Market Overview

New Mountain Finance Corporation Announces Financial Results for the Quarter Ended June 30, 2018

Share:

Reports Net Investment Income of $0.34 per Weighted Average Share and
Net Asset Value of $13.57 per Share

Declares Third Quarter 2018 Distribution of $0.34 per Share

New Mountain Finance Corporation (NYSE:NMFC) (the "Company", "we", "us"
or "our") today announced its financial results for the quarter ended
June 30, 2018 and reported second quarter net investment income of $0.34
per weighted average share. At June 30, 2018, net asset value ("NAV")
per share was $13.57, a decrease of $0.03 per share from March 31, 2018.
The Company also announced that its board of directors declared a third
quarter distribution of $0.34 per share, which will be payable on
September 28, 2018 to holders of record as of September 14, 2018.

 

Selected Financial Highlights

 

(in thousands, except per share data)

  June 30, 2018  
Investment Portfolio(1) $ 2,123,218
Total Assets $ 2,205,941
Total Statutory Debt(2) $ 930,820
NAV $ 1,032,646
 
NAV per Share $ 13.57
Statutory Debt/Equity 0.90x
 

Investment Portfolio Composition

June 30, 2018 Percent of Total
First Lien $ 828,387 39.0 %
Second Lien(1) 739,174 34.8 %
Subordinated 67,801 3.2 %
Preferred Equity 214,579 10.1 %
Investment Fund 145,200 6.9 %
Common Equity and Other(3)   128,077 6.0 %
Total $ 2,123,218 100.0 %
 

_____________________________

(1)   Includes collateral for securities purchased under collateralized
agreements to resell.
(2) Excludes the Company's United States ("U.S.") Small Business
Administration ("SBA")-guaranteed debentures.
(3) Includes investments held in New Mountain Net Lease Corporation.
 

We believe that the strength of the Company's unique investment strategy
– which focuses on acyclical "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 eight portfolio companies,
representing approximately $125 million of the cost of all investments
made since inception in October 2008, or approximately 2.1% of $5.8
billion, go on non-accrual.

Robert A. Hamwee, CEO, commented: "The second quarter represented
another solid quarter of performance for NMFC. We originated $296
million of investments as we began the process of increasing our
leverage ratio following this quarter's shareholder approval.
Additionally, we maintained a stable book value and portfolio yield."

We are very pleased with the completion of another successful quarter,"
added Steven B. Klinsky, NMFC Chairman. "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. 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 over 140 employees."

Portfolio and Investment Activity1

As of June 30, 2018, the Company's NAV was approximately $1,032.6
million and its portfolio had a fair value of approximately $2,123.2
million in 90 portfolio companies, with a weighted average YTM at Cost2
of approximately 11.1%. For the three months ended June 30, 2018, the
Company made approximately $295.6 million of originations and commitments3.
The $295.6 million includes approximately $198.9 million of investments
in nine new portfolio companies and approximately $96.7 million of
follow-on investments in thirteen portfolio companies held as of March
31, 2018. For the three months ended June 30, 2018, the Company had
approximately $55.6 million of sales and cash repayments3 of
approximately $152.6 million.

Consolidated Results of Operations

The Company's total investment income for the three months ended June
30, 2018 and 2017 were approximately $54.6 million and $50.0 million,
respectively. For the three months ended June 30, 2018 and 2017, the
Company's total investment income consisted of approximately $35.5
million and $33.6 million in cash interest income from investments,
respectively, approximately $1.9 million and $0.8 million in
payment-in-kind ("PIK") and non-cash interest income from investments,
prepayment penalties of approximately $1.0 million and $1.4 million,
respectively, net amortization of purchase premiums/discounts of
approximately $1.7 million and $1.8 million, respectively, cash dividend
income of approximately $5.3 million and $4.9 million, respectively, PIK
and non-cash dividend income of approximately $7.0 million and $4.8
million, respectively, and approximately $2.2 million and $2.7 million
in other income, respectively.

The Company's total net expenses after income tax expense for the three
months ended June 30, 2018 and 2017 were approximately $28.8 million and
$24.2 million, respectively. Total net expenses after income tax expense
for the three months ended June 30, 2018 and 2017 consisted of
approximately $12.8 million and $9.0 million, respectively, of costs
associated with the Company's borrowings and approximately $14.2 million
and $13.3 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 that share
the same underlying yield characteristics with investments that were
leveraged under the legacy SLF Credit Facility, which as of June 30,
2018 and 2017 totaled approximately $360.3 million and $356.6 million,
respectively. For the three months ended June 30, 2018 and 2017,
management fees waived were approximately $1.5 million and $1.5 million,
respectively. The Investment Adviser cannot recoup management fees that
the Investment Advisor 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 June
30, 2018 and 2017 were approximately $1.8 million and $1.9 million,
respectively.

For the three months ended June 30, 2018 and 2017, the Company recorded
approximately $(6.6) million and $(26.4) million of net realized losses,
and $5.1 million and $27.8 million of net changes in unrealized
appreciation (depreciation) of investments and securities purchased
under collateralized agreements to resell, respectively. For the three
months ended June 30, 2018 and 2017, (provision) benefit for taxes was
approximately $(1.1) million and $0.1 million, respectively, related to
differences between the computation of income for United States ("U.S.")
federal income tax purposes as compared to accounting principles
generally accepted in the United States ("GAAP").

Liquidity and Capital Resources

As of June 30, 2018, the Company had cash and cash equivalents of
approximately $33.9 million and total statutory debt outstanding of
approximately $930.8 million4, which consisted of
approximately $390.5 million of the $495.0 million of total availability
on the Holdings Credit Facility, $150.0 million of the $150.0 million of
total availability on the Company's senior secured revolving credit
facility (the "NMFC Credit Facility"), $155.3 million4 of
convertible notes outstanding and $235.0 million of unsecured notes
outstanding. Additionally, the Company had $163.0 million of
SBA-guaranteed debentures outstanding as of June 30, 2018.

Portfolio and Asset Quality

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 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.

During the second quarter of 2018, the Company placed a portion of its
second lien position in National HME, Inc. ("NHME") on non-accrual
status and wrote down the aggregate fair value of the Company's
preferred shares in NHME to zero.

As of June 30, 2018, the portion of NHME with an investment rating of
"3" had a total cost basis of approximately $13.5 million and a fair
value of approximately $6.8 million.

As of June 30, 2018, three portfolio companies (including NHME
referenced above) had an investment rating of "4". The Company's
investments in these portfolio companies had an aggregate cost basis of
approximately $16.5 million and an aggregate fair value of approximately
$7.3 million.

Recent Developments

The Company has had approximately $169.6 million of originations and
commitments since the end of the second quarter through August 3, 2018.
This was offset by approximately $178.9 million of repayments and $3.4
million of sales during the same period.

On July 5, 2018, the Company entered into a third supplement (the
‘‘Supplement'') to its Amended and Restated Note Purchase Agreement,
dated September 30, 2016 (the ‘‘NPA''). Pursuant to the Supplement, on
July 5, 2018, the Company issued to an institutional investor identified
therein, in a private placement, $50.0 million in aggregate principal
amount of 5.36% Series 2018B Notes due June 28, 2023 (the "2018B
Unsecured Notes") as an additional series of notes under the NPA. Except
as set forth in the Supplement, the 2018B Unsecured Notes have the same
terms as the $90.0 million in aggregate principal amount of the 5.313%
Notes due May 15, 2021, the $55.0 million in aggregate principal amount
of the 4.76% Series 2017A Notes due July 15, 2022 and the $90.0 million
in aggregate principal amount of 4.87% Series 2018A Notes due January
30, 2023 (collectively, the ‘‘Prior Notes'') that the Company previously
issued pursuant to the NPA, the first supplement and the second
supplement thereto, respectively. The Supplement includes certain
additional covenants and terms, including, without limitation, a
requirement that the Company not exceed a debt-to-equity ratio of 1.65
to 1.00 at the time of incurring additional indebtedness and a
requirement that the Company not exceed a secured debt ratio of 0.70 to
1.00 at any time. The 2018B Unsecured Notes will rank equal in priority
with the Company's other unsecured indebtedness, including the Prior
Notes. Interest on the 2018B Unsecured Notes will be payable
semi-annually in arrears on January 15 and July 15 of each year,
commencing on January 15, 2019.

On July 5, 2018, the Company entered into Amendment No. 4 (the
‘‘Amendment'') to the Company's NMFC Credit Facility. The Amendment
reduces the minimum asset coverage ratio that the Company must maintain
at the time of any borrowing under the NMFC Credit Facility and as of
each quarter end from 2.00 to 1.00 to 1.50 to 1.00. The Amendment also
includes a requirement that the Company not exceed a debt-to equity
ratio of 1.65 to 1.00 at the time of incurring additional indebtedness
and a requirement that the Company not exceed a secured debt ratio of
0.70 to 1.00 at any time.

On August 1, 2018, the Company's board of directors declared a third
quarter 2018 distribution of $0.34 per share payable on September 28,
2018 to holders of record as of September 14, 2018.

_____________________________

1   Includes collateral for securities purchased under collateralized
agreements to resell.
2 References to "YTM at Cost" assume the accruing investments 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, payment-in-kind ("PIK")
interest, bridge loans, return of capital and realized gains /
losses.
4 Includes premium received on additional convertible notes issued in
September 2016.
 

Conference Call

New Mountain Finance Corporation will host a conference call at 10 a.m.
Eastern Time on Wednesday, August 8, 2018, to discuss its second quarter
2018 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)
 
June 30, 2018   December 31, 2017
Assets
Investments at fair value
Non-controlled/non-affiliated investments (cost of $1,579,140 and
$1,438,889, respectively)
$ 1,584,412 $ 1,462,182

Non-controlled/affiliated investments (cost of $172,898 and
$180,380, respectively)

184,376 178,076

Controlled investments (cost of $308,628 and $171,958,
respectively)

  329,230     185,402  

Total investments at fair value (cost of $2,060,666 and
$1,791,227, respectively)

2,098,018 1,825,660

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

25,200 25,212
Cash and cash equivalents 33,948 34,936
Interest and dividend receivable 42,397 31,844
Receivable from affiliates 952 343
Other assets   5,426     10,023  
Total assets $ 2,205,941   $ 1,928,018  
 
Liabilities
Borrowings
Holdings Credit Facility $ 390,463 $ 312,363
Unsecured Notes 235,000 145,000
SBA-guaranteed debentures 163,000 150,000
Convertible Notes 155,357 155,412
NMFC Credit Facility 150,000 122,500

Deferred financing costs (net of accumulated amortization of
$19,229 and $16,578, respectively)

(15,109 ) (15,777 )
Net borrowings 1,078,711 869,498
Payable for unsettled securities purchased 29,903
Management fee payable 22,240 7,065
Incentive fee payable 19,535 6,671
Interest payable 7,099 5,107
Payable to affiliates 2,488 863
Deferred tax liability 1,878 894
Other liabilities   11,441     2,945  
Total liabilities 1,173,295 893,043
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, 100,000,000 shares
authorized, 76,106,372 and 75,935,093 shares issued and
outstanding, respectively

761 759
Paid in capital in excess of par 1,055,796 1,053,468
Accumulated undistributed net investment income 38,986 39,165
Accumulated undistributed net realized losses on investments (83,084 ) (76,681 )

Net unrealized appreciation (depreciation) (net of provision for
taxes of $1,878 and $894, respectively)

20,187     18,264  
Total net assets $ 1,032,646   $ 1,034,975  
Total liabilities and net assets $ 2,205,941   $ 1,928,018  
 
Number of shares outstanding 76,106,372 75,935,093
Net asset value per share $ 13.57 $ 13.63
 

 
New Mountain Finance Corporation
Consolidated Statements of Operations
(in thousands, except shares and per share data)
(unaudited)
 
  Three Months Ended   Six Months Ended
June 30, 2018   June 30, 2017 June 30, 2018   June 30, 2017
Investment income
From non-controlled/non-affiliated investments:
Interest income $ 38,510 36,518 73,946 69,394
Dividend income 120 486 159
Non-cash dividend income 1,439 1 2,763 13
Other income 1,013 2,084 3,881 4,349
From non-controlled/affiliated investments:
Interest income 210 712 312 1,359
Dividend income 791 842 1,636 1,846
Non-cash dividend income 4,017 3,987 8,026 4,631
Other income 912 296 1,214 594
From controlled investments:
Interest income 1,370 409 2,571 884
Dividend income 4,591 3,867 8,830 8,080
Non-cash dividend income 1,508 853 2,962 1,674
Other income 237     330     860     343  
Total investment income 54,598     50,019     107,487     93,326  
Expenses
Incentive fee 6,430 6,449 12,864 11,857
Management fee 9,301 8,275 17,993 15,889
Interest and other financing expenses 12,824 9,045 24,114 17,421
Professional fees 708 722 1,402 1,572
Administrative expenses 822 662 1,761 1,370
Other general and administrative expenses 518   402   928   868  
Total expenses 30,603 25,555 59,062 48,977
Less: management and incentive fees waived (1,495 ) (1,485 ) (2,817 ) (4,641 )
Less: expenses waived and reimbursed (276 )   (4 )   (276 )   (474 )
Net expenses 28,832     24,066     55,969     43,862  
Net investment income before income taxes 25,766 25,953 51,518 49,464
Income tax expense 45     155     61     235  
Net investment income 25,721 25,798 51,457 49,229
Net realized (losses):
Non-controlled/non-affiliated investments (6,609 ) (26,453 ) (6,403 ) (25,627 )
Net change in unrealized appreciation (depreciation):
Non-controlled/non-affiliated investments (14,500 ) 26,631 (18,021 ) 34,610
Non-controlled/affiliated investments 8,270 (298 ) 10,079 (594 )
Controlled investments 11,317 1,519 10,861 41
Securities purchased under collateralized agreements to resell (33 ) (12 ) (833 )
(Provision) benefit for taxes (1,066 )   164     (984 )   919  
Net realized and unrealized (losses) gains (2,588 )   1,530     (4,480 )   8,516  
Net increase in net assets resulting from operations $ 23,133   $ 27,328   $ 46,977   $ 57,745  
Basic earnings per share $ 0.30 $ 0.36 $ 0.62 $ 0.80
Weighted average shares of common stock outstanding-basic 75,938,857 75,383,387 75,936,986 72,566,825
Diluted earnings per share $ 0.29 $ 0.34 $ 0.58 $ 0.74
Weighted average shares of common stock outstanding-diluted 85,762,984 85,207,514 85,761,113 82,390,952
Distributions declared and paid per share $ 0.34 $ 0.34 $ 0.68 $ 0.68
 

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 focused on
long-term business-building and growth investments. The firm currently
manages private equity, public equity, and credit funds with over $20
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. 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, unless required to do so by law. All forward-looking
statements speak only as of the time of this press release.

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