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New Mountain Finance Corporation Announces Financial Results for the Quarter Ended September 30, 2020

·16 min read

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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20201104005755/en/

Contacts

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