New Mountain Finance (NASDAQ:NMFC) reported fourth-quarter 2025 results that management said covered the company’s quarterly dividend, while also outlining a sizable portfolio sale intended to reduce concentration, lower payment-in-kind (PIK) income, and improve financial flexibility. Executives also addressed a notable net asset value (NAV) decline tied largely to a valuation change in Edmentum and discussed how the company is positioning its portfolio amid heightened scrutiny of software credits and AI-driven market volatility.
Dividend coverage and fee actions
Chairman Steven Klinsky said adjusted net investment income (NII) in the fourth quarter was $0.32 per share, matching the $0.32 per share dividend that was paid in cash on December 31. Klinsky attributed support for earnings and the dividend to recurring income from the loan portfolio, full utilization of the company’s Dividend Protection Program—which reduces the performance fee to 15% through the end of 2026—and an additional involuntary fee waiver by the manager totaling $2.4 million.
Klinsky also said that after the Dividend Protection Program ends, the company intends to voluntarily and permanently reduce the incentive fee to 15% from the long-standing 20% level, describing the move as further alignment with shareholders.
NAV declines; Edmentum and Affordable Care drive marks
NAV at December 31, 2025 declined to $11.52 per share from $12.06, a decrease management said was driven chiefly by a lower valuation on the common equity portion of Edmentum. John Kline said the quarter’s NAV decline totaled $0.54, with Edmentum accounting for roughly two-thirds of the change and Affordable Care representing about 20%, partially offset by unrealized gains and accretive share repurchases.
Klinsky provided historical context around Edmentum, noting the company defaulted in 2015 and that New Mountain and partners improved the business and later sold a majority stake, retaining about a 10% common equity ownership stake. He said the stake peaked during the COVID-era virtual learning surge and has since declined as earnings normalized and non-cash pay interest and dividends accrued ahead of the common equity.
On the investment history, Klinsky said NMFC invested $29 million in Edmentum first lien debt that was repaid at par with interest. He added that NMFC invested $174 million related to Edmentum second lien from inception to date and has received $166 million of cash proceeds to date, including $131 million of principal repayments and $36 million of interest and fees. NMFC reduced the valuation of the equity piece to $5 million, while continuing to hold $27 million of subordinated notes and $9 million of the most senior preferred equity tranche, which were valued at par.
Management also flagged Affordable Care, a specialty dental practice management business that has been rated orange on the company’s internal “heat map.” Kline said due to continuing underperformance and high leverage, NMFC expects the business to restructure in the near term and that a debt-for-equity swap could be a catalyst for improved prospects.
$477 million portfolio sale to diversify and reduce PIK exposure
A central focus of the call was NMFC’s agreement to sell approximately $477 million of assets to a newly formed vehicle backed by Coller Capital. Klinsky said the assets are being sold at 94% of NMFC’s 12/31/2025 marks, and he described the 6% discount as a “normal transaction discount for a large, concentrated block.” He said the sale is expected to close in March and will include positions such as a “sizable piece” of the company’s benefits term loan, several PIK and subordinated positions, and some of NMFC’s most concentrated and illiquid assets.
Kline said the transaction includes 15 positions and reduces exposure to seven of the company’s 10 largest names. The portfolio being sold includes positions such as Benevis, Dealer Tire, Alliance Animal Health, and iCIMS. He added that subordinated positions represented nearly 25% of the value of the secondary portfolio and that 37% of the assets generate PIK income. Management noted that 60% of the loans were originated in 2021 or earlier and that 33% of the portfolio involved software-related companies.
On the sale price and related impacts, management said the 94% figure is the purchase price of the assets, while transaction fees and expenses are expected to total about $7 million. Klinsky said the sale’s discount is expected to reduce book value by approximately $0.35 to $11.17 per share on a pro forma basis, but argued the transaction demonstrates value above where the stock trades.
Executives emphasized the sale was driven by portfolio management goals rather than unloading distressed credits. In response to analyst questions, management said NMFC generally likes its portfolio, describing it as roughly 95% green-rated, and said the main motivations were reducing concentration and lowering PIK exposure. Kline said the sale “overnight” helps deliver on strategic initiatives by bringing down oversized positions and trimming PIK and subordinated exposure. Management also said the process was competitive and led by Evercore, with multiple bids received and Coller’s proposal selected as the most attractive.
Portfolio quality, non-accruals, and capital structure
Management repeatedly highlighted internal credit metrics. Klinsky said approximately 95% of the loan portfolio is rated green, about 5% is yellow or orange, and no names are rated red; he added that roughly $17 million of positions improved in rating during the quarter and none worsened. Kline said the most challenged orange-rated names represent only 3.2% of fair value.
On non-accruals, Kline said NMFC completed the restructuring of Beauty Industry Group, reinstating part of the debt on full accrual and equitizing the remainder, resulting in a significant ownership stake. Offsetting that improvement, NMFC moved its preferred equity in Affordable Care and its first lien position in DCA to non-accrual status, though management expects DCA to return to accrual in the second quarter. Overall non-accruals were 1.4% of the portfolio at fair value.
Chief Financial Officer Kris Corbett said the portfolio totaled $2.8 billion at fair value at year-end, with total assets of $2.9 billion. Total liabilities were $1.7 billion, including $1.5 billion of statutory debt outstanding. Net debt-to-equity was 1.21x at quarter-end, and management expects it to decline to about 0.9x on a pro forma basis after the secondary sale. In Q4, the company repaid its higher-cost 7.5% convertible notes using lower-cost credit lines, and after year-end repaid the 2021 unsecured bond using revolver and holdings credit facilities.
Corbett said NMFC had $2.3 billion of total borrowing capacity (including SBA-guaranteed ventures) and about $650 million available on a revolving line as of January 30, subject to borrowing base limitations. He added this liquidity covers unfunded commitments of $210 million and near-term bond maturities. Management said 65% of debt maturities occur in or after 2028.
Management also discussed earnings drivers and income composition. Corbett reported total investment income of $77 million, down 4% sequentially, and total net expenses of $44 million, down 5% and inclusive of fee waivers. He said adjusted NII of $0.32 per share was supported by core income, an effective incentive fee rate of 8.4%, and the share repurchase program. He added that 97% of fourth-quarter investment income was recurring, with 77% paid in cash and 15% as PIK.
Finally, management reiterated its use of share repurchases. Klinsky said NMFC repurchased about $52 million of shares in 2025 and about $15 million so far in 2026, with board authorization remaining for approximately $80 million more.
About New Mountain Finance (NASDAQ:NMFC)
New Mountain Finance Corp. is a closed-end, externally managed business development company (BDC) that provides customized debt and equity capital solutions to U.S. middle-market companies. As a BDC organized under the Investment Company Act of 1940, New Mountain Finance invests in sponsor-backed and founder-led businesses that span a range of industry sectors, with a focus on companies demonstrating resilient growth and recurring revenue streams.
The company’s investment portfolio typically includes first-lien senior secured loans, second-lien and junior debt instruments, mezzanine financing and equity co-investments.
