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New Mountain Finance Corporation Announces Third Quarter Financial Results

New Mountain Finance Corporation Announces Third Quarter Financial Results

NEW YORK–(BUSINESS WIRE)–New Mountain Finance Corporation (NASDAQ: NMFC) (“New Mountain,” “New Mountain Finance” or the “Company”) today announced its financial results for the quarter ended September 30, 2022. The Company reported third quarter net investment income (“NII”) of $0.32 per weighted average share and net asset value (“NAV”) per share of $13.20, compared to $13.42 on June 30, 2022, representing a 1.6{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b} decline quarter over quarter. The Company also announced that its board of directors declared an increased fourth quarter distribution to $0.32 per share, representing a 7{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b} increase compared to its most recent quarterly distribution, which will be payable on December 30, 2022 to holders of record as of December 16, 2022.

Selected Financial Highlights

(in thousands, except per share data)

September 30, 2022

Investment Portfolio1

$

3,253,834

Total Assets

$

3,347,993

Total Statutory Debt2

$

1,680,047

NAV3

$

1,331,955

 

 

NAV per Share

$

13.20

Net Investment Income per Weighted Average Share

$

0.32

Distribution Paid per Share

$

0.30

Statutory Debt/Equity

1.26x

Statutory Debt/Equity (net of available cash)

1.23x

Leadership Changes

Effective January 1, 2023, John R. Kline will become Chief Executive Officer of the Company, in addition to continuing in his role as President and Director. Mr. Kline joined New Mountain in 2008 and has been a senior executive within New Mountain Capital’s credit effort since its inception that year. Robert A. Hamwee will be moving into the role of Vice Chairman of the board of directors where he will continue to serve the Company as a Director. Further, he will remain a member of the Company’s investment committee and as a Managing Director of New Mountain Capital.

Management Comments on Third Quarter Performance

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”, said 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 215 employees and senior advisors.”

Robert A. Hamwee, CEO, added: “Despite considerable economic volatility, NMFC’s portfolio continues to be well positioned as a result of our defensive growth investment strategy. We reported Q3 Net Investment Income of $0.32 per share, exceeding our prior guidance, and over 92{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b} of the portfolio was rated green on our risk rating scale, which is a direct result of our continued effort to invest in high-quality companies.”

John R. Kline, President, commented: “Our net investment income per share outpaced our quarterly distributions and demonstrates our solid execution. We are pleased that the board approved our most recent 7{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b} dividend increase, and we remain confident that net investment income per share will meet or exceed our quarterly dividend for the foreseeable future.”

Portfolio and Investment Activity1

As of September 30, 2022, the Company’s NAV was $1,332.0 million and its portfolio had a fair value of $3,253.8 million in 108 portfolio companies, with a weighted average YTM at Cost4 of approximately 11.3{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}. For the three months ended September 30, 2022, the Company generated $123.0 million of originations5, and had $25.0 million of asset sales and cash repayments5 of $142.4 million.

Consolidated Results of Operations6

The Company’s total investment income for the three months ended September 30, 2022 and 2021 was $78.1 million and $68.1 million, respectively. The Company’s total net expenses, after income tax expense, for the three months ended September 30, 2022 and 2021 were $45.6 million and $37.8 million, respectively. The Company’s NII for the three months ended September 30, 2022 and 2021 was $32.5 million and $30.3 million, respectively. The Company’s NII per share for the three months ended September 30, 2022 and 2021 was $0.32 and $0.31, respectively. For the three months ended September 30, 2022 and 2021, the Company recorded $24.8 million and $8.5 million, respectively, of net realized and unrealized losses.

Liquidity and Capital Resources

As of September 30, 2022, the Company had cash and cash equivalents of $48.9 million and total statutory debt outstanding of $1,680.0 million2. The Company’s statutory debt to equity was 1.26x as of September 30, 2022. Additionally, the Company had $300.0 million of SBA-guaranteed debentures outstanding as of September 30, 2022. For the three months ended September 30, 2022, the Company sold 0.2 million shares of common stock under its equity distribution agreement. For the same period, the Company received total accumulated net proceeds of approximately $3.0 million, net of offering expenses, from these sales.

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. As described more fully in the Company’s Quarterly Report on Form 10-Q filed with the U.S. Securities and Exchange Commission, the 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 September 30, 2022:

(in millions)

As of September 30, 2022

Risk Rating

 

Cost

 

Percent

 

Fair Value

 

Percent

Red

 

$

95.6

 

2.9

{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}

 

$

30.7

 

0.9

{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}

Orange

 

 

46.0

 

1.4

{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}

 

 

32.9

 

1.0

{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}

Yellow1

 

 

195.1

 

5.9

{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}

 

 

166.5

 

5.1

{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}

Green7

 

 

2,952.3

 

89.8

{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}

 

 

3,023.7

 

93.0

{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}

Total

 

$

3,289.0

 

100.0

{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}

 

$

3,253.8

 

100.0

{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}

As of September 30, 2022, all investments in the Company’s portfolio had a Green Risk Rating with the exception of eight portfolio companies that had a Yellow Risk Rating, three portfolio companies that had an Orange Risk Rating and three portfolio companies that had a Red Risk Rating.

The following table shows the Company’s investment portfolio composition as of September 30, 2022:

(in thousands, except per share data)

 

 

 

 

Investment Portfolio Composition

 

September 30, 2022

 

Percent of Total

First Lien

 

 

1,770,125

 

54.3

{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}

Second Lien1

 

 

592,936

 

18.2

{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}

Subordinated

 

 

73,763

 

2.3

{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}

Preferred Equity

 

 

174,769

 

5.4

{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}

Investment Fund

 

 

252,400

 

7.8

{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}

Common Equity and Other7

 

 

389,841

 

12.0

{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}

Total

 

$

3,253,834

 

100.0

{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}

Recent Developments

On November 2, 2022, the Company completed a private offering of $200 million in aggregate principal amount of its 7.50{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b} convertible notes due 2025 (the “2022 Convertible Notes”). The offering was consummated pursuant to the terms of a private placement purchase agreement (the “Purchase Agreement”) with the several purchasers, each of whom is an “accredited investor” as defined in Rule 501(a) of Regulation D under the Securities Act of 1933, as amended (the “Securities Act”) or a “qualified institutional buyer” within the meaning of Rule 144A promulgated under the Securities Act. The Company intends to use the net proceeds from the 2022 Convertible Notes to launch a tender offer for its existing 2018 Convertible Notes and then, to the extent any net proceeds remain, to repay other outstanding indebtedness and for general corporate purposes.

On November 2, 2022, the Company’s board of directors declared a fourth quarter 2022 distribution of $0.32 per share payable on December 30, 2022 to holders of record as of December 16, 2022.

On November 4, 2022, the Company launched a tender offer to purchase, upon the terms and subject to the conditions set forth in the offer to purchase, dated November 4, 2022, up to $201 million aggregate principal amount of outstanding 2018 Convertible Notes for cash in an amount equal to $1,000 per $1,000 principal amount of Notes purchased (exclusive of accrued and unpaid interest on such notes) (the “Tender Offer”). The Tender Offer will expire at 11:59 P.M., New York City time, on December 6, 2022.

____________________________________________________

(1) Includes collateral for securities purchased under collateralized agreements to resell.

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

(3) Excludes non-controlling interest in New Mountain Net Lease Corporation (“NMNLC”).

(4) References to “YTM at Cost” assume the accruing investments, including secured collateralized agreements, in the Company’s 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”), Euro Interbank Offered Rate (“EURIBOR”) 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, EURIBOR and SOFR contracts by the individual companies in the Company’s portfolio or other factors.

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

(6) Excludes net income related to non-controlling interests in NMNLC. For the quarter ended September 30, 2022 and 2021, $0.3 million and $0.3 million, respectively, of dividend income is excluded from investment income, $0.0 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 $0.8 million, respectively, of realized and unrealized losses and gains, is excluded from net realized and unrealized gains and losses.

(7) Includes investment held in NMNLC

Third Quarter 2022 Conference Call

New Mountain Finance Corporation will host an earnings conference call and webcast at 10:00 am Eastern Time on Wednesday, November 9, 2022. To participate in the live earning conference call, please use the following dial-in numbers or visit the audio webcast link. To avoid any delays, please join at least fifteen minutes prior to the start of the call.

  • United States: (833) 927-1758
  • International: +1 (929) 526-1599
  • Access code: 573965
  • Live Audio Webcast

A replay of the conference call can be accessed one hour after the end of the conference call through November 9, 2023 at 9:00 am Eastern Time. To access the earnings webcast replay please visit the New Mountain Investor Relations website.

For additional details related to the quarter ended September 30, 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.

New Mountain Finance Corporation

Consolidated Statements of Assets and Liabilities

(in thousands, except shares and per share data)

(unaudited)

 

 

September 30,

2022

 

December 31,

2021

Assets

 

 

 

Investments at fair value

 

 

 

Non-controlled/non-affiliated investments (cost of $2,476,914 and $2,323,224, respectively)

$

2,375,786

 

 

$

2,283,779

 

Non-controlled/affiliated investments (cost of $84,624 and $80,801, respectively)

 

138,975

 

 

 

134,775

 

Controlled investments (cost of $697,365 and $722,467, respectively)

 

719,672

 

 

 

755,810

 

Total investments at fair value (cost of $3,258,903 and $3,126,492, respectively)

 

3,234,433

 

 

 

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

 

48,919

 

 

 

58,077

 

Interest and dividend receivable

 

33,902

 

 

 

30,868

 

Other assets

 

11,338

 

 

 

11,081

 

Total assets

$

3,347,993

 

 

$

3,295,812

 

Liabilities

 

 

 

Borrowings

 

 

 

Holdings Credit Facility

$

630,663

 

 

$

545,263

 

Unsecured Notes

 

531,500

 

 

 

511,500

 

SBA-guaranteed debentures

 

300,000

 

 

 

300,000

 

Convertible Notes

 

201,340

 

 

 

201,417

 

DB Credit Facility

 

186,400

 

 

 

226,300

 

NMFC Credit Facility

 

127,210

 

 

 

127,192

 

NMNLC Credit Facility II

 

2,934

 

 

 

15,200

 

Deferred financing costs (net of accumulated amortization of $45,794 and $40,713, respectively)

 

(15,316

)

 

 

(19,684

)

Net borrowings

 

1,964,731

 

 

 

1,907,188

 

Management fee payable

 

10,602

 

 

 

10,164

 

Incentive fee payable

 

8,202

 

 

 

7,503

 

Interest payable

 

12,214

 

 

 

17,388

 

Payable for unsettled securities purchased

 

 

 

 

7,910

 

Payable to affiliates

 

275

 

 

 

556

 

Deferred tax liability

 

140

 

 

 

13

 

Other liabilities

 

6,731

 

 

 

2,478

 

Total liabilities

 

2,002,895

 

 

 

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 100,937,026 and 97,907,441 shares issued and outstanding, respectively

 

1,009

 

 

 

979

 

Paid in capital in excess of par

 

1,313,710

 

 

 

1,272,796

 

Accumulated undistributed earnings

 

17,236

 

 

 

47,470

 

Total net assets of New Mountain Finance Corporation

$

1,331,955

 

 

$

1,321,245

 

Non-controlling interest in New Mountain Net Lease Corporation

 

13,143

 

 

 

21,367

 

Total net assets

$

1,345,098

 

 

$

1,342,612

 

Total liabilities and net assets

$

3,347,993

 

 

$

3,295,812

 

Number of shares outstanding

 

100,937,026

 

 

 

97,907,441

 

Net asset value per share of New Mountain Finance Corporation

$

13.20

 

 

$

13.49

 

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, 2022

 

September 30, 2021

 

September 30, 2022

 

September 30, 2021

Investment income

 

 

 

 

 

 

 

From non-controlled/non-affiliated investments:

 

 

 

 

 

 

 

Interest income (excluding Payment-in-kind (“PIK”) interest income)

$

49,401

 

 

$

40,540

 

 

$

127,934

 

 

$

119,919

 

PIK interest income

 

2,688

 

 

 

1,903

 

 

 

8,924

 

 

 

6,501

 

Dividend income

 

9

 

 

 

867

 

 

 

144

 

 

 

867

 

Non-cash dividend income

 

3,837

 

 

 

1,956

 

 

 

10,111

 

 

 

7,324

 

Other income

 

1,517

 

 

 

5,249

 

 

 

7,435

 

 

 

9,651

 

From non-controlled/affiliated investments:

 

 

 

 

 

 

 

Interest income (excluding PIK interest income)

 

270

 

 

 

296

 

 

 

788

 

 

 

1,322

 

PIK interest income

 

264

 

 

 

182

 

 

 

773

 

 

 

182

 

Dividend income

 

 

 

 

288

 

 

 

 

 

 

288

 

Non-cash dividend income

 

1,042

 

 

 

831

 

 

 

3,036

 

 

 

3,881

 

Other income

 

62

 

 

 

79

 

 

 

187

 

 

 

284

 

From controlled investments:

 

 

 

 

 

 

 

Interest income (excluding PIK interest income)

 

2,914

 

 

 

1,253

 

 

 

6,285

 

 

 

3,570

 

PIK interest income

 

3,241

 

 

 

3,614

 

 

 

12,296

 

 

 

10,384

 

Dividend income

 

9,867

 

 

 

9,686

 

 

 

32,183

 

 

 

31,278

 

Non-cash dividend income

 

1,116

 

 

 

918

 

 

 

3,191

 

 

 

3,533

 

Other income

 

2,221

 

 

 

812

 

 

 

7,235

 

 

 

3,759

 

Total investment income

 

78,449

 

 

 

68,474

 

 

 

220,522

 

 

 

202,743

 

Expenses

 

 

 

 

 

 

 

Incentive fee

 

8,202

 

 

 

7,661

 

 

 

23,605

 

 

 

22,207

 

Management fee

 

11,717

 

 

 

13,740

 

 

 

35,040

 

 

 

40,885

 

Interest and other financing expenses

 

24,648

 

 

 

17,693

 

 

 

63,957

 

 

 

54,949

 

Administrative expenses

 

881

 

 

 

1,082

 

 

 

3,022

 

 

 

3,240

 

Professional fees

 

775

 

 

 

923

 

 

 

2,529

 

 

 

2,413

 

Other general and administrative expenses

 

545

 

 

 

490

 

 

 

1,540

 

 

 

1,398

 

Total expenses

 

46,768

 

 

 

41,589

 

 

 

129,693

 

 

 

125,092

 

Less: management fee waived

 

(1,115

)

 

 

(3,752

)

 

 

(3,349

)

 

 

(11,193

)

Less: expenses waived and reimbursed

 

 

 

 

 

 

 

(238

)

 

 

 

Net expenses

 

45,653

 

 

 

37,837

 

 

 

126,106

 

 

 

113,899

 

Net investment income before income taxes

 

32,796

 

 

 

30,637

 

 

 

94,416

 

 

 

88,844

 

Income tax (benefit) expense

 

(13

)

 

 

(8

)

 

 

(5

)

 

 

15

 

Net investment income

 

32,809

 

 

 

30,645

 

 

 

94,421

 

 

 

88,829

 

Net realized gains (losses):

 

 

 

 

 

 

 

Non-controlled/non-affiliated investments

 

(239

)

 

 

2,459

 

 

 

(903

)

 

 

2,797

 

Non-controlled/affiliated investments

 

 

 

 

20,549

 

 

 

 

 

 

8,338

 

Controlled investments

 

17

 

 

 

 

 

 

36,371

 

 

 

1,557

 

Foreign currency

 

(166

)

 

 

 

 

 

219

 

 

 

 

Net change in unrealized (depreciation) appreciation:

 

 

 

 

 

 

 

Non-controlled/non-affiliated investments

 

(31,944

)

 

 

(19,951

)

 

 

(56,975

)

 

 

(22,601

)

Non-controlled/affiliated investments

 

(13,381

)

 

 

(20,469

)

 

 

377

 

 

 

44,545

 

Controlled investments

 

20,398

 

 

 

9,684

 

 

 

(11,036

)

 

 

30,600

 

Securities purchased under collateralized agreements to resell

 

 

 

 

 

 

 

(2,021

)

 

 

 

Foreign currency

 

(10

)

 

 

(13

)

 

 

(625

)

 

 

(13

)

Benefit (provision) for taxes

 

30

 

 

 

1

 

 

 

(127

)

 

 

(114

)

Net realized and unrealized (losses) gains

 

(25,295

)

 

 

(7,740

)

 

 

(34,720

)

 

 

65,109

 

Net increase in net assets resulting from operations

 

7,514

 

 

 

22,905

 

 

 

59,701

 

 

 

153,938

 

Less: Net decrease (increase) in net assets resulting from operations related to non-controlling interest in New Mountain Net Lease Corporation

 

191

 

 

 

(1,058

)

 

 

150

 

 

 

(4,789

)

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

$

7,705

 

 

$

21,847

 

 

$

59,851

 

 

$

149,149

 

Basic earnings per share

$

0.08

 

 

$

0.23

 

 

$

0.60

 

 

$

1.54

 

Weighted average shares of common stock outstanding – basic

 

100,830,075

 

 

 

96,906,988

 

 

 

99,955,432

 

 

 

96,854,474

 

Diluted earnings per share

$

0.08

 

 

$

0.22

 

 

$

0.59

 

 

$

1.42

 

Weighted average shares of common stock outstanding – diluted

 

114,087,660

 

 

 

110,164,573

 

 

 

113,213,017

 

 

 

110,112,059

 

Distributions declared and paid per share

$

0.30

 

 

$

0.30

 

 

$

0.90

 

 

$

0.90

 

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.