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Section 1: 8-K (NEW MOUNTAIN FINANCE CORPORATION 8-K)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K
 
CURRENT REPORT
Pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934
 
Date of Report (Date of Earliest Event Reported):  November 6, 2019
 
New Mountain Finance Corporation
(Exact name of registrant as specified in its charter)
 
Delaware
 
814-00832
 
27-2978010
(State or other jurisdiction of
incorporation or organization)
 
(Commission
File Number)
 
(IRS Employer
Identification Number)
 

787 7th Avenue, 48th Floor, New York, NY 10019
(Address of principal executive offices)
 
Registrant’s telephone number, including area code (212) 720-0300
 
 
 



Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

 
Trading

Title of each class
Symbol(s)
Name of each exchange on which registered
Common stock, par value $0.01 per share
NMFC
New York Stock Exchange
5.75% Notes due 2023
NMFX
New York Stock Exchange

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐


Item 2.02.
Results of Operations and Financial Condition

On November 6, 2019, New Mountain Finance Corporation (“NMFC”) issued a press release announcing financial results for its quarter ended September 30, 2019. The press release is included as Exhibit 99.1 and incorporated herein by reference. Additionally, on November 6, 2019, NMFC made available on its website, www.newmountainfinance.com, a supplemental investor presentation with respect to the earnings release.
The information disclosed under this Item 2.02, including Exhibit 99.1 hereto, is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section. The information provided herein shall not be deemed incorporated by reference into any filing made under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing.

Item 9.01.
d) Exhibits.
Financial Statements and Exhibits.
 

 
Exhibit
Number
 
Description
   



SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Current Report on Form 8-K to be signed on its behalf by the undersigned hereunto duly authorized.
 



 
NEW MOUNTAIN FINANCE CORPORATION
   
   
Date: November 6, 2019
By:
/s/ Karrie J. Jerry
   
Name:
Karrie J. Jerry
   
Title:
Corporate Secretary

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Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit 99.1

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

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 YORK--(BUSINESS WIRE)--November 6, 2019--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.


New Mountain Finance Corporation
Consolidated Statements of Assets and Liabilities
(in thousands, except shares and per share data)
(unaudited)








 


September 30, 2019

December 31, 2018
Assets







Investments at fair value







Non-controlled/non-affiliated investments (cost of $2,456,149 and $1,868,785, respectively)

$

2,452,793

 


$

1,861,323

 

Non-controlled/affiliated investments (cost of $82,085 and $78,438, respectively)

78,469

 



77,493

 

Controlled investments (cost of $442,414 and $382,503, respectively)

466,918

 



403,137

 

Total investments at fair value (cost of $2,980,648 and $2,329,726, respectively)

2,998,180

 



2,341,953

 

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

22,176

 



23,508

 

Cash and cash equivalents

69,815

 



49,664

 

Interest and dividend receivable

37,330

 



30,081

 

Receivable from affiliates

586

 



288

 

Other assets

4,041

 



3,172

 

Total assets

$

3,132,128

 


$

2,448,666

 









 
Liabilities







Borrowings







Holdings Credit Facility

$

637,563

 


$

512,563

 

Unsecured Notes

453,250

 



336,750

 

DB Credit Facility

202,000

 



57,000

 

Convertible Notes

201,649

 



270,301

 

SBA-guaranteed debentures

184,000

 



165,000

 

NMFC Credit Facility

138,500

 



60,000

 

NMNLC Credit Facility

10,600

 




Deferred financing costs (net of accumulated amortization of $26,933 and $22,234, respectively)

(16,785

)



(17,515

)

Net borrowings

1,810,777

 



1,384,099

 

Payable for unsettled securities purchased

99,667

 



20,147

 

Management fee payable

18,363

 



8,392

 

Incentive fee payable

14,779

 



6,864

 

Interest payable

11,972

 



12,397

 

Payable to affiliates

1,210

 



1,021

 

Deferred tax liability

885

 



1,006

 

Other liabilities

5,196

 



8,471

 

Total liabilities

1,962,849

 



1,442,397

 

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 and 100,000,000 shares
authorized, respectively, and 87,568,695 and 76,106,372 shares issued and outstanding, respectively


876

 



761

 

Paid in capital in excess of par

1,191,881

 



1,035,629

 

Accumulated overdistributed earnings

(23,478

)



(30,121

)

Total net assets

$

1,169,279

 


$

1,006,269

 

Total liabilities and net assets

$

3,132,128

 


$

2,448,666

 









 
Number of shares outstanding

87,568,695

 



76,106,372

 

Net asset value per share

$

13.35

 


$

13.22

 


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, 2019

September 30, 2018

September 30, 2019

September 30, 2018
Investment income














From non-controlled/non-affiliated investments:














Interest income

$

51,452

 


$

38,332

 


$

143,927

 


$

112,278

 

Dividend income










486

 

Non-cash dividend income

2,239

 



1,491

 



6,282

 



4,254

 

Other income

3,599

 



4,669

 



7,694

 



8,550

 

From non-controlled/affiliated investments:














Interest income

1,051

 



817

 



3,088

 



1,129

 

Dividend income

788

 



787

 



2,326

 



2,423

 

Non-cash dividend income

309

 



4,024

 



901

 



12,050

 

Other income

342

 



315

 



934

 



1,529

 

From controlled investments:














Interest income

2,717

 



1,771

 



7,764

 



4,342

 

Dividend income

7,661

 



5,925

 



23,383

 



14,755

 

Non-cash dividend income

2,273

 



1,721

 



6,446

 



4,683

 

Other income

163

 



617

 



505

 



1,477

 

Total investment income

72,594

 



60,469

 



203,250

 



167,956

 

Expenses














Incentive fee

7,792

 



6,780

 



21,642

 



19,644

 

Management fee

12,687

 



10,018

 



35,302

 



28,011

 

Interest and other financing expenses

21,830

 



14,759

 



61,695

 



38,873

 

Administrative expenses

930

 



846

 



3,074

 



2,607

 

Professional fees

834

 



2,053

 



2,486

 



3,455

 

Other general and administrative expenses

492

 



437

 



1,302

 



1,365

 

Total expenses

44,565

 



34,893

 



125,501

 



93,955

 

Less: management fees waived

(3,141

)



(1,766

)



(8,497

)



(4,583

)

Less: expenses waived and reimbursed







(335

)



(276

)

Net expenses

41,424

 



33,127

 



116,669

 



89,096

 

Net investment income before income taxes

31,170

 



27,342

 



86,581

 



78,860

 

Income tax expense




225

 



13

 



286

 

Net investment income

31,170

 



27,117

 



86,568

 



78,574

 

Net realized gains (losses):














Non-controlled/non-affiliated investments

349

 



3,254

 



439

 



(3,149

)

Controlled investments

6

 






14

 




Net change in unrealized appreciation (depreciation):














Non-controlled/non-affiliated investments

(8,334

)



(4,048

)



4,106

 



(22,069

)

Non-controlled/affiliated investments

(143

)



829

 



(2,671

)



10,908

 

Controlled investments

1,453

 



(390

)



3,870

 



10,471

 

Securities purchased under collateralized agreements to resell

(1,332

)






(1,332

)



(12

)

Benefit (provision) for taxes

281

 



(2

)



121

 



(986

)

Net realized and unrealized gains (losses)

(7,720

)



(357

)



4,547

 



(4,837

)

Net increase in net assets resulting from operations

$

23,450

 


$

26,760

 


$

91,115

 


$

73,737

 

Basic earnings per share

$

0.27

 


$

0.35

 


$

1.11

 


$

0.97

 

Weighted average shares of common stock outstanding-basic

86,987,841

 



76,106,372

 



82,020,549

 



75,994,068

 

Diluted earnings per share

$

0.26

 


$

0.32

 


$

1.01

 


$

0.91

 

Weighted average shares of common stock outstanding-diluted

100,245,426

 



89,388,999

 



97,948,225

 



86,983,697

 

Distributions declared and paid per share

$

0.34

 


$

0.34

 


$

1.02

 


$

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 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, except as may be required by law. All forward-looking statements speak only as of the time of this press release.

Contacts

New Mountain Finance Corporation
Investor Relations
Shiraz Y. Kajee, Authorized Representative
[email protected]
(212) 220-3505

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