The SaaSpocalypse Countertrade at a 27% Discount to Book
NMFC's Q2 2026 is a bet that software mark-to-market pain was overdone — a stabilizing book, a covered dividend, and a growing buyback.
NMFC · Earnings Call · 2026-08-04
The SaaSpocalypse Countertheme
New Mountain Finance Corporation's second-quarter 2026 call is anchored by a single, company-unique keyword: blind fears of a universal SaaSpocalypse. Chairman Steve Klinsky, speaking as "a major fellow shareholder," opened with a declaration that frames the entire report:The stance is genuinely idiosyncratic. The editor-curated top keywords for the same quarter are dominated by IEEPA tariff refunds, Batch Zero grid approvals, and earnings growth; "SaaSpocalypse" appears nowhere in the global trajectory. The closest global echo is software exposure risk from 20261 — and the prior quarter's insight from John Kline about “software… dispersion… anywhere from 550 to 1,000” — John Kline, President and CEO · 2026-05-05 basis points for AI-exposed names. Rather than reduce the position, NMFC accumulated: it kept buying software loans and other assets in the secondary market "at meaningful discounts," with Laura Holson noting “spreads have stabilized around SOFR plus 500 basis points” — Laura Holson, COO, Interim CFO, and Treasurer · 2026-08-04 for sectors "relatively insulated from AI disruption."We have marked many of our well-performing loans lower based on negative market sentiments overall and pursuant to fair value accounting standards. I believe that there could be upside in the coming quarters as these loans move back towards par.
The Gap Between GAAP Losses and Distributable Earnings
At the heart of the story is the divergence between headline losses and the covered dividend. Net income printed −$51M in Q1 2026 (−317% y/y), tracking cumulative unrealized depreciation on the software book. Yet adjusted net investment income was a positive $0.26/share, covering the $0.25 dividend, with a $0.25 dividend declared for Q3 and projection of continued coverage. That divergence is exactly what Klinsky argues is temporary — the concentration in equity positions is a deliberate contrarian bet. Non-green names carry a weighted average mark of roughly $0.67, implying meaningful recovery runway if the SaaSpocalypse narrative fades. The company's own credit performance supports the thesis: non-accruals at fair value improved from 2.6% to 1.5%, and PIK income — the #1 keyword in 20252 — is now roughly 16% of investment income (13% structured, 3% modified), down from the ~20% levels that defined the discount.A Growing Buyback at a 27% Discount
The most concrete evidence of conviction is capital deployment. NMFC repurchased ~$9M in Q2 at ~$8/share — a 27% discount to the $10.89 book — bringing year-to-date repurchases to ~$66M with ~$80M remaining. The stock has returned −41.8% since 2011 and −5.4% over the last 90 days, so the 15% dividend yield is approximately 2x the high-yield index average. Klinsky's confidence is direct: “I believe that NMFC continues to be oversold.” — Steven Klinsky, Chairman · 2026-08-04 Insiders are putting money behind it — ownership rose 100 basis points sequentially and 400 bps year-over-year to ~18%.The Monetization Catalyst and a Name Out of Step With the Tape
After digesting the portfolio sale that closed in late Q1 — the same sale that was framed last November as embryonic, “the sale is still in very early stages, so it may or may not happen” — John Kline, President and CEO · 2025-11-04 — John Kline is optimistic about further exits:Smaller equity positions could exit “the next quarter or two” — John Kline, President and CEO · 2026-08-04, while larger ones remain "a lot of irons in the fire." The leverage is modest at 1.11x net debt-to-equity, below the 1–1.25x midpoint, with a refreshed liability stack (new $150M private placement, revolver extended to 2031). The contrast remains the most interesting thing. While the broader tape fixates on tariff refunds and power buildout, NMFC is making a targeted wager that software mark-to-market was overdone. Whether that resolves as a pull-to-par or another markdown is the open question — but for now, the signal from the buyback and the covered dividend is one of a name stubbornly betting against the consensus fear.We feel like we're just a couple of moves away from delivering a portfolio that has really great diversity and much better income quality characteristics… we just have to execute a couple of those moves.