across 113 companies. Excluding investments in the SLPs and net lease funds, our top 10 single-name issuers represent 24% of total fair value. As John mentioned earlier, increasing portfolio diversification remains an important priority. And while we have made great strides there with the portfolio sale and subsequent investment activity, we believe we have line of sight into further progress over the coming quarters. I will now review our financial results beginning on Slide 18.

For the second quarter, total investment income was $61 million, down 11% from the prior quarter, primarily due to the smaller but more senior and more diversified portfolio following the secondary sale. Total net expenses were approximately $37 million, broadly unchanged from the prior quarter. Lower interest expense was offset by the resumption of the incentive fee, which had been fully waived in the first quarter. NMFC's effective incentive fee rate for Q2 was 15%, reflecting a voluntary waiver of $1.4 million of incentive fees ahead of the previously announced permanent reduction to 15% in 2027.

Adjusted net investment income for the quarter was $0.26 per share, more than covering our second quarter dividend. For the third quarter, our Board has declared a dividend of $0.25 per share. We expect to fully cover the dividend through net investment income consistent with our historical performance. Slide 19 provides additional detail on cash and PIK income. PIK income generated by assets structured with PIK from origination represented 13% of total investment income. Modified PIK resulting from amendments or restructurings represented only 3% of total investment income, consistent with the prior quarter.

The modest increase in total PIK income as a percentage of investment income primarily reflects the denominator effect from the secondary sale, along with some PIK compounding. Importantly, investments generating non-cash income during the quarter are marked at a weighted average fair value of approximately 95% of par, and 89% of this income is generated by names rated green on our heat map. Moving to the balance sheet on Slide 20, as of June 30th, the portfolio had total assets of $2.4 billion, total liabilities of $1.4 billion, and net asset value of $1 billion, or $10.89 per share.

Our net debt-to-equity ratio was 1.11x, below the midpoint of our target range of 1.0x to 1.25x. On Slide 21, we highlight our diversified financing sources and leverage profile. We have more than $2 billion of total borrowing capacity, including approximately $830 million available under our credit facilities, subject to borrowing-based limitations. This capacity more than covers approximately $160 million of unfunded commitments and our 2027 maturities. During the second quarter, we closed a $150 million private placement with a delayed funding date as part of our proactive management of upcoming maturities.

We expect to remain active in the unsecured debt market in line with our strategic priorities. After quarter end, we also extended the maturity of our corporate revolving credit facility to 2031 as reflected on Slide 22. We continue to ladder our maturities with nearly 60% of outstanding debt maturing in 2029 or later. Lastly, Slide 23 summarizes the floating and fixed rate composition of our assets and liabilities. As of June 30th, 89% of the NMFC loan portfolio was floating rate and 11% was fixed rate. Our liabilities were 74% floating rate and 26% fixed rate. As discussed in recent quarters, we have meaningfully increased the floating rate portion of our liabilities and intend to continue to do so in order to reduce potential asset liability mismatches. With that, I will turn the call back over to John.

Thank you, Laura. I would now like to turn things back to the operator to begin Q&A. Operator?

[Operator Instructions] We'll take our first question from Finian O'Shea with Wells Fargo Securities.

Hey everyone, good morning. Just on the remarks related to equity rotation, I think you said you had a line of sight for some of those exposures. Any color you could put on that in terms of, you know, degree of, you know, number of names and sort of, you know, where you are in those processes?

Sure. 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. And then I think on a number of other positions, I think I would characterize it as having a lot of irons in the fire as it relates to, you know, monetizing certain of our larger positions.

And so on those, I think it's tough to give you exact guidance as to when it's going to happen, but I would say, number of positions, there's a great degree of focus on executing some monetization events. And I would certainly be hopeful that we could do so across the coming quarters. It's just tough to know which names will come first and which names will take a little longer. But I think the overarching theme is that, you know, a number of these positions are performing well, and we believe that we do have the near-term ability to exit in a, you know, value-accretive manner to NMFC shareholders. So we're overall excited about that, but there's still a bit of work to do with regard to executing the deals that we have in mind.

Well, I appreciate that. And follow-up, and I know you get this one a fair amount on the borrowings, but the market changes, of course. So a lot of your unsecured stack turns over in the next couple years. Any feel on what you might be able to achieve there on borrowing spreads into, you know, through '27, '28?

Yes, absolutely. I do think we've talked in the past about how we view kind of the rotation of our liability stack as a real opportunity. You know, some of it ties to some of the comments that John just made around some of our strategic initiatives, which include, you know, monetizing some of our equity positions, getting more diverse, decreasing PIK.

So, you know, a little bit of a, you know, chicken and egg to some degree, but I think if we are able to execute and continue to execute on those strategic initiatives, 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.

Very good. I'll hop back in the queue. Thank you.

[Operator Instructions] We'll move to our next question from [ Haley Sheth ] with Raymond James.

Good morning. So, kind of continuing with the theme of rotating out of these equity and non-income-producing assets, I know you mentioned some near-term opportunities. Are you looking for a more active M&A market to kind of rotate out of a majority of these, or do you think for a majority it's more achievable under these current market conditions?

Yes, you know, it's funny. First of all, thank you for the question. We think the market for M&A is getting better. And so, as we look forward to the fall, we think that's going to have a positive impact, help our business in a lot of different ways. We'll be able to originate what we think will be, you know, good, fresh new loans into NMFC, but we'll also be able to take advantage of what we view as potentially a better M&A environment to exit some of these deals. So, yes. I don't think we need help from the macro. I think we feel good about the environment. And then we also feel good about the underlying performance of a lot of our positions that we feel we have the opportunity to exit. And so that's probably the most exciting part.

It's no matter what the environment is like, if you have a well-performing business, it's a lot easier to exit than if you have struggling businesses. So we really feel, and I just want to emphasize this, we feel like we're just a couple moves away from delivering a portfolio that has really great diversity and much better, you know, income quality characteristics and performance characteristics. And so we just have to execute a couple of those moves, and we're optimistic that we can do so, but the timing is still a bit uncertain, but we're very focused on it.

Got it. Thanks for the color. And a follow-up, any further insight into what we should expect in terms of pacing of both repayments and originations for the remainder of the year? Are there any catalysts outside of obviously the M&A market that you think will drive activity?

Yes, 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. There's no other way to put it, and that's just a really good thing.

In some cases within our portfolio, particularly around the equity positions, that involves a more proactive approach to the market with regard to selling full companies. And so that's a little bit of a different exercise. And again, we think that the environment is just fine for that as well.

Got it. Thanks. I appreciate the time.

It appears there are no further questions at this time. I'd like to turn the conference back over to John for any additional or closing remarks.

Well, great. Well, thank you for the questions and thank you for your participation in our second quarter earnings call, and we look forward to speaking to you again in November.

This concludes today's call. Thank you again for your participation. You may now disconnect, and have a great day.

Good day, and welcome to the New Mountain Finance Corporation First Quarter 2026 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to John Kline, President and CEO. Please go ahead.

Thank you, and good morning, everyone. Welcome to New Mountain Finance Corporation's First Quarter 2026 Earnings Call. On the line with me here today are Steve Klinsky, Chairman of NMFC and CEO of New Mountain Capital; Laura Holson, COO of NMFC; and Kris Corbett, CFO and Treasurer of NMFC. As announced in our 8-K, our CFO, Kris Corbett, will be leaving us at the end of May to pursue another career opportunity. Kris has been a valuable and respected member of the team, and we would like to thank him for his hard work during his time at New Mountain.

Upon Kris' departure, Laura Holson will assume the additional duty of interim CFO until a successor is found. Steve is going to make some introductory remarks, but before he does, I'd like to ask Kris to make some important statements regarding today's call.

Thanks, John. Good morning, everyone. Before we get into the presentation, I would like to advise everyone that today's call and webcast are being recorded. Please note that they are the property of New Mountain Finance Corporation and that any unauthorized broadcast in any form is strictly prohibited.

Information about the audio replay of this call is available on our May 4 earnings press release. I would also like to call your attention to the customary safe harbor disclosure in our press release and on Pages 2 and 3 of the slide presentation regarding forward-looking statements.

Today's conference call and webcast may include forward-looking statements and projections and we ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from those statements and projections. We do not undertake to update our forward-looking statements or projections unless required to by law.

To obtain copies of our latest SEC filings and to access the slide presentation that we will be referencing throughout this call, please visit our website at www.newmountainfinance.com.

At this time, I'd like to turn the call over to Steve Klinsky, NMFC's Chairman, who will give some highlights beginning on Page 6 of the slide presentation. Steve?

Thanks, Chris. It's great to be able to address you all today. Both as NMFC's Chairman and as a major fellow shareholder. Adjusted net investment income for the first quarter was $0.32 per share covering our $0.32 per share dividend that was paid in cash on March 31.

Our net investment income and dividend were supported by consistent recurring income from our loan portfolio and a full voluntary incentive fee waiver of $6.1 million. Looking forward to Q2, consistent with our announcement on our previous earnings call, we would like to announce a $0.25 dividend payable on June 30 to shareholders of record as of June 16.

Based on NMFC's earnings power, we expect this dividend will be more than covered by the earnings from our core business. As also previously discussed, we believe NMFC made a very positive and well-timed strategic pivot several months ago. We sold approximately $470 million of some of our most illiquid and hardest value positions at 94% of December 31 book value.

That transaction closed and was funded in March. With that liquidity, we have now delevered our balance sheet, and have capacity to buy high-quality assets opportunistically at far less than $0.94 on the dollar. Some of those investments were completed by March 31, and some were done or will be done after March 31, but can be judged by their expected pro forma impact.

First, we have been buying back our own stock at roughly $8 per share or about a 27% discount to book value. We had a $95 million buyback authorization in place at year-end 2025. And -- about $57 million of buybacks were completed by March 31, and about $9 million have been executed since leaving us with approximately $30 million remaining in our originally existing program.

Book value per share was $10.92 per share on March 31 and is $10.95 pro forma for the post-March buybacks already done, all else equal. Further, our Board has now authorized an incremental $50 million for buybacks in the future, bringing our total remaining capacity to around $80 million.

Again, all else equal, the math is that every $10 million of buyback at $8 per share can add approximately $0.04 per share of book value. In addition, book value on March 31 was primarily brought down by a general market bearishness in valuations rather than issues of performance in our specific loans.

Today, the average mark of our green rated names is about $0.96 on the dollar, which implies potential upside if the market normalizes and these loans accrete back to par. Third, we have been using the market disruption to buy specific names in the secondary market when they appear to be oversold.

For example, we bought one name, which is a multibillion-dollar public company at a value through the debt of just 2x EBITDA and at $0.65 on the dollar. This loan rapidly traded up approximately 10 points since our first purchase. Fourth, spreads in the market appear to have widened in general, and we are deploying our cash into new loans at significantly higher and more attractive yields than existed 12 months ago.

Last and importantly, we believe we are seeing forward momentum at some of the companies we own from past defaults such as Benevis, UniTek and Permian. Our goal is to ultimately sell these companies at above their current marks and redeploy the proceeds into attractive alternatives.

I and my fellow NMC executives remain the largest shareholders of NMFC stock and our ownership position has been increasing over time. During the first quarter, I purchased 1.5 million shares and other senior NMC leaders bought shares as well.

Overall, New Mountain ownership increased from approximately 14% to approximately 17% of total shares outstanding. I believe we had more insider buying than any publicly traded BDC, our size or larger. We thank you as always for your ownership and partnership and we are working diligently to serve your interest in the months and years ahead.

With that, let me turn the call over to John for more details and comments.

Thank you, Steve. I would like to begin on Page 7, which offers an overview of our differentiated approach to direct lending. First and foremost, we focus only on select parts of the economy that we believe are defensive and have sustainable tailwinds that will benefit companies within these chosen sectors.

We provide heightened transparency into our industry niches as opposed to the standard practice of using broad sector classifications. This enhanced disclosure provides our investors with more clarity into the specific types of companies that we invest in.

Secondly, we have a unique investment model where our credit team partners with in-house industry executives and private equity personnel to underwrite direct lending deals within our chosen sectors. If an investment underperforms and we are compelled to take ownership of the company, New Mountain is well positioned to improve the underlying business using our private equity expertise and in-house operating talent.

As Steve mentioned, there are several situations in that category that are bearing fruit today. As we consider industry exposure, the impact of AI remains a major topic of conversation in the investment community, particularly as it relates to software end markets.

While there will certainly be winners and losers in the software sector, we believe that as a group, NMFC software companies are well positioned to benefit as they implement AI into workflows at a rapid pace and use AI-assisted coding to improve software functionality and the overall user experience.

From our vantage point as lenders, we see our sponsor partners acting proactively across all industries as it relates to AI. It's clear to private equity sponsors that there are more opportunities today than ever before to enhance margins and improve operating efficiency in almost every business.

As a senior lending partner, NMFC can be a big beneficiary of these improvements. Page 8 provides key performance statistics showing a long-term track record of delivering consistent, enhanced yield by minimizing credit losses and distributing virtually all of our excess income to shareholders.

Since our IPO in 2011, MFC has returned over $1.5 billion to shareholders through our dividend program, generating an annualized return of approximately 10%. Our dividend yield at the current stock price is approximately 12% annualized based on the revised $0.25 quarterly payout, which is fully covered by net investment income.

Our loan-to-value ratio is just 47% and includes the latest view of enterprise value at our portfolio companies. We recalculate this metric every quarter to ensure we are accurately reflecting market movements. We do not blindly anchor to loan-to-value ratios based on what the sponsor paid for the business.

Finally, we maintain an investment-grade rating at both Moody's and Fitch, which we have held for more than 5 years. Turning to the next page. We have made really great progress on our strategic priorities so far this year. the portfolio sale catalyzed improvements in a number of areas. It enabled us to reduce the amount of PIK income in the portfolio, increase portfolio diversity and decreased single name exposures and we also moderated our software exposure, which is a sector that has clearly been scrutinized by the market.

Additionally, our team was timely in their efforts to reprice the Wells Fargo credit facility from SOFR plus 195 to SOFR plus 185. This lower pricing maximizes the gap between our assets and liabilities ahead of what we feel will be a wider asset spread environment.

The next step in our process is to focus on monetizing some of our equity winners in the near and medium term. These actions will be dependent on continued strong portfolio performance and an improving M&A marketplace. And of course, redeploying equity proceeds into cash yielding loans could have a powerful impact on NMFC's earnings power and income quality.

As shown on Page 10, 91% of the portfolio is green on our risk rating scale. We continue to focus on transparent and accurate scoring with a few select names migrating negatively during the quarter, but risk ratings for the vast majority of the portfolio were stable. Importantly, our most challenged names, marked orange and red represent only 3.5% of NMFC's fair value, making them a small portion of the portfolio.

Turning to Page 11. We provide a graphical analysis of NAV changes during the quarter, resulting in a book value of $10.92 a $0.23 decline compared to $11.15 for Q4 pro forma for the impact of the secondary sale. The main driver of the decline this quarter was broader market movement, which accounted for 2/3 of the overall write-down.

The remaining 1/3 decrease was related to credit-specific movement. We see continued tailwinds at Benefits and UniTek that are offset by a restructuring process currently taking place at Affordable Care and an adjustment to our wind down assumption on North Star, which is currently in liquidation.

Today, NorthStar is a small position that represents approximately $20 million of value. We expect cash recovery on this name to begin next year. Finally, as Steve discussed, we aggressively repurchased shares this quarter, which represented $0.26 of book value accretion. Today, we maintain approximately $80 million of buyback authorization to repurchase additional shares in the future.

Page 12 addresses NMFC's credit performance. For the quarter, nonaccruals at fair value stood at 2.6%, which was a modest increase from last quarter. During the quarter, Affordable Care's first lien position and convey were added to the list.

Despite these migrations, we see an improving outlook for both names. We expect Affordable Care, a dental business specializing in higher-margin tooth replacement implant services to come off non accrual in the coming quarters as the lending group effectuates a change in control.

The new capital structure will include a smaller sized cash pay first lien loan and a large equity account controlled by the former lenders, the management team and the doctors. We believe a much lower debt burden and more overall financial flexibility will allow affordable care to recruit new talent pursue operational improvement and refocus on growth. CONVEY is a smaller health care services company that has faced operational challenges in some of its business units.

In partnership with the lender group, New Mountain has already recruited a new leader for the business, and we are optimistic about our ability to achieve a strong near-term recovery. In addition to Affordable Care and convey, we see multiple other near-term catalysts for existing nonaccruals to exit the portfolio and expect to be able to report positive migrations next quarter.

Finally, on the right side of the page, we show our cumulative credit performance since IPO. During that time, MFC has made approximately $10.5 billion of investments while realizing losses net of gains of $56 million. We remain focused on reversing unrealized losses through initiatives that we have discussed earlier on this call.

I will now turn the call over to our Chief Operating Officer, Laura Holson, to discuss the current market environment and provide more details on NMFC's quarterly performance.

Thanks, John. Since our call last quarter, the media has increased its scrutiny of the private credit asset class. We thought it would be helpful to address our perspective on some of those headlines. First, [ SaaS apocalypse ] Recent media coverage has implied that all software loans are bad and with private credit having approximately 30% exposure to software on average that such exposure presents significant risk. Consistent with John's commentary, not all software is created equal, particularly when thinking about AI.

While the technology continues to evolve real time, the market seems to be starting to delineate between the software businesses that are true systems of records with data or other moats versus the low-code point solution-type business models that we believe are more at risk.

As a reminder, in order for our primarily senior software loans to be impaired private equity capital junior to us would first need to be wiped out in full. Second, potential systemic credit stress. While the media has highlighted one-off examples, we are not seeing signs that there is a systemic credit stress across the asset class.

As evidenced by default rates that remain below the 10-year average. There are a handful of idiosyncratic challenges across the universe of direct lending loans. However, we have yet to see evidence that overall portfolios or certain subsectors are fundamentally impaired. We expect the primary driver of NAV declines this quarter to be mark-to-market movement in sympathy with the broadly syndicated loan market.

Third, heightened redemptions. There has been significant attention to the redemptions in the perpetual non traded BDCs in Q1. However, there have also been meaningful inflows to the asset class. Note that we don't view this as gating. This is how these funds have been designed to protect remaining investors given the underlying illiquid assets.

Importantly, the majority of the $2 trillion private credit market is funded by institutional investors. We are seeing more sophisticated investors, reconsider new allocation to the asset class as the supply/demand rebalances following the exit of some of the more headline-driven investors. Fourth, a sector-wide lack of transparency.

All PVCs disclosed in their schedule of investments, line-by-line detail of company name, industry, spread, maturity, par, fair value, et cetera. We believe we provide a heightened level of transparency, as John discussed earlier with our heat map, detailed industry classifications and leverage levels for each portfolio company.

All that said, M&A activity was seasonally slower in Q1 as expected, and further impacted by the AI-induced volatility. The backlog of potential private equity exits remains full, and there is still pressure to deploy private equity dry powder. So we remain cautiously optimistic about the outlook for 2026 and have started to see new deal activity pick up again in recent weeks.

We continue to believe direct lending remains an attractive asset class in today's market and provides good risk-adjusted returns and enhanced yield relative to other asset classes. We have seen some spread widening occur as compared to the 2025 type and a more meaningful increase in pricing dispersion.

The more challenging environment underscores the importance of our differentiated underwriting strategy, which allows us to go deeper on diligence, and identify the most compelling credit opportunities, both in the primary and secondary markets.

Page 14 presents an interest rate analysis that provides insight into the effective base rates on NMFC's earnings. As of 3/31, the NMFC loan portfolio was 89% floating rate and 11% fixed rate. While our liabilities were 73% floating rate and 27% fixed rate. As discussed over the last several quarters, we have meaningfully shifted this liability mix to increase the percentage of our liabilities that flow.

We are now nearly achieving our goal of matching our percent of liabilities that float with the percent of assets that float. Last year at this time, our liability mix was just 50% floating rate. As shown on the bottom table, we would expect to see earnings pressure in the scenarios where base rates decrease but the evolution of our liability structure helps to alleviate some of that pressure.

Moving on to Page 15. During Q1, PenamSC originated $117 million of assets offset by $492 million of sales and repayments, primarily related to the secondary portfolio sale. Our originations consisted of investments in our core defensive growth power alleys, including health care, business services and IT infrastructure and security.

We also purchased a few positions at meaningful discounts in the secondary market, where we believe we have a differentiated view and opportunity for meaningful book value upside if our thesis proves correct.

Turning to Page 16. Approximately 81% of our investments, inclusive of first lien, SLTs and net lease are senior in nature up from 77% in the prior year period. Approximately 5% of the portfolio is comprised of our equity positions, the largest of which are shown on the right side of the page. We continue to dedicate meaningful time and resources to business building at these companies.

And as Steve mentioned, we believe we are making positive progress. Page 17 shows that the average yield of NMFC's portfolio increased to 11.1% during the quarter due to the higher yield on our originations as compared to our repayments as well as the higher for longer shift in the forward curve.

The higher yield on our originations relates in part to some of the secondary discounted purchases I mentioned when discussing our Q1 originations -- we continue to believe that yields remain attractive for the risk. Finally, as illustrated on Page 18, we have a diversified portfolio across 115 companies.

Excluding our investments in the SLP and net lease funds, the top 10 single name issuers account for just 24% of total fair value, down from 25.7% in the prior year. The progress here largely relates to the benefit of the secondary sale as we discussed last quarter.

I will now turn the call over to our Chief Financial Officer, Kris Corbett, to discuss our financial results.

Thank you, Laura. For more details, please refer to our quarterly report on Form 10-Q that was filed yesterday with the SEC. As shown on Slide 19, the portfolio had $2.3 billion in investments at fair value on March 31 and total assets of $2.4 billion. Total liabilities were $1.4 billion, of which total statutory debt outstanding was $1.2 billion.

Net asset value was $1 billion or $10.92 per share. At quarter end, our net debt-to-equity ratio was 1.08:1, which remains within our target range of 1x to 1.25x. On Slide 20, we show our quarterly income statement results. For the current quarter, we earned total investment income of $69 million, an 11% decrease compared to prior quarter.

Total net expenses of $37 million decreased 18% versus the prior quarter, inclusive of the fee waiver previously mentioned. Our adjusted net investment income for the quarter was $0.32 per weighted average share, which covered our Q1 dividend. Our earnings were driven by our strong core income and incentive fee waiver and the share repurchase program. Slide 21 highlights that 98% of our total investment income is recurring in the first quarter.

On the following page, you can see that 83% of our investment income was paid in cash, up from 77% prior quarter. of investment income was pick income from physicians that included Pick from inception to best enable these borrowers to execute on their strategic growth plans.

Only 3% of investment income is driven by modified PIK from an amendment or restructuring. Importantly, investments generating noncash income during the first quarter are marked at weighted average fair market value of 96% of par. During the quarter, we also collected approximately $35 million of previously accrued PIK income as part of the secondary sale.

Turning to Slide 23. The red line shows the coverage of our dividend. For Q2 2026, our Board of Directors has declared a dividend of $0.25 per share. On Slide 24, we highlight our various financing sources and diversified leverage profile.

As a reminder, our Wells Fargo facility is non-mark-to-market and tied to the operating performance of the underlying companies we lend to. New Mountain Finance Corporation has maintained a long and deep relationship with more than a dozen banks dating back over the course of our nearly 15 years as a public company.

NMFC benefits from the stability provided by these relationships from across the entire New Mountain platform. Taking into account SBA guaranteed debentures, we have over $2 billion of total borrowing capacity with approximately $690 million available on the revolving lines, subject to borrowing base limitations. This molten covers our unfunded commitments of $190 million.

Finally, on Slide 25, we show our leverage maturity schedule. We continue to ladder our maturities with less than 1% of outstanding debt maturing in 2026 and Notably, 60% of our outstanding debt matures in or after 2029. We remain focused on continuing to access the unsecured market in 2026.

With that, I would like to turn the call back over to John.

Thank you, Chris. In closing, we would like to thank all of our stakeholders for the ongoing partnership and look forward to speaking to you again on our second quarter 2026 earnings call in August. I will now turn things back to the operator to begin Q&A. Operator? .

[Operator Instructions] We'll take our first question from Finian O'Shea with Wells Fargo Securities.

Just starting with a couple small items on the deck, the nonaccruals jumped a bit more than just convey would explain, I think, up to 1.43% at cost, seeing if there's anything else in there and then on the new fundings reported yield at 15.5%.

Is that sort of a simple average considering the discounted purchases? Or is there sort of extra economics embedded in something like the health span?

Thanks, Fin. Good morning. On nonaccruals, the 2 new nonaccruals were affordable care first lien I believe last quarter, we put the prep on nonaccrual, and we had mentioned on last quarter's call that Affordable Care would be going through a restructuring process, and that's still happening.

So the first lien is a new nonaccrual this quarter along with convey. So I think that would bridge the gap. And then as I mentioned in my comments, both of those, particularly affordable care should be coming off accrual in the near future over the next order.

As we set a new capital structure in place in conjunction with the rest of the lender group, which we feel very positive about. So we feel that this is a good moment for Affordable Care despite the fact that it is currently a nonaccrual.

And to your question, just around the yields of the Q1 originations. So it is a weighted average based on the dollars deployed. But there's no kind of in economics or anything, but it does take into account the OID or in some cases, for the secondary purchases, the material discount at which we bought those assets.

So what made it 15.5% then?

Yes. So if you look at our originations on Page 15 of the slide deck, you can see a couple of those originations were done at meaningful discounts because they were done in the secondary market.

As we touched on, we did find some more opportunistic investments over the course of the quarter were loans that we thought were misunderstood by the market. We had a differentiated view on. And so that accounts for the uptick in the yield this quarter.

Okay. And just a follow-up. SBIC II, you repaid some early, can you give us the sort of why on that and what that means for your go-forward debt stack?

It was a pretty modest amount that we repeat early there. As you know, the SBIC 1 and 2 are kind of out of their reinvestment period. And so just from a mechanical perspective, in some cases, to maximize liquidity, it makes more sense for us to do that. .

But we also have our third SBIC license that we can use from a ramp perspective as well. So there are some puts and takes when we look at our overall liability stack. But ultimately, that's what we did in Q1.

We'll move to our next question from Ethan Kaye with Lucid Capital Markets.

And congrats on the asset sale. But kind of with the asset sale in the rearview mirror now, already seeing some kind of progress deleveraging, diversifying and reducing PIC, et cetera. Hoping you can just talk about kind of the path forward with respect to these initiatives.

Like was the asset sale a first step, albeit a big one there's more to be done? Or do you kind of feel that the bulk of what needed to be done has been taken care of with the sale?

Sure. Thanks for the question. We think it was a big step forward, as Steve talked about, and we think that there's ongoing benefits from that asset sale that are even occurring today as we redeploy the proceeds. Really, the next step for us is some of the other positions that we talked about. When we think about our PIK income and some of our concentration in equity positions.

A lot of that is derived from a couple of big positions that are actually performing pretty well. We mentioned Benevis and UniTek and there are a couple of other small ones as well. And we're very focused on monetizing some of the PICC positions that are performing well as at nonyielding equity.

And I think we showed that in the deck a little bit. And we feel like that is the next step to becoming even more conforming having more cash income as a percentage of our total income, having more diversity. And we're really excited for that next step.

We think we're on the doorstep of really transforming the company as we monetize those positions over the next medium -- short to medium term.

Great. And then one on yields and spreads. So there is an uptick in portfolio yields quarter-on-quarter, sentinally some of that's due to the rotation of some of those non-income-producing assets, but you did also -- you guys mentioned redeploying some proceeds and higher spread widening, right?

So I'm wondering if you kind of have a sense of what share of that call it, 60 to 70 basis point yield increase was from rotating -- simply rotating those nonincome-producing assets versus how much was maybe attributable to kind of higher spread opportunities and then if you can just kind of quantify the increase in kind of spreads you're seeing on some of the on-the-run deals here, that would be helpful.

Sure. Yes. If you look at Page 17 of our deck, I think we try to lay out kind of the bridge, if you will. So it's not any one thing, I would say, when you look at the uptick in yield. It was a bit of the SOFR curve movement, a bit of the origination activity and a bit of the rotation piece. So it kind of all contributes to it.

I think the main driving factor as we talked about of the increase in Q1 origination yields related to some of those secondary opportunities. But stepping back a little bit to answer your broader question about what are we seeing in spreads.

I think in general, we've seen spreads for regular way deals probably widen to the tune of 25 to 50 basis points. So what was the SOFR 450 unitranche loan in late last year would probably be a silver 500 unitranche loan today with maybe a little bit more -- so that's kind of the generic loan.

And then if you look at anything more on the software ecosystem, we're probably seeing a little bit broader spread widening even than that. So instead of $500 million, that's probably 550 plus -- so directionally, that's kind of what we've been seeing in terms of opportunities, and that's why as John said, when we think about some of the benefits of the secondary sale, certainly redeploying into some of these newer assets is also a key component of that.

[Operator Instructions] We'll take our next question from Robert Dodd with Raymond James.

Congrats on getting the asset sales done and you've been kind of aggressive on the buyback. And I also want to say best of luck. I don't want to Chris on whatever he's heading off to. So a couple of questions.

I mean one of them ties in the context of Beavis and UniTek and some of the others, you talked about maybe monetizing those in the short to medium term or near to medium term, whatever the exact wording was.

And then Leo's comments that the M&A market is starting to pick back up. I mean -- what's the confidence level in moving some because obviously, I mean, the market has been a little suffice to say choppy. And normally, when it rebounds from a period like that, it's premium.

As assets that move first not to knock [indiscernible] but they have had issues in the past. I mean are they -- so what's the kind of where does the confidence come from that may be monetizable in the near to medium term, what I would have thought maybe a little longer for assets that have had issues in the past, given how the market tends to respond to that?

Sure. Thank you, Robert. That's a great question. I think the confidence really comes from the underlying performance of the businesses. So Benefit is in a more challenged sector. It's a dental business.

But we really feel we have a great management team. We have improving numbers, and we think that we've built a winner in what has been a more difficult space. And I think there should be really good value to investing in winters generally.

So that's where our confidence is derived from. I think the obvious challenge is that it has been a more difficult space. So we'll have to navigate that. And we believe that we have a good plan to do so as we think about the exit.

With regard to UniTek, that has been a bit of a long road, but we've really positioned the business to be right in the center of broadband build and this data center explosion and we're doing just a lot of work as it relates to multiple broadband initiatives around the country that have a lot of private and public funding, and we have a big backlog of projects that enact existing and new data centers.

And I think that boom as well discussed and well known about. So UniTek is just in a really good position, and it's executing well in what is, I think, a honesty. So that, I think, has all the positive elements going forward.

Got it. I'm kind of tied to the whole as the market is going to do most. I mean , Lou mentioned more dispersion in loan pricing. And that spread expansion, I mean, obviously, 25 to 50, 50-plus for software. I mean how why is the dispersion and kind of what's your appetite to play at the tight end of that versus the middle versus the wider end of that dispersion in terms of risk?

Yes. Well, I think like last year, for example, and we've talked about this in some of our calls last year, really no dispersion, right? Everything was pricing, and that's over 450 to 475 and that, we thought was a challenging dynamic, and we had the philosophy very much of staying safe because you're -- particularly last year, you're not getting paid for any extra incremental risk.

This year, so far, as I said, we are starting to see more dispersion. Some of that industry, as I alluded to, where software is now pricing wider but even just in general, I think we are starting to see a little bit more dispersion by industry, by size of the company, sponsor, et cetera.

Look, our philosophy hasn't changed. We're always focused on staying safe. As you know, we like the most defensive sectors of the economy. We do feel like our research engine is differentiated and allows us to pick the best credits within those safer sectors. So that continues to be our philosophy.

We're definitely not -- our goal is not to chase yield at the risk of credit. That being said, some of the opportunistic stuff that we did in Q1, we felt like we had high conviction on and really benefited from the knowledge base that the New Mountain ecosystem has. So that's how I would categorize it.

Robert, the only thing I would add...

The only quick thing I'd add is when you think about the dispersion within software, I perceive right now, it is pretty wide. I think it could be anywhere, as Laura was saying from 550 to 1,000. And that dispersion is driven by real and perceived views on the quality of the business model within different within the software ecosystem.

And I think that's a more exciting environment to invest in versus the environment that Laura was talking about earlier, where everything is pricing at $475 so I think lenders have the opportunity to take differentiated views in software and potentially get rewarded for making the good credit picks.

That's the one thing I would add to that commentary.

Got it, understood. And one more quick one, if I can. But obviously, it's pretty attractive. If we can get a high-quality loan at 65% in the secondary market and your stock trading at sometimes all at into the secondary and getting the appreciation that way might be attractive.

But you did just increase the buyback. You bought a lot in the first quarter. What's kind of your thinking right now on how attractive that buyback versus general deployments versus opportunistic secondary purchases kind of shake out?

Sure. I think we want to be balanced between managing the business at an appropriate leverage level, taking advantage of opportunities in the secondary market that we see continuing to support sponsor clients. .

As well as buying back stock when it's trading at a level that we think is too cheap. So I just think it's a balance of each and I think that's what we've done historically in the first quarter, and that's what we'll continue to do. So I guess that's the way I would answer that question.

[Operator Instructions] We'll go to our next question from Paul Johnson with KBW.

Just in terms of the credit statistics you provide on the PI portfolio, which is very helpful. I was wondering if you can kind of explain that it looked like there was a bigger drop within just the -- it looked like the green rated names of income generation within could drop to about 83% or so of that -- of those investments. With that because of something to do with just the asset sale or any new names that were placed on pick this quarter or if you can kind of maybe explain the change quarter-over-quarter.

Yes. I think the biggest driver, I mean, obviously, as folks have highlighted, our PIC percentage did come down pretty meaningfully. In the quarter, right, we were around 20% last quarter. This quarter, we're at about 15%. A large driver of that was the secondary sales we talked about.

That was one of the key focus areas, one of the drivers behind the secondary sale, amongst other reasons. And so just as the PIC composition just changed pretty meaningfully in 1 single quarter, that was the main driver of the decrease in percentage green versus anything -- any kind of dramatic movement.

We did see a little bit of heat map movement this quarter, as John talked about, but it was really more to former the secondary sales.

Got it. Okay. That's helpful. And then just on EBITDA trends within the portfolio, it looks like EBITDA kind of year-over-year up around 11% leverage declined a little bit, insurance coverage improved a little bit.

I mean is that pretty reflective in your opinion, just the underlying kind of trends within the portfolio here this quarter, I mean, we're within, I guess, just the broader context of a little bit more noise within the mark-to-market stuff as well as some credit-related marks this quarter as well. I'm wondering if you can kind of flip the 2 between just kind of the NAV marks and just in general, it looks like credit improvement on the quarter.

Yes. No, I think the takeaway that you're alluding to around just the EBITDA growth, the deleveraging in general, is consistent with what we're seeing. It's kind of a we get the benefit of this time of the year where we're getting a lot of Q4, Q1 and budget reporting from a lot of our portfolio companies.

And generally speaking, we think the portfolio is largely performing well. When we think about the NAV movement and John talked about this, but a good chunk of the NAV moving in the quarter, the majority of it related more to just peer mark-to-market and just reflecting the -- where the BSL market is currently trading as opposed to credit specific.

So in general, I do look at these trends and think it's illustrative of the portfolio. we did have the modest heat map degradation that I just talked about, but that, to me, was a little bit more idiosyncratic and also trying to reflect some of just the latest enterprise value multiples from the software market in particular.

[Operator Instructions] We'll take our next question from Sean-Paul Adams with B. Riley Securities.

It sounds like there was a couple of portfolio positives this quarter. It looks like there was a large wave of buybacks, it looks like you guys kind of alluded to that nonaccruals could go down in the next couple of quarters.

On just the origination volatility, I guess, what are your thoughts as far as just balancing out the current volume over the next couple of quarters? It looks like you guys got back to a lower leverage ratio. There's been some sizable like portfolio benefits in terms of spread.

But where you're looking at in terms of getting back to a target leverage range? Do you have thoughts about continuing the portfolio expansion given opportunistic levels? Or are you kind of more comfortable at your current levels and just looking for more opportunistic deals?

Yes. Thanks for the question. I would say when we think about our target leverage range, I think we've been pretty consistent in articulating the 1x to 1.25x, that's been our target leverage range for a long time at this point. And we are comfortable operating anywhere in that range. we obviously, post secondary sale had delevered slightly below that range as we talked about on last quarter's call and through the combination of some buybacks and some origination activity kind of migrated back to within the range.

Look, it's something that's hard to predict and pinpoint exactly, right, because just from a timing of origination and repayment perspective, those things are typically outside of our control. So I can't say that we have a specific target within the range. We are comfortable within the range.

And we certainly don't want to be -- there's a few quarters, I think, over the past few years that we were at the high end of the range every quarter, and that is not our goal. We want to be kind of within the range in general.

[Operator Instructions] It appears there are no further questions at this time. I'd like to turn the conference back over to John for any additional or closing remarks.

Great. Well, I would just like to thank everyone for joining our call today, and we look forward to speaking to everyone again in August. Thank you.

This concludes today's call. Thank you again for your participation. You may now disconnect, and have a great

Good day, and welcome to the New Mountain Finance Corporation Fourth Quarter 2025 Earnings Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Mr. John Kline. Please go ahead.

Thank you, and good morning, everyone. Welcome to New Mountain Finance Corporation's Fourth Quarter 2025 Earnings Call. On the line here with me today are Steve Klinsky, Chairman of NMFC and CEO of New Mountain Capital; Laura Holson, COO of NMFC; and Kris Corbett, CFO and Treasurer of NMFC. Steve is going to make some introductory remarks, but before he does, I'd like to ask Kris to make some important statements regarding today's call.

Thanks, John. Good morning, everyone. Before we get into the presentation, I would like to advise everyone that today's call and webcast are being recorded. Please note that they are the property of New Mountain Finance Corporation and that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available on our February 24 earnings press release. I would also like to call your attention to the customary safe harbor disclosure in our press release on Pages 2 and 3 of the slide presentation regarding forward-looking statements.

Today's conference call and webcast may include forward-looking statements and projections, and we ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from those statements and projections. We do not undertake to update our forward-looking statements or projections unless required to by law. To obtain copies of our latest SEC filings and to access the slide presentation that we will be referring to throughout this call, please visit our website at www.newmountainfinance.com.

At this time, I'd like to turn the call over to Steve Klinsky, NMFC's Chairman, who will give some highlights beginning on Page 7 of the slide presentation. Steve?

Thanks, Kris. It's great to be able to address you all today, both as NMFC's Chairman and as a major fellow shareholder. My belief is that NMFC is in a good position overall relative to general market conditions and particularly relative to where our stock trades today.

Adjusted net investment income for the fourth quarter was $0.32 per share covering our $0.32 per share dividend that was paid in cash on December 31. Our net investment income and dividend were supported by consistent recurring income from our loan portfolio, full utilization of the dividend protection program, which reduces our performance fee to 15% until the end of 2026, plus an additional and voluntary fee waiver by the manager of $2.4 million.

Looking forward to Q1, we would like to announce a $0.32 dividend payable on March 31 to shareholders of record as of March 17. Again, we as managers will reduce the performance fee to 15% pursuant to our pledge under the dividend protection program. We have also volunteered to make an additional optional waiver in order to fully cover this dividend.

Our December 31, 2025, net asset value declined to $11.52 per share compared to $12.06 per share, chiefly due to a lower valuation on the common equity piece of Edmentum. For broader perspective, Edmentum is actually a company that has grown well under NMFC's leadership participation. We inherited the keys to Edmentum when the company defaulted in 2015. We and other partners subsequently improved the business over the course of the next 5 years and then sold a majority stake to another sponsor and monetized a significant portion of our stake. We retained approximately a 10% common equity ownership stake after the sale, which reached a peak in value during the COVID years when Edmentum's virtual learning solutions were most in demand and which has since given back its value as earnings normalize post COVID and as noncash pay interest and dividends have accrued ahead of our common equity.

Altogether, NMFC historically invested $29 million into Edmentum's first lien, which was fully repaid at par with interest. NMFC has also invested $174 million into Edmentum related to our initial second lien investment from inception to date. We've realized back $166 million of cash proceeds to date against that $174 million comprised of $131 million of principal repayments and $36 million of interest and fees collected for nearly a onetime cash recovery. We've now reduced the valuation of the equity piece to just $5 million, but we also still hold $27 million in subordinated notes and $9 million of the most senior preferred equity tranche, which are valued at par.

So while the Edmentum position is down from last quarter, we do believe that business building has made the position more valuable than it might have been when it was one of our few defaults. Our goal is to help build back enterprise value and potential equity from here.

More generally, approximately 95% of NMFC's loan portfolio is ranked green on our heat map, approximately 5% is yellow or orange, and no names are ranked red. Approximately $17 million of positions improved in rating last quarter and no positions worsened.

New Mountain Capital itself as a firm has grown from 0 in assets under management in 2000 to approximately $60 billion today with a team of 300 people. Our private equity portfolio companies have produced over $100 billion of enterprise value gains for all shareholders while we have owned them while minimizing losses. More than ever, we see opportunities to use our expertise as owners and builders of businesses to select great credit investments.

Regarding the market's particular issues around software loans, I would make these personal observations. My career began in 1981 when the 10-year treasury rate was at a record high of 15.84%. And I have lived through multiple technology shifts including the introduction of personal computers, the Internet, the cloud and now AI. As a private equity firm, New Mountain has successfully owned, managed and built a number of software companies as a control shareholder. We have experienced successfully adding AI and machine learning to the product offerings of the businesses we own.

For many years, New Mountain private equity has been generally cautious in acquiring software companies because of the risk of enterprise value multiple compression from the roughly 20x EBITDA type averages to something lower as may, in fact, be occurring now. However, this is exactly why we have liked software loans where we can be under 40% of loan to value and some great performing names and therefore, sheltered for multiple compression. Also, all software companies and loans are not the same. The best software companies have thousands of repeat customers in place and therefore, may be in the best position to add AI agents and upgrades for their client base as these innovations come just as we added AI to certain of New Mountain's owned businesses.

These companies often also provide services or data far beyond pure software code in a way that AI simply cannot duplicate. We believe NMFC software loan portfolio fits this general description for high quality overall. So looking forward, what guidance can we give about NMFC's long-term performance? As a major shareholder myself, I believe there are a number of positive factors that justify NMFC shares trading back towards book value, and significantly higher than the roughly $8 or so level where they trade today.

First, as promised, we will continue to utilize the full dividend protection program, where we have pledged to reduce our incentive fee from 20% to 15% to the end of 2026. Further, we are now announcing that after the dividend protection period ends, we intend to voluntarily and permanently reduce our incentive fee to the same 15% level from its long-standing 20% level to show alignment with our shareholders.

Second, we have now signed an agreement to sell approximately $477 million of many of our hardest to value assets at a price meaningfully above where our stock trades. This sale is scheduled to close in March and will include a sizable piece of our Benevis term loan, several PIK and subordinated positions and some of our other most concentrated and illiquid assets, all at a price of 94% of our 12/31/25 marks, which we believe is essentially par less a normal transaction discount for a large concentrated block of this sale. The 6% discount on this sale will initially take our book value down by another approximately $0.35 to $11.17 per share, but with a more diversified and improved asset mix going forward. And again, at a level that is very meaningfully above where the stock market values us.

At the 15% performance fee rate, the long-term sustainable dividend rate for NMFC is now expected to be roughly $0.25 per share per quarter beginning in Q2 2026, due to continued base rate compression, lower market spreads and a reduction in some of our higher earning PIK securities. This assumes around $0.27 per share of quarterly net investment income, which will allow us to perhaps over-earn our dividend and build book value. A $1 per year dividend equates to a 9% yield on our pro forma book value and a 12% yield on our current share price. There are then potential paths to try to improve earnings and book value from there. The company will have more cash available for accretive stock buybacks. There is the chance for equity appreciation at companies like UniTek that are now projected by company management to be growing at a good rate. We also see opportunities to lend at slightly higher spreads and in some cases, to purchase specifically well-chosen loans at attractive discounts given this more uncertain environment in the debt markets.

I and my fellow NMC executives remain the largest shareholders of NMFC stock and our ownership position has been increasing over time. NMFC itself repurchased approximately $52 million of shares in 2025, approximately $15 million worth of shares thus far in 2026, and we have board authorization in place to buy approximately $80 million more. We thank you, as always, for your ownership and partnership, and we are working diligently to serve your interest in the months and years ahead.

With that, let me turn the call over to John for more details and comments.

Thank you, Steve. I would like to begin by offering more details on the $477 million asset sale, which we believe meaningfully diversifies our portfolio, reduces PIK income and enhances NMFC's financial flexibility. Starting on Page 9, you'll find a pie chart with the positions that we sold to a newly formed vehicle backed by Coller Capital. The portfolio is comprised of many of our largest positions, including Benevis, Dealer Tire, Alliance Animal Health and iCIMS. Overall, we sold 15 positions in the sale and reduced exposure to 7 of our 10 largest names.

Subordinated positions represented nearly 25% of the value of the secondary portfolio. 37% of these assets generate PIK income, including Benevis and Dealer Tire. 60% of the loans were originated in 2021 or earlier, and 33% of the portfolio are software-related companies. It's important to note that we believe these names are high-quality loans, but in nearly all cases, they had characteristics that were scrutinized by the market for reasons such as PIK interest, seniority, industry type or concentration.

Page 10 provides an overall update on the progress we have made on our strategic initiatives. Pro forma for the sale, our top 5 positions are now just 14% of NMFC's portfolio value. We expect this percentage to decrease as we redeploy proceeds from the sale primarily in first lien assets. Our senior oriented assets will now represent 81% of NMFC's portfolio up from 75% in the prior year.

Our post-sale leverage will decrease to 0.9x from 1.21x at the end of Q4. And during the quarter, we repaid our higher-cost convertible notes with proceeds from lower-cost credit lines. Overall, PIK income is expected to decrease by 20% to 25% as we redeploy the cash proceeds. It's worth noting that approximately 41% of our pro forma PIK income will be generated by Benevis and UniTek, which are performing very well. Benevis is in the midst of an impressive turnaround and UniTek can be an AI winner with good execution in 2026 and '27. Both are companies where New Mountain has control or co-control with another investor. Finally, as we consider our non-yielding positions, we see opportunities to monetize 1 or 2 other equity positions in coming quarters.

On Page 11, we show a pie chart of our industry exposure to our defensive growth-oriented sectors. We provide industry-specific classifications, including some new classifications so that our stakeholders have a clear understanding of our end markets, which we believe is particularly important in today's environment where there is heightened scrutiny on certain sectors. We want to continue to be a leader in providing investors with transparency on our investment exposures. As always, these sectors are areas of the economy where New Mountain private equity owns businesses and has differentiated insights and resources.

As we consider industry exposure, the impact of AI has been a major topic of conversation in the investing community, particularly as it relates to the software end market. On Page 12, we offer more details on our approach to AI at New Mountain. First and foremost, we acknowledge that there is an increased level of risk across various sectors related to AI, but there will also be great opportunities for well-informed lenders. We have consistently highlighted that the pace of technological change is one of our biggest focus areas as it relates to underwriting credit, constructing our portfolio and controlling risk. Our specific focus on AI is not new. In fact, we have had a firm-wide task force consisting of many of our both tech forward leaders and executive partners in place since the early days of ChatGPT.

Within the credit business, we have a standardized system for evaluating new investments and existing portfolio companies for AI-driven disruption. And as Steve highlighted, as a firm, we have 20-plus years of industry experience managing and owning software businesses. When we consider the capital structures of software loans within NMFC, it's important to remember that these positions have significantly higher sponsor equity contributions and lower loan to values than both our non-software loans and the marketplace in general.

If we apply a 25% discount to the enterprise value of every software loan in our portfolio, the capital structures remain in line with the rest of the portfolio and the market in general. As it relates to the underlying characteristics of our software portfolio companies, we believe that most of our investments sell sticky solutions at a fair price to a large and diversified set of customers. Additionally, many of our portfolio companies offer compelling expertise in specific industry verticals and hold valuable proprietary data that serves underlying customers or have material network effects.

In some cases, shorter maturities can be a catalyst for near-term takeouts on certain of our performing positions. As shown on Page 13, the internal risk ratings remain consistent with approximately 95% of the portfolio green rated. We had 2 investments migrate positively on our rating scale due to improved capital structure and outlook. Importantly, there are no names in the portfolio rated in the red category, and our most challenged names, marked orange represent only 3.2% of NMFC's fair value, making them a small portion of the portfolio.

Turning to Page 14. We provide a graphical analysis of NAV changes during the quarter, resulting in a book value of $11.52, a $0.54 decline compared to last quarter. The main drivers of the decline this quarter were Edmentum and Affordable Care, partially offset by a handful of unrealized gains and accretive share repurchases. Biggest mover representing 2/3 of the Q4 book value decline was in Edmentum, which was covered by Steve earlier in the call. While we have reduced the value of the common equity meaningfully, we are maintaining consistent valuations on the subordinated debt and preferred equity, which are meaningfully more senior in the capital structure.

The other material valuation change representing approximately 20% of the Q4 decline was Affordable Care, a specialty dental practice management business that has been orange on our heat map for a while. Due to the continuing operating underperformance, combined with a highly leveraged capital structure, we expect this business to restructure in the near term. While performance has been challenged, we are hopeful that a debt for equity swap could be a catalyst for improved overall prospects.

Page 15 addresses NMFC's non-accrual performance. During the quarter, we completed the restructuring of Beauty Industries, reinstating a portion of the debt on full accrual and equitizing the rest providing us with a significant ownership stake and an opportunity to achieve upside over time. Offsetting this, we moved our preferred equity investment in Affordable Care and our first lien debt position in DCA to nonaccrual status. We expect DCA to be back on accrual in Q2.

Overall, non-accruals continue to be very low, comprising just 1.4% of the portfolio at fair value. On the right side of the page, we show our cumulative credit performance since IPO. During that time, NMFC has made nearly $10.4 billion of investments while realizing losses, net of realized gains of $24 million.

On Page 16, we present NMFC's consistent returns over the last 15 years. Cumulatively, NMFC has earned $1.5 billion in net investment income while generating $24 million of cumulative net realized losses and $211 million of cumulative net unrealized depreciation, resulting in approximately $1.3 billion of value created for shareholders. While the realized loss rate remains very strong, we, as a management team, are focused on reversing the unrealized depreciation within the existing portfolio.

I will now turn the call over to our Chief Operating Officer, Laura Holson, to discuss the current market environment and provide more details on NMFC's quarterly performance.

Thanks, John. As previewed on last quarter's call, we saw a flurry of deal activity at the end of 2025. The backlog of potential private equity exits remains full and there is ongoing pressure to deploy private equity dry powder. That said, the recent AI-induced market volatility will likely impact M&A activity for the foreseeable future. We continue to believe direct lending remains an attractive asset class in today's market and provides good risk-adjusted returns and enhanced yield relative to other asset classes.

We also think the value proposition of direct lending, particularly resonates with sponsors during periods of volatility. Direct lending spreads were reasonably stable in 2025, albeit at the tighter end of spreads over the course of unitranche history. We are starting to see signs of some spread widening as well as an increase in pricing dispersion. We are excited about the prospect of having some dry powder from the portfolio sale to deploy into these conditions. However, our underwriting bar remains higher than ever, and our pass rate on deals has increased. The more challenging environment underscores the importance of our differentiated underwriting strategy, which allows us to go deeper on diligence and identify the most compelling credit opportunities.

Page 18 presents an interest rate analysis that provides insight into the effect of base rates on NMFC's earnings. As of 12/31, the NMFC loan portfolio was 85% floating rate and 15% fixed rate, while our liabilities were 65% floating rate and 35% fixed rate. Pro forma for the anticipated refinancing activity in 2026, we expect our mix will shift meaningfully to approximately 79% floating and 21% fixed. This will more closely align us with our target of matching our percent of liabilities that float with the percent of our assets that float. As shown in the bottom table, while we would expect to see earnings pressure in the scenarios where base rates decrease, the ongoing evolution of our liability structure helps to alleviate some of that pressure.

Moving on to Page 19, despite the active Q4 across New Mountain's credit platform overall, NMFC saw modest originations in the fourth quarter. As previewed on our last call, we remain reasonably fully invested and therefore, originated just $30 million of assets during the quarter, which was offset by $195 million of repayments and sales. Repayment velocity remains strong, and we have line of sight into some additional expected repayments in the coming quarters. As mentioned earlier, the portfolio sale provides meaningful capacity for us to deploy in the coming quarters.

Turning to Page 20. Pro forma for the portfolio sale approximately 81% of our investments, inclusive of first lien, SLPs and net lease or senior in nature, up from 75% in the prior year period. The secondary sale provides meaningful capacity for deployment, which we anticipate investing primarily in first lien assets. Approximately 4% of the portfolio is comprised of our equity positions, the largest of which are shown on the right side of the page. We continue to dedicate meaningful time and resources to business building at these companies, as Steve discussed earlier.

Finally, as illustrated on Page 21, pro forma for the portfolio sale with a meaningfully more diversified portfolio across 113 companies. Excluding our investments in the SLPs and net lease funds, the top 10 single name issuers account for just 22.8% of total fair value, down from 25.6% last quarter. As we redeploy the secondary sale proceeds, we anticipate the diversification of the portfolio to improve further.

I will now turn the call over to our Chief Financial Officer, Kris Corbett, to discuss our financial results.

Thank you, Laura. For more details, please refer to our quarterly report on Form 10-K that was filed yesterday with the SEC.

As shown on Slide 22, the portfolio had $2.8 billion of investments at fair value on December 31 and total assets of $2.9 billion. Total liabilities were $1.7 billion, of which total statutory debt outstanding was $1.5 billion. Net asset value of $1.2 billion or $11.52 per share was down 4.5% compared to prior quarter. At quarter end, our net debt-to-equity ratio was 1.21:1 and pro forma for the secondary sale, our net debt-to-equity ratio decreases to approximately 0.9x.

On Slide 23, we show our quarterly income statement results. For the current quarter, we earned total investment income of $77 million, a 4% decrease compared to prior quarter. Total net expenses of $44 million, decreased 5% versus prior quarter, inclusive of the fee waiver previously mentioned. Our adjusted net investment income for the quarter was $0.32 per weighted average share, which covered our Q4 dividend. Our earnings were driven by our strong core income and effective incentive fee rate of 8.4% and the share repurchase program.

Slide 24 highlights that 97% of our total investment income is recurring in the fourth quarter. On the following page, you can see that 77% of our investment income was paid in cash and 15% was PIK income from positions that included PIK from inception to best enable these borrowers to execute on their strategic growth plans. Only 4% of investment income is driven by modified PIK from an amendment or restructuring. Importantly, investments generating noncash income during the fourth quarter are marked at a weighted average fair market value of approximately 98% of par and approximately 94% of this income is generated from our green rated names. In addition, 2025 year-to-date, we collected approximately $35 million of previously accrued PIK income in cash.

Turning to Slide 26. The red line shows the coverage of our dividend. For Q1 2026, our Board of Directors has again declared a dividend of $0.32 per share.

On Slide 27, we highlight our various financing sources and diversified leverage profile. As John noted, during the quarter, we repaid the 7.5% convertible notes. And subsequent to year-end, we also repaid the 2021 unsecured bond using our lower-cost revolver and holdings credit facilities. Taking into account, SBA guaranteed debentures, we have $2.3 billion of total borrowing capacity with approximately $650 million available on our revolving lines subject to borrowing base limitations as of January 30. This more than covers our unfunded commitments of $210 million as well as our near-term bond maturity.

Finally, on Slide 28, we show our leverage maturity schedule. We continue to ladder our maturities and has sufficient liquidity to manage upcoming maturities. Notably, 65% of our debt matures in or after 2028. We remain focused on continuing to access the unsecured market.

With that, I would like to turn the call back over to John.

Thank you, Kris. In closing, we would like to thank all of our stakeholders for the ongoing partnership and look forward to speaking to you again on our first quarter 2026 earnings call in May.

I will now turn things back to the operator to begin Q&A. Operator?

[Operator Instructions] And the first question will come from Finian O'Shea with Wells Fargo.

Just to start with a couple on the portfolio sale. One is the 94% discount inclusive of an advisory fee or might that be an extra sort of income statement hit next quarter. And then from the sound of it, it sounds like mostly redeployment, maybe buyback less so than delevering, if I heard that right? Or will there be any updated leverage posture?

Thanks for the question. The 94% of par was the purchase price of the assets. There will be fees and expenses associated with that transaction. And those are expected to be about $7 million. On the overall posture around the leverage target that we have, we're maintaining our target between 1 and 1.25. The sale puts us under our stated leverage target. And going forward, we expect to operate within the target that we've always operated within. What we're excited about is that we have the opportunity to deploy the proceeds of the sale into what we think will be a better market to invest in credit and direct lending. And we also have the opportunity to buy back stock to the extent we feel the stock is cheap. And I think we've made statements that we do feel like the stock is undervalued. So we want to -- our strategy remains unchanged, and we plan to deploy the proceeds of the sale in different ways that serve our shareholders.

Okay. That's helpful. And just a follow-up. Looking at the portfolio, there's a couple of names that most of us are probably happy to see go. Benevis, that was a big restructuring. It has overall deeper vintage, so more good than bad. But it wasn't, say, totally the group of names that were more likely really holding you down on a stock price perspective. So I guess sort of question is, did you try to sell any of the more struggling depressed, so forth assets? Or was this more of a, hey, let's move the clean, easy to explain kind of stuff?

Sure. Thanks for that. I mean, overall, we like our portfolio. We think we have a lot of good assets. Steve talked about some assets that -- where we have hopes for equity gains in the future. I spoke about the same thing. So our portfolio is roughly 95% green. So we like our portfolio. We don't think there are a lot of terrible assets we're looking to unload on someone. That's not the mindset we have. The mindset around this transaction, and we previewed this for many, many quarters is that we feel, if we're self-critical, we feel like we have a little bit too much concentration in this, in NMFC. Our biggest positions are way too big. They're bigger than we want them to be. And we have PIK income that is higher than what our targets are. So we just felt like the sale overnight enables us to deliver on our strategic initiatives very quickly. And I think in some ways, Benevis has been a position that's probably been scrutinized by a lot of investors because it is a restructuring. It's gotten very big. In a lot of ways, I think this is extremely validating of the value and the progress we've made on Benevis. So we're quite pleased with that.

And it's important to note that we retain all the upside and Benevis to the extent we can continue to steer that company in what we think is a good direction. So it's really driven by the fact that we can reduce our PIK. We can reduce subordinated positions. We talked about how we did that. And there is some earlier vintage assets, which isn't necessarily a bad thing. But again, I think it's very much scrutinized by the market. So that's the way we think about the sale. I think it's worth noting as well that in an environment where software is heavily scrutinized, we did sell a bunch of software loans. Now we think they're good software loans. But the margin, I'm sure there are some investors that feel better about the fact that we're slightly lower in our software exposure. So that's just an additional point I want to make to you.

[Operator Instructions] Our next question will come from Ethan Kaye with Lucid Capital Markets.

Congrats on the asset sales. Just a couple of questions on, I guess, specifics. Curious whether I guess, specific to the process here, curious whether there were multiple bidders here? Was it kind of an auction-type process? How are the assets selected and priced? Any kind of information you can give on kind of that process would be helpful.

Sure. It was a competitive process that was led by a bank that we hired, Evercore. And we went out to a number of bidders, and we did get multiple bids. This -- the overall bid from Coller was the most attractive overall solution for us. And we feel good about the completion of that sale. As it relates to the way we selected assets, it really ties back to the comments that I just made to Fin, which is we really wanted to reduce PIK income and we wanted to get a lot more diversified amongst our top positions. So if you look at a lot of the biggest, most important names that we sold in the sale, they were our largest positions and we thought it was particularly important to get Benevis, which is on an improving track down from over 5% of the portfolio to -- in the 3s. We thought that was very important. Just from a portfolio management perspective. So that was the thinking around how we pick the names. It was really our over concentrated names with high PIK and in some cases, subordinated names.

Got it. Okay. So it was more of a -- you selected the assets and shopped them as opposed to more of a, I guess, bilateral type process.

Yes, that's a good point. I mean, it wasn't -- it was very much driven by our goals and desires, which we've talked about very openly. So that's a great point. I'm happy you helped us clarify that is that we really chose the assets that we felt were the most concentrated or in some cases, had the PIK characteristics. It wasn't that people were reverse inquiring to us on the assets that they wanted to buy.

The other final thing I'd say, I think this was talked about in our comments is some of these assets are just I think in the eyes of our shareholders, tougher to value, tougher to have transparency into. And so again, we feel like on some of these tougher to value assets or -- I don't want to say opaque, but these assets that are a little bit less obvious and in some cases, in assets that have had a material turnaround, we thought it was incredibly validating to have a third party come in and price those assets at a price that is very supportive of our marks.

Yes. That actually is a good kind of segue into kind of my next question. I wanted to get some thoughts on like how you interpret the pricing of these assets relative to the internal marks? Obviously, on one hand, the assets are being sold at a slight discount. On the other hand, as you mentioned, there are some characteristics to these assets like PIK and software that we know investors are going to discount and extensively, there's some sort of deal discount that is kind of regular way here. But -- can you just kind of help us think about how you see the 94% kind of valuation here?

Look, we think it was a fair deal for both sides. The buyer got some great assets at a slight discount, and that's very commercially normal in this market. And we feel like we were able to, as I said, validate our remarks and reduce concentration and improve the overall portfolio composition of our vehicle, of our company. And we're doing it. And again, Steve made this point, we're doing it in an environment where our stock price trades at, I don't know, under 70% of book or so. And so we just feel like this was the right move given the implicit scrutiny on NMFC.

Okay. It looks like there are no more questions in the queue. We'll conclude today's call. Thank you for everyone's participation, and we look forward to speaking to you again very soon.

Goodbye.

Good morning, and welcome to the New Mountain Finance Corporation's Third Quarter 2025 Earnings Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to John Kline, President and CEO of NMFC. Please go ahead.

Thank you, and good morning, everyone. Welcome to New Mountain Finance Corporation's Third Quarter 2025 Earnings Call. On the line with me here today are Steve Klinsky, Chairman of NMFC and CEO of New Mountain Capital; Laura Holson, COO of NMFC; and Kris Corbett, CFO and Treasurer of NMFC. Steve is going to make some introductory remarks, but before he does, I'd like to ask Kris to make some important statements regarding today's call.

Thanks, John. Good morning, everyone. Before we get into the presentation, I would like to advise everyone that today's call and webcast are being recorded. Please note that they are the property of New Mountain Finance Corporation and that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available in our November 3 press release.

I would also like to call your attention to the customary safe harbor disclosures in our press release and on Pages 2 and 3 of the slide presentation regarding forward-looking statements. Today's conference call and webcast may include forward-looking statements and projections, and we ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from those statements and projections.

We do not undertake to update our forward-looking statements or projections unless required to by law. To obtain copies of our latest SEC filings and to access the slide presentation that we'll be referencing throughout this call, please visit our website at www.newmountainfinance.com.

At this time, I'd like to turn the call over to Steve Klinsky, NMFC's Chairman, who will give some highlights beginning on Page 5 of the slide presentation. Steve?

Thanks, Kris. It's great to be able to address you all today, both as NMFC's Chairman and as a major fellow shareholder. Adjusted net investment income for the quarter was $0.32 per share, covering our $0.32 per share dividend that was paid in cash on September 30. Our net investment income and dividend were supported by consistent recurring income from our loan portfolio, full utilization of the dividend protection program, which remains in place through the fourth quarter of 2026 and an incremental fee waiver. Looking forward to Q4, we would like to announce a $0.32 dividend payable on December 31 to shareholders of record on December 17.

Our net asset value per share declined $0.15 compared to Q2, to $12.06 as NMFC experienced modest decline across four investments, which John will address later in the call. Importantly, however, approximately 95% of our investments are green on our heat map. As a reminder, NMFC lends chiefly in defensive growth sectors such as health care information technology software, insurance services and infrastructure services, which New Mountain Capital knows well from its private equity ownership activities. Furthermore, NMFC's portfolio loan to value stands at just 45%. Our lending lines are being refinanced at lower rates and our percentage of first lien assets is growing.

Since our IPO of NMFC in 2011, our stock has generally been a strong performer with consistent earnings and just a 1 basis point total net realized loss rate. I and my fellow managers at New Mountain are the largest shareholders of NMFC and have steadily increased our ownership level over time. Despite these strengths, NMFC's current stock price implies a 20% discount to book value and the dividend of $0.32 quarterly or $1.28 annually, represents more than a 13% yield. Therefore, over the course of the past 7 months, NMFC has fully utilized the $50 million 10b5-1 stock repurchase program with total shares repurchased this year of approximately $47 million at an average price of approximately $10. Our Board recently has approved a new share buyback program totaling an additional $100 million. Additionally, we are also now exploring a portfolio sale of up to $500 million of NMFC assets to a third party, which would accelerate our progress on our strategic initiatives meaningfully. For example, we could potentially sell assets of well-performing names in order to reduce concentrations in our portfolio and to reduce PIK income. This would enhance our financial flexibility in what could be a better deal environment in 2026 as well as provide us with an opportunity to evaluate debt paydowns and/or increase the size of our stock buyback program. While it is early in the process and the outcome is uncertain, we expect to be able to provide a fulsome update on our next call in February, if not before.

As a reminder, New Mountain Capital overall now manages about $60 billion in assets. We have generated an estimated $100 billion of enterprise value gains for all shareholders at our private equity company since the firm's inception, and we currently employ over 90,000 people at our PE companies in the field, which is roughly equivalent to #78 on the Fortune 1000. New Mountain's own team has now grown to nearly 300 employees and senior advisers, plus approximately 70 more members on our Executive Advisory Council. Our goal is to apply the same PE business building skill and knowledge to benefit NMFC and our credit platform as a whole. We thank you for your ownership and partnership and we are working diligently to serve your interests in the months and years ahead. With that, let me turn the call to John.

Thank you, Steve. I would like to begin on Page 8, which offers an overview of our differentiated approach to direct lending. First and foremost, we focus only on sectors of the economy that we believe are defensive and have sustainable tailwinds that will benefit companies within these chosen sectors. We do not invest in industries that are volatile, cyclical or secularly challenged. Secondly, we believe that we have a better model for research as New Mountain uses in-house industry executives and private equity personnel to underwrite direct lending deals within our chosen sectors. If an investment underperforms and we are compelled to take an ownership stake, New Mountain is well positioned to improve the business as an equity owner, utilizing our private equity expertise and in-house operating talent. Finally, we continue to have very strong shareholder alignment with 14% of our outstanding shares owned by NMC employees and senior advisers, and we actively support shareholder returns through the dividend protection program, additional fee waivers and the incremental share repurchase program Steve just announced.

Page 9 provides key performance statistics showing a long-term track record of delivering consistent, enhanced yield by minimizing credit losses and distributing virtually all of our excess income to shareholders. Since our IPO in 2011, NMFC has returned approximately $1.5 billion to shareholders through our dividend program, generating an annualized return of 10%. Today, our dividend yield is over 13% annualized based on the $0.32 quarterly payout, which is fully covered by net investment income.

We have been a good steward of capital with negligible net realized losses over 14-plus years, and we maintain investment-grade ratings at Moody's and Fitch.

Turning to Page 10. NMFC continues to make progress on its strategic priorities which focus on improving the quality and diversity of our asset base, optimizing our liabilities and enhancing the quality and character of our income. To that end, in Q3, we increased our senior oriented assets to 80% of the overall portfolio, up from 78% in the prior quarter. As Steve mentioned earlier, if successful, the potential secondary sale is designed to improve portfolio diversity by reducing exposure to certain more concentrated positions and to decrease our exposure to PIK assets.

On the liability side, subsequent to quarter end, we repaid the 7.5% convertible notes at maturity and see an opportunity to refinance the 8.25% unsecured notes in the coming quarters. Finally, we continue to focus on reducing non-yielding assets in 2026. Notably, many of our non-yielding assets are associated with companies with improving performance including Benevis, UniTek and Applied Cleveland.

As shown on Pages 11 and 12, the internal risk ratings of our portfolio decreased slightly during the quarter with approximately 95% of the portfolio green rated. At the margin, we did see a few select names migrate down our rating scale, representing $49 million or less than 2% of the portfolio. These migrations, including two health care services names that continue to experience lower growth and higher operating costs as well as a commercial restoration services company that has been impacted by a lack of severe weather activity. Despite the modest negative move in overall risk ratings, our most challenged names, marked orange and red represent only 3.6% of NMFC's fair value, making them a small portion of the portfolio.

Turning to Page 13. We provide a graphical analysis of NAV changes during the quarter, resulting in a book value of $12.06, a $0.15 decline compared to last quarter. The main drivers of the decline this quarter were Edmentum, TriMark and Beauty Industry Group, partially offset by a handful of unrealized gains and accretive share repurchases. The biggest negative mover Edmentum is performing well but our mark continues to be pressured by the expensive PIK securities that sit senior to our common equity exposure.

We are in the process of exploring a capital structure refinancing to reduce the overall cost of capital and limit future dilution from these securities. Additionally, Edmentum continues to be active on the M&A front and recently completed a tuck-in acquisition that will accelerate its career learning product portfolio, a growth area of the business. We are excited about the acquisition and believe Edmentum is well positioned in this area.

Page 14 addresses NMFC's nonaccrual performance. During the quarter, we moved our first lien debt position in Beauty Industry Group to nonaccrual status and expect to equitize a portion of this debt position in the coming months. The company has experienced persistent earnings headwinds due to weaker consumer demand, specific go-to-market challenges and tariffs on its China-oriented supply chain. In coordination with the other lender, we have built a large New Mountain team that will be focused on improving this investment. The team includes members of the core credit team, the PE Consumer Group, NMC operating partners and additional industry executives that we work with. Our goal is to, over time, recover at least our full principal value on this investment. Overall, nonaccruals continue to be very low with only $51 million or 1.7% of the portfolio on nonaccrual at fair value.

On the right side of the page, we show our cumulative credit performance since IPO. During that time, NMFC has made over $10.3 billion of investments while realizing losses net of realized gains of just $16 million over the course of our history as a public company.

On Page 15, we present NMFC's consistent returns over the last 14-plus years. Cumulatively, NMFC has earned approximately $1.5 billion in net investment income while generating only $16 million of cumulative net realized losses and $159 million of cumulative net realized depreciation, resulting in $1.3 billion of value created for shareholders. While the realized loss rate remains very strong, we, as a management team, are focused on reversing the unrealized depreciation within the existing portfolio. I will now turn the call over to our Chief Operating Officer, Laura Holson, to discuss the current market environment and provide more details on NMFC's quarterly performance.

Thanks, John. As previewed on last quarter's call, we have seen deal activity pick up modestly over the last few months. The pipeline of potential PE exits remains exceptionally full given the extended hold times for many PE-owned assets. The pressure to both deploy dry powder and return capital to LPs are key drivers of sponsor activity. As confidence builds, we think 2026 could be a productive period for LBO activity and have already started seeing signs of that.

We believe direct lending remains an attractive asset class in today's market, and continues to provide good risk-adjusted returns relative to other asset classes, including the syndicated loan market, which continues to experience meaningful repricing waves. Direct lending spreads, while tighter than 12 months ago, have been reasonably stable despite the lack of significant M&A. That said, one result of the supply/demand imbalance is a notable lack of dispersion in pricing. Most unitranche loans are pricing at the SOFR plus 450 to 500 range even for lower quality or smaller companies. While we continue to find opportunities in our defensive growth verticals where we can make loans that attach $1.01 in the capital structure at 8.5% plus unlevered returns, our underwriting bar remains higher than ever, and our pass rate on deals has increased.

The more challenging environment underscores the importance of our differentiated underwriting strategy, which allows us to go deeper on diligence and identify the best credit opportunities. Deal structures generally remain attractive with significant sponsor equity contribution, representing the majority of the capital structures.

Page 17 presents an interest rate analysis that provides insight into the effective base rates on NMFC's earnings. The NMFC loan portfolio is 85% floating rate and 15% fixed rate, while our liabilities are 53% floating rate and 47% fixed rate. Pro forma for the expected upcoming refinancing activity over the next several months, we expect our mix will shift meaningfully to approximately 85% floating and 15% fixed. This will align us with our target of matching our percent of liabilities that float with the percent of our assets that float. As shown in the bottom tables, while we would expect to see earnings pressure in the scenarios where base rates decrease, the ongoing evolution of our liability structure helps to alleviate some of that pressure.

Moving on to Page 18. The third quarter was a modest origination quarter. We originated $127 million of assets, offset by $177 million of repayments. Our originations consisted of investments in our core defensive growth power alleys including ERP and IT software, data and information services and financial services. Notable repayments in the quarter included 3 second lien positions, which we've rotated into predominantly first lien securities. Repayment velocity remains strong, and we have line of sight into some additional expected repayments in the coming quarters. While we remain reasonably fully invested, as we receive repayments, we'll likely continue to prioritize share repurchases over new investments if our stock remains at current levels.

Turning to Page 19. Approximately 80% of our investments, inclusive of first lien SLPs and net lease are senior in nature, up from 75% in the prior year period and up from 78% in Q2. Second lien positions now represent just 4% of our portfolio given the continued repayment activity we've seen in our second lien names. Approximately 5% of the portfolio is comprised of our equity positions, the largest of which are shown on the right side of the page. We continue to dedicate meaningful time and resources to business building at these companies and are pleased with the progress we are seeing.

Page 20 shows that the average yield of NMFC's portfolio decreased slightly to 10.4% due to lower yields on our originations compared to our repayments as we continue to rotate more senior. Despite this, we believe total yields remain attractive for the risk.

Page 21 highlights the scale and positive credit trends of our underlying borrowers, which remain largely consistent with prior quarters. The weighted average EBITDA of our portfolio companies increased slightly in the third quarter to $180 million due to growth at the individual companies we lend to and realization of some smaller companies during the quarter. We also show the relevant leverage and interest coverage stats across the portfolio. Loan-to-value continues to be quite compelling, and the current portfolio has an average loan-to-value of 45%.

Finally, as illustrated on Page 22, we have a diversified portfolio across 127 portfolio companies. Excluding our investments in the SLPs and net lease funds the top 10 single name issuers account for 26% of total fair value. I will now turn the call over to our Chief Financial Officer, Kris Corbett, to discuss our financial results.

Thank you, Laura. For more details, please refer to our quarterly report on Form 10-Q that was filed yesterday with the SEC. As shown on Slide 23, the portfolio had $3 billion in investments at fair value on September 30 and total assets of $3.1 billion. Total liabilities were $1.8 billion, of which total statutory debt outstanding was $1.6 billion. Net asset value of $1.3 billion or $12.06 per share was down slightly compared to the prior quarter. At quarter end, our net debt-to-equity ratio was 1.23:1, within our target range of 1:1.25. We remain committed to maintaining leverage within this range.

On Slide 24, we show our quarterly income statement results. For the current quarter, we earned total investment income of $80 million, a 4% decrease compared to prior quarter. Total net expenses of $47 million, decreased 5% versus the prior quarter, inclusive of the fee waiver previously mentioned. Our adjusted net investment income for the quarter was $0.32 per weighted average share, which covered our Q3 dividend. Our earnings were driven by our strong core income and effective incentive fee rate of 7.6% and the share repurchase program.

Slide 25 represents that 97% of our total investment income is recurring in the third quarter. On the following page, you can see that 80% of our investment income was paid in cash and 15% was PIK income from positions that included PIK from inception to best enable these borrowers to execute on their strategic growth plans. Only 3% of investment income is driven by modified PIK from an amendment or restructuring. Importantly, investments generating noncash income during the third quarter are marked at a weighted average fair market value of 95% of par and over 92% of this income is generated from our green rated names.

Turning to Slide 27. The red line shows the coverage of our dividend. For Q4 2025, our Board of Directors has again declared a dividend of $0.32 per share.

On Slide 29, we highlight our various financing sources and diversified leverage profile. Taking into account SBA guaranteed debentures, we have $2.5 billion of total borrowing capacity with over $700 million available on our revolving lines subject to borrowing base limitations pro forma for the convertible note that was repaid in October. This more than covers our unfunded commitments of $256 million as well as our near-term bond maturity. As John noted, subsequent to quarter end, we repaid the 7.5% convertible notes utilizing our lower-cost revolver. Looking forward to the next few months, the facilities outlined it red and the recently repaid convertible notes provide us with an opportunity to refinance and either maintain or potentially reduce our cost of financing in the near term. We believe this contrasts with the industry, which faces an increased cost of financing as debt issued in 2020 and 2021 mature.

Finally, on Slide 30, we show our leverage maturity schedule. We continue to ladder our maturities and have sufficient liquidity to manage upcoming maturities in early 2026. Notably, approximately 60% of our outstanding debt matures in or after 2028, with near-term maturities representing an opportunity to continue to access the investment-grade bond market. With that, I'd like to turn the call back over to John.

Thank you, Kris. In closing, we would like to thank all of our stakeholders for the ongoing partnership and look forward to speaking to you again on our fourth quarter 2025 earnings call in February. I will now turn things back to the operator to begin Q&A. Operator?

[Operator Instructions] The first question comes from Finian O'Shea with Wells Fargo.

A question on the potential portfolio sale, $500 million seems to imply perhaps a little bit of the affiliate or control book. Correct me if I'm wrong there. And -- if so, would it be sort of centered around that, the legacy equity names? Or should we think more regular way participation or just -- regular way debt deals on the portfolio sale.

Sure. Fin, thanks for the question. The way we're thinking about the sale is, we're focused on our biggest positions. As you know, we really want to diversify our portfolio. So if you were to look at the top 10 or 20 positions, there'll be names from within that group as well as some other names throughout the book. And it would -- the portfolio sale would address PIK names, but also cash-yielding names that are our larger exposures for NMFC. So that's really our goal. Our goal is to diversify and also reduce PIK income. But the portfolio is a group of well-performing quality names with a mix of interest, characteristics, PIK and cash.

Okay. That's helpful. And then a follow-up on the buyback. You were more aggressive this quarter at lower prices, which is great and then announced a larger program. Should we expect you to continue to be aggressive? Or maybe has that sort of run its course for now at your leverage levels and then overall and in consideration for a potential portfolio sale?

Sure. So I'd say the most important thing as we just think about managing the portfolio and the company is we want to stay within the leverage levels. That is very important to us. At the end of the quarter, you'll see that we were at the high end of our range, but still within the range. So we remain committed to that range going forward. We also see good deal environment or a deal environment that's getting better in the fourth quarter. So there will be -- we expect a lot of repayments throughout the portfolio, both in Q4 and into 2026. So at the margin, as Laura talked about, that does free us up to potentially focus using some of the proceeds from repayments to buy back stock, but we do want to remain, as I said earlier, remain very committed to our leverage range.

The next question comes from Ethan Kaye with Lucid Capital Markets.

I wanted to ask about kind of deployment capacity or strategy, kind of following up on the last question here. And Laura, you may have touched on this a bit in your prepared remarks, but given that leverage is at the high end of the range and you're repurchasing shares. I guess my question is like, are you still allocating to kind of all the deals that you maybe would have in the absence of these constraints? Or are you kind of shifting the goalpost a bit and becoming more selective on kind of the deals you're pursuing?

Yes. I mean I think when we look at NMFC specifically, we do remain focused, as John said, on staying within our leverage range, and we are prioritizing share repurchases assuming our stock price remains kind of at this level. That said, that's not a black or white thing, right? We're evaluating each deal opportunity that comes in. We have a broader credit platform, as you know. So we're definitely active in the market regardless even when NMFC is not as active. We do see spreads, as I talked about. While they're reasonably stable, they're definitely a bit on the tighter end of where they have been over the course of the history of unitranche loans. But we still think, in general, still attractive risk-adjusted return. But given the desire around leverage, given the desire around our share repurchase program, those are some of the factors that we're thinking about when allocating.

Okay. Great. I appreciate that. And then just kind of switching gears a little on the potential secondary sale. So hit on it briefly, but I guess can you talk a little bit more maybe about how you would kind of prioritize the use of the proceeds from that sale? Would the idea be to kind of redeploy those into new investments or pay down debt or something else? Yes, I'll leave it there.

Sure. I think it could be any of three things. It could be paying down debt. It could be stock repurchases, depending on where our stock is trading, if and when we consummate the sale, and we could also use the proceeds to buy new loans. And those new loans would be a diversifier compared to where we are today. So we're excited about all three options.

The next question comes from Paul Johnson with KBW.

Just one or two more on the portfolio sale. I'm just wondering when you do the portfolio sale, is this going to be something that's kind of like a strip of -- sale of a strip of investments where you're kind of partially selling existing positions or kind of more of a selective whole position sort of sale to the third party of those debt investments?

Sure. Thanks, Paul. So I just want to clarify, the sale is still in very early stages, so it may or may not happen. As you may be aware, some of the trade press picked up on the fact that we were doing it. So we thought it was appropriate to tell our shareholders about it, but it is still pretty early stages. So I just wanted to make that note. And if I were to characterize the way we're thinking about it, I would think about it more as a partial sale of existing quality, well-performing positions that focus on more diversifying our portfolio as well as reducing PIK. So we're not blowing out of names, so to speak. Instead, we're focused on rightsizing a well-performing group of positions to add more diversity to the portfolio with less PIK income, just to be super clear.

Got it. Appreciate that. And then on the diversification, I guess, how would you kind of focus on that going forward? Would it be smaller? Would you be looking to hold smaller position sizes on new deployment going forward?

Yes. So we have a vibrant direct lending business, both within NMFC and in institutional funds that we manage. So we've grown over the course of the last 5 to 7 years pretty nicely, which has allowed us to speak for bigger hold sizes, but we're not totally reliant on NMFC effectuating those hold sizes. So the way we manage a lot of our institutional funds, and we've done this over the last 4 or 5 years, and it has been our focus in NMFC as well is that we generally want to have our position sizes be 2% or lower, and the average position size across our funds, whether it's NMFC or our institutional funds, we want to be 1% or lower. We've been going in that direction for a long period of time in NMFC. We just need to -- we feel, accelerate that and just finalize the movement towards a 2% max and a 1% or less average. This sale won't totally get us there, but it will get us almost there. And I think that's a big milestone for NMFC. That's really the way we want to manage the portfolio. What we're trying to deliver our investors across all of our funds is a New Mountain Best Ideas fund, but we don't want any of the positions to be as big as 2.5%, 3%, 4%. We do have some positions that big today in NMFC and our goal is to change that.

Got it. Appreciate it. Congrats on the share repurchases and the progress on those matters.

The next question comes from Robert Dodd with Raymond James.

Focusing on credit, if I can, for a moment. Obviously, notorious or Beauty Supply was put on nonaccrual this quarter. You put it on the red list last quarter, so you kind of flagged it. You do have some other portfolio positions like Lash OpCo that are in kind of the same business that also import from China, et cetera. I mean, should we be concerned about the same themes that hit Beauty Supply applying to other portfolio positions that are in kind of the same niche industry?

Yes. I mean, I think we've talked about in the past that we think our portfolio is quite well positioned when we think about an issue like tariffs. And we've talked, I think, on prior calls that Beauty Industry Group really is our one material name that has exposure to tariffs because of its China-oriented supply chain. So I don't see any kind of look through to other subsectors in our portfolio in that regard. We think the rest of the portfolio is quite insulated from a primary impact perspective, and we think that's reflected in the 95% green.

Got it. And on the other comment -- I think it was John, you said your goal over time was to recover at least full principal. I mean that sounds -- you're going to equitize some of the debt, et cetera. But I mean, going to recover at least, it sounds like you're actually long term quite optimistic about business despite the fact that obviously it's on nonaccrual.

I think it's a little too soon for us to have all the details that an owner of a business would have. We'll have that over the course of the next months and quarters. But I think it's more of a reflection of our mindset around problem positions. This is a problem position. It's a first lien unitranche loan, we and one other lender are going to take control of the asset. And whenever we do that, we bring the full power of the New Mountain platform to bear on managing the asset. And our mindset is that we are going to get all of our investors' money back. So I think it's more of a mindset than having all the facts, our ducks in a row as it relates to managing the business. We just feel very confident that we have the ability to do it in a differentiated way. And we already have a full, I think, 8-person team, as I mentioned on the call, that's ready to go in and take a very active hand in helping the management team at Beauty Industry to improve their business.

Got it. And then one more, if I can, on the potential portfolio sale. I mean if that were to occur, you would obviously have quite a large influx of -- depending on how it's structured, potentially have a large influx of cash all at once. To your point, you could use that to delever potentially buy back stock. Would the potential buyback structure change, right? I mean, as it is, you buy it in the market. But if you had an extra couple of hundred million dollars of cash sitting there, would you consider something more like a Dutch tender or some other mechanism to maybe buy back a larger chunk at once? Or would that not be kind of how you'd be thinking about utilizing that capital?

I think we're going to think about a broad range of alternatives, but it's a little premature to give any specificity around those alternatives or how we're thinking about it. But we'll have a -- we'll be thinking about a broad range of things.

And we have a follow-up from Paul Johnson from KBW.

Yes. One more question from me. I was wondering if you could just provide maybe a little bit more color on the -- just the Edmentum investment and the markdown this quarter. So is this a case where the multiple or the valuation of this company, the EBITDA is stable. You said it's performing fine, but just the preferred is obviously the claim from the preferred side is growing every quarter. So the [ com ] is essentially getting squeezed out of its value a little bit? Or I mean, I guess, overall, how would you kind of describe the performance of the company at this point? And is this more of a situation where our capital structure was put in place after restructuring and maybe just unforeseen for kind of a victim of its own success, if that makes sense. But any color there would be helpful.

I mean, I think how you described it is largely accurate when we think about the capital structure. I think the good news is that the performance of the company is stable, right? We've talked a lot of times in the past as to how this business had some peaks really during COVID, just given the underlying product and the end market that they serve and then that has since normalized. But performance is definitely quite stable. The business is growing and performing we think, overall well. It's -- they have high-quality products and a good value proposition. So I think those are all positives. I think the challenge from our perspective is, as you described, in the capital structure, and that is something, as John alluded to, that we're in the early stages also of trying to help and work with the company and the other sponsors here to address. So more to come on that.

And just to zoom out quickly on Edmentum. Edmentum has a big picture been a success story for us. We took ownership of that business years ago, and we sold a significant chunk of the business to another private equity firm. So we've had, in the past, material gains on Edmentum. And I think what's happened over the past couple of years is Edmentum got highly valued during COVID and has had a little bit -- and earnings have come off a little bit since COVID. And now we're working with the company to find its base earnings. And then we're working, as I mentioned in my prepared comments on doing really smart, targeted M&A to grow off a very -- what we think is a very solid base. But big picture Edmentum has been a success story. We're just in a more difficult time right now, but we're still fighting hard to grow the business with the management team.

And we have a follow-up from Finian O'Shea with Wells Fargo.

Just jumping in on the follow-ups. A question on the ATM distribution agreement. I think you haven't used this in a few quarters at least, but upsized it not too long ago. Can you give us any color on the sort of ongoing or maintenance fees that the BDC incurs here? What line item that hits? And further if BDCs, if the space remains below book, if that's something you could let roll off or contain?

I would say overall, I mean, the ongoing maintenance fees to keep that program going are minimal. As you know, we haven't been above book value for a few quarters now, so we haven't actually utilized that. But generally, we want to keep that open and up. So that's -- when and if the share price gets above book that we can start to utilize that again and start growing the fund by issuing shares.

This concludes our question-and-answer session. I would like to turn the conference back over to John Kline, President and CEO of NMFC for any closing remarks.

Great. Thanks, everyone, for joining our call today, and we look forward to speaking to you again on our next call in February. Thanks.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.