The following information is from the NMFC Projections Update that was previously provided to subscribers of Premium BDC Reports along with target prices, dividend coverage and risk profile rankings, earnings/dividend projections, quality of management, fee agreements, and my personal positions for all Business Development Companies (“BDCs”).
As mentioned in “8% To 10% Balanced Portfolio Yield Investing In America: Part 2” on Seeking Alpha, I will be using this blog for additional updates on individual BDCs.
Upcoming Public Article:
New Mountain Finance (NMFC) has recently released preliminary estimates for the quarter ended June 30, 2020, but has not been announced through the website or other news sources. I will have a public article during the week of June 28, 2020, discussing the information included in this update. NMFC’s dividend yield is currently 13.4% and remains above the average due to trading almost 20% below its book value that will likely be increasing as discussed below.
The information and presentation discussed in this update are from the SEC 8-K filing:
Link to NMFC press releases:
The most recent is from May 6, 2020, reporting March 31, 2020, results:
As there was no formal announcement, most news sources did not pick it up including SA as shown below:
NMFC Preliminary June 30, 2020 Update:
I recently updated the projections and pricing for NMFC to take into account the preliminary estimates provided by the company including:
- Leverage decreasing from 1.56x to 1.35x as of June 30, 2020 = stronger balance sheet.
- Increased NAV per share including a likely 2% increase in portfolio values which would drive leverage lower.
- No material migration on Risk Ratings = stable credit quality.
- No new non-accruals other than the one that was already discussed.
- Q2 2020 earnings expected to be $0.30 per share covering the dividend.
Analyst Earnings Expectations:
It should be noted that analysts are currently expecting earnings of just under $0.29 per share:
Deleveraging and Cash Flow:
As shown below, the company had around $255 million of sales and repayments as compared to only $34 million of new investments as well as over-earning the dividend from cash sources. These allowed the company to reduce its borrowings/debt by $232 million.
Previously Expected Dividend Reduction:
In previous reports, I discussed the expected dividend reduction which was announced early last month as the company is working to improve liquidity and cash flow:
NMFC’s dividend yield remains above the average BDC:
NMFC Risk Profile:
This where I spend most of my research efforts.
Public articles including “Building A Retirement Portfolio With 6% To 9% Yield: Part 4” have discussed NMFC’s previous “watch list” investments including Edmentum Ultimate Holdings, NHME Holdings, Permian Holdco, Ansira Holdings, AAC Holding, PPVA Black Elk, ADG LLC, York Risk Services and Sierra Hamilton.
However, given the various impacts from COVID-19, this list has obviously grown to include (among others) dental-related companies such as Affinity Dental, ADG, Affordable Care Holding, Benevis Holding, DCA Investment, Dentalcorp Health Services, Heartland Dental, and NM YI. There are plenty of other companies including CentralSquare Technologies that need to be watched and management provided the following detail in May 2020:
It should be noted that some of the recent exits were below cost and will result in realized losses of around $0.05 per share. However, many of these exits were above the March 31, 2020, valuations which means that there will be an improvement to NMFC’s net asset value (“NAV”) per share related to these as well as the recent recovery of syndicated loans values as shown in an earlier slide above.
Full BDC Reports:
This information was previously made available to subscribers of Premium BDC Reports, along with:
- NMFC target prices and buying points
- NMFC risk profile, potential credit issues, and overall rankings
- NMFC dividend coverage projections and worst-case scenarios
- Real-time changes to my personal portfolio
To be a successful BDC investor:
- Identify BDCs that fit your risk profile.
- Establish appropriate price targets based on relative risk and returns (mostly from regular and potential special dividends).
- As companies report results, closely monitor dividend coverage potential and portfolio credit quality.
- Diversify your BDC portfolio with at least five companies. There are around 50 publicly traded BDCs; please be selective.