New Mountain Finance Corporation (NASDAQ: NMFC) (the "Company", "we", "us" or "our") today announced its financial results for the quarter ended September 30, 2020 and reported third quarter net investment income of $0.30 per weighted average share. At September 30, 2020, net asset value (“NAV”) per share was $12.24, compared to $11.63 at June 30, 2020. The Company also announced that its board of directors declared a fourth quarter distribution of $0.30 per share, which will be payable on December 30, 2020 to holders of record as of December 16, 2020. For additional details related to the quarter ended September 30, 2020, please refer to the New Mountain Finance Corporation Form 10-Q filed with the SEC and the supplemental investor presentation which can be found on the Company's website at http://www.newmountainfinance.com.

Selected Financial Highlights

(in thousands, except per share data) September 30, 2020 Investment Portfolio(1) $

2,918,045

Total Assets $

3,032,491

Total Statutory Debt(3) $

1,506,458

NAV(2) $

1,184,764

  NAV per Share $

12.24

Statutory Debt/Equity

1.27x

  Investment Portfolio Composition September 30, 2020 Percent of Total First Lien $

1,662,653

57.0

%

Second Lien(1)

710,741

24.4

%

Subordinated

43,536

1.5

%

Preferred Equity

111,559

3.8

%

Investment Fund

222,400

7.6

%

Common Equity and Other(4)

167,156

5.7

%

Total $

2,918,045

100.0

%

_____________________________

(1)

Includes collateral for securities purchased under collateralized agreements to resell.

(2)

Excludes non-controlling interest in New Mountain Net Lease Corporation (“NMNLC”).

(3)

Excludes the Company’s United States (“U.S.”) Small Business Administration (“SBA”)-guaranteed debentures. Includes premium received on additional convertible notes issued in June 2019.

(4)

Includes investments held in NMNLC.

We believe that the strength of the Company’s unique investment strategy – which focuses on middle market defensive growth companies that are well researched by New Mountain Capital, L.L.C. (“New Mountain”), a leading alternative investment firm, is underscored by continued stable credit performance. The Company has had only ten portfolio companies, representing approximately $220 million of the cost of all investments made since inception in October 2008, or approximately 2.8% of $7.9 billion, go on non-accrual.

Robert A. Hamwee, CEO, commented: “Our portfolio continues to perform well, and despite an increasingly challenging COVID environment, we expect that to continue. The combination of generally improving portfolio operating metrics and a better market environment for risk assets drove a further recovery in our book value.”

“We believe New Mountain’s strategy of focusing on 'defensive growth' industries and on companies that we know well continues to prove to be a successful strategy, especially during the current crisis”, added Steven B. Klinsky, NMFC Chairman. “We believe one of our keys to success is the strength of the team and we continue to build the team over time, now at approximately 180 employees.”

Portfolio and Investment Activity1

As of September 30, 2020, the Company’s NAV was approximately $1,184.8 million and its portfolio had a fair value of approximately $2,918.0 million in 106 portfolio companies, with a weighted average YTM at Cost2 of approximately 8.6%. For the three months ended September 30, 2020, the Company generated approximately $43.4 million of originations, including commitments3 for follow-on investments in thirteen portfolio companies held as of June 30, 2020. For the three months ended September 30, 2020, the Company had $7.5 million of asset sales and cash repayments3 of approximately $35.1 million.

Consolidated Results of Operations

The Company’s total investment income for the three months ended September 30, 2020 and 2019 was approximately $65.3 million4 and $72.6 million, respectively.

The Company’s total net expenses, after income tax expense, for the three months ended September 30, 2020 and 2019 were approximately $36.5 million and $41.4 million, respectively. Total net expenses, after income tax expense, for the three months ended September 30, 2020 and 2019 consisted of approximately $18.1 million and $21.8 million, respectively, of costs associated with the Company’s borrowings and approximately $16.7 million and $17.3 million, respectively, in net management and incentive fees. Since the Company’s initial public offering (“IPO”), the base management fee calculation has deducted the borrowings under the New Mountain Finance SPV Funding, L.L.C. credit facility (the “SLF Credit Facility”). The SLF Credit Facility had historically consisted of primarily lower yielding assets at higher advance rates. As part of an amendment to the Company’s existing credit facilities with Wells Fargo Bank, National Association, the SLF Credit Facility merged with and into the New Mountain Finance Holdings, L.L.C. credit facility (the “Holdings Credit Facility”) on December 18, 2014. Post credit facility merger and to be consistent with the methodology since the IPO, New Mountain Finance Advisers BDC, L.L.C. (the “Investment Adviser”) will continue to waive management fees on the leverage associated with those assets held under revolving credit facilities that share the same underlying yield characteristics with investments that were leveraged under the legacy SLF Credit Facility, which as of September 30, 2020 and 2019 totaled approximately $634.1 million and $777.6 million, respectively. For the three months ended September 30, 2020 and 2019 management fees waived were approximately $2.8 million and $3.1 million, respectively. For the three months ended September 30, 2020 and 2019, incentive fees waived were approximately $0.5 million and $0, respectively. The Investment Adviser cannot recoup management fees and incentive fees that the Investment Adviser has previously waived. The Company’s net direct and indirect professional, administrative, other general and administrative and income tax expenses for the three months ended September 30, 2020 and 2019 were approximately $1.7 million and $2.3 million, respectively.

For the three months ended September 30, 2020 and 2019, the Company recorded approximately $59.4 million5 and ($7.8) million, respectively, of net realized and unrealized gains (losses).

Liquidity and Capital Resources

As of September 30, 2020, the Company had cash and cash equivalents of approximately $68.7 million and total statutory debt outstanding of approximately $1,506.5 million6, which consisted of approximately $459.2 million of the $745.0 million of total availability on the Holdings Credit Facility, $150.5 million of the $188.5 million of total availability on the Company’s senior secured revolving credit facility (the “NMFC Credit Facility”), $242.0 million of the $280.0 million of total availability on the Company’s secured revolving credit facility (the “DB Credit Facility”), $0 of the $50.0 million of total availability on the uncommitted revolving loan agreement (the “Unsecured Management Company Revolver”), $201.5 million7 of convertible notes outstanding and $453.3 million of unsecured notes outstanding. Additionally, the Company had $300.0 million of SBA-guaranteed debentures outstanding as of September 30, 2020.

Portfolio and Asset Quality1

The Company puts its largest emphasis on risk control and credit performance. On a quarterly basis, or more frequently if deemed necessary, the Company formally rates each portfolio investment on a scale of one to four. Each investment is assigned an initial rating of a “2” under the assumption that the investment is performing materially in-line with expectations. Any investment performing materially below our expectations, where the risk of loss has materially increased since the original investment, would be downgraded from the “2” rating to a “3” or a “4” rating, based on the deterioration of the investment. An investment rating of a “4” could be moved to non-accrual status and the final development could be an actual realization of a loss through a restructuring or impaired sale.

As of September 30, 2020, eight portfolio companies had an investment rating of “3” and six portfolio companies had an investment rating of “4”. The Company’s investments in the portfolio companies with an investment rating of “3” had an aggregate cost basis of approximately $216.5 million and an aggregate fair value of approximately $174.4 million. The Company’s investment in portfolio companies with an investment rating of “4” had an aggregate cost basis of approximately $154.4 million and an aggregate fair value of approximately $86.1 million.

Recent Developments

On October 28, 2020, the Company’s board of directors declared a fourth quarter 2020 distribution of $0.30 per share payable on December 30, 2020 to holders of record as of December 16, 2020.

_____________________________

1

Includes collateral for securities purchased under collateralized agreements to resell.

2

References to “YTM at Cost” assume the accruing investments, including secured collateralized agreements, in our portfolio as of a certain date, the ‘‘Portfolio Date’’, are purchased at cost on that date and held until their respective maturities with no prepayments or losses and are exited at par at maturity. This calculation excludes the impact of existing leverage. YTM at Cost uses the LIBOR curves at each quarter’s respective end date. The actual yield to maturity may be higher or lower due to the future selection of LIBOR contracts by the individual companies in the Company’s portfolio or other factors.

3

Excludes revolving credit facilities, netbacks, payment-in-kind (“PIK”) interest, bridge loans, return of capital and realized gains / losses.

4

Excludes $0.3 million of NII related to non-controlling interests in NMNLC.

5

Excludes $1.1 million of net unrealized loss related to non-controlling interests in NMNLC.

6

Excludes the Company’s United States (“U.S.”) Small Business Administration (“SBA”)-guaranteed debentures.

7

Includes premium received on additional convertible notes issued in June 2019.

Conference Call

New Mountain Finance Corporation will host a conference call at 10 a.m. Eastern Time on Thursday, November 5, 2020, to discuss its third quarter 2020 financial results. All interested parties may participate in the conference call by dialing +1 (877) 443-9109 approximately 15 minutes prior to the call. International callers should dial +1 (412) 317-1082. This conference call will also be broadcast live over the Internet and can be accessed by all interested parties through the Company's website, http://ir.newmountainfinance.com. To listen to the live call, please go to the Company's website at least 15 minutes prior to the start of the call to register and download any necessary audio software. Following the call, you may access a replay of the event via audio webcast on our website. We will be utilizing a presentation during the conference call and we have posted the presentation to the investor relations section of our website.

New Mountain Finance Corporation Consolidated Statements of Assets and Liabilities (in thousands, except shares and per share data) (unaudited)  

September 30, 2020

December 31, 2019

Assets Investments at fair value Non-controlled/non-affiliated investments (cost of $2,298,918 and $2,619,408, respectively) $

2,247,848

 

$

2,613,801

 

Non-controlled/affiliated investments (cost of $79,785 and $82,825, respectively)

55,769

 

73,527

 

Controlled investments (cost of $599,584 and $449,308, respectively)

593,006

 

472,952

 

Total investments at fair value (cost of $2,978,287 and $3,151,541, respectively)

2,896,623

 

3,160,280

 

Securities purchased under collateralized agreements to resell (cost of $30,000 and $30,000, respectively)

21,422

 

21,422

 

Cash and cash equivalents

68,664

 

48,574

 

Interest and dividend receivable

33,568

 

31,800

 

Receivable from unsettled securities sold

4,490

 

 

Receivable from affiliates

513

 

277

 

Other assets

7,211

 

3,702

 

Total assets $

3,032,491

 

$

3,266,055

 

  Liabilities Borrowings Holdings Credit Facility $

459,163

 

$

661,563

 

Unsecured Notes

453,250

 

453,250

 

SBA-guaranteed debentures

300,000

 

225,000

 

DB Credit Facility

242,000

 

230,000

 

Convertible Notes

201,545

 

201,623

 

NMFC Credit Facility

150,500

 

188,500

 

Deferred financing costs (net of accumulated amortization of $31,939 and $28,390, respectively)

(18,222

)

(17,640

)

Net borrowings

1,788,236

 

1,942,296

 

Payable for unsettled securities purchased

 

1,780

 

Management fee payable

19,988

 

10,298

 

Incentive fee payable

13,531

 

7,646

 

Interest payable

10,141

 

16,484

 

Payable to affiliates

1,163

 

673

 

Deferred tax liability

134

 

912

 

Other liabilities

2,138

 

2,498

 

Total liabilities

1,835,331

 

1,982,587

 

Commitments and contingencies Net Assets Preferred stock, par value $0.01 per share, 2,000,000 shares authorized, none issued

 

 

Common stock, par value $0.01 per share, 200,000,000 authorized, and 96,827,342 and 96,827,342 shares issued and outstanding, respectively

968

 

968

 

Paid in capital in excess of par

1,287,853

 

1,287,853

 

Accumulated overdistributed earnings

(104,057

)

(5,353

)

Total net assets of New Mountain Finance Corporation $

1,184,764

 

$

1,283,468

 

Non-controlling interest in New Mountain Net Lease Corporation

12,396

 

 

Total net assets $

1,197,160

 

$

1,283,468

 

  Total liabilities and net assets $

3,032,491

 

$

3,266,055

 

  Number of shares outstanding

96,827,342

 

96,827,342

 

Net asset value per share of New Mountain Finance Corporation $

12.24

 

$

13.26

 

 

New Mountain Finance Corporation Consolidated Statements of Operations (in thousands, except shares and per share data) (unaudited)   Three Months Ended Nine Months Ended September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019 Investment income From non-controlled/non-affiliated investments: Interest income (excluding Payment-in-kind ("PIK") interest income) $

41,854

 

$

50,096

 

$

144,383

 

$

140,602

 

PIK interest income

2,547

 

1,356

 

6,464

 

3,325

 

Non-cash dividend income

2,274

 

2,239

 

6,898

 

6,282

 

Other income

1,497

 

3,599

 

4,085

 

7,694

 

From non-controlled/affiliated investments: Interest income (excluding PIK interest income)

781

 

659

 

1,963

 

1,979

 

PIK interest income

217

 

392

 

(1,131

)

1,109

 

Dividend income

687

 

788

 

2,096

 

2,326

 

Non-cash dividend income

 

309

 

(3,418

)

901

 

Other income

427

 

342

 

1,002

 

934

 

From controlled investments: Interest income (excluding PIK interest income)

2,011

 

720

 

4,581

 

2,323

 

PIK interest income

2,244

 

1,997

 

6,393

 

5,441

 

Dividend income

8,107

 

7,661

 

24,061

 

23,383

 

Non-cash dividend income

1,576

 

2,273

 

5,716

 

6,446

 

Other income

1,299

 

163

 

2,479

 

505

 

Total investment income

65,521

 

72,594

 

205,572

 

203,250

 

Expenses Incentive fee

7,135

 

7,792

 

21,857

 

21,642

 

Management fee

12,877

 

12,687

 

39,869

 

35,302

 

Interest and other financing expenses

18,077

 

21,830

 

59,500

 

61,695

 

Administrative expenses

1,024

 

930

 

3,303

 

3,074

 

Professional fees

731

 

834

 

2,605

 

2,486

 

Other general and administrative expenses

442

 

492

 

1,383

 

1,302

 

Total expenses

40,286

 

44,565

 

128,517

 

125,501

 

Less: management and incentive fees waived

(3,341

)

(3,141

)

(10,067

)

(8,497

)

Less: expenses waived and reimbursed

(589

)

 

(924

)

(335

)

Net expenses

36,356

 

41,424

 

117,526

 

116,669

 

Net investment income before income taxes

29,165

 

31,170

 

88,046

 

86,581

 

Income tax expense

123

 

 

116

 

13

 

Net investment income

29,042

 

31,170

 

87,930

 

86,568

 

Net realized gains (losses): Non-controlled/non-affiliated investments

30

 

349

 

(4,431

)

439

 

Non-controlled/affiliated investments

12

 

-

 

12

 

 

Controlled investments

5

 

6

 

12

 

14

 

New Mountain Net Lease Corporation

 

-

 

812

 

 

Net change in unrealized appreciation (depreciation): Non-controlled/non-affiliated investments

21,410

 

(8,334

)

(67,407

)

4,106

 

Non-controlled/affiliated investments

(1,111

)

(143

)

(14,718

)

(2,671

)

Controlled investments

39,943

 

1,453

 

(8,278

)

3,870

 

Securities purchased under collateralized agreements to resell

 

(1,332

)

 

(1,332

)

New Mountain Net Lease Corporation

 

 

(812

)

 

Benefit for taxes

257

 

281

 

778

 

121

 

Net realized and unrealized gains (losses)

60,546

 

(7,720

)

(94,032

)

4,547

 

Net increase (decrease) in net assets resulting from operations

89,588

 

23,450

 

(6,102

)

91,115

 

Less: Net increase in net assets resulting from operations related to non-controlling interests in New Mountain Net Lease Corporation

(1,398

)

 

(1,584

 

Net increase (decrease) in net assets resulting from operations related to New Mountain Finance Corporation $

88,190

 

$

23,450

 

$

(7,686

)

$

91,115

 

Basic earnings (loss) per share $

0.91

 

$

0.27

 

$

(0.08

)

$

1.11

 

Weighted average shares of common stock outstanding-basic

96,827,342

 

86,987,841

 

96,827,342

 

82,020,549

 

Diluted earnings (loss) per share $

0.82

 

$

0.26

 

$

(0.08

)

$

1.01

 

Weighted average shares of common stock outstanding-diluted

110,084,927

 

100,245,426

 

110,084,927

 

97,948,225

 

Distributions declared and paid per share $

0.30

 

$

0.34

 

$

0.94

 

$

1.02

 

ABOUT NEW MOUNTAIN FINANCE CORPORATION

New Mountain Finance Corporation is a closed-end, non-diversified and externally managed investment company that has elected to be regulated as a business development company under the Investment Company Act of 1940, as amended. The Company’s investment objective is to generate current income and capital appreciation through the sourcing and origination of debt securities at all levels of the capital structure, including first and second lien debt, notes, bonds and mezzanine securities. The Company’s first lien debt may include traditional first lien senior secured loans or unitranche loans. Unitranche loans combine characteristics of traditional first lien senior secured loans as well as second lien and subordinated loans. Unitranche loans will expose the Company to the risks associated with second lien and subordinated loans to the extent it invests in the “last out” tranche. In some cases, the investments may also include small equity interests. The Company’s investment activities are managed by its Investment Adviser, New Mountain Finance Advisers BDC, L.L.C., which is an investment adviser registered under the Investment Advisers Act of 1940, as amended. More information about New Mountain Finance Corporation can be found on the Company’s website at http://www.newmountainfinance.com.

ABOUT NEW MOUNTAIN CAPITAL

New Mountain Capital is a New York-based investment firm that emphasizes business building and growth, rather than debt, as it pursues long-term capital appreciation. The firm currently manages private equity, public equity, and credit funds with over $28 billion in assets under management. New Mountain seeks out what it believes to be the highest quality growth leaders in carefully selected industry sectors and then works intensively with management to build the value of these companies. For more information on New Mountain Capital, please visit http://www.newmountaincapital.com.

FORWARD-LOOKING STATEMENTS

Statements included herein may contain “forward-looking statements”, which relate to our future operations, future performance or our financial condition. Forward-looking statements are not guarantees of future performance, condition or results and involve a number of risks and uncertainties, including the impact of COVID-19 and related changes in base interest rates and significant volatility on our business, portfolio companies, our industry and the global economy. Actual results and outcomes may differ materially from those anticipated in the forward-looking statements as a result of a variety of factors, including those described from time to time in our filings with the Securities and Exchange Commission or factors that are beyond our control. New Mountain Finance Corporation undertakes no obligation to publicly update or revise any forward-looking statements made herein, except as may be required by law. All forward-looking statements speak only as of the time of this press release.

New Mountain Finance Corporation Investor Relations Shiraz Y. Kajee, Authorized Representative NMFCIR@newmountaincapital.com (212) 220-3505

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