Market Overview

New Mountain Finance Corporation Announces Financial Results for the Quarter Ended September 30, 2019

Share:

Reports Net Investment Income of $0.36 per Weighted Average Share and Net Asset Value of $13.35 per Share

Declares Fourth Quarter 2019 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 September 30, 2019 and reported third quarter net investment income of $0.36 per weighted average share. At September 30, 2019, net asset value ("NAV") per share was $13.35, compared to 13.41 at June 30, 2019. The Company also announced that its board of directors declared a fourth quarter distribution of $0.34 per share, which will be payable on December 27, 2019 to holders of record as of December 13, 2019.

Selected Financial Highlights

(in thousands, except per share data) September 30, 2019
Investment Portfolio(1)

$

3,020,356

Total Assets

$

3,132,128

Total Statutory Debt(2)

$

1,643,562

NAV

$

1,169,279

 
NAV per Share

$

13.35

Statutory Debt/Equity(3)

1.20x

 
Investment Portfolio Composition September 30, 2019 Percent of Total
First Lien

$

1,675,408

55.5%

Second Lien(1)

772,917

25.6%

Subordinated

71,608

2.3%

Preferred Equity

135,078

4.5%

Investment Fund

202,400

6.7%

Common Equity and Other(4)

162,945

5.4%

Total

$

3,020,356

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

(3) Statutory debt / equity ratio of 1.41x as of September 30, 2019; pro forma ratio of 1.20x reflects $125.1 million of net proceeds received from equity offering completed on October 25, 2019 and $95.6 million repayment of revolving credit facilities.

(4) Includes investments held in New Mountain Net Lease Corporation ("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 eight portfolio companies, representing approximately $125 million of the cost of all investments made since inception in October 2008, or approximately 1.7% of $7.4 billion, go on non-accrual.

Robert A. Hamwee, CEO, commented: "The third quarter represented another strong quarter of performance for NMFC. We originated $452 million of investments and once again had no new investments placed on non-accrual. Additionally, after our recent equity raise in October, we anticipate remaining fully levered in the fourth quarter."

"As managers and as significant stockholders personally, we are pleased with the completion of another successful quarter," added Steven B. Klinsky, NMFC Chairman. "We believe New Mountain's focus on acyclical "defensive growth" industries and on companies that we know well continues to be a successful strategy to preserve asset value."

Portfolio and Investment Activity1

As of September 30, 2019, the Company's NAV was approximately $1,169.3 million and its portfolio had a fair value of approximately $3,020.4 million in 113 portfolio companies, with a weighted average YTM at Cost2 of approximately 9.3%. For the three months ended September 30, 2019, the Company made approximately $452.1 million of originations and commitments3. The $452.1 million includes approximately $320.5 million of investments in fifteen new portfolio companies and approximately $131.6 million of follow-on investments in eighteen portfolio companies held as of June 30, 2019. For the three months ended September 30, 2019, the Company had $43.9 million of sales and cash repayments3 of approximately $67.3 million.

Consolidated Results of Operations

The Company's total investment income for the three months ended September 30, 2019 and 2018 was approximately $72.6 million and $60.5 million, respectively.

The Company's total net expenses, after income tax expense, for the three months ended September 30, 2019 and 2018 were approximately $41.4 million and $33.4 million, respectively. Total net expenses, after income tax expense, for the three months ended September 30, 2019 and 2018 consisted of approximately $21.8 million and $14.8 million, respectively, of costs associated with the Company's borrowings and approximately $17.3 million and $15.0 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, 2019 and 2018 totaled approximately $777.6 million and $446.6 million, respectively. For the three months ended September 30, 2019 and 2018 management fees waived were approximately $3.1 million and $1.8 million, respectively. The Investment Adviser cannot recoup management 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, 2019 and 2018 were approximately $2.3 million and $3.6 million, respectively.

For the three months ended September 30, 2019 and 2018, the Company recorded approximately $7.8 million and $0.4 million, respectively, of net realized and unrealized losses.

Liquidity and Capital Resources

As of September 30, 2019, the Company had cash and cash equivalents of approximately $69.8 million and total statutory debt outstanding of approximately $1,643.6 million4, which consisted of approximately $637.6 million of the $800.0 million of total availability on the Holdings Credit Facility, $138.5 million of the $138.5 million of total availability on the Company's senior secured revolving credit facility (the "NMFC Credit Facility"), $202.0 million of the $210.0 million of total availability on the Company's secured revolving credit facility (the "DB Credit Facility"), $10.6 million of the $30.0 million of total availability on the senior secured revolving credit facility (the "NMNLC Credit Facility"), $201.6 million5 of convertible notes outstanding and $453.3 million of unsecured notes outstanding. Additionally, the Company had $184.0 million of SBA-guaranteed debentures outstanding as of September 30, 2019.

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, 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, 2019, three portfolio companies had an investment rating of "3" and one portfolio company had an investment rating of "4". The Company's investment in portfolio companies with an investment rating of "3" had an aggregate cost basis of approximately $52.0 million and an aggregate fair value of approximately $35.2 million. The Company's investment in the portfolio company with an investment rating of "4" had an aggregate cost basis of approximately $1.4 million and an aggregate fair value of less than $0.1 million.

Recent Developments

The Company had approximately $121.9 million of originations and commitments3 since the end of the third quarter through November 1, 2019. This was offset by approximately $45.0 million of repayments3 and $44.0 million of sales3 during the same period.

On October 8, 2019, the United States Securities and Exchange Commission (the "SEC") issued an exemptive order (the "New Order") permitting us and certain of the Company's affiliates to co-invest together in portfolio companies subject to certain conditions included therein. The New Order supersedes the Company's existing co-investment exemptive order, which was granted by the SEC on December 18, 2017, and expands on the Company's ability to co-invest with certain affiliates.

On October 16, 2019, the Company entered into a Joinder Agreement pursuant to which Hitachi Capital America Corp. was added as a lender under the DB Credit Facility for an aggregate commitment of $20.0 million thereby increasing the aggregate commitments under the DB Credit Facility from $210.0 million to $230.0 million.

On October 25, 2019, the Company completed a public offering of 9,200,000 shares of our common stock (including 1,200,000 shares of common stock that were issued pursuant to the full exercise of the option granted to the underwriters to purchase additional shares) at a public offering price of $13.25 per share. Certain of the Company's officers and interested directors purchased an aggregate 400,000 shares in this offering at the public offering price. The Company's Investment Adviser paid the underwriters' sales load of $0.41 per share (other than the 400,000 shares purchased by certain officers and interested directors for which no sales load was payable to the underwriters). In addition, the Company's Investment Adviser paid the underwriters an additional supplemental payment of $0.35 per share, which reflects the difference between the actual public offering price of $13.25 per share and the net proceeds of $13.60 per share received by us in this offering. All payments made by the Investment Adviser are not subject to reimbursement by the Company. The Company received total net proceeds of approximately $125.1 million in connection with this offering.

On November 4, 2019, the Company's board of directors declared a fourth quarter 2019 distribution of $0.34 per share payable on December 27, 2019 to holders of record as of December 13, 2019.

_________________________________

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 the Company's United States ("U.S.") Small Business Administration ("SBA")-guaranteed debentures.

5

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 7, 2019, to discuss its third quarter 2019 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.

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