New Mountain Finance Corporation (NASDAQ:NMFC) Q4 2023 Earnings Call Transcript

New Mountain Finance Corporation (NASDAQ:NMFC) Q4 2023 Earnings Call Transcript February 27, 2024

New Mountain Finance Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day, and welcome to the New Mountain Finance Corporation’s Fourth Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would like now to turn the conference over to John Kline, President and CEO, New Mountain Finance Corporation. Please go ahead, sir.

John Kline: Thank you, and good morning, everyone. Welcome to New Mountain Finance Corporation’s fourth quarter 2023 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; and Kris Corbett, CFO and Treasurer of NMFC. We are pleased to officially welcome Kris, who joins us from Blackstone Credit, where he was Senior Vice President and Treasurer of Blackstone’s BDCs. 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.

Kris Corbett: 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 26th earnings press release. I would also like to call your attention to the customary safe harbor disclosure in our press release and on Page 2 of the slide presentation regarding forward-looking statements. Today’s conference call and webcast may include forward-looking statements 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 5 of the slide presentation. Steve?

Steve Klinsky: Thanks, Kris. It’s great to be able to address you all today, both as NMFC’s Chairman and as a major fellow shareholder. Fourth quarter financial results were in line with preliminary estimates released in January. Adjusted net investment income for the quarter was $0.40 per share, more than covering our $0.32 per share regular dividend that was paid in cash on December 29th. Our earnings increased by $0.05 compared to Q4 of last year and were in line with Q3. Our net asset value per share decreased slightly to $12.87, a $0.09 decline compared to last quarter, excluding the impact of the $0.10 special dividend paid on December 29th, demonstrating continued stable credit performance across our portfolio. Given our earnings of $0.40 per share this quarter, we will make our fourth consecutive variable supplemental dividend payment.

The variable supplemental dividend for this quarter will be $0.04 per share, which is equal to half of the amount of our Q4 quarterly earnings in excess of our regular dividend of $0.32. NMFC will pay these distributions on March 29th to holders of record as of March 15th. The remainder of the excess earnings will remain on our balance sheet and maybe paid out in the future. For the year, we generated total dividends of $1.53 per share, inclusive of the $0.10 special distribution paid in Q4 that was a result of realized gains from our investment in Haven Midstream Holdings. These cumulative dividends represent an annual distribution yield of over 12%. Looking forward to Q1, in addition to our regular $0.32 dividend, we expect to generate a variable supplemental dividend of at least $0.02 per share payable in the second quarter of 2024.

This incremental payout is supported by expected strong credit performance and continued elevated base rates, which continue to be a substantial positive for our quarterly earnings. Subsequent to year end, on February 1st, the company issued a $300 million five year investment-grade bond with very strong execution for NMFC’s first issuance of this kind. We would like to thank those investors, who participated in the offering and we remain focused on accessing this market for future liquidity needs. We believe the strength of New Mountain and of NMFC is driven by the quality of our team. New Mountain overall now numbers 245 members and the firm has developed specialties in attractive defensive growth that is a cyclical growth sectors such as life science supplies, healthcare information technology, software, infrastructure services and digital engineering.

When pursuing our credit investing efforts, we utilize our extensive group of industry experts to provide unique knowledge and expertise that allows us to make very-informed, high-conviction underwriting decisions. Over the last year, we have continued to expand the quality of our team. New Mountain’s private equity funds have never had a bankruptcy or missed an interest payment and the firm now manages over $50 billion of assets. Similarly, NMFC has experienced only three basis points of average annualized net realized losses in its nearly 13 years as a public company. We believe our loans are well-positioned overall in defensive growth industries that we think are right in all times and particularly attractive in less certain economic times.

Finally, we as management continue as major shareholders of NMFC. Senior management and employee share ownership has been rising over time and we now own approximately 13% of NMFC’s total shares personally. With that, let me turn the call to John.

John Kline: Thank you, Steve. I would like to begin by offering some more details on our direct-lending investment strategy and track record. Starting on Page 8, we highlight our disciplined industry selection, which shows exposure to a diversified list of defensive non-cyclical sectors. These sectors and industry niches are characterized by durable growth drivers, predictable revenue streams, margin stability and great free cash flow conversion. We have successfully avoided cyclical, volatile and secularly challenged industries, which could be riskier areas to invest, given today’s higher rate environment. Our strategy has been consistent over our nearly 13 years as a public company and it allows us to operate with confidence in any economic environment.

Page 9 provides a high level snapshot of our business, where we show a long-term track record of delivering consistent enhanced yield to our shareholders by minimizing credit losses and distributing virtually all of our excess income to shareholders. Since our IPO in 2011, NMFC has returned over $1.2 billion to shareholders through our dividend program, generating an annualized return of approximately 10%. Our current portfolio invests in companies within high-quality industries that are performing well and where our last dollar of risk is approximately 40% of the purchase price paid for the business. We lend primarily to businesses owned by financial sponsors, who are sophisticated and supportive owners with significant capital that is junior to the loans that we make.

Turning to Page 10. The internal risk ratings of our portfolio improved quarter-over-quarter, with 95% of our portfolio rated green compared to 93% last quarter. Our most challenged names within the orange and red categories represent less than 2% of NMFC’s fair value and we have derisked our book by marking our red names to 13% of face value and our orange names to 69% of face value. At these valuation levels, our weaker names do not represent material future downside risk to our book value. The updated heat map is shown in its entirety on Page 11. Given our portfolio’s orientation towards defensive sectors like software, business services and healthcare, we believe our assets are well-positioned to continue to perform no matter how the economic landscape develops.

Overall, we had positive credit migration in the quarter with one exception related to a small position in Careismatic Brands, a medical apparel distributor, which filed for Chapter 11 bankruptcy protection after quarter end. From Q3 to Q4, this position declined in value by $13 million and is currently marked at $1 million of fair value. Positive credit developments include the full repayment at par of EaglePicher’s second lien during Q4, which was previously a yellow named marked at $0.70 and the full repayment at par during Q1 of our $37.5 million second lien position in Franklin Energy, a yellow rated name marked at $0.91 as of 12/31. Additionally, two companies moved from yellow to green during Q4 as a result of improved performance. As these pay downs and material positive credit movements demonstrate, we continue to believe that many of our non-green names have the ability to migrate back to green over time.

Turning to Page 12, we provide a graphical analysis of NAV changes during the quarter. Starting on the left, credit specific movements represented a $0.24 decrease in book value, the majority of which was is represented by Careismatic Brands. Broad credit market movements were a $0.15 book value tailwind as credit spreads tightened during Q4 due to generally strong market conditions while excess earnings, the aforementioned special dividend and other items, bridge us to the $12.87 book value as of 12/31. Page 13 addresses NMFC’s non-accrual performance. On the left side of the page, we show the current state of the portfolio where we have $3 billion of investments at fair value with $52 million or 1.7% of the portfolio currently on non-accrual.

In Q4 Transcendia an orange name with a fair value of just $7 million was placed on non-accrual. While our investment in Ancira was realized leaving us with six companies on non-accrual. Of the names are non-accrual, most are from much older vintages have been written down materially and have a good chance of exiting the portfolio in the medium term. On the right side of the page, we show our cumulative credit performance since IPO, where NMFC has made $9.3 billion of investments while realizing only, while realizing losses of only $26 million. This represents an annualized net loss rate of approximately three basis points since IPO. This is consistent with our value proposition of preserving principal value and distributing nearly all of our net investment income through predictable quarterly dividends.

On Page 14, we present NMFC’s overall economic performance since IPO showing that we have delivered consistent and compelling returns. Cumulatively, NMFC has earned $1.2 billion in net investment income while generating only $26 million of cumulative net realized losses and only $60 million of net unrealized depreciation netting to over $1.1 billion of value created for shareholders. Page 15 shows a stock chart detailing NMFC’s equity return since IPO, over this period NMFC has generated a compound annual return of approximately 10%, which represents a very strong cash flow oriented return well in excess of both the high yield index and an index of BDC peers who have been public at least as long as we have. I’ll now turn the call over to our Chief Operating Officer, Laura Holson, to discuss current portfolio construction.

Laura Holson: Thanks John. We continue to believe the outlook for 2024 in the sponsor-backed direct lending market is positive. Deal flow continues to be episodic, but there are pockets of activity in our defensive growth verticals where we have the opportunity to make loans at attractive yields, while remaining very selective. Deal structures remain compelling with leverage meaningfully below peak levels and significant sponsor equity contributions representing the vast majority of the capital structures. We remain bullish on the medium and long-term outlook for M&A activity, given the magnitude of dry powder for private equity and the ongoing need to return capital to LPs, as well as more attractive financing markets for borrowers and the expectation for rate cuts.

Syndicated loan and high-yield markets have reopened and we have seen modest spread compression related to the increased competition for fewer opportunities. However, we expect the supply demand imbalance to normalize as soon as we see a more regular deal flow environment return. Despite the reopening of the syndicated markets, the direct lending market generally remains the financing market of choice for sponsors as the majority of sponsors still recognize the benefits of the direct lending solution, including more certain execution, more flexibility around creating a bespoke capital structure, and the ability to hand select lenders. In addition to new activity, our large portfolio of over 100 unique borrowers provides an ongoing opportunity set to make incremental loans to existing well-performing portfolio companies seeking to pursue accretive M&A.

Page 17 presents an interest rate analysis that provides insight into the effective base rates on NMFC’s earnings. As a reminder, the NMFC loan portfolio is 88% floating rate and 12% fixed rate, while our liabilities are 59% fixed rate and 41% floating rate as of year-end. Moving on to Page 18, in Q4, we saw an uptick in portfolio velocity. We originated $142 million of assets, offset by $257 million of repayments and sales, as we continued to modestly delever towards the middle of our 1x to 1.25x debt-to-equity range. Our originations consisted of investments in our core defensive growth power alleys, such as veterinary services, enterprise software and infrastructure products. I’d highlight that four of our repayments were second lien positions and we have line of sight into a few additional second lien repayments, as the portfolio continues to migrate more senior over time.

Turning to Page 19, we show our asset mix where approximately 68% of our investments, inclusive of first lien, SLPs, and net lease are senior in nature. As I mentioned, this continues to skew more senior over time. Second lien positions decreased from 17% last quarter to 15% this quarter. Our second lien exposure is largely a function of the length of our operating history. As a reminder, our credit business began in 2008, when private equity firms primarily financed their buyouts with first lien, second lien capital structures. Overtime, this has largely been replaced by the unitranche structure, and as a result, we expect the percentage of first lien and unitranche in our portfolio to continue to increase over time, as long as the unitranche structure remains the preferred solution by sponsors.

Approximately 8% of the portfolio is comprised of our equity positions, the largest of which are shown on the right side of the page. As mentioned in prior quarters, we hope to monetize certain of these equity positions in the medium-term and rotate those dollars into cash yielding assets. Page 20 shows that the average yield of NMFC’s portfolio has decreased from 11.8% in Q3 to 10.9% for Q4, primarily due to the downward shift in the base rate curve. Generally speaking, even though spreads are tighter, yields remain attractive and support our net investment income target. Page 21 highlights the scale and credit trends of our underlying borrowers. As you can see, the weighted average EBITDA of our borrowers has increased over the last several quarters to $155 million.

This is primarily attributable to sequential EBITDA growth at the individual companies we lend to and to a lesser extent, portfolio churn. While we first and foremost concentrate on how an opportunity maps against our defensive growth criteria and internal New Mountain knowledge, we believe that larger borrowers tend to be marginally safer, all else included. We also show the relevant leverage and interest coverage stats across the portfolio. Portfolio company leverage has decreased slightly over the last two quarters. Loan to values continue to be quite compelling, and the current portfolio has an average loan to value of 42%. Interest coverage ratios have stabilized as expected, and the weighted average interest coverage on the portfolio was flat at 1.5x this quarter.

We’ve seen sponsors continue to proactively support company liquidity and continued M&A activity. This is a great indication that our portfolio consists of companies that are performing well and are able to attract additional investment healthy valuations. Finally, as illustrated on Page 22, we have a diversified portfolio across 111 portfolio companies. The top 15 investments inclusive of our SLP funds and net lease account for approximately 43% of total fair value and represent our highest conviction names. I’ll now turn the call over to our Chief Financial Officer, Kris Corbett, to discuss our financial results.

Kris Corbett: Thank you, Laura. For more details, please refer to our annual report on Form 10-K that was filed yesterday with the SEC. As shown on Slide 23, the portfolio had approximately $3 billion in investments at fair value on December 31st, and total assets of $3.2 billion with total liabilities of $1.8 billion, of which total statutory debt outstanding was $1.5 billion, excluding $300 million of drawn SBA-guaranteed debentures. Net asset value of $1.3 billion or $12.87 per share was down slightly compared to the prior quarter. At quarter end, our statutory debt to equity ratio was 1.14x to 1x and 1.10x to 1x net of available cash on the balance sheet consistent with the balance sheet de-leveraging mentioned previously.

On slide 24, we show out quarterly income statement results. For the current quarter, we earned total investment income of $92.8 million, a 77% increase over prior year. Total net expenses were approximately $52.1 million, a 2% increase over prior year. As a reminder, the investment advisor has committed to a management fee of 1.25% for the 2024 calendar year. The investment advisor has also pledged to reduce its incentive fee if and as needed during this period to fully support the $0.32 per share regular quarterly dividend. Based on our forward view of the earnings power of the business, we do not expect to use this pledge. It is important to note that the investment advisor cannot recoup fees previously waived. Our adjusted net investment income for the quarter was $0.40 per weighted average share, which meaningfully exceeded our Q4 regular dividend of $0.32 per share.

Our investment in Ancira, which had been previously marked down over prior periods was exited during the fourth quarter crystallizing a realized loss. Consistent with our prior practices, we elected to rebate our shareholders $1.3 million of incentive fees related to PIK income accrued from Ancira which resulted in a $0.01 per share increase to our NII for the quarter. As shown on Slide 25, we earned total investment income of $373.8 million for the year, which represents an increase of 23% over the prior year. Total net expenses of $214.9 million increased 21% over prior year. As Slide 26 demonstrates, 97% of our total investment income is recurring this quarter, given the minimal fees earned in Q4. You will see historically that, over 90% of our quarterly income is recurring in nature and on average, over 80% of our income is regularly paid in cash.

We believe this consistency shows the stability and predictability of our investment income. Importantly, over 99% of our quarterly non-cash income is generated from our green rated names. Turning to Slide 27. The red line shows the coverage of our regular dividend. This quarter adjusted net investment income exceeded our Q4 regular dividend by $0.08 per share. For Q1, 2024 our Board of Directors has again declared a regular dividend of $0.32 per share as well as a supplemental dividend of $0.04 per share. On Slide 28, we highlight our various financing sources and diversified leverage profile. Taking into account SBA-guaranteed debentures, we have $2.6 billion of total borrowing capacity with $768 million available on our revolving lines subject to borrowing base limitations.

As a reminder, covenants under both our Wells Fargo and Deutsche Bank credit facilities are generally tied to operating performance of the underlying businesses that we lend to, rather than the marks of our investments at any given time, which we think is particularly important during more volatile times. Finally, on Slide 29, we show our leverage maturity schedule. Over the last four months, we’ve had a number of positive developments with respect to our liabilities and liquidity profile, including successfully extending both our Wells Fargo and Deutsche Bank credit facilities, doubling and extending our management company revolver and issuing over $400 million of unsecured notes including a Baby Bond and our first investment grade bond. As a result, nearly 70% of our debt matures in or after 2027.

In the future, we plan to be repeat issuers in the investment grade markets to further ladder our maturities in the most cost-efficient manner. With that, I would like to turn the call back over to John.

John Kline: Thank you, Kris. As we look forward to the rest of 2024, we remain confident in the continued strong performance of NMFC’s portfolio and believe we are on-track to continue to deliver great risk-adjusted returns to our shareholders. We once again would like to thank all of our stakeholders for the ongoing partnership and support and look forward to maintaining our dialogue throughout the year. I will now turn it back to the operator to begin Q&A. Operator?

Operator: [Operator Instructions] Today’s first question comes from Erik Zwick with Hovde Group.

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Q&A Session

Erik Zwick: Wanted to start, because I was kind of looking through Slide 17 and thinking about potential for rate cuts, short-term interest rate cuts later in the year. Wondering if you could just share your thoughts on the potential use of swaps to reduce the asset sensitivity of the balance sheet?

Laura Holson: Sure. I’m happy to take this one. I mean, obviously, I think we can all look at the forward SOFR curve and see what’s indicated, as it relates to rate cuts over the balance of 2024 and beyond. We did try to provide some insight as to what that could do from an earnings perspective as you said, as outlined on Page 17. It is something that we’ve talked about when we look at kind of hedging both on the asset side and on the liability side. We’ve found — based on the work that we’ve done, that it’s just not economic really or practical to do on the asset side. We are exploring it though on the liability side specifically as it relates to our recent investment grade bond issuance, again, just given where we think rates are likely to be probably makes sense on the liability side. But that’s kind of how we approach hedging both on the asset and liability side.

John Kline: One thing I’d add is, if you do think we’re heading into a lower base rate environment into ‘25, we think we have a major opportunity to refinance both our converts and also, it’s notable that our Baby Bond is callable in late ‘25, so we think there’s actually in a lower rate environment could be a really good opportunity to refinance some of those instruments at lower rates.

Erik Zwick: And then actually just looking at the next slide, as I look at the, you know, spreads on the new originations versus what exited versus repayment, it looks like, you know, spreads are tightening a little bit and that would be consistent with what you know is being absorbed in the market. So curious just about your thoughts in terms of kind of the direction for the weighted average yield for the portfolio over maybe the course of 2024.

John Kline: Sure, I can take a shot at that. Overall, as I’m sure you know, spreads are a little bit tighter at this moment in time. One of the biggest challenges we face as a direct lending industry is deal flow is a little bit lower right now than I think we all would like, but we think there’s a big opportunity for deal flow to increase in the coming quarters and we think that would be supportive of good spreads in the market. So that would be the first comment I would make. The second comment is that overall spreads are still pretty healthy. If you look at our spreads on the new deals that we’ve brought into the portfolio, they’re still very good. And when you, when you basically add a SOFR rate in the mid five to those spreads, we think it represents really great risk adjusted return.

On the repayments. It would be fair to say that, that we are losing assets with higher spread, but we’re also getting refinanced out of a lot of our second lien portfolio. And we think there’s a great opportunity to actually in this environment originate new first lien and unitranche loans that have spreads almost as good as the second lien loans while, you know, reducing the overall risk in the portfolio. So we feel like that is a positive trend and a potential real win for our shareholders.

Erik Zwick: No, you’re right. That’s a good point. That’s all I have today. Thanks for taking my questions.

Operator: And our next question comes from Bryce Rowe with B. Riley.

Bryce Rowe: John, maybe I’ll start with just the leverage profile. Obviously you all have been, I would guess somewhat intentional about seeing leverage on the balance sheet come down here over the course of ‘24, you’ve dealt and you noted in your prepared remarks. You’ve dealt with a good bit of maturities within the debt capital structure. So trying to get a feel for where you think, kind of leverage goes from here. Do you want to continue to work it lower or are we at a point now where, you know, maybe we’ll see some stabilization?

John Kline: Sure. There were some quarters in the past, where it felt like we were always at the high end and that wasn’t necessarily intentional. Our leverage target is stated as between 1x and 1.25x on a statutory basis and that truly is our target. In general, we would seek to operate on average in the middle of the range, maybe upper middle of the range. But just given all the portfolio movements that we face as portfolio managers, it’s difficult to get too precise. We feel very comfortable anywhere within that range and different quarters will have different dynamics. But certainly, being in the middle of the range feels very good and I think we’ve conditioned all of our stakeholders to being on average in the middle to upper middle of the range.

Bryce Rowe: I guess a related question in terms of looking at deal flow and repayment activity over the last five or six quarters I guess is the slower pace of originations, that more a function of kind of deal environment than it is — I guess, the desire to get closer to the middle point of that leverage range?

John Kline: When I think about NMFC, we’ve been within the range for a little while. We don’t have tremendous excess dry powder. We’ve been able to access the ATM in small size. But in general, the low velocity environment in terms of deal flow, I think has hurt our overall activity. Now we have private funds where we’re actively investing and being more aggressive on the origination front. But going forward, I really see, I think, there’ll be a big opportunity and we’re seeing it real time. We’re seeing a lot of repayments in the portfolio. We’re seeing a lot of second liens repay and that is going to enable us to have plenty of dry powder to invest into what we think will be a busier calendar going into Q2 and Q3.

Bryce Rowe: Maybe one more for me. You noted improved internal risk ratings more of your debt investments moving into that green category relative to negative migration. Can you talk a little bit about? Is anything specific kind of driving that? Is it portfolio companies specific, just dealing with maybe some of the constraints here of the recent past and getting a handle on that? Just any commentary around that would be helpful.

Laura Holson: Sure. Yes, when I think about, the shift in the heat map, we had two names specifically move into the green category this quarter. In one situation, one was kind of really recovering from some supply chain and some post-COVID hangover type issues and really just overall performance has improved nicely on that particular name. On the other name, which is a smaller name, similarly just some idiosyncratic business performance has improved there as well. So I wouldn’t say any kind of overarching trends. I mean, it’s obviously been a challenging several years when you think about just all the headwinds faced by kind of the macro economy. We continue to think our portfolio is really well-positioned and 95% green. We think that, that’s reflective of just the defensive growth strategy, the conviction with which we underwrite based on the platform and the depth of knowledge that we have in these sectors and then just underlying characteristics of these types of businesses, which generally, I think, are more resilient.

But hopefully, that gives you a flavor for a bit of the migration.

Operator: [Operator Instructions] Our next question comes from Paul Johnson with KBW. Hello, Paul, is your line open or is your line muted perhaps? Mr. Johnson. Alright, it appears we don’t have any audio from Mr. Johnson. [Operator Instructions] And looks like we are with Mr. Johnson, again, please proceed. Mr. Johnson?

Paul Johnson: My first question was just on the guide for next quarter or the implied guide of $0.36. Obviously below this quarter’s $0.40 or so. I’m just curious, is that just kind of due to the spread compression that we experienced this quarter or is there any kind of one-time items that would be running through G&A or anything like that?

John Kline: Sure, I can take that and congrats on the new role, Paul. So when we think about the lower guide, it’s a bunch of little things at the margin as I mentioned, we are seeing repayments in the portfolio, so our average leverage is a little bit lower. That’s what we see right now so we want to be conservative about our outlook. We did — we are losing some income from Careismatic Brands, which we talked about on the call. We also lost a little bit of income from a Haven management fee. We no longer get that fee as we’ve exited that investment. The leverage cost on our portfolio is a little bit higher than it has been. So that’s just another little nick to talk about. And the velocity of deal flow, which creates fee income is a little bit lower than we would expect at some point that should come back and really help us from a net investment perspective.

But right now we see that as a little bit lower. And then of course there is a mix issue that you can see and we talked about on Page 18, where, you know, we are being repaid on a lot of second liens and we tend to find great opportunities in first lien and unitranche in this environment. And so at the margin that’s a little bit of a negative from an income perspective, but a huge positive from, you know, a risk perspective overall. So it’s a bunch of little things that are contributing to that, that slight decline in outlook, but still feel very good about the outlook.

Paul Johnson: And then on the Haven equitization or monetization this quarter, I was wondering if you could just kind of walk me through that I’m looking at, in your slide, $0.01 gain roughly from Haven, but I’m not sure if it’s the, the complete number or not, but $0.04 or so from tax charges. Is that all related to Haven? I’m just kind of trying to parse out, what the actual net gain was from that investment.

John Kline: Sure. And Laura, maybe I’ll add some details, but Haven is a little bit, it’s not really this quarter’s news. It’s really something that we’ve exited over the course of ‘23. And there was, Haven was the sort of the root of the special dividend of $0.10, where we had some gains that we did have to pay out. As it relates to the net investment income this quarter, Haven didn’t have too big an impact other than that take some tax related items and of course the aforementioned special dividend. Laura, let me know if I’m missing it.

Laura Holson: Yes, that was a good summary. Paul just on Page 12 and I think where you’re seeing the $0.01 that’s just the Q4 impact of Haven on book value. As John said, the benefit of kind of the Haven monetization happened over the course of 2023. You can see kind of that show up in Page 35 on the realized gain row, which the vast majority of that does relate to Haven.

Paul Johnson: And then last one is just kind of more broadly just on the net lease portfolio, obviously relevant to what’s going on in the CRE market. I’m just wondering if I can kind of get your thoughts on the portfolio there, kind of how it’s performing. I’d imagine most of those assets have been underwritten years ago in the middle of zero rate under a very different environment. Is there any sort of maturity risk in that book? Just I guess how would you describe the differentiation between that net lease portfolio and the traditional CRE market?

John Kline: Sure. The punch line is, and we talked about this a little bit, but it’s a common question. I’m really happy you asked it. But generally, when we think about our net lease portfolio and we look at all of our borrowers. First of all, we have no tenant risk because or very limited tenant risk, because we essentially have long-term leases on what is mission critical real estate for our core tenants. And our tenants are performing very well by and large. The type of real estate that we own and that we’re leasing out to these tenants tends to be related to light manufacturing. We have a lot of life sciences exposure, mission-critical warehouse facilities and other sorts of industrial type assets. When we think about the exact place you want to be in this environment, in this commercial real estate environment, we just feel like our little portfolio couldn’t be better positioned.

The average length of the lease, I believe, is close to 10 years. I could follow-up with an exact number. As I mentioned, the tenant quality is high and the real estate criticality is also high. And then I guess when we think about the valuation and how we feel about just the cash flows coming from this portfolio — this diversified portfolio, we feel very good. In fact, as interest rates have risen, we’ve seen some valuation compression in the portfolio because the cap rates have gone up in the market and we’ve had to reflect that in the value, where we hold these assets. If anything, we see cap rates coming back down, which makes our assets more valuable. Most of our assets have individual financing at the asset level, which tends to be fixed rate and that has provided pretty good stability over the last couple of years and we value that fixed rate debt.

And then of course, long-term, these cash flows are growing because, in general, we have 2% to 3% escalators on the individual leases, which provides a really good tailwind over long periods of time. So we feel very good when we think about our worries in the world. This portfolio of properties is not high on my list.

Paul Johnson: And what are your thoughts about, do you kind of expect to sort of keep what you have in that book or is there more origination opportunities in near future there, or is something we would expect to kind of roll off over time?

John Kline: Sure. Most the — really the new origination opportunities go to another dedicated fund. When we think about the role that we played in this net lease business that we have here at New Mountain is NMFC really got the business off the ground. And we continue to benefit from getting the business off the ground because we have these really long-term assets that tend to grow in value with the lease escalators. So I really see this portfolio as being a little bit more static, but really valuable, a really valuable source of income and potentially if things go our way over long periods of time, I think it can be a source of principal gains for us. But we don’t, we’re not actively investing in new properties within NMFC. We’re doing that in other private funds that we have here under the New Mountain umbrella.

Operator: Thank you. This concludes our question-and-answer session. I’d like to turn the conference back over to John Kline for closing remarks.

John Kline: Great. Well thank you for joining us on our call, and we look forward to speaking to you again, very shortly. Have a great day.

Operator: Thank you, sir. This concludes today’s conference call. We thank you all for attending today’s presentation. You may now disconnect your lines and have a wonderful day.