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Introduction & Market Context
New Mountain Finance Corporation (NASDAQ:NMFC) released its Q2 2025 earnings presentation on August 5, 2025, highlighting stable dividend coverage despite a modest decline in net asset value (NAV). The business development company, which focuses on "defensive growth" lending strategies, maintained its quarterly dividend of $0.32 per share while reporting a 1.9% decrease in NAV.
NMFC shares closed at $10.42 on August 4, 2025, representing a significant discount to the reported NAV of $12.21 per share. This discount of approximately 14.7% reflects ongoing market concerns about BDC valuations despite the company’s stable dividend yield of approximately 12%.
Quarterly Performance Highlights
New Mountain Finance reported adjusted net investment income (NII) of $0.32 per share for Q2 2025, exactly matching its dividend payment. This represents consistent performance compared to the previous quarter, maintaining full dividend coverage.
As shown in the following summary of key financial metrics over recent quarters:
The company’s NAV decreased to $12.21 per share as of June 30, 2025, down from $12.45 at the end of March 2025, representing a 1.9% quarterly decline. This NAV erosion was primarily attributed to specific portfolio company challenges, with management highlighting Edmentum (-$0.08 per share) and consumer products investments (-$0.03 per share) as key contributors to the decline.
Total (EPA:TTEF) investment income for the quarter was $83.4 million, down from $85.66 million in the previous quarter. The portfolio’s current yield at cost declined slightly to 11.2% from 11.3% in Q1 2025, continuing a gradual downward trend from 12.2% a year earlier.
The company’s key financial metrics are summarized in the following slide:
Portfolio Quality and Composition
NMFC’s portfolio quality showed some signs of deterioration during the quarter. The percentage of investments rated "Green" (the highest quality) decreased from 96.5% to 94.8%, while investments rated "Yellow (OTC:YELLQ)" increased from 2.3% to 3.0%, "Orange" from 1.2% to 1.7%, and "Red" appeared at 0.5%.
The following chart illustrates the company’s portfolio risk rating changes:
The company’s portfolio remains diversified across defensive sectors, with 78% of investments in senior secured positions, up from 77% in the previous quarter and 75% a year ago. This strategic shift toward more senior assets reflects management’s defensive positioning in the current economic environment.
As shown in the portfolio composition breakdown:
Non-accrual positions represented $38 million in fair value (1.2% of the portfolio) and $72 million at cost (2.3%), which remains within manageable levels but warrants monitoring. The company highlighted its strong long-term credit performance track record:
Balance Sheet and Capital Structure
NMFC maintained a conservative balance sheet with statutory debt-to-equity ratio of 1.13x, within its target range of 1.00-1.25x. The company has strategically positioned its capital structure with 84% unsecured debt and an asset coverage ratio of 186%, well above the 150% BDC requirement.
The balance sheet highlights as of June 30, 2025 show:
The income statement details reveal the components of the company’s investment income and expenses:
NMFC has positioned itself to benefit from elevated interest rates, with 86% of its assets being floating rate compared to 49% of liabilities. This mismatch provides a positive impact on net interest income in the current rate environment.
Strategic Initiatives and Outlook
Management outlined several strategic priorities, including maintaining or increasing senior assets, optimizing debt costs, and rotating non-yielding equity positions into cash-yielding assets. Recent progress includes increasing senior assets to 78% of the portfolio and identifying near-term opportunities to reduce debt costs.
The company declared a Q3 2025 dividend of $0.32 per share, payable on September 30, 2025, to shareholders of record as of September 16, 2025. Management has committed to supporting this dividend level through 2026, with the investment adviser pledging to reduce incentive fees if necessary.
The company’s dividend history and coverage is illustrated in the following chart:
New Mountain employees continue to be the largest shareholders of the company, with approximately 14% ownership, providing strong alignment with external investors. The company has also repurchased approximately $16 million of shares year-to-date, taking advantage of the discount to NAV.
Looking ahead, NMFC remains focused on defensive growth in acyclical sectors, with a continued emphasis on senior secured lending and maintaining its investment grade credit rating. While the slight deterioration in portfolio quality and NAV bear watching, the company’s stable dividend coverage and conservative balance sheet positioning provide some cushion against potential economic headwinds.
Full presentation:
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