New Mountain Finance Q2 2025 Earnings Call Transcript

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Provided by Quartr
August 5, 2025

Key Takeaways

  • Positive Sentiment: Strong recurring Q2 net investment income of $0.32 per share covered the $0.32 dividend, and NAV per share was $12.21, down $0.24 from Q1.
  • Positive Sentiment: Board declared a $0.32 dividend for Q3 payable September 30, supported by the dividend protection program through 2026 and a share repurchase plan with $16 million bought year-to-date.
  • Positive Sentiment: Credit quality remains strong with 95% of assets rated green, non-accruals at just 1.2% of the portfolio, and only $16 million of net realized losses since the 2011 IPO.
  • Neutral Sentiment: Portfolio is approximately 80% senior-secured in defensive sectors such as healthcare IT, software, and insurance services, with a 45% average loan-to-value ratio.
  • Negative Sentiment: NAV decline was driven by underperformance at three positions—Edmentum, a dental healthcare business, and a tariff-impacted consumer products company now rated red and requiring liquidity support.
AI Generated. May Contain Errors.
Earnings Conference Call
New Mountain Finance Q2 2025
00:00 / 00:00

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Operator

Good day, and welcome to the New Mountain Finance Corporation's Second Quarter twenty twenty five Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to John Klein, President and CEO. Please go ahead.

John Kline
John Kline
CEO, President & Director at New Mountain Finance

Thank you, and good morning, everyone. Welcome to New Mountain Finance Corporation's second quarter twenty twenty five 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 Chris Corbett, CFO and Treasurer of NMFC. Steve is going to make some introductory remarks, but before he does, I'd like to ask Chris to make some important statements regarding today's call.

Kris Corbett
Kris Corbett
CFO at New Mountain Finance

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 4 earnings press release.

Kris Corbett
Kris Corbett
CFO at New Mountain Finance

I would like to call your attention to the customary Safe Harbor disclosures in our press release and on Pages two and three 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 ww.newmountainfinance.com. At this time, I'd like to turn the call over to Steve Kalinski, NMFC's Chairman, who will give some highlights beginning on Page five of the slide presentation. Steve?

Steven Klinsky
Steven Klinsky
Founder and CEO & Chairman of NMFC at New Mountain Capital

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 quarter was $0.32 per share covering our $0.32 per share dividend that was paid in cash on June 30. NII was supported by consistent recurring income from our loan portfolio, no new non accruals, full utilization of the dividend protection program and a modest incremental fee waiver. Our net asset value per share of $12.21 declined zero two four dollars compared to Q1.

Steven Klinsky
Steven Klinsky
Founder and CEO & Chairman of NMFC at New Mountain Capital

While overall credit performance was strong across the majority of our portfolio, NMFC did experience modest declines across three positions, which John will address later in the call. Importantly, 5% of our investments are green on our heat map and our portfolio has nearly 80% exposure to senior oriented assets. NMFC lends chiefly in sectors such as healthcare information technology, software, insurance services and infrastructure services, which we believe are well positioned in today's economic environment. 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 while our PIK income is falling.

Steven Klinsky
Steven Klinsky
Founder and CEO & Chairman of NMFC at New Mountain Capital

Looking forward to Q3, we would like to announce a $0.32 dividend payable on September 30 to shareholders of record on September 16. NMFC's dividend is supported by our strong recurring earnings from our well performing credit portfolio, increased portfolio activity compared to Q2 and the dividend protection program, which we have in place through the 2026. The dividend protection program represents a shareholder friendly way to stabilize the dividend in a period of time that is characterized by tighter new issue spreads and lower fees that have been the result of below normal private equity deal activity. Our view at New Mountain is that these trends are likely to normalize as deal flow picks up. Our current stock price implies a 15% discount to book value and the dividend of $0.32 quarterly or $1.28 annually represents over a 12% yield all with a fourteen year track record of just a one basis point total net realized loss rate since IPO.

Steven Klinsky
Steven Klinsky
Founder and CEO & Chairman of NMFC at New Mountain Capital

As a result of the ongoing discount, NMFC entered into a stock repurchase program where the company has repurchased approximately $16,000,000 of shares year to date with an additional $31,000,000 of Board authorization remaining. Additionally, I and my fellow managers at New Mountain are the largest shareholders of NMFC and have steadily increased our ownership level over time. We believe that our current share price represents a compelling entry point for prospective investors as we seek to deliver stable consistent yield and exhibits clear opportunity for equity upside in the months ahead through further advancing our strategic initiatives. As a reminder, New Mountain's flagship private equity funds have never had a bankruptcy or missed an interest payment and the firm now manages over $55,000,000,000 of assets. We employ over 90,000 people at our PE portfolio companies in the field and our New Mountain team has now grown to over two eighty employees and senior advisors and approximately 70 members of our Executive Advisory Council.

Steven Klinsky
Steven Klinsky
Founder and CEO & Chairman of NMFC at New Mountain Capital

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 interest in the months and years ahead. With that, let me turn the call to John.

John Kline
John Kline
CEO, President & Director at New Mountain Finance

Thank you, Steve. I would like to begin on page eight, 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 stable 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.

John Kline
John Kline
CEO, President & Director at New Mountain Finance

Finally, we continue to have very strong shareholder alignment with 14% of our outstanding shares owned by NMC employees and senior advisors, and we actively support shareholder returns through our dividend protection program. Page nine 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 $1,400,000,000 to shareholders through our dividend program, generating an annualized return of 10%. Today, our dividend yield is over 12% annualized based on the $0.32 quarterly payout. We have been a good steward of capital with negligible net realized losses over fourteen plus years and maintain investment grade ratings at Moody's and Fitch.

John Kline
John Kline
CEO, President & Director at New Mountain Finance

Turning to Page 10. NMFC continues to make progress on strategic priorities, which focus on improving the quality and diversity of our asset base, optimizing our liabilities with low cost floating rate debt and enhancing the quality and character of our income. To that end, in Q2, we increased senior oriented assets to nearly 80% of the overall portfolio and further diversified our top holdings with the full repayment of Office Ally, previously a 2.5% position. On the liability side, our team is preparing to refinance the 7.5 convertible notes and the 8.25% unsecured notes, both of which mature or are callable in Q4 of this year. We expect to access the unsecured debt market and lock in interest rate hedges on the notional amount of these transactions.

John Kline
John Kline
CEO, President & Director at New Mountain Finance

Finally, we continue to sell equity positions and exit PIK assets. In Q2, we monetized MFC's $15,000,000 position in Office Allies common equity and received a full repayment on our position in ARCOS preferred shares, including all previously accrued PIK. We will seek to exit more PIK positions in the coming quarters. As shown on pages eleven and twelve, the internal risk ratings of our portfolio decreased slightly during the quarter with approximately 95% of the portfolio rated green. At the margin, we did see a few select names migrate down on our rating scale representing $79,000,000 or less than 3% of the portfolio.

John Kline
John Kline
CEO, President & Director at New Mountain Finance

Perhaps the most notable movement was the migration from yellow to red of a consumer products company in the portfolio. While this company is still current on its interest, its performance has been significantly impacted by tariffs on its predominantly China oriented supply chain and will need liquidity support before year end. It's worth noting that NMFC's loan is at the top of the capital structure and there is no material debt ahead of our position. Despite the modest negative move in overall risk ratings, our most challenged names marked orange and red represent only 2.1% of NMFC's fair value, making them a small part of the portfolio. Turning to Page 13, we provide a graphical analysis of NAV changes during the quarter, resulting in a book value of $12.21 a $0.24 decline compared to last quarter.

John Kline
John Kline
CEO, President & Director at New Mountain Finance

Overall, the quarter benefited from good core credit performance offset by declines in Edmentum, a dental healthcare business and the aforementioned consumer products business. Edmentum continues to deliver steady operating performance. However, there is debt and preferred equity that is accreting senior to our common equity position, which is pressuring our valuation. Admentum continues to work on new growth levers, including a career learning offering and other operating initiatives to enhance top and bottom line performance. We have started to see M and A activity pick up in the sector and believe Admentum remains an attractive and well positioned platform.

John Kline
John Kline
CEO, President & Director at New Mountain Finance

The Dental business has faced challenging labor inflation against the backdrop of lower patient volumes combined with price pressure. The company's financial sponsors have given the business a meaningful liquidity runway to improve operations and have made management changes that we hope will catalyze better execution. Page 14 addresses NMFC's non accrual performance. On the left side of the page, we show that non accruals continue to be very low with only $38,000,000 or 1.2% of the portfolio on non accrual. On the right side of the page, we show our cumulative credit performance since IPO.

John Kline
John Kline
CEO, President & Director at New Mountain Finance

During that time, NMFC has made $10,200,000,000 of investments while realizing losses net of realized gains of just $16,000,000 over the course of our history as a public company. On Page 15, we present NMFC's consistent returns over the last fourteen years. Cumulatively, NMFC has earned over $1,400,000,000 in net investment income while generating only $16,000,000 of cumulative net realized losses and only $138,000,000 of cumulative net unrealized depreciation resulting in nearly $1,300,000,000 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.

Laura Holson
Laura Holson
COO at New Mountain Finance

Thanks, John. While deal activity remained constrained in Q2 given tariffs and regulatory uncertainty, we have seen an increase in deal volume over the past several weeks. A combination of IPOs, take privates as well as general LBO activity indicates an unfreezing of the post Liberation Day markets. 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.

Laura Holson
Laura Holson
COO at New Mountain Finance

As some of the headline noise stabilizes, we think the remainder of the year could be a productive period for LDO activity. 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 has continued to experience meaningful repricing waves. Direct lending spreads, while tighter than twelve months ago, have largely stabilized. We have particularly noted the lack of dispersion in pricing based on both asset quality and asset size. Most unitranche loans are pricing at the SOFR plus $4.75 to $5.25 range even for slightly lower quality or smaller companies.

Laura Holson
Laura Holson
COO at New Mountain Finance

While we continue to find opportunities in our defensive growth verticals where we can make loans that attach 1.1 in the capital structure at 9% to 10% unlevered returns, our underwriting bar remains higher than ever and our pass rate on deals has increased. Deal structures generally remain compelling with significant sponsor equity contribution representing the vast majority of the capital structures. Page 17 presents an interest rate analysis that provides insight into the effect of base rates on NMFC's earnings. The NMFC loan portfolio is 86% floating rate and 14% fixed rate, while our liabilities are 49% floating rate and 51% fixed rate. Pro form a for the expected upcoming refinancing activity over the next six months, we expect our mix will shift meaningfully to 81 floating and 19% fixed.

Laura Holson
Laura Holson
COO at New Mountain Finance

This will nearly align us with our target of matching our percentage of liabilities that float with the percentage 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, we are evolving our capital structure to help offset some of that pressure. Moving on to page 18, Q2 was a lighter quarter in origination activity given what I mentioned on deal flow and quality. In Q2, we originated $122,000,000 of assets offset by $155,000,000 of repayments and sales. Our originations consisted of investments in our core defensive growth power alleys including niches of business services like insurance and utility services.

Laura Holson
Laura Holson
COO at New Mountain Finance

Notable repayments in the quarter included our first lien and equity positions in Office Ally, which as mentioned previously provided us the opportunity to rotate into senior cash yielding loans. As John noted, we also received a repayment in our preferred equity investment in ARCOS collecting our previously accrued PIK in full. Turning to Page 19, approximately 78% of our investments inclusive of first lien SLPs and net lease are senior in nature up from 75% in the prior year. Second lien positions represent just 6% of our portfolio. Approximately 7% of the portfolio is comprised of our equity positions, the largest of which are shown on the right side of the page.

Laura Holson
Laura Holson
COO at New Mountain Finance

We continue to dedicate meaningful time and resources to business building at these companies. Page 20 shows that the average yield of NMFC's portfolio decreased slightly to 10.6% for Q2, partially due to a small downward shift in the forward SOFR curve. Despite lower yields on our originations compared to on our repayments, we believe total yields remain attractive for the risk. Page 21 highlights the scale and positive credit trends of our underlying borrowers. The weighted average EBITDA of our portfolio companies increased slightly in the second quarter to 176,000,000 primarily due to growth at the individual companies we lend to.

Laura Holson
Laura Holson
COO at New Mountain Finance

We also show the relevant leverage and interest coverage stats across the portfolio. These metrics have remained relatively consistent over the last several quarters. Loan to values continue 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 124 portfolio companies. Excluding our investments in the SLPs and net lease funds, the top 10 single name issuers account for 25% of total fair value.

Laura Holson
Laura Holson
COO at New Mountain Finance

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

Kris Corbett
Kris Corbett
CFO at New Mountain Finance

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 $3,000,000,000 in investments at fair value on June 30 and total assets of $3,200,000,000 Total liabilities were $1,900,000,000 of which statutory debt outstanding was $1,500,000,000 Net asset value of $1,300,000,000 or $12.21 per share was down slightly compared to prior quarter. At quarter end, our statutory debt to equity ratio was 1.17 to one and one point one three to one net of available cash on the balance sheet, which is in the middle of our target range of one to 1.25 times. On Slide 24, we show our quarterly income statement results.

Kris Corbett
Kris Corbett
CFO at New Mountain Finance

For the current quarter, we earned total investment income of $83,000,000 a 12% decrease over prior year. Total net expenses of 49,000,000 decreased 13% versus prior year inclusive of the fee waiver previously mentioned. Our effective incentive fee rate for the quarter was 13.5%. Our adjusted net investment income for the quarter was $0.32 per weighted average share, which covered our Q2 dividend. Slide 25 highlights that 95% of our total investment income is recurring in the second quarter.

Kris Corbett
Kris Corbett
CFO at New Mountain Finance

On the following page, you can see that over 80% of our investment income was paid in cash and 14% was PIK income for 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 of an amendment or restructuring. Importantly, investments generating non cash income during the second quarter are marked at a weighted average fair market value of 96% of par and 92% of this income is generated from our green rated names. In the second quarter, we collected $8,000,000 of PIK income primarily associated with the aforementioned Arcos preferred share repayment. We continue to make progress in monetizing PIK income and see continued opportunities to do so in the coming quarters.

Kris Corbett
Kris Corbett
CFO at New Mountain Finance

Turning to Slide 27, the red line shows the coverage of our dividend. For Q3 twenty twenty five, 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 $2,900,000,000 of total borrowing capacity with nearly $1,100,000,000 available on our revolving lines subject to borrowing base limitations. This more than covers our unfunded commitments of $262,000,000 as well as all of our near term bond maturities.

Kris Corbett
Kris Corbett
CFO at New Mountain Finance

Looking forward to the remainder of 2025, the facilities outlined in red represent opportunities we see 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 2025 and early twenty twenty six. Notably, over 67% of our debt matures in or after 2027 with near term maturities representing an opportunity to continue to access the investment grade bond market.

Kris Corbett
Kris Corbett
CFO at New Mountain Finance

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

John Kline
John Kline
CEO, President & Director at New Mountain Finance

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

Laura Holson
Laura Holson
COO at New Mountain Finance

Thank you.

Operator

The first question comes from Finian O'Shea with Wells Fargo. Please go ahead.

Finian O'shea
Finian O'shea
Director, WFS Research at Wells Fargo Securities

Hey, everyone. Good morning. A question on the healthcare names. I know you highlighted the dental downgrade. It sounds idiosyncratic, but seeing if there's any industry headwinds there when noticing there are a couple more healthcare names on your Slide 33 that are downgraded on a business characteristics perspective.

Finian O'shea
Finian O'shea
Director, WFS Research at Wells Fargo Securities

And then sort of another add on there, Alliance Animal Health, one of your larger names, continues to hold up well. We're seeing some challenges across the veterinary the vet industry and seeing if these sort of headwinds relate to that as well. Thank you. Hello?

Operator

Sorry, we're just reconnecting the speaker line. Just a second.

Laura Holson
Laura Holson
COO at New Mountain Finance

Are you able to hear us?

Finian O'shea
Finian O'shea
Director, WFS Research at Wells Fargo Securities

Yes.

John Kline
John Kline
CEO, President & Director at New Mountain Finance

Great. Sorry about that. Sorry about

Laura Holson
Laura Holson
COO at New Mountain Finance

Technical difficulties over here. No. Just starting on the Did you

Kris Corbett
Kris Corbett
CFO at New Mountain Finance

have any question?

Laura Holson
Laura Holson
COO at New Mountain Finance

Did. Yes. Thank you.

Finian O'shea
Finian O'shea
Director, WFS Research at Wells Fargo Securities

Okay.

Laura Holson
Laura Holson
COO at New Mountain Finance

Just starting on the dental side and physician business practice businesses generally speaking, that is a sector that we've studied a lot at the firm level. It does have some good secular tailwinds when you think about just some of the demographics and the acyclicality of a lot of those underlying niches. But I think as we've owned businesses in the space, as we've invested in many over the years as well, I think some of the learnings around sector in particular is number one just at the top line it's a business that you don't have a lot of pricing levers to pull right when you think about just reimbursement and that's not a lever that really is available despite the fact that there are some good volume trends in many of these underlying sectors. And then I think more importantly on the expense side, it's a business that's very operationally intensive and does really require excellent execution when you think about just managing the expense base. It does have a decent amount of operating leverage in these businesses.

Laura Holson
Laura Holson
COO at New Mountain Finance

So as we've kind of lived with this sector and gotten deeper on it, it is one that's very management sensitive also. And so it's an area that we've spent less time on as of late. When talking about the specific one that we downgraded, it is a bit more idiosyncratic. We don't think, in general, we're seeing headwinds across the space for large. But certainly, as I said, because of how operationally intensive it is, it does require very specific execution.

Laura Holson
Laura Holson
COO at New Mountain Finance

And therefore, just as a lender, it's not a space that we've been prioritizing on a go forward basis. But that really is the one that we did downgrade, again, for some idiosyncratic reasons that John alluded to, specifically around just some underperformance on the volume side, but not necessarily a trend that we think is impacting overall. But again, just on a go forward basis, less of a focus for us as we originate new deals. And then switching gears to the veterinary side of things. Again, another space that has a lot of good secular tailwinds, things that we like about it, more people are getting pets, These pets are living longer.

Laura Holson
Laura Holson
COO at New Mountain Finance

There's more types of procedures and things that you can do to help pets. So again, a lot of good things here. And then the additional benefit versus maybe the dental space is that you don't have that limitation from a top line perspective, because it's typically cash pay, no reimbursement risk, etcetera. So there's a lot of things here that we do like about this space. You mentioned Alliance Animal Health in particular is one of our larger positions.

Laura Holson
Laura Holson
COO at New Mountain Finance

It is generally speaking, we feel like that space is performing quite well overall. We have seen some volume trends not on that company in particular, but just in general in the industry come off a little bit from what the COVID peak was. A lot of people got puppies and kittens during COVID and those pets go to the vet three to four times in their first year of life and then it's more like once a year thereafter. But as those pets age, we will expect to see the other side of that from a volume perspective. But again more levers here, a little less execution intensive and it's a space that we like quite a bit.

Finian O'shea
Finian O'shea
Director, WFS Research at Wells Fargo Securities

Okay. That's helpful. Thanks. And then just hitting on the dividend protection. You waived a little extra this quarter.

Finian O'shea
Finian O'shea
Director, WFS Research at Wells Fargo Securities

Can you just talk about how you're thinking about that high level? I know there are a few levers that you outlined to improve NOI, but there's headwinds as well, of course. So seeing how you're kind of thinking about this during the protection program and after? Thanks.

John Kline
John Kline
CEO, President & Director at New Mountain Finance

Sure. The dividend protection program is meant to be a form of shareholder support where we can give our shareholders really good visibility on what the dividend is going to be. We've had this in place for a while and we're committed to keeping the program in place through the 2026. So very shareholder friendly and we are in an environment as you know where spreads have come off a little bit, OIDs have come off or actually higher than they were. Deal flow is not quite what we've wanted it to be just given some volatility around the Trump tariff.

John Kline
John Kline
CEO, President & Director at New Mountain Finance

So that's why I think the dividend protection program is so important. Really gets us through periods of time like right now where it does feel a little bit tight out there. And so as we look forward, the big focus for our team is really to optimize our leverage across both the core fund as well as our JVs. We're in the process of optimizing in both areas. We do see better velocity, which is good for fee income in Q3 and Q4.

John Kline
John Kline
CEO, President & Director at New Mountain Finance

And that really dovetails with more activity that we see in our pipeline right now. So that's a real positive. We see a big catalyst around refinancing or higher cost debt. I know we showed that in our deck and I think that's a real positive catalyst for NMFC. We have a new SBIC coming online and then of course we have the buyback as well.

John Kline
John Kline
CEO, President & Director at New Mountain Finance

So there are a bunch of things that we have at the top of our mind to offset some of the pressures that we do see. And it feels great to have the New Mountain firm support around the dividend protection program. And as you mentioned in this quarter, we did go a little bit above and beyond because we do feel strongly about maintaining that consistency of dividend.

Finian O'shea
Finian O'shea
Director, WFS Research at Wells Fargo Securities

Okay. So I mean it sounds like the incremental fee kind of forget the 15% number, you'll waive incremental to make the 32% through 26%. And then just correct me if I'm wrong there, but how do you how should we The

John Kline
John Kline
CEO, President & Director at New Mountain Finance

policy think about in place is the core dividend protection. And then of course, we have the option to do more if we see fit. And I think what I was trying to describe is we do see some positive catalysts as it relates to our core earnings capability that should help support the overall dividend. So we have the announced program and that's what we're committing to.

Finian O'shea
Finian O'shea
Director, WFS Research at Wells Fargo Securities

Okay. Thanks so much.

Operator

The next question comes from Robert Dodd with Raymond James. Please go ahead.

Robert Dodd
Robert Dodd
Director - Finance at Raymond James Financial

Hi, everyone. On the RED downgrade, the consumer products business, highlighted obviously tariff exposure. I presume that was one of the businesses you had already identified as being at risk from tariffs given the nature of what it does. So what kind of it looks like you also done right on like operational performance as well as now is that tariffs related or was there something beyond the tariffs that kind of caught you by surprise with that business because it just seems you already knew about the tariff risk and it was flagged presumably internally based on that and it seems to have been worse than you expected. So can you give us any color about like general terms what happened there?

Robert Dodd
Robert Dodd
Director - Finance at Raymond James Financial

And is there to extend the question, there risk that those kind of things happen to other businesses in the portfolio as well as we go forward?

John Kline
John Kline
CEO, President & Director at New Mountain Finance

Great. Robert, thank you for the question. I'll give a couple of comments and Laura can support my comments. But, great question. The name that in question is the name that we've been upfront about from the beginning of the tariffs.

John Kline
John Kline
CEO, President & Director at New Mountain Finance

This is our one name that we feel like does have material exposure. I believe we talked about it last quarter. And going into the tariffs, it was not a green name. It was, I believe, a yellow name. And so there was some operating underperformance already present at the company and that was borne out in our ratings.

John Kline
John Kline
CEO, President & Director at New Mountain Finance

And then from our perspective really the tariff situation, which is still out there, there's still a fair amount of tariff volatility even though it doesn't feel quite as present in the headlines of The Wall Street Journal. There are still some headwinds. And this company is materially exposed to a Chinese, an Asian centric supply chain and the business is working through that. But really it was an underperformer and I think that the tariffs hurt it even more. And I think there's still a lot yet to be known about the end state of this company.

John Kline
John Kline
CEO, President & Director at New Mountain Finance

In my own head, it's not a long term impairment. I still have a personal optimism that we can get a full recovery on this name, but it's important to be very transparent and honest about the current state of the company, which is in our view a red. The business as we said in our comments will need some more liquidity. And so the sponsor can put that liquidity in or the lenders may have to put it in. We're not sure which direction that's going to go.

John Kline
John Kline
CEO, President & Director at New Mountain Finance

But over a long period of time, do or a longer period of time, we do feel like there's plenty of opportunity for this business to recover full par. But the fair value has been moved lower and we do have it as read.

Laura Holson
Laura Holson
COO at New Mountain Finance

And only the other thing to add just to your question about is there a risk of was this a surprise and was there is there risk of any others kind of surprising news from a tariff perspective. As John said, this is one that we flagged last quarter, but we did not move the risk rating at that point just given the massive amount of uncertainty at that particular moment. But now that they're even though it's not totally certain, we have a little bit more of a view as to what the tariff impact is likely to be. But from the rest of the portfolio perspective, we've continued to refresh perspectives on tariff exposure and we continue to think that otherwise it's very minimal across the rest of the portfolio.

Robert Dodd
Robert Dodd
Director - Finance at Raymond James Financial

Got it. Thank you. One more if I can. To Steve's points in the opening remarks, I mean, are tight. The half view seems to be that that is likely to normalize.

Robert Dodd
Robert Dodd
Director - Finance at Raymond James Financial

Obviously, it does even if origination spreads widen, it takes a while depending on to your point, John, velocity of activity takes a while for that to progress through the full portfolio. And then you've got a lot that you're doing on the optimization of the liability side as well. I mean, given that the timeframe that you've committed to on the dividend protection program ended 2026, Do you think you can complete all your activities in terms of optimizing the liability stack, having maybe some spread widening make its way through the portfolio and maybe monetize some the equity. Do you think all of that can be completed by the 2026, sufficient to the point that the dividend protection program maybe hypothetically might not be necessary at that point?

John Kline
John Kline
CEO, President & Director at New Mountain Finance

I think we've been very clear about all the different things that we're doing to improve our company. And I think we've reported on the cadence of improvement over the last few quarters and I continue to feel very good about it. So when I think about the next six quarters, I think that we'll continue to show really good improvement on the asset quality and the character of the assets, the liability mix. I think we'll continue to show improvement on our PIK income. We're incredibly focused on monetizing some of the largest positions.

John Kline
John Kline
CEO, President & Director at New Mountain Finance

So I do feel very, very optimistic and positive personally that we're going to be able to make some real progress. It's going to be there's some hard work to be done, but we've done we've gotten off to a good start. And I see particularly in a deal environment that we think will be good over the course of the next six to twelve months. I am optimistic about improvements in all fronts. When you think about the overall yield characteristics of just the direct lending environment, that's obviously a little tougher to predict overall.

John Kline
John Kline
CEO, President & Director at New Mountain Finance

So we're just going to focus on the parts of our business that we can control. And again, I feel good about the trajectory there.

Robert Dodd
Robert Dodd
Director - Finance at Raymond James Financial

Got it. Thank you.

Operator

Next question comes from Sean Paul Adams with B. Riley. Please go ahead.

Sean-Paul Adams
Equity Research Analyst - BDCs & Specialty Finance at B. Riley Securities

Hey, Good morning. On Amentum, it just seems that there's been a continued trend of write downs on the name. Is this just more of an unwinding that you forecast throughout the rest of the year or any secular trends in the education space?

Laura Holson
Laura Holson
COO at New Mountain Finance

No, in terms of momentum, just as a reminder, the business is an EdTech business serving the K-twelve end market. I think the market is very much there, right? There's more learning loss than ever on the heels of COVID. We think the company remains well positioned in that market to address some of that learning loss. And as John mentioned, we do have some other outside of just the core business of Edmentum continuing to expand vectors of the business to attack the career market in addition to that.

Laura Holson
Laura Holson
COO at New Mountain Finance

We do think it's a scaled platform. It's well positioned in the space. The underlying performance has been has stabilized, right? If you remember, this is a business that is performing fine pre COVID, then had a big spike during COVID, given part of the business relates to virtual learning, which obviously experienced a tremendous uptick during COVID. And at this point now that kind of uptick is kind of just renormalized and the business is stable and on a stable trajectory.

Laura Holson
Laura Holson
COO at New Mountain Finance

But as John mentioned, we just have some securities ahead of us in the capital structure that are accreting ahead of us, which modestly impacts the equity where we sit in the capital stack. So right now, the company is in the midst of its key buying season just from a summer perspective. And I think we'll continue to know more as that evolves over the next coming months. But again, I think big picture, we view it as well performing and stable underlying performance just has some of these kind of unique capital structure dynamics.

Sean-Paul Adams
Equity Research Analyst - BDCs & Specialty Finance at B. Riley Securities

Perfect. Appreciate the color. Thank you.

Kris Corbett
Kris Corbett
CFO at New Mountain Finance

Thank you.

Operator

This concludes our question and answer session. I would like to turn the conference back over to John Klein for any closing remarks. Please go ahead.

John Kline
John Kline
CEO, President & Director at New Mountain Finance

Great. Thank you again for your participation in our earnings call, and we look forward to speaking to you again in November. Have a great day. Thanks.

Operator

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

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