Exclusive Interview With Top Management: New Mountain Finance Corporation (NMFC) - Steve Klinsky And Robert A. Hamwee

Wall Street Transcript

67 WALL STREET, New York - June 26, 2012 - The Wall Street Transcript has just published its Business Development Companies Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Decreased Bank Loan Competition - Low Corporate Credit Default Rate - Consistent BDC Dividend Yield - Middle-Market Consolidation Activity

Companies include: New Mountain Finance (NMFC); American Capital (ACAS); Apollo Investment Corporation (AINV); and many more.

In the following brief excerpt from the Business Development Companies Report, expert analysts discuss the outlook for the sector and for investors.

Robert A. Hamwee, Managing Director of New Mountain Capital, joined the firm in 2008. He is the CEO of New Mountain Finance Corporation. Before joining New Mountain, he was President of GSC Group, where he had responsibility for managing GSC's control distressed debt funds. He was with Greenwich Street Capital Partners, the predecessor to GSC Group, from 1994 to 1999. Before that, Mr. Hamwee was with The Blackstone Group from 1992 to 1994, where he worked of assignments in the restructuring and merchant banking departments. Mr. Hamwee has led numerous creditor committees and bank steering groups, and has been a lead Director for many corporate boards, including Purina Mills, LLC, Envirosource and Viasystems Group Inc. He graduated Phi Beta Kappa from the University of Michigan with a BBA in finance and accounting.

Steve Klinsky is the Founder and Chief Executive Officer of New Mountain Capital, LLC, a firm formed in January 2000 to achieve long-term capital appreciation through private equity and equity-related investments. He is Chairman at New Mountain Finance Corporation. Before founding New Mountain Capital, Mr. Klinsky was Co-Founder of Goldman Sachs & Co.'s leveraged buyout group from 1981 to 1984, and a Partner of Forstmann Little & Co. from 1984 until leaving to found New Mountain in June 1999. He earned his B.A., with high honors, from the University of Michigan, an MBA from Harvard Business School and his law degree, with honors, from Harvard Law School.

TWST: Please begin with a brief overview of New Mountain Finance, as well as your responsibilities there.

Mr. Klinsky: New Mountain Finance (NMFC) is a tax-efficient business development company, or BDC, that buys debt of a diversified portfolio of companies, and then passes the debt interest directly out to shareholders each quarter in the form of dividends. It was set up as a sister to New Mountain Capital's private equity fund, and it applies our firm's research into companies and industries to the credit space.I am the CEO of New Mountain Capital and the Chairman of New Mountain Finance. Rob is the CEO of New Mountain Finance.

TWST: Please tell us about the New Mountain portfolio and its unique components, as well as how the portfolio emphasis may have changed over the past 12 months.

Mr. Klinsky: New Mountain Capital, as a firm, has always specialized in what we call defensive-growth sectors. This means we go out of our way to find the industry sectors and niches that should do well whether the overall economy is strong or weak. We then build specialized research, operating capabilities and strategic capabilities in these sectors. That's what we do when we acquire companies in full for New Mountain Capital's private equity group, and New Mountain Finance seeks to apply the same research and defensive-growth strategy when it selects debt. Let me have Rob follow here.

Mr. Hamwee: Sure. Thanks, Steve. And so if you look at the New Mountain Finance portfolio sorted by industry, what you'd find is that it is invested in the same type of defensive, acyclical sectors that Steve just mentioned.As of our last reporting period March, 31, 2012, 24% of the portfolio is in health care, and really niche health care, not hospitals or nursing home, not typically things that are impacted by changes in Medicare or Medicaid, but real niche health care service businesses; 23% of the portfolio is in general business services, again, very niche market dominant type of business service models that are relatively acyclical in nature; 21% of the portfolio is in software, primarily the type of enterprise resource planning software businesses. And 14% of the portfolio is in education, 9% in federal services, and then 9% in other.

So we are walking the walk of investing in these types of defensive-growth businesses that New Mountain as a private equity firm has historically focused on.And to the latter point to your question in terms of evolution over the last 12 months, I'd have to say that there hasn't been a lot of evolution. That pie chart would look very similar to what it was like 12 months ago, and I expect it to look pretty similar 12 months from now because we had such great success with the model both in the one year as a public company and the four years since we started the debt investing effort. And it's been really 12 years overall that New Mountain private equity has been using this strategy. So I think we are going to continue to stick to our knitting and stick with what's done best and worked well for us.

TWST: When you look at some of the different areas that New Mountain is active in, such as business services, health care services, etc., which areas are generating the most attention from other investors?

Mr. Hamwee: Of all the categories I mentioned, probably software has gotten pretty hot, and it's been hot, but it's definitely an area where other investors I think have gotten a little more savvy to the attractiveness of these long-term maintenance contracts, and the recurring revenue nature of software businesses and the general lack of cyclicality around high-quality enterprise-related software businesses.

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