Is New Mountain Finance a Buy at a 15% Discount to NAV Amid Dividend Protection and Strategic Refinancing?

For value investors seeking income, business development companies (BDCs) often present a unique intersection of capital appreciation and dividend yield. New Mountain Finance Corporation (NASDAQ: NMFC) currently trades at a 15% discount to its net asset value (NAV) per share, a spread that has historically narrowed for well-managed BDCs with strong credit fundamentals. As of June 30, 2025, NMFC reported a NAV of $12.21 per share, while its stock closed at $10.18 on August 5, 2025. This discount, combined with a 12% annualized dividend yield and proactive refinancing strategies, raises the question: Is NMFC a compelling buy for income-focused investors navigating a high-yield BDC landscape?

The Attraction of a 15% NAV Discount

BDCs like NMFC are structured to invest in private middle-market companies, often leveraging debt and equity to generate returns. A significant discount to NAV can signal undervaluation, particularly when the company's portfolio is of high quality and its earnings are robust. NMFC's portfolio, for instance, maintains a 97.3% “green” rating under its internal risk system, indicating strong credit performance. This quality, coupled with a 15% discount, suggests the market may be underappreciating the company's intrinsic value.

Historically, BDCs with disciplined capital structures and consistent earnings have seen their discounts compress as investor sentiment improves. For NMFC, the discount could narrow if the market recognizes the stability of its defensive growth strategy—focusing on acyclical industries with recurring revenue and strong free cash flow. A would reveal periods of volatility, but also resilience in maintaining a relatively stable NAV despite macroeconomic headwinds.

Dividend Protection: A Shield for Income Investors

NMFC's dividend protection program, in place through 2026, is a critical feature for income-focused investors. The company's quarterly distribution of $0.32 per share is fully covered by earnings per share (EPS) of $0.32, ensuring sustainability. This 12% yield, while high for a BDC, is supported by a 15-year track record of uninterrupted payouts. Management has further reinforced this by reducing the base management fee to 1.25%, boosting net investment income and providing a buffer against economic downturns.

The program's effectiveness is evident in supplemental distributions tied to quarterly earnings. For example, in Q3 2024, NMFC paid an additional $0.01 per share, reflecting its ability to exceed base dividend requirements. This flexibility is rare in the BDC space and underscores NMFC's commitment to shareholder returns. A would highlight NMFC's competitive positioning, particularly against peers with weaker credit performance or less disciplined capital structures.

Strategic Refinancing: Aligning Liabilities with Assets

NMFC's refinancing efforts in Q4 2025 aim to optimize its cost of capital and align interest rate exposure. The company plans to refinance its 7.5% convertible and 8.25% unsecured notes, locking in hedges to mitigate rate risk. Post-refinancing, its debt mix will shift to 81% floating rate and 19% fixed rate, closely matching its asset structure (86% floating rate). This alignment reduces earnings volatility in a low-rate environment and preserves net interest margins.

With 67% of its debt maturing in or after 2027, NMFC has ample liquidity to manage near-term obligations. This strategic approach not only stabilizes cash flows but also positions the company to capitalize on potential rate cuts in 2026. A would illustrate the company's proactive risk management, a key differentiator in a sector sensitive to macroeconomic shifts.

Risks and Considerations

While the case for NMFC is compelling, investors must weigh potential risks. A widening discount to NAV could occur if market conditions deteriorate or if the company's credit performance weakens. Additionally, refinancing success hinges on favorable debt market conditions, which remain uncertain in a high-rate environment. However, NMFC's defensive growth strategy—targeting niche markets with strong secular trends—mitigates these risks by prioritizing resilience over short-term gains.

Conclusion: A Buy for Value and Income

For value investors seeking a high-yield BDC with a strong balance sheet and dividend protection, NMFC presents an attractive opportunity. The 15% discount to NAV offers a margin of safety, while the company's disciplined capital structure and refinancing plans provide long-term stability. The 12% yield, supported by earnings and a robust credit portfolio, further enhances its appeal.

Investors should monitor the company's Q4 2025 refinancing progress and watch for signs of narrowing discounts. In a market where income assets are scarce, NMFC's combination of value and yield could prove difficult to replicate. For those willing to tolerate BDC volatility, the current discount may represent a rare entry point to access a company with a proven track record of preserving capital and delivering consistent returns.