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New Mountain Finance Corp (NMFC 0.16%)
Q4Â 2019 Earnings Call
Feb 27, 2020, 10:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good day and welcome to the New Mountain Finance Corporation fourth Quarter 2019 Earnings Call. [Operator Instructions]
I would now like to turn the conference over to Rob Hamwee Chief Executive Officer of New Mountain Finance Corporation. Please go ahead.
Robert A. Hamwee -- Chief Executive Officer
Thank you. Good morning everyone and welcome to New Mountain Finance Corporation's Fourth Quarter Earnings Call for 2019. On the line with me here today are John Kline President and COO of NMFC and Shiraz Kajee CFO of NMFC. Our Chairman Steve Klinsky is unable to join the call today but we'll rejoin us on future calls. I'd like to start by asking Shiraz to make some important statements regarding today's call.
Shiraz Y. Kajee -- Chief Financial Officer
Thanks Rob. 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 February 26 earnings press release. I would also like to call your attention to the customary Safe Harbor disclosure in our press release and on page two 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 will be referencing throughout this call please visit our website at www.newmountainfinance.com. At this time I'd like to turn the call back over to Rob Hamwee NMFC's CEO who will give some highlights beginning on page four of the slide presentation. Rob?
Robert A. Hamwee -- Chief Executive Officer
Thanks Shiraz. Let me start by presenting the highlights of another solid quarter for New Mountain Finance. New Mountain Finance's adjusted net investment income for the quarter ended December 31 2019 was $0.36 per share above the high end of our guidance of $0.33 to $0.35 per share and more than covering our quarterly dividend of $0.34 per share. New Mountain Finance's book value was down $0.09 to $13.26 per share reflecting generally stable financial market conditions and limited portfolio company valuation changes. We are also able to announce our regular dividend which for the 32nd straight quarter will again be $0.34 per share an annualized yield of approximately 9.6% based on last Friday's close.
The company had another strong quarter of net deal generation investing $286 million in gross originations versus moderate repayments of $74 million. This continued balance sheet growth was in part funded by October equity issuance and keeps us fully levered in our target range inclusive of some early Q1 repayments. Credit quality remains generally strong although we did add one new historically troubled name to non-accrual this quarter our first new non-accrual in a year and a half. I and other members of New Mountain continue to be very large owners of our stock with aggregate ownership of 10.7 million shares. Finally the broader New Mountain platform that supports NMFC continues to grow with over $20 billion of assets under management and approximately 160 team members. In summary we are pleased with NMFC's continued performance and progress overall. Before diving into the details of the quarter as always I'd like to give everyone a brief review of NMFC and our strategy.
As outlined on page six of our presentation NMFC is externally managed by New Mountain Capital a leading private-equity firm. Since the inception of our debt investment program in 2008 we have taken New Mountain's approach to private equity and applied it to corporate credit with a consistent focus on defensive growth business models and extensive fundamental research within industries that are already well known to New Mountain. Or more simply put we invest in recession-resistant businesses that we really know and that we really like. We believe this approach results in a differentiated and sustainable model that allows us to generate attractive risk-adjusted rates of returns across changing cycles and market conditions. To achieve our mandate we utilize the existing New Mountain investment team as our primary underwriting resource. Turning to page seven you can see our total return performance from our IPO in May 2011 through February 21 2020.
In the nearly nine years since our IPO we have generated a compounded annual return to our initial public investors of 11% meaningfully higher than our peers in the high yield index and approximately 900 basis points per annum above relevant risk-free benchmarks. Page eight goes into a little more detail around relative performance against our peer set benchmarking against the ten largest externally managed BDCs that have been public at least as long as we have. Page nine shows return attribution. Total cumulative return continues to be largely driven by our cash dividend which in turn has been more than 100% covered by NII. As the bar on the far right illustrates over the nearly nine years we have been public we have effectively maintained a stable book value inclusive of special dividends while generating a 10.2% cash-on-cash return for our shareholders.
We attribute our success to one our differentiated underwriting platform; two our ability to consistently generate the vast majority of our net investment income from stable cash interest income in an amount that covers our dividend; three our focus on running the business with an efficient balance sheet and always fully utilizing inexpensive appropriately structured leverage before accessing more extensive equity; and four our alignment of shareholder and management interest. Our highest priority continues to be our focus on risk control and credit performance which we believe over time is the single biggest differentiator in total return in the BDC space. Credit performance continues to be strong with material quarter-over-quarter credit deterioration only in the same name we called out last quarter PPVA which we have now decided to put amount accrual. We were only accruing approximately $500000 per quarter on this investment and therefore this will not have a meaningful impact on NII and dividend coverage going forward. Furthermore as this name has been troubled for a number of years historical value diminution has been largely recognized previously.
In this quarter our mark moved from 74 to 71 a fair value change of $1.1 million. We have also decided to write off $5 million of previously accrued but unpaid PPVA interest income which we recognized in 2016 2017 and 2018. It is important to note that New Mountain Capital as manager this quarter will be reimbursing NMFC for all incentive fees collected on this income or $1 million. As mentioned last quarter PPVA has effectively been an ongoing liquidating trust under Cayman law for a number of years and as our one significantly troubled asset we continue to spend a lot of time attempting to maximize our recoveries from the PPVA entities state. Given the complex mix of underlying assets and litigation claims while we believe our valuation of $0.71 currently fairly reflects the midpoint of likely recoveries scenarios significant volatility risk exists around that midpoint.
If you refer to page 10 we once again layout the cost basis of our investments both the current portfolio and our cumulative investments since the inception of our credit business in 2008 and then show what has migrated down the performance ladder. Since inception we have made investments of approximately $7.7 billion in 287 portfolio companies of which only nine representing just $165 million of cost have migrated to non-accrual of which only four representing $43 million of cost have thus far resulted in realized default losses. Furthermore over 99% of our portfolio at fair market value is currently rated one or two on our internal scale. page 11 shows leverage multiples for all of our holdings over $7.5 million when we entered an investment and leverage levels for the same investment as of the end of the most recent reporting period. While not a perfect metric the asset by asset trend and leverage multiple is a good snap-shot of credit performance and helps provide some degree of empirical fundamental support for our internal ratings and marks.
As you can see by looking at the table leverage multiples are roughly flat or trending in the right direction with only a few exceptions. There are currently only two names represented by three different securities that have had negative migration of 2.5 turns or more both of which have been discussed in previous quarters and have been previously restructured. The first is Edmentum where operating results an enterprise value continue to meaningfully improve. The second is Uni-tech where a few operational missteps led to weaker financial results in 2019 but where secular trends continue to be strong in the company's key operating division providing us optimism for improvement in 2020. The chart on page 12 helps track the company's overall economic performance since its IPO. At the top of the page we show how the regular quarterly dividend is being covered out of net investment income.
As you can see we continue to more than cover 100% of our cumulative regular dividend out of NII even after stripping out the now reverse PPVA accrual. On the bottom of the page we focus on below the line items. First we look at realized gains and realized credit and other losses. You can see looking at the row highlighted in green we have had success generating real economic gains every year through a combination of equity gains portfolio company dividends and trading profit. Conversely realized losses including default losses highlighted in orange have generally been smaller and less frequent and show that we are typically not avoiding non-accruals by selling poor credits at a material loss prior to actual default. As highlighted in blue we continue to have a net cumulative realized gain which currently stands at $18 million.
Looking further down the page we can see that cumulative net unrealized depreciation highlighted in gray stands at $68 million and cumulative net realized and unrealized loss highlighted in yellow is at $49 million. The net result of all of this is that in our nearly nine years as a public company we have earned NII of $705 million against total cumulative net losses including unrealized of only $49 million. Turning to page 13. We have seen significant growth in the portfolio over the last year as we have increased our statutory leverage. Consistent with this strategy we articulated when we received shareholder authorization to increase leverage more than 100% of the growth in assets has come from senior securities as through repayments and sales non-first liens have actually shrunk on an absolute basis by $60 million while first lien assets have grown by $1.2 billion.
I will now turn the call over to John Kline NMFC's President to discuss market conditions and portfolio activity. John?
John R. Kline -- President & Chief Operating Officer
Thanks Rob. As outlined on page 14 direct lending deal flow in our core sectors was strong in Q4 and for the year as a whole. Q1 deal flow has been somewhat weaker due to the normal seasonal slowness associated with the beginning of the year. We have seen some recent pressure on new issued loan spreads due to what we believe is a temporary supply and demand imbalance which should moderate as sponsors become more active in the coming months. We continue to see high-quality businesses trade at historically high multiples. Often in the range of 15x to 20x EBITDA. Additionally there continues to be a very strong trend in the direct lending market toward larger club deals. Over the last six months we have seen multiple club financings over $1 billion which we believe is a very positive trend for our business.
While we acknowledge uncertainty around the Coronavirus looking forward we expect transaction flow to improve in the coming months and we remain well-positioned to select underwrite and access the best deals available in the marketplace. Turning to page 15. Given our current assets to liability mix LIBOR has been a headwind in our business. In 2019 the market experienced a 90 basis point decline in three-month LIBOR with an additional 20 basis point decline since the beginning of the year. While volatile the forward LIBOR curve currently suggests that three-month LIBOR could decline by an additional 50 to 75 basis points in the coming quarters. Based on the sensitivity shown on page 15 if this does occur declining LIBOR would represent a $0.015 to $0.02 per quarter earnings headwind.
However we continue to believe that if base rates migrate materially lower due to heightened risks in the economy we will experience an offsetting increase in loan spreads which together with our improved debt to equity mix and the continued ramp of our SBIC investing program will enable us to maintain our target earnings level. Pages 16 and 17 show that NMFC had a very strong quarter with total originations of $286 million offset by $117 million of sales and repayments representing a $169 million increase in our portfolio. Our new investments were highlighted by a number of middle-market club deals an addition to our net lease portfolio and secondary purchases adding to existing positions. Consistent with market trends that I discussed in my opening remarks most of our additions to the portfolio our financings related to fresh buyouts trading at very healthy enterprise value multiples that are supportive with historically high amounts of equity as a percentage of the total purchase price.
These purchase price multiples which have steadily increased over the past year enhance the loan-to-value ratios on our investments indicate strong sponsor support and validate the attractiveness of the defensive growth niches that we target. Our average loan to value on new originations in Q4 was 42%. On page 18. We report our annual origination track record which again shows over $1 billion of gross originations a record level of nearly $800 million net originations driven by notably low repayments and sales. We expect that going forward portfolio company driven repayments will increase to a level more in line with historical trends. Page 19 shows our continued origination momentum since the end of the quarter where we have invested $110 million in new transactions with $80 million of repayments. Notable post-quarter-end transactions included large club deals for MRI software and Company X acquisition-related financings for two existing portfolio companies and an add-on investment supporting the expansion of SLP III.
Looking forward we have a solid pipeline of new investment opportunities in our core defensive growth verticals. Turning to page 20 our mix of originations continues to skew meaningfully toward first-lien loans accounting for 69% of total new originations this quarter. Our sales and repayments were also represented by first-lien assets in roughly the same proportion. As shown on page 21 NMFC's asset level portfolio yield increased by 20 basis points from 9.3% in Q3 to 9.5% pro forma for the positive change in the forward curve in Q4. While the forward LIBOR curve which represents the expectation for future rates increased slightly in Q4 it has since decreased materially with the recent downward movement in rates. While we remain mindful of the potential continued volatility in the base rate we are comfortable that our portfolio yield supports our quarterly dividend. The top of page 22 shows a balanced portfolio across our defensive growth-oriented sectors. In the services section of the pie chart we break out subsectors to give better insight into the significant diversity within our largest sector.
The chart on the bottom left of the page presents our portfolio by asset type where you can see the shift toward first-lien oriented assets that we discussed earlier in the call. Currently only 1/3 of our investments are junior in the capital structure. The chart on the lower right shows the majority of our portfolio is performing broadly in line with expectations. Finally as illustrated on page 23 we have a diversified portfolio with our largest investment at 3.2% of fair value and the top 15 investments accounted for 32% of fair value. As you can see on the lower right side of the page we have added more position diversity in each of the last four quarters to decrease our risk from any one borrower. We expect this trend to continue going forward.
With that I will now turn it over to our CFO Shiraz Kajee to discuss the financial statements and key financial metrics. Shiraz?
Shiraz Y. Kajee -- Chief Financial Officer
Thank you John. For more details on our financial results and today's commentary please refer to the Form 10-K that was filed last evening with the SEC. Now I'd like to turn your attention to slide 24.T portfolio had approximately $3.2 billion in investments at fair value at December 31st 2019 and total assets of $3.3 billion. With total liabilities of $2 billion of which total statutory debt outstanding was $1.7 billion excluding $225 million of drawn SBA guaranteed debentures. Net asset value of $1.3 billion $30.26 per share was down $0.09 from the prior quarter. At December 31st our statutory debt to equity ratio was 1.35 to 1. It is important to note that due to previously anticipated repayments received this year as of today our statutory leverage is 1.28 to one putting us within our target range.
On slide 25 we show our historical leverage ratios. Step up in leverage over the past seven quarters it is in line with our current target statutory debt to equity ratio. On the slide we also show our historical NAV adjusted for the cumulative impact of special dividends which shows the stability of our book value since OID IPO. On Slide 26 we show our quarterly income statement results. We believe that our adjusted NII is the most appropriate measure of our quarterly performance. This slide highlights that while realized and unrealized gains and losses can be volatile below line we continue to generate stable net investment income above the line. Focusing on the quarter-ended December 31st 2019 we earned total investment income of $77.9 million an increase of $5.3 million from the prior quarter primarily due to higher interest income from the increased asset base. Total net expenses were approximately $43.5 million a $2.1 million increase from the prior quarter due to higher borrowing costs and fees.
As in prior quarters the investment advisor continues to waive certain management fees. Effective annualized management fee this quarter was 1.28%. It is important to note that the investment advisor cannot recoup fees previously waived. This results in the fourth quarter adjusted NII of $34.4 million or $0.36 per weighted average share which is above our guidance and more than covered our Q4 regular dividend of $0.34 per share. Inclusive of the previously mentioned $4 million net interest rate associated with income accrued in prior years. Our GAAP NII for the quarter was $0.32 per weighted average share as a result of the net unrealized depreciation in the quarter. For the quarter ended some of the 31st 2019 we had an increase in net assets resulting from operations of $25.3 million. On slide 27 I'd like to give a brief summary of our annual bookings for 2019. For the year ended December 31st 2019 we had total investment income of approximately $281 million and total net expenses of 160 million ounces.
This all resulted in 2019 total adjusted net investment income of $121 million or $1.42 per weighted average share. Our GAAP NII for the year was $1.38 per weighted average share which more than covered our with our $1.36 regular dividend paid in 2019. In total for the year ended December 31st 2019 with total net increase in net assets resulting from operations of approximately $116 million. Slide 28 demonstrates our total investment income is recurring in HAM predominantly paid in cash. As you can see 94% of total investment income is recurring and cash income remains strong at 86% this quarter. We believe this consistency shows the stability and predictability of our investment income. Turning to slide 29 as briefly discussed earlier our adjusted NII for the fourth quarter covered our Q4 dividend given our belief that our Q1 2020 NII will fall within our guidance of $0.33 to $0.35 per share.
Our Board of Directors has declared a Q1 2020 dividend of $0.34 per share which will be paid on March 27th 2020 to holders of record on March 13th 2020. On slide 13 we highlighted our various financing sources. Taking into account SBA guaranteed debentures we had over $2.2 billion of total borrowing capacity at quarter end. During Q4 we successfully upsided both our Deutsche Bank and NMFC credit facilities by 70 and $50 million respectively. Additionally we were approved by the SBA to access an additional $75 million in debentures under our SBIC II program. As a reminder both our Wells Fargo and Deutsche Bank credit facilities covenants are generally tied to the operating performance of the underlying businesses that we lend to rather than the marks of our investments at any given time. Finally on slide 31 we show our leverage maturity schedule. As we've diversified our debt issuance we've been successful at laddering our maturities to better manage liquidity. We currently have no near-term maturities.
With that I would like to turn the call back over to Rob.
Robert A. Hamwee -- Chief Executive Officer
Thanks Shiraz. It continues to remain our intention to consistently pay the $0.34 per share on a quarterly basis for future quarters so long as NII covers the dividend in line with our current expectations. In closing I would just like to say that we continue to be pleased with our performance to date. Most importantly from our credit perspective our portfolio overall continues to be quite healthy. Once again we'd like to thank you for your support and interest. And at this point turn things back to the operator to begin Q&A. Operator?
Questions and Answers:
Operator
[Operator Instructions] The first question comes from Owen Lau from Oppenheimer. Please go ahead.
Owen Lau -- Oppenheimer -- Analyst
Good morning and thank you for taking my questions. So Unitech global surfaces it seems to us that you marked down the first lien debt to 89% and prefer to 86% so the spread was about 3%. Maybe could you please explain why we don't see a wider spread between the two? Thank you.
Robert A. Hamwee -- Chief Executive Officer
Yes I mean I think a lot of it has to do with the underlying yields on both the different tranches of debt. So the junior tranche has a much wider yield. So when we marked Unitech we did create as you go down the capital structure the implied yield gets wider as it should so the difference really is just the coupons on the different pieces of debt.
Owen Lau -- Oppenheimer -- Analyst
Okay got it. And then another question it may still be a little bit early here but do you see any early sign of impact from Corona virus fear on your portfolio companies and how would you assess in Medicaid the potential risk here? Thank you very much.
Robert A. Hamwee -- Chief Executive Officer
Yes and it's obviously something we've been thinking a lot about in the last few days and you're right it's too early to see anything in the reported numbers or even in kind of flash KPIs but we think prospectively if the Corona virus does have the impact that certain folks think it might have in that markets impounding that it might have. We do believe we're very well positioned on a relative basis we don't have anything in the portfolio that should be first order or even second order impact of Corona virus. We don't have travel and leisure.
We don't have manufacturing supply chain issues logistics ships out at sea. So we continue to believe the portfolio is very defensively constructive when you think about things like enterprise software U.S. healthcare. Some of the technology-enabled business services that makes up the vast majority of our portfolio. Those things should not be directly impacted by Corona virus and nor should they be directly impacted if Corona virus does in fact lead to an economic downturn. We've always said that we are atypically focused and if this is the catalyst that thesis will find out we feel quite good about our positioning in light of turn of events.
Owen Lau -- Oppenheimer -- Analyst
All right that's it thank you very much.
Robert A. Hamwee -- Chief Executive Officer
Yeah, thank you.
Operator
[Operator Instructions] The next question comes from Finian O'Shea of Wells Fargo. Please go ahead.
Finian O'Shea -- Wells Fargo -- Analyst
Hi good morning how are you? Just first question on the non-accrual can you remind us why the nature of the collateralized resale agreement I'm sure it's a simple answer there more importantly how much does this probably weaker structure on the underlying play into your recovery scenario?
Robert A. Hamwee -- Chief Executive Officer
Yes it really doesn't plan to the recoveries from there. We have a crystallized claim in the court restructuring. So we are well positioned there and there is very little secured debt in the state ahead of our claim the significant majority of all the secured debt has been paid off based on cash proceeds received. So we are effectively sitting up at the top of the structure right now a little bit ahead of us but literally single digit millions. We are in line to receive proceeds in the coming year as they come in year or two to begin working the claim down.
Finian O'Shea -- Wells Fargo -- Analyst
Okay. That partially answered my follow-on. I was going to ask that it had been in court for at least there is news out there from earlier last year but I was going to ask you was the non-accrual itself based on any was this just the development of your ongoing assessment of valuation or was there is there sort of a development in courts that's telling us where you'll be? You kind of just answered that proceeds will start trickling in over the year. So I assume we're at somewhat of a conclusion period.
Robert A. Hamwee -- Chief Executive Officer
I think inclusive is too strong as probably as Winston Churchill would say it's maybe not the beginning of the end but the end of the beginning so it's still a multi-year process to play through and there are fits and starts. Because there's obviously a major criminal investigation around this whole procedure that obviously takes precedent over to civil litigation side. So I don't want to get too precise around timing but we're certainly making good progress and expect to have updates in the quarters ahead to help further refine.
Finian O'Shea -- Wells Fargo -- Analyst
Okay that's fair enough. Just a couple on the market. I think John mentioned the outlook for improving private equity deal flow I've heard at least a couple managers with opposing views and there is kind of concerns in the context of high multiples and late cycle concerns. So I guess what would you say or how would you support the view of rebounding buyout activity?
Robert A. Hamwee -- Chief Executive Officer
Yes. So I mean I think a couple of factors. And I'm going to put Corona virus to the side and that continues to explode that has its own impact and we're not trying to out that so we got to put that to the side for a moment. But in an ordinary course market I think the view is supported by we are working in that market every day of the major private equity sponsored buyer-seller of companies. So we have a pretty well-informed view of the pipeline and it may be with different folks who are maybe different industries. As I've said in the past the market has sort of moved in our direction.
There is increasing below in the areas that we focus on but it may be just a mix issue there and then I think the other sort of macro thing that gives one confidence in the view is just the formation of capital and private equity that really increased dramatically in the last couple of years continues to increase bigger funds more funds and in the history of private equity very rarely has anyone ever given back money. And as we know there is finite timeline to put that capital to work. So for all those reasons I think we'll have that confidence again Corona virus off to the side.
Finian O'Shea -- Wells Fargo -- Analyst
And then one final related and perhaps more difficult question on spreads. So I think one of you commented on a little bit of confidence that there be spread widening as well in the context of the forward LIBOR curve but LIBOR has been sliding down for at least a year so I think it's fair to say we've seen just a lot of return compression at least on mid-to-higher quality credits. So would you you've been indirect lending for a while. Are you saying that the supply and demand is balancing out here and things should level off?
Robert A. Hamwee -- Chief Executive Officer
Last year we saw like you said LIBOR compression over the course of the year As John highlighted we did see modest spread expansion over the course of last year. And that came to an abrupt end in January where we've seen obviously again pre-Corona a meaningful rally in credit and therefore a compression in spreads. So for maybe six weeks Jan one through Feb 15 we did have sort of what is typically anomalous which is both ongoing LIBOR compression and spread compression. Anything can happen but long-term that has never occurred and there always seems to be some catalyst and maybe now it's Corona virus but obviously spreads are widening again LIBOR continues to fall. So that's why in our experience like we said we've been at this a long time is that in the long run those two things are inversely correlated. And that was the case over 2019 and we're sort of seeing it again here after six weeks of anomalous behavior.
John R. Kline -- President & Chief Operating Officer
The only thing I'd add is when you think about spreads going down in treasuries to record low levels that clearly signals risk aversion in the market and so it's just impossible for us to think that if there is risk aversion in the market place generally that spreads are going to go tighter. That just doesn't make sense to us. So risk aversion is going to mean wider spreads and that's why we're optimistic about wider spreads in the current environment.
Finian O'Shea -- Wells Fargo -- Analyst
Very well. That's all from me. And thank you for the color.
Robert A. Hamwee -- Chief Executive Officer
Yes. Thank you.
Operator
The next question comes from Ryan Lynch of KBW. Please go ahead.
Ryan Lynch -- KBW -- Analyst
Hey, Rob, Good morning. First question has to do with your leverage you had mentioned you now have access to additional $150 million of SBA debentures obviously those don't count toward your regulatory or statutory leverage on your balance sheet and that's where you usually that's what you said your leverage target at. Do you know however that's real leverage that you are putting on your balance sheet do you take into consideration the total debt to equity at all. Does that play any sort of component of how to operate your business or are you just pretty much solely focused on that regulatory or statutory leverage ratio?
Robert A. Hamwee -- Chief Executive Officer
It's a good question. We do look at both we prioritize. The regulatory versus the absolute number but on page 25 we tracked both and haven't been radical divergence in what would we expect that and even as we ramp up the ongoing SBA as the business has continued to grow I wouldn't expect the delta between regulatory and absolute leverage to be radically different than it's been in recent quarters. There may be some slight fluctuations but I wouldn't expect those fluctuations to be overly material.
Ryan Lynch -- KBW -- Analyst
Okay. It's helpful. Then follow it up on your comments regarding LIBOR. LIBOR comes down a lot. It looks like it's going to continue to trend lower going forward. You mentioned in your comment giving you guys leverage profile and things like that. You guys think can support the dividend at this level. You guys have clearly done a fantastic job historically covering that. I'm just curious is there any appetite to potentially if it comes to this shift any more of your portfolio to more non-first lien assets? I look at slide 13 you guys have done a fantastic job of reducing those non-first lien assets as you guys have grown leverage as you talked about but given the pretty dramatic move that we've had in LIBOR it looks like it's going to continue. Is there appetite if necessary to shift into more of those non-first lien assets?
Robert A. Hamwee -- Chief Executive Officer
Yes I think it's another good question. I think we've also like you said moved a lot. I think at our peak we were under 50% senior. We're now high 60 senior. Could it come down to mid-60? It's not going to go back to 50 50. I can tell you that. But a few percentage points around the edges but only if we find from the bottoms up securities that with our kind of zero loss underwriting standards. No matter what we do we're going to maintain the absolute discipline around underwriting. We're not going to solve to a portfolio level yield at the expense of taking on incremental risk at the asset level.
Ryan Lynch -- KBW -- Analyst
That makes sense. Then I have one more just kind of a higher-level question on the Coronavirus. I'm not going to ask you what you think the impacts are on your portfolio companies because I think it's just far too early and it's far too fluid of a situation with so many unknowns of how this plays out. What I do want to know is what are the processes and steps that New Mountain takes us a platform to both monitor the global impacts of the Coronavirus are having and then specifically how do you guys monitor that at your underlying borrowers? Given that as you mentioned but it's not going to show up any data for a while now and it's very fluid. How are you actually trying to monitor that though with your specific borrowers?
Robert A. Hamwee -- Chief Executive Officer
At the platform level obviously it's a critical issue. I do think we actually have we've had some internal conversation already. We actually have some pretty good insight because of our very large footprint in healthcare so we have none of us around the table are epidemiologists. We actually have access to some of the very best minds in this space and as both just human beings and as investors. We care a lot about this and we're able to track it is as well as anyone. As you said there is uncertainty even when you talk to the best epidemiologist in the world etc. So even the platform level we can stay quite well informed. Now taking that a layer down from the credit business into our borrowers is hard.
We are entitled to the information that we are entitled to pursuant to our credit agreements. Now most of our borrowers we have a real dialogue with and we are trying to ramp up the interaction with management with the sponsors to have a qualitative more real-time overview as opposed to the backward-looking numbers. We're doing everything in our power. But I don't want to oversell what that can ultimately allow us to do. I take honestly most comfort. So we've done is we've gone through our individual borrowers. We've look at them line by line and you say "Is this a business model that is likely to be impacted assuming maybe not the worst case but a bad case of Coronavirus?" The answer for the most part is no. That is what gives me I think and the team here the most comfort.
Ryan Lynch -- KBW -- Analyst
Okay. And that's good color and helpful. Those are all my questions. I appreciate the time today.
Robert A. Hamwee -- Chief Executive Officer
Great. Thank you.
Operator
The next question comes from David Miyazaki of Confluence Investment Management. Please go ahead.
Robert A. Hamwee -- Chief Executive Officer
David. Good morning.
David Miyazaki -- Confluence Investment Management -- Analyst
Good morning. Thank you for taking my question. I didn't want to let the I think that investors have kind of expect you guys to handle things properly shareholders the right way but reversing the pick in your incentive income it was a thoughtful thing for shareholders. Even though you guys do that kind of thing all the time I think it's still something that should be applauded and so thank you for doing that.
Robert A. Hamwee -- Chief Executive Officer
Thank you.
David Miyazaki -- Confluence Investment Management -- Analyst
We appreciate it and I don't want to sort of like beat a dead horse here too much but following up a little bit on what Ryan was talking about. A couple of things. The response in the public equity and debt markets to Coronavirus has been so that in the middle market things tend to be a little lag. But just probably really early to see this yet but kind of thinking through for example if you were to issue debt in the public markets the spread would be wider. Are you seeing any body language from banks and how they're viewing credit facilities or how they might be viewing advance rates? Then on the other side of things I wonder if you could share some perspective that you have from the private equity side would be considering the exposure to Corona? Is it creating some pause in transactions? Does it have any impact on the way that valuations or leverage might be applied to private equity deals?
Robert A. Hamwee -- Chief Executive Officer
Yes. On the second part of that on the private equity side and in the capital market again it's moving so quickly and we've seen such a radical reaction however you measure it whether it's the 10-year move. It's looking at the looking at 10% down and five days in the equity market. I think everyone's reevaluating everything. The private equity typically moves in a timeframe of months. I think people are just kind of seeing day to day how things play out. It very well could impact valuations. It could impact leverage ability quantum of debt and rates on debt for sure. John said the risk appetites in the public markets decrease or that is going to be reflected in the private markets for certain but people are going to see how things develop. It's not going to get whipsawed on a day to day basis.
So I think we'll know a lot more in a couple of weeks as whether this is sort of a transient thing or whether this is a long haul thing. In terms of our position as a borrower we're fortunate that based on both terming out the debt and having advanced rates that are not subject to market sentiment or even underlying prices of our assets there's really no changes nor are we expect to see any changes. When we think about incurring future debt down the road we'll have to see but we're not looking to tap into that market anytime in the near to medium term other than opportunistically if things got better and we could improve our foreign costs of course. So we're really not exposed to that but again like any asset class I would expect that there will be a reaction to some degree there.
David Miyazaki -- Confluence Investment Management -- Analyst
All right great. Thank you very much for that color.
Robert A. Hamwee -- Chief Executive Officer
For sure. Thank you.
Operator
[Operator Instructions] This concludes our question and answer session. I would like to turn the conference back over to Rob Hamwee for any closing remarks.
Robert A. Hamwee -- Chief Executive Officer
Great well thanks to everyone for the interest today we appreciate it. We obviously will be monitoring the market very closely. It's kind of a volatile time right now and we'll be looking forward to updating folks in the weeks and months ahead. So thank you and have a great day. Bye.
Operator
[Operator Closing Remarks]
Duration: 48 minutes
Call participants:
Robert A. Hamwee -- Chief Executive Officer
Shiraz Y. Kajee -- Chief Financial Officer
John R. Kline -- President & Chief Operating Officer
Owen Lau -- Oppenheimer -- Analyst
Finian O'Shea -- Wells Fargo -- Analyst
Ryan Lynch -- KBW -- Analyst
David Miyazaki -- Confluence Investment Management -- Analyst
