NMFC New Mountain Finance Corporation

New Mountain Finance Corporation (NASDAQ: NMFC) (the "Company", "we", "us" or "our") today announced its financial results for the quarter ended March 31, 2022 and reported first quarter net investment income of $0.30 per weighted average share. At March 31, 2022, net asset value (“NAV”) per share was $13.56, compared to $13.49 at December 31, 2021. The Company also announced that its board of directors declared a second quarter distribution of $0.30 per share, which will be payable on June 30, 2022 to holders of record as of June 16, 2022. For additional details related to the quarter ended March 31, 2022, 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) March 31, 2022   Investment Portfolio(1) $

3,276,366

  Total Assets $

3,361,843

  Total Statutory Debt(2) $

1,660,514

    NAV(3) $

1,349,368

          NAV per Share $

13.56

    Statutory Debt/Equity

1.23x

          Investment Portfolio Composition March 31, 2022 Percent of Total First Lien $

1,761,795

 

53.8

%

Second Lien(1)

625,992

 

19.1

%

Subordinated

54,867

 

1.7

%

Preferred Equity

159,874

 

4.9

%

Investment Fund

252,400

 

7.7

%

Common Equity and Other(4)

421,438

 

12.8

%

Total $

3,276,366

 

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) Excludes non-controlling interest in New Mountain Net Lease Corporation (“NMNLC”). (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 twelve portfolio companies, representing approximately $276 million of the cost of all investments made since inception in October 2008, or approximately 2.9% of $9.4 billion, go on non-accrual.

“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,” added Steven B. Klinsky, NMFC Chairman. “We believe one of our keys to success is the strength of the team, which we continue to build over time, now at over 195 employees and senior advisors.”

Robert A. Hamwee, CEO, commented: “The first quarter represented another solid quarter of performance for NMFC with net asset value increasing seven cents per share. We had no new investments placed on non-accrual and believe the portfolio remains well positioned. Additionally, we accumulated net proceeds of approximately $20.5 million from our at-the-market (“ATM”) program this quarter, which has allowed us to continue to invest in high-quality, defensive growth companies.”

John R. Kline, President, commented: “We are pleased to announce a second quarter distribution of $0.30 per share based on our expectation that Q2 Net Investment Income will be at least $0.30 per share. Given our outlook for consistent operating performance and continued support, if needed, from our investment advisor, we remain confident that our Net Investment Income will continue to cover our quarterly dividend for the foreseeable future.”

Portfolio and Investment Activity1

As of March 31, 2022, the Company’s NAV was approximately $1,349.4 million and its portfolio had a fair value of approximately $3,276.4 million in 107 portfolio companies, with a weighted average YTM at Cost2 of approximately 9.8%. For the three months ended March 31, 2022, the Company generated approximately $51.9 million of originations in two new portfolio companies and approximately $101.8 million of originations, including commitments3 for follow-on investments in twenty two portfolio companies held as of December 31, 2021. For the three months ended March 31, 2022, the Company had $30.1 million of asset sales and cash repayments3 of approximately $44.1 million.

Consolidated Results of Operations4

The Company’s total investment income for the three months ended March 31, 2022 and 2021 was approximately $68.6 million and $67.4 million, respectively.

The Company’s total net expenses, after income tax expense, for the three months ended March 31, 2022 and 2021 were approximately $39.0 million and $38.7 million, respectively. Total net expenses, after income tax expense, for the three months ended March 31, 2022 and 2021 consisted of approximately $18.6 million and $19.4 million, respectively, of costs associated with the Company’s borrowings and approximately $18.0 million and $17.0 million, respectively, in net management and incentive fees. On November 1, 2021, the Company entered into Amendment No. 1 to the Investment Management Agreement ("Amendment No. 1") which reduced the base management fee from 1.75% of the Company's gross assets to 1.4% of the Company's gross assets. Effective as of and for the quarter ended March 31, 2021 through the quarter ending December 31, 2023, the Investment Adviser entered into a fee waiver agreement (the "Fee Waiver Agreement") pursuant to which the Investment Adviser will waive base management fees in order to reach a target base management fee of 1.25% on gross assets (the “Reduced Base Management Fee”). The Investment Adviser cannot recoup management fees that the Investment Adviser has previously waived. For the three months ended March 31, 2022 and 2021 management fees waived were approximately $1.1 million and $3.6 million, respectively. The Company’s net direct and indirect professional, administrative, other general and administrative and income tax expenses for the three months ended March 31, 2022 and 2021 were approximately $2.4 million and $2.3 million, respectively.

For the three months ended March 31, 2022 and 2021, the Company recorded approximately $6.6 million and $22.8 million, respectively, of net realized and unrealized gains.

Liquidity and Capital Resources

As of March 31, 2022, the Company had cash and cash equivalents of approximately $35.4 million and total statutory debt outstanding of approximately $1,660.5 million5, which consisted of approximately $576.3 million of the $730.0 million of total availability on the Company's secured revolving credit facility ("the Holdings Credit Facility”), $131.8 million of the $198.5 million of total availability on the Company’s senior secured revolving credit facility (the “NMFC Credit Facility”), $224.3 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”), $15.2 million of the $20.0 million of total availability on the senior secured revolving credit facility (the “NMNLC Credit Facility II”), $201.4 million6 of convertible notes outstanding and $511.5 million of unsecured notes outstanding. Additionally, the Company had $300.0 million of SBA-guaranteed debentures outstanding as of March 31, 2022.

Portfolio and Asset Quality1

The Company monitors the performance and financial trends of its portfolio companies on at least a quarterly basis. The Company attempts to identify any developments within the portfolio company, the industry or the macroeconomic environment that may alter any material element of the Company’s original investment strategy. The Company has recently consolidated its portfolio monitoring procedures by combining the previously bifurcated system that separately (1) rated investments based on their performance compared to expectations and (2) assigned a risk rating to each investment based on the expected impact from the COVID-19 pandemic. As described more fully in the Form 10-Q filed with the SEC, the new portfolio monitoring procedures are designed to provide a simple yet comprehensive analysis of the Company’s portfolio companies based on their operating performance and underlying business characteristics, which in turn forms the basis of its Risk Rating. The Risk Rating is expressed in categories of Red, Orange, Yellow and Green with Red reflecting an investment performing materially below expectations and Green reflecting an investment that is in-line with or above expectations.

The following table shows the Risk Rating of the Company’s portfolio companies as of March 31, 2022:

(in millions)   Risk Rating   Cost   Percent   Fair Value   Percent Red  

 $

51.5

 

1.6

%

 

 $

21.6

 

0.7

%

Orange  

 

248.6

 

7.7

%

 

 

205.0

 

6.2

%

Yellow  

 

103.1

 

3.2

%

 

 

81.0

 

2.5

%

Green  

 

2,846.5

 

87.5

%

 

 

2,968.8

 

90.6

%

Total  

 

3,249.7

 

100.0

%

 

 

3,276.4

 

100.0

%

As of March 31, 2022, all investments in the Company’s portfolio had a Green Risk Rating with the exception of five portfolio companies that had a Yellow Risk Rating, eight portfolio companies that had an Orange Risk Rating and three portfolio companies that had a Red Risk Rating.

Recent Developments

On May 3, 2022, the Company’s board of directors declared a second quarter 2022 distribution of $0.30 per share payable on June 30, 2022 to holders of record as of June 16, 2022.

_________________________________

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 London Interbank Offered Rate (“LIBOR”), Sterling Overnight Interbank Average Rate ("SONIA”) and Secured Overnight Financing Rate (“SOFR”) 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, SONIA and SOFR contracts by the individual companies in the Company’s portfolio or other factors.

3

 

Originations exclude payment-in-kind (“PIK”); originations, repayments, and sales excludes revolvers, unfunded commitments, bridges, return of capital, and realized gains / losses.

4

 

Excludes net income related to non-controlling interests in NMNLC. For the quarter ended March 31, 2022 and 2021, $0.4 million and $0.3 million, respectively, of dividend income is excluded from investment income, $0.1 million and $0.0 million, respectively, of net direct and indirect professional, administrative, other general and administrative is excluded from net expenses, and $0.5 million and $0.1 million, respectively, of realized and unrealized gains, is excluded from net realized and unrealized gains.

5

 

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

6

 

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 Tuesday, May 10, 2022, to discuss its first quarter 2022 financial results. All interested parties may participate in the conference call by dialing +1 (844) 200-6205 approximately 15 minutes prior to the call. Canadian callers should dial +1 (833) 950-0062. International callers should dial +1 (929) 526-1599. The access code for this conference call is 344611. 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) March 31, 2022 December 31, 2021 Assets         Investments at fair value Non-controlled/non-affiliated investments (cost of $2,423,505 and $2,323,224 respectively) $

2,378,853

 

$

2,283,779

 

Non-controlled/affiliated investments (cost of $82,039 and $80,801, respectively)

146,772

 

134,775

 

Controlled investments (cost of $714,165 and $722,467, respectively)  

731,340

 

 

755,810

 

Total investments at fair value (cost of $3,219,709 and $3,126,492, respectively)

3,256,965

 

3,174,364

 

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

19,401

 

21,422

 

Cash and cash equivalents

35,376

 

58,077

 

Interest and dividend receivable

34,760

 

30,868

 

Other assets

15,341

 

11,081

 

Total assets $

3,361,843

 

$

3,295,812

 

        Liabilities Borrowings Holdings Credit Facility $

576,263

 

$

545,263

 

Unsecured Notes

511,500

 

511,500

 

SBA-guaranteed debentures 

300,000

 

300,000

 

DB Credit Facility

224,300

 

226,300

 

Convertible Notes 

201,391

 

201,417

 

NMFC Credit Facility

131,860

 

127,192

 

NMNLC Credit Facility II

15,200

 

15,200

 

Deferred financing costs (net of accumulated amortization of $42,405 and $40,713, respectively)

(17,996

)

(19,684

)

Net borrowings

1,942,518

 

1,907,188

 

Management fee payable

20,625

 

10,164

 

Incentive fee payable 

14,980

 

7,503

 

Interest payable

10,201

 

17,388

 

Payable for unsettled securities purchased

2,000

 

7,910

 

Payable to affiliates

1,234

 

556

 

Deferred tax liability

14

 

13

 

Other liabilities

2,431

 

2,478

 

Total liabilities  

1,994,003

 

 

1,953,200

 

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 shares authorized, and 99,498,562 and 97,907,441 shares issued and outstanding, respectively

995

 

979

 

Paid in capital in excess of par

1,294,300

 

1,272,796

 

Accumulated undistributed earnings

54,073

 

47,470

 

Total net assets of New Mountain Finance Corporation $

1,349,368

 

$

1,321,245

 

Non-controlling interest in New Mountain Net Lease Corporation  

18,472

 

 

21,367

 

Total net assets $

1,367,840

 

$

1,342,612

 

    Total liabilities and net assets $

3,361,843

 

$

3,295,812

 

        Number of shares outstanding

99,498,562

 

97,907,441

 

Net asset value per share of New Mountain Finance Corporation $

13.56

 

$

13.49

 

New Mountain Finance Corporation Consolidated Statements of Operations (in thousands, except shares and per share data) (unaudited)   Three Months Ended March 31, 2022 March 31, 2021 Investment income  From non-controlled/non-affiliated investments: Interest income (excluding Payment-in-kind ("PIK") interest income) $

37,444

 

$

39,560

 

PIK interest income

3,302

 

2,534

 

Dividend income

48

 

–

 

Non-cash dividend income

3,085

 

2,401

 

Other income

1,631

 

2,824

 

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

255

 

463

 

PIK interest income

251

 

-

 

Non-cash dividend income

982

 

1,505

 

Other income

63

 

102

 

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

1,656

 

1,148

 

PIK interest income

4,970

 

3,304

 

Dividend income

11,645

 

10,475

 

Non-cash dividend income

1,012

 

1,281

 

Other income

2,619

 

2,111

 

Total investment income  

68,963

 

 

67,708

 

Expenses Incentive fee 

7,477

 

7,248

 

Management fee 

11,553

 

13,420

 

Interest and other financing expenses 

18,637

 

19,385

 

Administrative expenses 

1,209

 

1,129

 

Professional fees

937

 

726

 

Other general and administrative expenses   

477

 

 

442

 

Total expenses  

40,290

 

 

42,350

 

Less: management fee waived 

(1,092

)

(3,637

)

Less: expenses waived and reimbursed   

(238

)

 

-

 

Net expenses  

38,960

 

 

38,713

 

Net investment income before income taxes

30,003

 

28,995

 

Income tax expense  

95

 

 

1

 

Net investment income

29,908

 

28,994

 

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

(70

)

181

 

Non-controlled/affiliated investments 

-

 

(12,212

)

Controlled investments 

19,242

 

1,535

 

Foreign currency

345

 

–

 

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

(4,524

)

8,271

 

Non-controlled/affiliated investments 

10,759

 

29,042

 

Controlled investments 

(16,168

)

(3,841

)

Securities purchased under collateralized agreements to resell

(2,021

)

–

 

Foreign currency

(422

)

–

 

Provision for taxes   

(2

)

 

(115

)

Net realized and unrealized gains  

7,139

 

 

22,861

 

Net increase in net assets resulting from operations  

37,047

 

 

51,855

 

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

(855

)

(365

)

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

36,192

 

$

51,490

 

Basic earnings (loss) per share $

0.37

 

$

0.53

 

Weighted average shares of common stock outstanding-basic

98,413,476

 

96,827,342

 

Diluted earnings per share $

0.34

 

$

0.49

 

Weighted average shares of common stock outstanding-diluted

111,671,062

 

110,084,927

 

Distributions declared and paid per share $

0.30

 

$

0.30

 

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, credit and net lease investment strategies with over $37 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, the current conflict between Russia and Ukraine, 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.

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