New Mountain Finance Corp - FORM 10-Q - May 7, 2018

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
ý      Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarter Ended March 31, 2018
o         Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
Commission
File Number
 
Exact name of registrant as specified in its charter, address of principal executive
offices, telephone numbers and states or other jurisdictions of incorporation or organization
 
I.R.S. Employer
Identification Number
814-00832
 
New Mountain Finance Corporation
 
27-2978010
 
 
787 Seventh Avenue, 48th Floor
New York, New York 10019
Telephone: (212) 720-0300
State of Incorporation: Delaware
 
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act") during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer ý
 
Accelerated filer o
 
 
Non-accelerated filer o (Do not check if a smaller reporting company)
 
Smaller reporting company o
 
 
Emerging growth company o
 
 
 
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
Indicate the number of shares outstanding of each of the issuer’s classes of common stock.
Description
 
Shares as of May 7, 2018
Common stock, par value $0.01 per share
 
75,935,093
 


FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2018
TABLE OF CONTENTS
 
PAGE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2

PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements
New Mountain Finance Corporation
 
Consolidated Statements of Assets and Liabilities
(in thousands, except shares and per share data)
(unaudited)
 
March 31, 2018
 
December 31, 2017
Assets
 

 
 

Investments at fair value
 

 
 

Non-controlled/non-affiliated investments (cost of $1,563,275 and $1,438,889, respectively)
$
1,583,047

 
$
1,462,182

Non-controlled/affiliated investments (cost of $152,521 and $180,380, respectively)
155,729

 
178,076

Controlled investments (cost of $229,862 and $171,958, respectively)
239,147

 
185,402

Total investments at fair value (cost of $1,945,658 and $1,791,227, respectively)
1,977,923

 
1,825,660

Securities purchased under collateralized agreements to resell (cost of $30,000 and $30,000 respectively)
25,200

 
25,212

Cash and cash equivalents
29,636

 
34,936

Interest and dividend receivable
36,767

 
31,844

Receivable from affiliates
651

 
343

Other assets
8,242

 
10,023

Total assets
$
2,078,419

 
$
1,928,018

Liabilities
 

 
 

Borrowings
 
 
 
     Holdings Credit Facility
$
355,663

 
$
312,363

     Unsecured Notes
235,000

 
145,000

     Convertible Notes
155,385

 
155,412

     SBA-guaranteed debentures
150,000

 
150,000

     NMFC Credit Facility
95,000

 
122,500

     Deferred financing costs (net of accumulated amortization of $17,885 and $16,578, respectively)
(16,012
)
 
(15,777
)
Net borrowings
975,036

 
869,498

Payable for unsettled securities purchased
29,841

 
—

Management fee payable
14,435

 
7,065

Incentive fee payable
13,105

 
6,671

Interest payable
7,201

 
5,107

Payable to affiliates
2,076

 
863

Deferred tax liability
812

 
894

Other liabilities
2,912

 
2,945

Total liabilities
1,045,418

 
893,043

Commitments and contingencies (See Note 9)
 

 
 

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, 100,000,000 shares authorized, 75,935,093 and 75,935,903 shares issued and outstanding, respectively
759

 
759

Paid in capital in excess of par
1,053,468

 
1,053,468

Accumulated undistributed net investment income
39,083

 
39,165

Accumulated undistributed net realized losses on investments
(76,475
)
 
(76,681
)
Net unrealized appreciation (depreciation) (net of provision for taxes of $812 and $894, respectively)
16,166

 
18,264

Total net assets
$
1,033,001

 
$
1,034,975

Total liabilities and net assets
$
2,078,419

 
$
1,928,018

Number of shares outstanding
75,935,093

 
75,935,093

Net asset value per share
$
13.60

 
$
13.63


The accompanying notes are an integral part of these consolidated financial statements.
3

New Mountain Finance Corporation
 
Consolidated Statements of Operations
(in thousands, except shares and per share data)
(unaudited)
 
Three Months Ended
 
March 31, 2018
 
March 31, 2017
Investment income
 
 
 
From non-controlled/non-affiliated investments:
 
 
 
Interest income
$
35,436

 
$
32,876

Dividend income
486

 
39

Non-cash dividend income
1,324

 
12

Other income
2,868

 
2,265

From non-controlled/affiliated investments:
 
 
 
Interest income
102

 
647

Dividend income
845

 
1,004

Non-cash dividend income
4,009

 
644

Other income
302

 
298

From controlled investments:
 
 
 
Interest income
1,201

 
475

Dividend income
4,239

 
4,213

Non-cash dividend income
1,454

 
821

Other income
623

 
13

Total investment income
52,889

 
43,307

Expenses
 
 
 
Incentive fee
6,434

 
5,408

Management fee
8,692

 
7,614

Interest and other financing expenses
11,290

 
8,376

Professional fees
694

 
850

Administrative expenses
939

 
708

Other general and administrative expenses
410

 
466

Total expenses
28,459

 
23,422

Less: management and incentive fees waived (See Note 5)
(1,322
)
 
(3,156
)
Less: expenses waived and reimbursed (See Note 5)
—

 
(470
)
Net expenses
27,137

 
19,796

Net investment income before income taxes
25,752

 
23,511

Income tax expense
16

 
80

Net investment income
25,736

 
23,431

Net realized gains (losses):
 
 
 
Non-controlled/non-affiliated investments
206

 
826

Net change in unrealized appreciation (depreciation):
 
 
 
Non-controlled/non-affiliated investments
(3,521
)
 
7,979

Non-controlled/affiliated investments
1,809

 
(296
)
Controlled investments
(456
)
 
(1,478
)
Securities purchased under collateralized agreements to resell
(12
)
 
(800
)
Benefit for taxes
82

 
755

Net realized and unrealized gains (losses)
(1,892
)
 
6,986

Net increase in net assets resulting from operations
$
23,844

 
$
30,417

Basic earnings per share
$
0.31

 
$
0.44

Weighted average shares of common stock outstanding - basic (See Note 11)
75,935,093

 
69,718,968

Diluted earnings per share
$
0.30

 
$
0.40

Weighted average shares of common stock outstanding - diluted (See Note 11)
85,759,220

 
79,543,095

Distributions declared and paid per share
$
0.34

 
$
0.34


The accompanying notes are an integral part of these consolidated financial statements.
4

New Mountain Finance Corporation
 
Consolidated Statements of Changes in Net Assets
(in thousands, except shares and per share data)
(unaudited)
 
Three Months Ended
 
March 31, 2018
 
March 31, 2017
Increase (decrease) in net assets resulting from operations:
 
 
 
Net investment income
$
25,736

 
$
23,431

Net realized gains on investments
206

 
826

Net change in unrealized (depreciation) appreciation of investments
(2,168
)
 
6,205

Net change in unrealized (depreciation) appreciation of securities purchased under collateralized agreements to resell
(12
)
 
(800
)
Benefit for taxes
82

 
755

Net increase in net assets resulting from operations
23,844

 
30,417

Capital transactions
 
 
 
Distributions declared to stockholders from net investment income
(25,818
)
 
(23,704
)
Reinvestment of distributions
—

 
1,548

Other
—

 
(81
)
Total net decrease in net assets resulting from capital transactions
(25,818
)
 
(22,237
)
Net (decrease) increase in net assets
(1,974
)
 
8,180

Net assets at the beginning of the period
1,034,975

 
938,562

Net assets at the end of the period
$
1,033,001

 
$
946,742

 
 
 
 
Capital share activity
 
 
 
Shares issued from the reinvestment of distributions
—

 
66,306

Shares reissued from repurchase program in connection with the reinvestment of distributions
—

 
37,573

Net increase in shares outstanding
—

 
103,879




The accompanying notes are an integral part of these consolidated financial statements.
5

New Mountain Finance Corporation
 
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
 
Three Months Ended
 
March 31, 2018
 
March 31, 2017
Cash flows from operating activities
 
 
 
Net increase in net assets resulting from operations
$
23,844

 
$
30,417

Adjustments to reconcile net (increase) decrease in net assets resulting from operations to net cash provided by (used in) operating activities:
 
 
 
Net realized gains on investments
(206
)
 
(826
)
Net change in unrealized depreciation (appreciation) of investments
2,168

 
(6,205
)
Net change in unrealized depreciation (appreciation) of securities purchased under collateralized agreements to resell
12

 
800

Amortization of purchase discount
(926
)
 
(747
)
Amortization of deferred financing costs
1,307

 
988

Amortization of premium on Convertible Notes
(27
)
 
(27
)
Non-cash investment income
(4,292
)
 
(1,933
)
(Increase) decrease in operating assets:
 
 
 
Purchase of investments and delayed draw facilities
(237,846
)
 
(349,477
)
Proceeds from sales and paydowns of investments
87,141

 
133,801

Cash received for purchase of undrawn portion of revolving credit or delayed draw facilities
29

 
120

Cash paid on drawn revolvers
(5,423
)
 
(3,970
)
Cash repayments on drawn revolvers
7,092

 
1,159

Interest and dividend receivable
(4,923
)
 
(3,881
)
Receivable from unsettled securities sold
—

 
(691
)
Receivable from affiliates
(308
)
 
(369
)
Other assets
1,781

 
(967
)
Increase (decrease) in operating liabilities:
 
 
 
Payable for unsettled securities purchased
29,841

 
47,811

Management fee payable
7,370

 
6,258

Incentive fee payable
6,434

 
3,608

Interest payable
2,094

 
2,478

Payable to affiliates
1,213

 
276

Deferred tax liability
(82
)
 
(755
)
Other liabilities
(101
)
 
298

Net cash flows used in operating activities
(83,808
)
 
(141,834
)
Cash flows from financing activities
 
 
 
Distributions paid
(25,818
)
 
(22,156
)
Offering costs paid
—

 
(58
)
Proceeds from Holdings Credit Facility
94,500

 
165,600

Repayment of Holdings Credit Facility
(51,200
)
 
(122,200
)
Proceeds from Unsecured Notes
90,000

 
—

Proceeds from NMFC Credit Facility
65,000

 
122,500

Repayment of NMFC Credit Facility
(92,500
)
 
(10,000
)
Other
—

 
(81
)
Deferred financing costs paid
(1,474
)
 
(36
)
Net cash flows provided by financing activities
78,508

 
133,569

Net decrease in cash and cash equivalents
(5,300
)
 
(8,265
)
Cash and cash equivalents at the beginning of the period
34,936

 
45,928

Cash and cash equivalents at the end of the period
$
29,636

 
$
37,663

Supplemental disclosure of cash flow information
 
 
 
Cash interest paid
$
7,577

 
$
4,570

Income taxes paid
3

 
12

Non-cash financing activities:
 
 
 
Value of shares issued in connection with the distribution reinvestment plan
$
—

 
$
988

Value of shares reissued from repurchase program in connection with the distribution reinvestment plan
—

 
560

Accrual for offering costs
944

 
540

Accrual for deferred financing costs
171

 
63



The accompanying notes are an integral part of these consolidated financial statements.
6
New Mountain Finance Corporation
 
Consolidated Schedule of Investments
March 31, 2018
(in thousands, except shares)
(unaudited)

Portfolio Company, Location and Industry (1)
 
Type of Investment
 
Interest Rate(9)
 
Acquisition Date
 
Maturity / Expiration Date
 
 Principal
 Amount,
 Par Value
 or Shares
 
 Cost
 
 Fair
 Value
 
Percent of Net
Assets
Non-Controlled/Non-Affiliated Investments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Funded Debt Investments - United Kingdom
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Shine Acquisition Co. S.à.r.l. / Boing US Holdco Inc.**
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer Services
 
Second lien (3)
 
9.29% (L + 7.50%/Q)
 
9/25/2017
 
10/3/2025
 
$
40,353

 
$
40,064

 
$
40,480

 
3.92
 %
Air Newco LLC**
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Software
 
Second lien (3)
 
11.37% (L + 9.50%/Q)
 
1/30/2015
 
1/31/2023
 
40,000

 
39,068

 
39,600

 
3.83
 %
Total Funded Debt Investments - United Kingdom
 
 
 
 
 
 
 
 
 
$
80,353

 
$
79,132

 
$
80,080

 
7.75
 %
Funded Debt Investments - United States
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Benevis Holding Corp.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Healthcare Services
 
First lien (2)
 
8.50% (L + 6.32%/Q)
 
3/15/2018
 
3/15/2024
 
$
58,824

 
$
58,824

 
$
58,824

 
 
 
 
First lien (3)
 
8.50% (L + 6.32%/Q)
 
3/15/2018
 
3/15/2024
 
20,691

 
20,691

 
20,691

 
 
 
 
 
 
 
 
 
 
 
 
79,515

 
79,515

 
79,515

 
7.70
 %
AmWINS Group, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
Second lien (3)
 
8.63% (L + 6.75%/Q)
 
1/19/2017
 
1/25/2025
 
57,000

 
56,810

 
57,570

 
5.57
 %
Alegeus Technologies, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Healthcare Services
 
Second lien (3)(10)
 
10.80% (L + 8.50%/Q)
 
4/28/2017
 
10/30/2023
 
23,500

 
23,500

 
23,500

 
 
 
 
Second lien (4)(10)
 
10.80% (L + 8.50%/Q)
 
4/28/2017
 
10/30/2023
 
22,500

 
22,500

 
22,500

 
 
 
 
 
 
 
 
 
 
 
 
46,000

 
46,000

 
46,000

 
4.45
 %
Integro Parent Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
First lien (2)
 
7.56% (L + 5.75%/Q)
 
10/9/2015
 
10/31/2022
 
34,784

 
34,525

 
34,784

 
 
 
 
Second lien (3)
 
11.02% (L + 9.25%/Q)
 
10/9/2015
 
10/30/2023
 
10,000

 
9,922

 
9,800

 
 
 
 
 
 
 
 
 
 
 
 
44,784

 
44,447

 
44,584

 
4.32
 %
Severin Acquisition, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Software
 
Second lien (4)(10)
 
10.63% (L + 8.75%/M)
 
7/31/2015
 
7/29/2022
 
15,000

 
14,896

 
15,000

 
 
 
 
Second lien (3)(10)
 
10.63% (L + 8.75%/M)
 
2/1/2017
 
7/29/2022
 
14,518

 
14,368

 
14,518

 
 
 
 
Second lien (4)(10)
 
10.63% (L + 8.75%/M)
 
11/5/2015
 
7/29/2022
 
4,154

 
4,124

 
4,154

 
 
 
 
Second lien (4)(10)
 
11.13% (L + 9.25%/M)
 
2/1/2016
 
7/29/2022
 
3,273

 
3,249

 
3,273

 
 
 
 
Second lien (3)(10)
 
10.88% (L + 9.00%/M)
 
10/14/2016
 
7/29/2022
 
2,361

 
2,342

 
2,361

 
 
 
 
Second lien (3)(10)
 
11.13% (L + 9.25%/M)
 
8/8/2016
 
7/29/2022
 
1,825

 
1,810

 
1,825

 
 
 
 
Second lien (4)(10)
 
11.13% (L + 9.25%/M)
 
8/8/2016
 
7/29/2022
 
300

 
298

 
300

 
 
 
 
 
 
 
 
 
 
 
 
41,431

 
41,087

 
41,431

 
4.01
 %
Salient CRGT Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Federal Services
 
First lien (2)
 
7.63% (L + 5.75%/M)
 
1/6/2015
 
2/28/2022
 
39,882

 
39,445

 
40,380

 
3.91
 %
Tenawa Resource Holdings LLC (13)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Tenawa Resource Management LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Energy
 
First lien (3)(10)
 
10.50% (Base + 8.00%/Q)
 
5/12/2014
 
10/30/2024
 
39,800

 
39,737


39,800

 
3.85
 %
VetCor Professional Practices LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer Services
 
First lien (4)
 
8.56% (L + 6.25%/Q)
 
5/15/2015
 
4/20/2021
 
19,062

 
18,955

 
19,085

 
 
 
 
First lien (2)
 
8.56% (L + 6.25%/Q)
 
5/15/2015
 
4/20/2021
 
7,694

 
7,591

 
7,704

 
 
 
 
First lien (3)(11) - Drawn
 
8.56% (L + 6.25%/Q)
 
2/24/2017
 
4/20/2021
 
5,990

 
5,884

 
5,998

 
 
 
 
First lien (4)
 
8.56% (L + 6.25%/Q)
 
5/15/2015
 
4/20/2021
 
2,644

 
2,627

 
2,647

 
 
 
 
First lien (3)(11) - Drawn
 
8.56% (L + 6.25%/Q)
 
6/24/2016
 
4/20/2021
 
1,881

 
1,865

 
1,884

 
 
 
 
First lien (2)
 
8.56% (L + 6.25%/Q)
 
3/31/2016
 
4/20/2021
 
1,628

 
1,603

 
1,630

 
 
 
 
First lien (4)
 
8.56% (L + 6.25%/Q)
 
5/15/2015
 
4/20/2021
 
494

 
487

 
494

 
 
 
 
 
 
 
 
 
 
 
 
39,393

 
39,012

 
39,442

 
3.82
 %

The accompanying notes are an integral part of these consolidated financial statements.
7
New Mountain Finance Corporation
 
Consolidated Schedule of Investments (Continued)
 March 31, 2018
(in thousands, except shares)
(unaudited)

Portfolio Company, Location and Industry (1)
 
Type of Investment
 
Interest Rate(9)
 
Acquisition Date
 
Maturity / Expiration Date
 
 Principal
 Amount,
 Par Value
 or Shares
 
 Cost
 
 Fair
 Value
 
Percent of Net
Assets
Frontline Technologies Group Holdings, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Education
 
First lien (2)(10)
 
8.38% (L + 6.50%/M)
 
9/18/2017
 
9/18/2023
 
$
16,708

 
$
16,592

 
$
16,583

 
 
 
 
First lien (4)(10)
 
8.38% (L + 6.50%/M)
 
9/18/2017
 
9/18/2023
 
22,557

 
22,400

 
22,388

 
 
 
 
 
 
 
 
 
 
 
 
39,265

 
38,992

 
38,971

 
3.77
 %
NM GRC Holdco, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
First lien (2)(10)
 
7.80% (L + 5.50%/Q)
 
2/9/2018
 
2/9/2024
 
38,930

 
38,739

 
38,735

 
3.75
 %
Kronos Incorporated
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Software
 
Second lien (2)
 
10.02% (L + 8.25%/Q)
 
10/26/2012
 
11/1/2024
 
36,000

 
35,520

 
37,425

 
3.62
 %
Valet Waste Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
First lien (2)(10)
 
8.14% (L + 6.25%/M)
 
9/24/2015
 
9/24/2021
 
29,250

 
29,018

 
29,250

 
 
 
 
First lien (2)(10)
 
8.14% (L + 6.25%/M)
 
7/27/2017
 
9/24/2021
 
3,722

 
3,690

 
3,722

 
 
 
 
First lien (3)(10)(11) - Drawn
 
8.89% (L + 7.00%/M)
 
9/24/2015
 
9/24/2021
 
600

 
593

 
600

 
 
 
 
 
 
 
 
 
 
 
 
33,572

 
33,301

 
33,572

 
3.25
 %
Navicure, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Healthcare Services
 
Second lien (3)
 
9.38% (L + 7.50%/M)
 
10/23/2017
 
10/31/2025
 
31,470

 
31,385

 
31,627

 
3.06
 %
Evo Payments International, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
Second lien (2)
 
10.88% (L + 9.00%/M)
 
12/8/2016
 
12/23/2024
 
25,000

 
24,827

 
25,250

 
 
 
 
Second lien (3)
 
10.88% (L + 9.00%/M)
 
12/8/2016
 
12/23/2024
 
5,000

 
5,052

 
5,050

 
 
 
 
 
 
 
 
 
 
 
 
30,000

 
29,879

 
30,300

 
2.93
 %
Wirepath LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distribution & Logistics
 
First lien (2)
 
6.80% (L + 4.50%/Q)
 
7/31/2017
 
8/5/2024
 
27,661

 
27,533

 
27,895

 
2.70
 %
Ansira Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
First lien (2)
 
8.80% (L + 6.50%/Q)
 
12/19/2016
 
12/20/2022
 
25,855

 
25,748

 
25,790

 
 
 
 
First lien (3)(11) - Drawn
 
8.80% (L + 6.50%/Q)
 
12/19/2016
 
12/20/2022
 
2,102

 
2,093

 
2,097

 
 
 
 
 
 
 
 
 
 
 
 
27,957

 
27,841

 
27,887

 
2.70
 %
Trader Interactive, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
First lien (2)(10)
 
7.85% (L + 6.00%/M)
 
6/15/2017
 
6/17/2024
 
27,122

 
26,937

 
26,919

 
2.61
 %
TW-NHME Holdings Corp. (20)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
National HME, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Healthcare Services
 
Second lien (4)(10)
 
11.55% (L + 9.25%/Q)
 
7/14/2015
 
7/14/2022
 
21,500

 
21,309

 
20,702

 
 
 
 
Second lien (3)(10)
 
11.55% (L + 9.25%/Q)
 
7/14/2015
 
7/14/2022
 
5,800

 
5,740

 
5,585

 
 
 
 
 
 
 
 
 
 
 
 
27,300

 
27,049

 
26,287

 
2.54
 %
Keystone Acquisition Corp.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Healthcare Services
 
First lien (2)
 
7.55% (L + 5.25%/Q)
 
5/10/2017
 
5/1/2024
 
19,900

 
19,720

 
20,024

 
 
 
 
Second lien (3)
 
11.55% (L + 9.25%/Q)
 
5/10/2017
 
5/1/2025
 
4,500

 
4,458

 
4,556

 
 
 
 
 
 
 
 
 
 
 
 
24,400

 
24,178

 
24,580

 
2.38
 %
iPipeline, Inc. (Internet Pipeline, Inc.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Software
 
First lien (4)(10)
 
9.14% (L + 7.25%/M)
 
8/4/2015
 
8/4/2022
 
17,550

 
17,430

 
17,550

 
 
 
 
First lien (4)(10)
 
8.06% (L + 6.25%/M)
 
6/16/2017
 
8/4/2022
 
4,566

 
4,546

 
4,543

 
 
 
 
First lien (2)(10)
 
8.04% (L + 6.25%/M)
 
9/25/2017
 
8/4/2022
 
1,158

 
1,153

 
1,152

 
 
 
 
First lien (4)(10)
 
8.04% (L + 6.25%/M)
 
9/25/2017
 
8/4/2022
 
509

 
507

 
507

 
 
 
 
 
 
 
 
 
 
 
 
23,783

 
23,636

 
23,752

 
2.30
 %

The accompanying notes are an integral part of these consolidated financial statements.
8
New Mountain Finance Corporation
 
Consolidated Schedule of Investments (Continued)
 March 31, 2018
(in thousands, except shares)
(unaudited)

Portfolio Company, Location and Industry (1)
 
Type of Investment
 
Interest Rate(9)
 
Acquisition Date
 
Maturity / Expiration Date
 
 Principal
 Amount,
 Par Value
 or Shares
 
 Cost
 
 Fair
 Value
 
Percent of Net
Assets
AAC Holding Corp.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Education
 
First lien (2)(10)
 
9.92% (L + 8.25%/M)
 
9/30/2015
 
9/30/2020
 
$
22,971

 
$
22,781

 
$
22,971

 
2.22
 %
TWDiamondback Holdings Corp. (15)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Diamondback Drugs of Delaware, L.L.C. (TWDiamondback II Holdings LLC)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distribution & Logistics
 
First lien (4)(10)
 
11.22% (L + 8.75%/Q)
 
11/19/2014
 
11/19/2019
 
19,895

 
19,895

 
19,895

 
 
 
 
First lien (3)(10)
 
10.79% (L + 8.75%/Q)
 
11/19/2014
 
11/19/2019
 
2,158

 
2,158

 
2,158

 
 
 
 
First lien (4)(10)
 
10.79% (L + 8.75%/Q)
 
11/19/2014
 
11/19/2019
 
605

 
605

 
605

 
 
 
 
 
 
 
 
 
 
 
 
22,658

 
22,658

 
22,658

 
2.19
 %
EN Engineering, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
First lien (2)(10)
 
8.30% (L + 6.00%/Q)
 
7/30/2015
 
6/30/2021
 
20,839

 
20,715

 
20,839

 
 
 
 
First lien (2)(10)
 
8.30% (L + 6.00%/Q)
 
7/30/2015
 
6/30/2021
 
1,205

 
1,197

 
1,205

 
 
 
 
 
 
 
 
 
 
 
 
22,044

 
21,912

 
22,044

 
2.13
 %
Avatar Topco, Inc. (23)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EAB Global, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Education
 
Second lien (3)
 
9.23% (L + 7.50%/Q)
 
11/17/2017
 
11/17/2025
 
21,450

 
21,139

 
21,450

 
2.08
 %
DigiCert Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
Second lien (3)
 
 9.77% (L + 8.00%/M)
 
9/20/2017
 
10/31/2025
 
20,176

 
20,079

 
20,378

 
1.97
 %
OEConnection LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
Second lien (3)
 
10.46% (L + 8.00%/Q)
 
11/22/2017
 
11/22/2025
 
20,213

 
19,943

 
20,213

 
1.96
 %
Help/Systems Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Software
 
Second lien (5)
 
10.05% (L+ 7.75%/Q)
 
3/23/2018
 
3/27/2026
 
20,231

 
20,130

 
20,130

 
1.95
 %
DiversiTech Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distribution & Logistics
 
Second lien (3)
 
9.81% (L + 7.50%/Q)
 
5/18/2017
 
6/2/2025
 
19,500

 
19,319

 
19,744

 
1.91
 %
ABILITY Network Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Healthcare Information Technology
 
Second lien (3)
 
9.54% (L + 7.75%/M)
 
12/11/2017
 
12/12/2025
 
18,851

 
18,839

 
18,933

 
1.83
 %
AgKnowledge Holdings Company, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
Second lien (2)(10)
 
10.13% (L + 8.25%/M)
 
7/23/2014
 
7/23/2020
 
18,500

 
18,417

 
18,500

 
1.79
 %
KeyPoint Government Solutions, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Federal Services
 
First lien (2)(10)
 
7.73% (L + 6.00%/M)
 
4/18/2017
 
4/18/2024
 
18,173

 
18,012

 
18,355

 
1.78
 %
BackOffice Associates Holdings, L.L.C.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
First lien (2)(10)
 
9.38% (L + 7.50%/M)
 
8/25/2017
 
8/25/2023
 
18,502

 
18,354

 
18,341

 
1.78
 %
SW Holdings, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
Second lien (4)(10)
 
11.05% (L + 8.75%/Q)
 
6/30/2015
 
12/30/2021
 
18,161

 
18,030

 
18,260

 
1.77
 %
VF Holding Corp.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Software
 
Second lien (3)(10)
 
10.88% (L + 9.00%/M)
 
7/7/2016
 
6/28/2024
 
17,086

 
17,387

 
17,427

 
1.69
 %
DCA Investment Holding, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Healthcare Services
 
First lien (2)(10)
 
7.56% (L + 5.25%/Q)
 
7/2/2015
 
7/2/2021
 
17,408

 
17,306

 
17,408

 
1.69
 %
TIBCO Software Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Software
 
Subordinated (3)
 
11.38%/S
 
11/24/2014
 
12/1/2021
 
15,000

 
14,729

 
16,359

 
1.58
 %
Hill International, Inc.**
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
First lien (2)(10)
 
7.63% (L + 5.75%/M)
 
6/21/2017
 
6/21/2023
 
15,682

 
15,611

 
15,603

 
1.51
 %
FR Arsenal Holdings II Corp.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
First lien (2)(10)
 
9.31% (L + 7.25%/Q)
 
9/29/2016
 
9/8/2022
 
15,317

 
15,189

 
15,348

 
1.49
 %
Netsmart Inc. / Netsmart Technologies, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Healthcare Information Technology
 
Second lien (2)
 
11.38% (L + 9.50%/Q)
 
4/18/2016
 
10/19/2023
 
15,000

 
14,695

 
15,075

 
1.46
 %
Xactly Corporation
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Software
 
First lien (4)(10)
 
9.14% (L + 7.25%/M)
 
7/31/2017
 
7/29/2022
 
14,690

 
14,557

 
14,543

 
1.41
 %

The accompanying notes are an integral part of these consolidated financial statements.
9
New Mountain Finance Corporation
 
Consolidated Schedule of Investments (Continued)
 March 31, 2018
(in thousands, except shares)
(unaudited)

Portfolio Company, Location and Industry (1)
 
Type of Investment
 
Interest Rate(9)
 
Acquisition Date
 
Maturity / Expiration Date
 
 Principal
 Amount,
 Par Value
 or Shares
 
 Cost
 
 Fair
 Value
 
Percent of Net
Assets
Transcendia Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Packaging
 
Second lien (3)
 
9.88% (L + 8.00%/M)
 
6/28/2017
 
5/30/2025
 
$
14,500

 
$
14,313

 
$
14,391

 
1.39
 %
Peraton Holding Corp. (fka MHVC Acquisition Corp.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Federal Services
 
First lien (2)
 
7.56% (L + 5.25%/Q)
 
4/25/2017
 
4/29/2024
 
13,994

 
13,953

 
14,099

 
1.36
 %
Ministry Brands, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Software
 
First lien (3)
 
6.88% (L + 5.00%/M)
 
12/7/2016
 
12/2/2022
 
2,985

 
2,973

 
2,985

 
 
 
 
Second lien (3)(10)
 
11.13% (L + 9.25%/M)
 
12/7/2016
 
6/2/2023
 
7,840

 
7,790

 
7,840

 
 
 
 
Second lien (3)(10)
 
11.13% (L + 9.25%/M)
 
12/7/2016
 
6/2/2023
 
2,160

 
2,146

 
2,160

 
 
 
 
First lien (3)(10)(11) - Drawn
 
6.78% (L + 5.00%/Q)
 
12/7/2016
 
12/2/2022
 
600

 
597

 
600

 
 
 
 
 
 
 
 
 
 
 
 
13,585

 
13,506

 
13,585

 
1.32
 %
Project Accelerate Parent, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
Second lien (3)(10)
 
10.19% (L + 8.50%/Q)
 
1/2/2018
 
1/2/2026
 
13,473

 
13,308

 
13,305

 
1.29
 %
American Tire Distributors, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distribution & Logistics
 
Subordinated (3)
 
10.25%/S
 
2/10/2015
 
3/1/2022
 
12,520

 
12,279

 
12,849

 
1.24
 %
nThrive, Inc. (fka Precyse Acquisition Corp.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Healthcare Services
 
Second lien (2)(10)
 
11.63% (L + 9.75%/M)
 
4/19/2016
 
4/20/2023
 
13,000

 
12,820

 
12,574

 
1.22
 %
SSH Group Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Education
 
First lien (2)(10)
 
7.45% (L + 5.00%/Q)
 
10/13/2017
 
10/2/2024
 
8,386

 
8,346

 
8,344

 
 
 
 
Second lien (3)(10)
 
11.45% (L + 9.00%/Q)
 
10/13/2017
 
10/2/2025
 
3,363

 
3,330

 
3,329

 
 
 
 
 
 
 
 
 
 
 
 
11,749

 
11,676

 
11,673

 
1.13
 %
ProQuest LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
Second lien (3)
 
10.88% (L + 9.00%/M)
 
12/14/2015
 
12/15/2022
 
11,620

 
11,447

 
11,620

 
1.12
 %
Zywave, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Software
 
Second lien (4)(10)
 
 10.87% (L + 9.00%/Q)
 
11/22/2016
 
11/17/2023
 
11,000

 
10,929

 
11,022

 
 
 
 
First lien (3)(10)(11) - Drawn
 
6.57% (L + 5.00%/Q)
 
11/22/2016
 
11/17/2022
 
500

 
496

 
500

 
 
 
 
 
 
 
 
 
 
 
 
11,500

 
11,425

 
11,522

 
1.12
 %
Amerijet Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distribution & Logistics
 
First lien (4)(10)
 
9.65% (L + 8.00%/M)
 
7/15/2016
 
7/15/2021
 
9,455

 
9,405

 
9,494

 
 
 
 
First lien (4)(10)
 
9.65% (L + 8.00%/M)
 
7/15/2016
 
7/15/2021
 
1,576

 
1,567

 
1,582

 
 
 
 
 
 
 
 
 
 
 
 
11,031

 
10,972

 
11,076

 
1.07
 %
Vectra Co.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Products
 
Second lien (3)
 
8.96% (L + 7.25%/M)
 
2/23/2018
 
3/8/2026
 
10,788

 
10,748

 
10,896

 
1.05
 %
Masergy Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
Second lien (2)
 
9.80% (L + 7.50%/Q)
 
12/14/2016
 
12/16/2024
 
10,500

 
10,448

 
10,583

 
1.02
 %
QC McKissock Investment, LLC (14)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
McKissock, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Education
 
First lien (2)(10)
 
8.30% (L + 6.00%/Q)
 
8/6/2014
 
8/5/2021
 
6,399

 
6,372

 
6,399

 
 
 
 
First lien (2)(10)
 
8.30% (L + 6.00%/Q)
 
8/6/2014
 
8/5/2021
 
3,051

 
3,040

 
3,051

 
 
 
 
First lien (2)(10)
 
8.30% (L + 6.00%/Q)
 
8/6/2014
 
8/5/2021
 
985

 
980

 
985

 
 
 
 
 
 
 
 
 
 
 
 
10,435

 
10,392

 
10,435

 
1.01
 %
Idera, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Software
 
Second lien (4)
 
10.88% (L + 9.00%/M)
 
6/27/2017
 
6/27/2025
 
10,000

 
9,859

 
10,200

 
0.99
 %
Quest Software US Holdings Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Software
 
First lien (2)
 
7.27% (L + 5.50%/M)
 
10/31/2016
 
10/31/2022
 
9,899

 
9,780

 
10,095

 
0.98
 %
PowerPlan Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Software
 
Second lien (2)(10)
 
10.88% (L + 9.00%/M)
 
2/23/2015
 
2/23/2023
 
10,000

 
9,929

 
10,000

 
0.97
 %

The accompanying notes are an integral part of these consolidated financial statements.
10
New Mountain Finance Corporation
 
Consolidated Schedule of Investments (Continued)
 March 31, 2018
(in thousands, except shares)
(unaudited)

Portfolio Company, Location and Industry (1)
 
Type of Investment
 
Interest Rate(9)
 
Acquisition Date
 
Maturity / Expiration Date
 
 Principal
 Amount,
 Par Value
 or Shares
 
 Cost
 
 Fair
 Value
 
Percent of Net
Assets
FPC Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distribution & Logistics
 
Second lien (3)
 
10.88% (L + 9.00%/Q)
 
3/28/2018
 
5/19/2023
 
$
10,116

 
$
9,711

 
$
9,711

 
0.94
 %
WD Wolverine Holdings, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Healthcare Services
 
First lien (2)
 
7.38% (L + 5.50%/Q)
 
2/22/2017
 
8/16/2022
 
9,750

 
9,486

 
9,671

 
0.94
 %
Pelican Products, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Products
 
Second lien (2)
 
10.13% (L + 8.25%/Q)
 
4/9/2014
 
4/9/2021
 
9,500

 
9,531

 
9,548

 
0.92
 %
J.D. Power (fka J.D. Power and Associates)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
Second lien (3)
 
10.80% (L + 8.50%/Q)
 
6/9/2016
 
9/7/2024
 
9,333

 
9,232

 
9,473

 
0.92
 %
Harley Marine Services, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distribution & Logistics
 
Second lien (2)
 
12.00% (L + 10.25%/M)
 
12/18/2013
 
12/20/2019
 
9,000

 
8,937

 
8,955

 
0.87
 %
JAMF Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Software
 
First lien (3)(10)
 
9.82% (L + 8.00%/Q)
 
11/13/2017
 
11/11/2022
 
8,757

 
8,675

 
8,670

 
0.84
 %
Autodata, Inc. (Autodata Solutions, Inc.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
Second lien (3)
 
9.01% (L + 7.25%/M)
 
12/12/2017
 
12/12/2025
 
7,406

 
7,388

 
7,517

 
0.73
 %
MH Sub I, LLC (Micro Holding Corp.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Software
 
Second lien (3)
 
9.28% (L + 7.50%/Q)
 
8/16/2017
 
9/15/2025
 
7,000

 
6,933

 
7,101

 
0.69
 %
DG Investment Intermediate Holdings 2, Inc. (aka Convergint Technologies Holdings, LLC)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
Second lien (3)
 
9.05% (L + 6.75%/Q)
 
1/29/2018
 
2/2/2026
 
6,732


6,699

 
6,833

 
0.66
 %
First American Payment Systems, L.P.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
First lien (2)
 
6.44% (L + 4.75%/M)
 
1/3/2017
 
1/5/2024
 
6,688

 
6,630

 
6,763

 
0.66
 %
CP VI Bella Midco, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Healthcare Services
 
Second lien (3)
 
8.63% (L + 6.75%/M)
 
1/25/2018
 
12/29/2025
 
6,732

 
6,699

 
6,741

 
0.65
 %
Pathway Partners Vet Management Company LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer Services
 
Second lien (4)
 
9.88% (L + 8.00%/M)
 
10/4/2017
 
10/10/2025
 
5,556

 
5,528

 
5,527

 
 
 
 
Second lien (4)(11) - Drawn
 
9.88% (L + 8.00%/M)
 
10/4/2017
 
10/10/2025
 
698

 
694

 
694

 
 
 
 
 
 
 
 
 
 
 
 
6,254

 
6,222

 
6,221

 
0.60
 %
Solera LLC / Solera Finance, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Software
 
Subordinated (3)
 
10.50%/S
 
2/29/2016
 
3/1/2024
 
5,000

 
4,797

 
5,588

 
0.54
 %
Applied Systems, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Software
 
Second lien (3)
 
9.30% (L + 7.00%/Q)
 
9/14/2017
 
9/19/2025
 
4,923

 
4,923

 
5,102

 
0.49
 %
ADG, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Healthcare Services
 
Second lien (3)(10)
 
10.88% (L + 9.00%/M)
 
10/3/2016
 
3/28/2024
 
5,000

 
4,936

 
5,037

 
0.49
 %
Vencore, Inc. (fka The SI Organization Inc.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Federal Services
 
Second lien (3)
 
10.63% (L + 8.75%/Q)
 
6/14/2016
 
5/23/2020
 
4,400

 
4,355

 
4,439

 
0.43
 %
Affinity Dental Management, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Healthcare Services
 
First lien (2)(10)
 
8.30% (L + 6.00%/Q)
 
9/15/2017
 
9/15/2023
 
4,344

 
4,304

 
4,301

 
0.42
 %
York Risk Services Holding Corp.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
Subordinated (3)
 
8.50%/S
 
9/17/2014
 
10/1/2022
 
3,000

 
3,000

 
2,820

 
0.27
 %
Ensemble S Merger Sub, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Software
 
Subordinated (3)
 
9.00%/S
 
9/21/2015
 
9/30/2023
 
2,000

 
1,948

 
2,110

 
0.20
 %

The accompanying notes are an integral part of these consolidated financial statements.
11
New Mountain Finance Corporation
 
Consolidated Schedule of Investments (Continued)
 March 31, 2018
(in thousands, except shares)
(unaudited)

Portfolio Company, Location and Industry (1)
 
Type of Investment
 
Interest Rate(9)
 
Acquisition Date
 
Maturity / Expiration Date
 
 Principal
 Amount,
 Par Value
 or Shares
 
 Cost
 
 Fair
 Value
 
Percent of Net
Assets
Education Management Corporation (12)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Education Management II LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Education
 
First lien (2)
 
10.25% (P + 5.50%/Q)(24)
 
1/5/2015
 
7/2/2020
 
$
211

 
$
205

 
$
50

 
 
 
 
First lien (3)
 
10.25% (P + 5.50%/Q)(24)
 
1/5/2015
 
7/2/2020
 
119

 
116

 
28

 
 
 
 
First lien (2)
 
13.25% (P + 8.50%/Q)(24)
 
1/5/2015
 
7/2/2020
 
475

 
437

 
7

 
 
 
 
First lien (3)
 
13.25% (P + 8.50%/Q)(24)
 
1/5/2015
 
7/2/2020
 
268

 
246

 
4

 
 
 
 
 
 
 
 
 
 
 
 
1,073

 
1,004

 
89

 
0.01
 %
Total Funded Debt Investments - United States
 
 
 
 
 
 
 
 
 
$
1,442,480

 
$
1,432,395

 
$
1,446,005

 
139.98
 %
Total Funded Debt Investments
 
 
 
 
 
 
 
 
 
$
1,522,833

 
$
1,511,527

 
$
1,526,085

 
147.73
 %
Equity - Hong Kong
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Bach Special Limited (Bach Preference Limited)**
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Education
 
Preferred shares (3)(10)(22)
 
—
 
9/1/2017
 
—
 
60,711

 
$
5,991

 
$
5,988

 
0.58
 %
Total Shares - Hong Kong
 
 
 
 
 
 
 
 
 
 
 
$
5,991

 
$
5,988

 
0.58
 %
Equity - United States
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Avatar Topco, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Education
 
Preferred shares (3)(10)(23)
 
—
 
11/17/2017
 
—
 
35,750

 
$
36,372

 
$
36,321

 
3.52
 %
Tenawa Resource Holdings LLC (13)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
QID NGL LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Energy
 
Ordinary shares (7)(10)
 
—
 
5/12/2014
 
—
 
5,290,997

 
5,291

 
7,855

 
 
 
 
Preferred shares (7)(10)
 
—
 
10/30/2017
 
—
 
620,706

 
621

 
970

 
 
 
 
 
 
 
 
 
 
 
 
 
 
5,912

 
8,825

 
0.85
 %
TWDiamondback Holdings Corp. (15)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distribution & Logistics
 
Preferred shares (4)(10)
 
—
 
11/19/2014
 
—
 
200

 
2,000

 
4,508

 
0.44
 %
TW-NHME Holdings Corp. (20)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Healthcare Services
 
Preferred shares (4)(10)
 
—
 
7/14/2015
 
—
 
100

 
1,000

 
409

 
 
 
 
Preferred shares (4)(10)
 
—
 
1/5/2016
 
—
 
16

 
158

 
64

 
 
 
 
Preferred shares (4)(10)
 
—
 
6/30/2016
 
—
 
6

 
68

 
25

 
 
 
 
Preferred shares (3)(10)
 
—
 
3/29/2018
 
—
 
40

 
162

 
162

 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,388

 
660

 
0.06
 %
Ancora Acquisition LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Education
 
Preferred shares (6)(10)
 
—
 
8/12/2013
 
—
 
372

 
83

 
393

 
0.04
 %

The accompanying notes are an integral part of these consolidated financial statements.
12
New Mountain Finance Corporation
 
Consolidated Schedule of Investments (Continued)
 March 31, 2018
(in thousands, except shares)
(unaudited)

Portfolio Company, Location and Industry (1)
 
Type of Investment
 
Interest Rate(9)
 
Acquisition Date
 
Maturity / Expiration Date
 
 Principal
 Amount,
 Par Value
 or Shares
 
 Cost
 
 Fair
 Value
 
Percent of Net
Assets
Education Management Corporation (12)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Education
 
Preferred shares (2)
 
—
 
1/5/2015
 
—
 
3,331

 
$
200

 
$
—

 
 
 
 
Preferred shares (3)
 
—
 
1/5/2015
 
—
 
1,879

 
113

 
—

 
 
 
 
Ordinary shares (2)
 
—
 
1/5/2015
 
—
 
2,994,065

 
100

 
11

 
 
 
 
Ordinary shares (3)
 
—
 
1/5/2015
 
—
 
1,688,976

 
56

 
6

 
 
 
 
 
 
 
 
 
 
 
 
 
 
469

 
17

 
—
 %
Total Shares - United States
 
 
 
 
 
 
 
 
 
 
 
$
46,224

 
$
50,724

 
4.91
 %
Total Shares
 
 
 
 
 
 
 
 
 
 
 
$
52,215

 
$
56,712

 
5.49
 %
Warrants - United States
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ASP LCG Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Education
 
Warrants (3)(10)
 
—
 
5/5/2014
 
5/5/2026
 
622

 
$
37

 
$
452

 
0.04
 %
Ancora Acquisition LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Education
 
Warrants (6)(10)
 
—
 
8/12/2013
 
8/12/2020
 
20

 
—

 
—

 
—
 %
Total Warrants - United States
 
 
 
 
 
 
 
 
 
 
 
$
37

 
$
452

 
0.04
 %
Total Funded Investments
 
 
 
 
 
 
 
 
 
 
 
$
1,563,779

 
$
1,583,249

 
153.26
 %
Unfunded Debt Investments - United States
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
VetCor Professional Practices LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer Services
 
First lien (3)(11) - Undrawn
 
—
 
5/15/2015
 
4/20/2021
 
$
2,700

 
$
(27
)
 
$
3

 
 
 
 
First lien (3)(11) - Undrawn
 
—
 
12/29/2017
 
12/29/2019
 
6,671

 
(58
)
 
8

 
 
 
 
 
 
 
 
 
 
 
 
9,371

 
(85
)
 
11

 
—
 %
DCA Investment Holding, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Healthcare Services
 
First lien (3)(10)(11) - Undrawn
 
—
 
7/2/2015
 
7/2/2021
 
2,100

 
(21
)
 
—

 
 
 
 
First lien (3)(10)(11) - Undrawn
 
—
 
12/20/2017
 
7/2/2021
 
13,465

 
(118
)
 
—

 
 
 
 
 
 
 
 
 
 
 
 
15,565

 
(139
)
 
—

 
—
 %
iPipeline, Inc. (Internet Pipeline, Inc.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Software
 
First lien (3)(10)(11) - Undrawn
 
—
 
8/4/2015
 
8/4/2021
 
1,000

 
(10
)
 
—

 
—
 %
Valet Waste Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
First lien (3)(10)(11) - Undrawn
 
—
 
9/24/2015
 
9/24/2021
 
3,150

 
(39
)
 
—

 
—
 %
Ministry Brands, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Software
 
First lien (3)(10)(11) - Undrawn
 
—
 
12/7/2016
 
12/2/2022
 
400

 
(2
)
 
—

 
—
 %
Zywave, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Software
 
First lien (3)(10)(11) - Undrawn
 
—
 
11/22/2016
 
11/17/2022
 
1,500

 
(11
)
 
—

 
—
 %
Ansira Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
First lien (3)(11) - Undrawn
 
—
 
12/19/2016
 
12/20/2018
 
1,700

 
(9
)
 
(4
)
 
—
 %
JAMF Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Software
 
First lien (3)(10)(11) - Undrawn
 
—
 
11/13/2017
 
11/11/2022
 
750

 
(8
)
 
(8
)
 
—
 %
Pathway Partners Vet Management Company LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer Services
 
Second lien (4)(11) - Undrawn
 
—
 
10/4/2017
 
10/10/2025
 
1,746

 
(9
)
 
(9
)
 
—
 %

The accompanying notes are an integral part of these consolidated financial statements.
13
New Mountain Finance Corporation
 
Consolidated Schedule of Investments (Continued)
 March 31, 2018
(in thousands, except shares)
(unaudited)

Portfolio Company, Location and Industry (1)
 
Type of Investment
 
Interest Rate(9)
 
Acquisition Date
 
Maturity / Expiration Date
 
 Principal
 Amount,
 Par Value
 or Shares
 
 Cost
 
 Fair
 Value
 
Percent of Net
Assets
Xactly Corporation
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Software
 
First lien (3)(10)(11) - Undrawn
 
—
 
7/31/2017
 
7/29/2022
 
$
992

 
$
(10
)
 
$
(10
)
 
—
 %
Trader Interactive, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
First lien (3)(10)(11) - Undrawn
 
—
 
6/15/2017
 
6/15/2023
 
1,673

 
(13
)
 
(13
)
 
—
 %
NM GRC Holdco, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
First lien (3)(10)(11) - Undrawn
 
—
 
2/9/2018
 
2/9/2024
 
11,563

 
(29
)
 
(29
)
 
—
 %
BackOffice Associates Holdings, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
First lien (3)(10)(11) - Undrawn
 
—
 
8/25/2017
 
8/24/2018
 
3,448

 
(13
)
 
(13
)
 
 
 
 
First lien (3)(10)(11) - Undrawn
 
—
 
8/25/2017
 
8/25/2023
 
2,586

 
(23
)
 
(23
)
 
 
 
 
 
 
 
 
 
 
 
 
6,034

 
(36
)
 
(36
)
 
—
 %
Affinity Dental Management, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Healthcare Services
 
First lien (3)(10)(11) - Undrawn
 
—
 
9/15/2017
 
3/15/2019
 
11,584

 
(29
)
 
(29
)
 
 
 
 
First lien (3)(10)(11) - Undrawn
 
—
 
9/15/2017
 
3/15/2023
 
1,737

 
(17
)
 
(17
)
 
 
 
 
 
 
 
 
 
 
 
 
13,321

 
(46
)
 
(46
)
 
(0.01
)%
Frontline Technologies Group Holdings, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Education
 
First lien (3)(10)(11) - Undrawn
 
—
 
9/18/2017
 
9/18/2019
 
7,738

 
(58
)
 
(58
)
 
(0.01
)%
Total Unfunded Debt Investments - United States
 
 
 
 
 
 
 
 
 
$
76,503

 
$
(504
)
 
$
(202
)
 
(0.02
)%
Total Non-Controlled/Non-Affiliated Investments
 
 
 
 
 
 
 
 
 
 
 
$
1,563,275

 
$
1,583,047

 
153.24
 %
Non-Controlled/Affiliated Investments (25)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Funded Debt Investments - United States
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Permian Holdco 1, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Permian Holdco 2, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Energy
 
Subordinated (3)(10)
 
14.00% PIK/Q*
 
10/31/2016
 
10/15/2021
 
$
2,077

 
$
2,077

 
$
2,077

 
 
 
 
Subordinated (3)(10)(11)
 
14.00% PIK/Q*
 
10/31/2016
 
10/15/2021
 
1,070

 
1,070

 
1,070

 
 
 
 
 
 
 
 
 
 
 
 
3,147

 
3,147

 
3,147

 
0.30
 %
Total Funded Debt Investments - United States
 
 
 
 
 
 
 
 
 
$
3,147

 
$
3,147

 
$
3,147

 
0.30
 %
Equity - United States
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HI Technology Corp.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
Preferred shares (3)(10)(21)
 
—
 
3/21/2017
 
—
 
2,768,000

 
$
105,155

 
$
107,450

 
10.40
 %
NMFC Senior Loan Program I LLC**
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investment Fund
 
Membership interest (3)(10)
 
—
 
6/13/2014
 
—
 
—

 
23,000

 
23,000

 
2.23
 %
Sierra Hamilton Holdings Corporation
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Energy
 
Ordinary shares (2)(10)
 
—
 
7/31/2017
 
—
 
25,000,000

 
11,501

 
11,208

 
 
 
 
Ordinary shares (3)(10)
 
—
 
7/31/2017
 
—
 
2,786,000

 
1,281

 
1,248

 
 
 
 
 
 
 
 
 
 
 
 
 
 
12,782

 
12,456

 
1.21
 %

The accompanying notes are an integral part of these consolidated financial statements.
14
New Mountain Finance Corporation
 
Consolidated Schedule of Investments (Continued)
 March 31, 2018
(in thousands, except shares)
(unaudited)

Portfolio Company, Location and Industry (1)
 
Type of Investment
 
Interest Rate(9)
 
Acquisition Date
 
Maturity / Expiration Date
 
 Principal
 Amount,
 Par Value
 or Shares
 
 Cost
 
 Fair
 Value
 
Percent of Net
Assets
Permian Holdco 1, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Energy
 
Preferred shares (3)(10)(17)
 
—
 
10/31/2016
 
—
 
1,616,302

 
$
7,087

 
$
8,890

 
 
 
 
Ordinary shares (3)(10)
 
—
 
10/31/2016
 
—
 
1,366,452

 
1,350

 
786

 
 
 
 
 
 
 
 
 
 
 
 
 
 
8,437

 
9,676

 
0.94
 %
Total Shares - United States
 
 
 
 
 
 
 
 
 
 
 
$
149,374

 
$
152,582

 
14.78
 %
Total Funded Investments
 
 
 
 
 
 
 
 
 
 
 
$
152,521

 
$
155,729

 
15.08
 %
Total Non-Controlled/Affiliated Investments
 
 
 
 
 
 
 
 
 
 
 
$
152,521

 
$
155,729

 
15.08
 %
Controlled Investments (26)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Funded Debt Investments - United States
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Edmentum Ultimate Holdings, LLC (16)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Edmentum Inc. (fka Plato, Inc.)(Archipelago Learning Inc.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Education
 
Second lien (3)(10)
 
7.00% PIK/Q*
 
2/23/2018
 
12/9/2021
 
$
10,657

 
$
9,906

 
$
9,859

 
 
 
 
Second lien (3)(10)(11) - Drawn
 
5.00% PIK/Q*
 
6/9/2015
 
6/9/2020
 
4,881

 
4,881

 
4,881

 
 
 
 
Subordinated (3)(10)
 
8.50% PIK/Q*
 
6/9/2015
 
6/9/2020
 
4,588

 
4,584

 
4,588

 
 
 
 
Subordinated (2)(10)
 
10.00% PIK/Q*
 
6/9/2015
 
6/9/2020
 
17,188

 
17,188

 
13,751

 
 
 
 
Subordinated (3)(10)
 
10.00% PIK/Q*
 
6/9/2015
 
6/9/2020
 
4,228

 
4,228

 
3,383

 
 
 
 
 
 
 
 
 
 
 
 
41,542

 
40,787

 
36,462

 
3.53
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
UniTek Global Services, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
First lien (2)(10)
 
10.81% (L + 8.50%/Q)
 
1/13/2015
 
1/13/2019
 
10,846

 
10,846

 
10,846

 
 
 
 
First lien (2)(10)
 
10.81% (L + 7.50%/M)
 
1/13/2015
 
1/13/2019
 
799

 
799

 
799

 
 
 
 
Subordinated (2)(10)
 
15.00% PIK/Q*
 
1/13/2015
 
7/13/2019
 
2,079

 
2,079

 
2,079

 
 
 
 
Subordinated (3)(10)
 
15.00% PIK/Q*
 
1/13/2015
 
7/13/2019
 
1,244

 
1,244

 
1,244

 
 
 
 
 
 
 
 
 
 
 
 
14,968

 
14,968

 
14,968

 
1.45
 %
Total Funded Debt Investments - United States
 
 
 
 
 
 
 
 
 
$
56,510

 
$
55,755

 
$
51,430

 
4.98
 %
Equity - Canada
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NM APP Canada Corp.**
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Lease
 
Membership interest (8)(10)
 
—
 
9/13/2016
 
—
 
—

 
$
7,345

 
$
8,234

 
0.80
 %
Total Shares - Canada
 
 
 
 
 
 
 
 
 
 
 
$
7,345

 
$
8,234

 
0.80
 %
Equity - United States
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NMFC Senior Loan Program II LLC**
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investment Fund
 
Membership interest (3)(10)
 
—
 
5/3/2016
 
—
 
—

 
$
79,400

 
$
79,400

 
7.69
 %

The accompanying notes are an integral part of these consolidated financial statements.
15
New Mountain Finance Corporation
 
Consolidated Schedule of Investments (Continued)
 March 31, 2018
(in thousands, except shares)
(unaudited)

Portfolio Company, Location and Industry (1)
 
Type of Investment
 
Interest Rate(9)
 
Acquisition Date
 
Maturity / Expiration Date
 
 Principal
 Amount,
 Par Value
 or Shares
 
 Cost
 
 Fair
 Value
 
Percent of Net
Assets
UniTek Global Services, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
Preferred shares (2)(10)(18)
 
—
 
1/13/2015
 
—
 
22,487,269

 
$
20,107

 
$
20,413

 
 
 
 
Preferred shares (3)(10)(19)
 
—
 
6/30/2017
 
—
 
11,379,603

 
11,380

 
11,380

 
 
 
 
Preferred shares (3)(10)(18)
 
—
 
1/13/2015
 
—
 
6,214,411

 
5,557

 
5,641

 
 
 
 
Ordinary shares (2)(10)
 
—
 
1/13/2015
 
—
 
2,096,477

 
1,925

 
6,787

 
 
 
 
Ordinary shares (3)(10)
 
—
 
1/13/2015
 
—
 
1,993,749

 
531

 
6,454

 
 
 
 
 
 
 
 
 
 
 
 
 
 
39,500

 
50,675

 
4.91
 %
NM GLCR LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Lease
 
Membership interest (8)(10)
 
—
 
2/1/2018
 
—
 
—

 
14,750

 
14,750

 
1.43
 %
NM CLFX LP
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Lease
 
Membership interest (8)(10)
 
—
 
10/6/2017
 
—
 
—

 
12,538

 
12,538

 
1.21
 %
NM KRLN LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Lease
 
Membership interest (8)(10)
 
—
 
11/15/2016
 
—
 
—

 
7,510

 
8,328

 
0.80
 %
NM DRVT LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Lease
 
Membership interest (8)(10)
 
—
 
11/18/2016
 
—
 
—

 
5,152

 
5,446

 
0.53
 %
NM APP US LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Lease
 
Membership interest (8)(10)
 
—
 
9/13/2016
 
—
 
—

 
5,080

 
5,206

 
0.50
 %
NM JRA LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Lease
 
Membership interest (8)(10)
 
—
 
8/12/2016
 
—
 
—

 
2,043

 
2,215

 
0.21
 %
Edmentum Ultimate Holdings, LLC (16)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Education
 
Ordinary shares (3)(10)
 
—
 
6/9/2015
 
—
 
123,968

 
11

 
84

 
 
 
 
Ordinary shares (2)(10)
 
—
 
6/9/2015
 
—
 
107,143

 
9

 
72

 
 
 
 
 
 
 
 
 
 
 
 
 
 
20

 
156

 
0.02
 %
Total Shares - United States
 
 
 
 
 
 
 
 
 
 
 
$
165,993

 
$
178,714

 
17.30
 %
Total Shares
 
 
 
 
 
 
 
 
 
 
 
$
173,338

 
$
186,948

 
18.10
 %
Warrants - United States
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Edmentum Ultimate Holdings, LLC (16)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Education
 
Warrants (3)(10)
 
—
 
2/23/2018
 
5/5/2026
 
1,141,846

 
$
769

 
$
769

 
0.07
 %
UniTek Global Services, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
Warrants (3)(10)
 
—
 
6/30/2017
 
12/31/2018
 
526,925

 
—

 
—

 
—
 %
Total Warrants - United States
 
 
 
 
 
 
 
 
 
 
 
$
769

 
$
769

 
0.07
 %
Total Funded Investments
 
 
 
 
 
 
 
 
 
 
 
$
229,862

 
$
239,147

 
23.15
 %
Unfunded Debt Investments - United States
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
UniTek Global Services, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
First lien (3)(10)(11) - Undrawn
 
—
 
1/13/2015
 
1/13/2019
 
$
2,048

 
$
—

 
$
—

 
 
 
 
First lien (3)(10)(11) - Undrawn
 
—
 
1/13/2015
 
1/13/2019
 
758

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
2,806

 
—

 
—

 
—
 %

The accompanying notes are an integral part of these consolidated financial statements.
16
New Mountain Finance Corporation
 
Consolidated Schedule of Investments (Continued)
 March 31, 2018
(in thousands, except shares)
(unaudited)

Portfolio Company, Location and Industry (1)
 
Type of Investment
 
Interest Rate(9)
 
Acquisition Date
 
Maturity / Expiration Date
 
 Principal
 Amount,
 Par Value
 or Shares
 
 Cost
 
 Fair
 Value
 
Percent of Net
Assets
Edmentum Ultimate Holdings, LLC (16)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Edmentum, Inc. (fka Plato, Inc.) (Archipelago Learning, Inc.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Education
 
Second lien (3)(10)(11) - Undrawn
 
—
 
6/9/2015
 
6/9/2020
 
$
2,568

 
$
—

 
$
—

 
—
 %
Total Unfunded Debt Investments - United States
 
 
 
 
 
 
 
 
 
$
5,374

 
$
—

 
$
—

 
—
 %
Total Controlled Investments
 
 
 
 
 
 
 
 
 
 
 
$
229,862

 
$
239,147

 
23.15
 %
Total Investments
 
 
 
 
 
 
 
 
 
 
 
$
1,945,658

 
$
1,977,923

 
191.47
 %
 
(1)
New Mountain Finance Corporation (the “Company”) generally acquires its investments in private transactions exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”). These investments are generally subject to certain limitations on resale, and may be deemed to be “restricted securities” under the Securities Act.
(2)
Investment is pledged as collateral for the Holdings Credit Facility, a revolving credit facility among the Company as Collateral Manager, New Mountain Finance Holdings, L.L.C. (“NMF Holdings”) as the Borrower, Wells Fargo Securities, LLC as the Administrative Agent, and Wells Fargo Bank, National Association, as the Lender and Collateral Custodian. See Note 7. Borrowings, for details.
(3)
Investment is pledged as collateral for the NMFC Credit Facility, a revolving credit facility among the Company as the Borrower and Goldman Sachs Bank USA as the Administrative Agent and the Collateral Agent and Goldman Sachs Bank USA, Morgan Stanley Bank, N.A. and Stifel Bank & Trust as Lenders. See Note 7. Borrowings, for details.
(4)
Investment is held in New Mountain Finance SBIC, L.P.
(5)
Investment is held in New Mountain Finance SBIC II, L.P.
(6)
Investment is held in NMF Ancora Holdings, Inc.
(7)
Investment is held in NMF QID NGL Holdings, Inc.
(8)
Investment is held in New Mountain Net Lease Corporation.
(9)
All interest is payable in cash unless otherwise indicated. A majority of the variable rate debt investments bear interest at a rate that may be determined by reference to the London Interbank Offered Rate (L), the Prime Rate (P) and the alternative base rate (Base) and which resets monthly (M), quarterly (Q), semi-annually (S) or annually (A). For each investment the current interest rate provided reflects the rate in effect as of March 31, 2018.
(10)
The fair value of the Company's investment is determined using unobservable inputs that are significant to the overall fair value measurement. See Note 4. Fair Value, for details.
(11)
Par Value amounts represent the drawn or undrawn (as indicated in type of investment) portion of revolving credit facilities or delayed draws. Cost amounts represent the cash received at settlement date net of the impact of paydowns and cash paid for drawn revolvers or delayed draws.
(12)
The Company holds investments in Education Management Corporation and one related entity of Education Management Corporation. The Company holds series A-1 convertible preferred stock and common stock in Education Management Corporation and holds a tranche A first lien term loan and a tranche B first lien term loan in Education Management II LLC, which is an indirect subsidiary of Education Management Corporation.
(13)
The Company holds investments in three related entities of Tenawa Resource Holdings LLC. The Company holds 4.77% of the common units in QID NGL LLC (which at closing represented 98.1% of the ownership in the common units in Tenawa Resource Holdings LLC), class A preferred units in QID NGL LLC and a first lien investment in Tenawa Resource Management LLC, a wholly-owned subsidiary of Tenawa Resource Holdings LLC.
(14)
The Company holds investments in QC McKissock Investment, LLC and one related entity of QC McKissock Investment, LLC. The Company holds a first lien term loan in QC McKissock Investment, LLC (which at closing represented 71.1% of the ownership in the Series A common units of McKissock Investment Holdings, LLC) and holds a first lien term loan and a delayed draw term loan in McKissock, LLC, a wholly-owned subsidiary of McKissock Investment Holdings, LLC.
(15)
The Company holds investments in TWDiamondback Holdings Corp. and one related entity of TWDiamondback Holdings Corp. The Company holds preferred equity in TWDiamondback Holdings Corp. and holds a first lien last out term loan and a delayed draw term loan in Diamondback Drugs of Delaware LLC, a wholly-owned subsidiary of TWDiamondback Holdings Corp.
(16)
The Company holds investments in Edmentum Ultimate Holdings, LLC and its related entities. The Company holds subordinated notes and ordinary equity in Edmentum Ultimate Holdings, LLC and holds a second lien revolver in Edmentum, Inc. and Archipelago Learning, Inc., which are wholly-owned subsidiaries of Edmentum Ultimate Holdings, LLC.
(17)
The Company holds preferred equity in Permian Holdco 1, Inc. that is entitled to receive cumulative preferential dividends at a rate of 12.0% per annum payable in additional shares.
(18)
The Company holds preferred equity in UniTek Global Services, Inc. that is entitled to receive cumulative preferential dividends at a rate of 13.5% per annum payable in additional shares.
(19)
The Company holds preferred equity in UniTek Global Services, Inc. that is entitled to receive cumulative preferential dividends at a rate of 19.0% per annum payable in additional shares.

The accompanying notes are an integral part of these consolidated financial statements.
17
New Mountain Finance Corporation
 
Consolidated Schedule of Investments (Continued)
 March 31, 2018
(in thousands, except shares)
(unaudited)

(20)
The Company holds equity investments in TW-NHME Holdings Corp., and holds a second lien term loan investment in National HME, Inc., a wholly-owned subsidiary of TW-NHME Holdings Corp.
(21)
The Company holds convertible preferred equity in HI Technology Corp that is accruing dividends at a rate of 15.0% per annum.
(22)
The Company holds preferred equity in Bach Special Limited (Bach Preference Limited) that is entitled to receive cumulative preferential dividends at a rate of 12.25% per annum payable in additional shares.
(23)
The Company holds preferred equity in Avatar Topco, Inc., and holds a second lien term loan investment in EAB Global, Inc., a wholly-owned subsidiary of Avatar Topco, Inc. The preferred equity is entitled to receive cumulative preferential dividends at a rate of L + 11.00% per annum.
(24)
Investment is on non-accrual status. See Note 3. Investments, for details.
(25)
Denotes investments in which the Company is an “Affiliated Person”, as defined in the Investment Company Act of 1940, as amended (the "1940 Act"), due to owning or holding the power to vote 5.0% or more of the outstanding voting securities of the investment but not controlling the company. Fair value as of March 31, 2018 and December 31, 2017, along with transactions during the three months ended March 31, 2018 in which the issuer was a non-controlled/affiliated investment, is as follows:
Portfolio Company
 
Fair Value at
December 31, 2017
 
Gross
Additions
(A)
 
Gross
Redemptions
(B)
 
Net
Realized
Gains
(Losses)
 
Net Change In
Unrealized
Appreciation
(Depreciation)
 
Fair Value at
March 31, 2018
 
Interest
Income
 
Dividend
Income
 
Other
Income
Edmentum Ultimate Holdings, LLC/Edmentum Inc.
 
$
24,858

 
$
—

 
$
(24,858
)
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

HI Technology Corp.
 
105,155

 
—

 
—

 
—

 
2,295

 
107,450

 
—

 
3,750

 
—

NMFC Senior Loan Program I LLC
 
23,000

 
—

 
—

 
—

 
—

 
23,000

 
—

 
845

 
295

Permian Holdco 1, Inc. / Permian Holdco 2, Inc.
 
12,733

 
702

 
—

 
—

 
(612
)
 
12,824

 
102

 
259

 
7

Sierra Hamilton Holdings Corporation
 
12,330

 
—

 
—

 
—

 
126

 
12,456

 
—

 
—

 
—

Total Non-Controlled/Affiliated Investments
 
$
178,076

 
$
702

 
$
(24,858
)
 
$
—

 
$
1,809

 
$
155,730

 
$
102

 
$
4,854

 
$
302

 
(A)
Gross additions include increases in the cost basis of investments resulting from new portfolio investments, payment-in-kind ("PIK") interest or dividends, the amortization of discounts, reorganizations or restructurings and the movement of an existing portfolio company into this category from a different category.
(B)
Gross redemptions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, reorganizations or restructurings and the movement of an existing portfolio company out of this category into a different category.
(26)
Denotes investments in which the Company is in “Control”, as defined in the 1940 Act, due to owning or holding the power to vote 25.0% or more of the outstanding voting securities of the investment. Fair value as of March 31, 2018 and December 31, 2017, along with transactions during the three months ended March 31, 2018 in which the issuer was a controlled investment, is as follows:
Portfolio Company
 
Fair Value at
December 31, 2017
 
Gross
Additions
(A)
 
Gross
Redemptions
(B)
 
Net 
Realized
Gains
(Losses)
 
Net Change In
Unrealized
Appreciation
(Depreciation)
 
Fair Value at
March 31, 2018
 
Interest
Income
 
Dividend
Income
 
Other
Income
Edmentum Ultimate Holdings, LLC/Edmentum Inc.
 
$
—

 
$
37,873

 
$
—

 
$
—

 
$
(486
)
 
$
37,387

 
$
779

 
$
—

 
$
385

NM APP Canada Corp.
 
7,962

 
—

 
—

 
—

 
272

 
8,234

 
—

 
184

 
—

NM APP US LLC
 
5,138

 
—

 
—

 
—

 
68

 
5,206

 
—

 
130

 
—

NM CLFX LP
 
12,538

 
—

 
—

 
—

 
—

 
12,538

 


 
365

 
—

NM DRVT LLC
 
5,385

 
—

 
—

 
—

 
61

 
5,446

 
—

 
120

 
—

NM JRA LLC
 
2,191

 
—

 
—

 
—

 
24

 
2,215

 
—

 
50

 
—

NM GLCR LLC
 
—

 
14,750

 
—

 
—

 
—

 
14,750

 


 
425

 
—

NM KRLN LLC
 
8,195

 
—

 
—

 
—

 
133

 
8,328

 
—

 
345

 
—

NMFC Senior Loan Program II LLC
 
79,400

 
—

 
—

 
—

 
—

 
79,400

 
—

 
2,620

 
—

UniTek Global Services, Inc.
 
64,593

 
1,578

 
—

 
—

 
(528
)
 
65,643

 
422

 
1,454

 
238

Total Controlled Investments
 
$
185,402

 
$
54,201

 
$
—

 
$
—

 
$
(456
)
 
$
239,147

 
$
1,201

 
$
5,693

 
$
623

 
(A)
Gross additions include increases in the cost basis of investments resulting from new portfolio investments, PIK interest or dividends, the amortization of discounts, reorganizations or restructurings and the movement of an existing portfolio company into this category from a different category.
(B)
Gross redemptions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, reorganizations or restructurings and the movement of an existing portfolio company out of this category into a different category.
*
All or a portion of interest contains PIK interest.

The accompanying notes are an integral part of these consolidated financial statements.
18
New Mountain Finance Corporation
 
Consolidated Schedule of Investments (Continued)
 March 31, 2018
(in thousands, except shares)
(unaudited)

**
Indicates assets that the Company deems to be “non-qualifying assets” under Section 55(a) of the 1940 Act. Qualifying assets must represent at least 70.0% of the Company’s total assets at the time of acquisition of any additional non-qualifying assets. As of March 31, 2018, 10.2% of the Company’s total investments were non-qualifying assets.
 
 
March 31, 2018
Investment Type
 
Percent of Total
Investments at Fair Value
First lien
 
37.31
%
Second lien
 
39.16
%
Subordinated
 
3.43
%
Equity and other
 
20.10
%
Total investments
 
100.00
%
 
 
 
March 31, 2018
Industry Type
 
Percent of Total
Investments at Fair Value
Business Services
 
32.87
%
Software
 
14.89
%
Healthcare Services
 
13.36
%
Education
 
9.41
%
Distribution & Logistics
 
5.94
%
Investment Fund
 
5.18
%
Consumer Services
 
4.35
%
Federal Services
 
3.91
%
Energy
 
3.74
%
Net Lease
 
2.87
%
Healthcare Information Technology
 
1.72
%
Business Products
 
1.03
%
Packaging
 
0.73
%
Total investments
 
100.00
%
 
 
 
March 31, 2018
Interest Rate Type
 
Percent of Total
Investments at Fair Value
Floating rates
 
87.74
%
Fixed rates
 
12.26
%
Total investments
 
100.00
%


The accompanying notes are an integral part of these consolidated financial statements.
19
New Mountain Finance Corporation
 
Consolidated Schedule of Investments
 December 31, 2017
(in thousands, except shares)


Portfolio Company, Location and Industry(1)
 
Type of
Investment
 
Interest Rate(9)
 
Acquisition Date
 
Maturity/Expiration
Date
 
Principal
Amount,
Par Value
or Shares
 
Cost
 
Fair Value
 
Percent of
Net
Assets
Non-Controlled/Non-Affiliated Investments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Funded Debt Investments - United Kingdom
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Air Newco LLC**
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Software
 
Second lien (3)
 
10.94% (L + 9.50%/Q)
 
1/30/2015
 
1/31/2023
 
$
40,000

 
$
39,033

 
$
39,000

 
3.77
 %
   Shine Acquisition Co. S.à.r.l / Boing US Holdco Inc.**
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Consumer Services
 
Second lien (3)
 
8.88% (L + 7.50%/Q)
 
9/25/2017
 
10/3/2025
 
40,353

 
40,056

 
40,656

 
3.93
 %
Total Funded Debt Investments - United Kingdom
 
 
 
 
 
 
 
 
 
$
80,353

 
$
79,089

 
$
79,656

 
7.70
 %
Funded Debt Investments - United States
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   AmWINS Group, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Services
 
Second lien (3)
 
8.32% (L + 6.75%/M)
 
1/19/2017
 
1/25/2025
 
$
57,000

 
$
56,804

 
$
57,606

 
5.57
 %
   Alegeus Technologies, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Healthcare Services
 
Second lien (3)(10)
 
10.19% (L + 8.50%/Q)
 
4/28/2017
 
10/30/2023
 
23,500

 
23,500

 
23,500

 
 
 
 
Second lien (4)(10)
 
10.19% (L + 8.50%/Q)
 
4/28/2017
 
10/30/2023
 
22,500

 
22,500

 
22,500

 
 
 
 
 
 
 
 
 
 
 
 
46,000

 
46,000

 
46,000

 
4.44
 %
   PetVet Care Centers LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Consumer Services
 
First lien (2)(10)
 
7.69% (L + 6.00%/Q)
 
6/8/2017
 
6/8/2023
 
34,527

 
34,409

 
34,872

 
 
 
 
First lien (3)(10)(11) - Drawn
 
7.55% (L + 6.00%/Q)
 
6/8/2017
 
6/8/2023
 
8,646

 
8,616

 
8,733

 
 
 
 
First lien (3)(10)(11) - Drawn
 
9.50% (P + 5.00%/Q)
 
6/8/2017
 
6/8/2023
 
2,200

 
2,192

 
2,200

 
 
 
 
 
 
 
 
 
 
 
 
45,373

 
45,217

 
45,805

 
4.43
 %
   Integro Parent Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Services
 
First lien (2)
 
7.16% (L + 5.75%/Q)
 
10/9/2015
 
10/31/2022
 
34,873

 
34,601

 
34,786

 
 
 
 
Second lien (3)
 
10.63% (L + 9.25%/Q)
 
10/9/2015
 
10/30/2023
 
10,000

 
9,920

 
9,800

 
 
 
 
 
 
 
 
 
 
 
 
44,873

 
44,521

 
44,586

 
4.31
 %
   Severin Acquisition, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Software
 
Second lien (4)(10)
 
10.32% (L + 8.75%/M)
 
7/31/2015
 
7/29/2022
 
15,000

 
14,891

 
15,000

 
 
 
 
Second lien (3)(10)
 
10.32% (L + 8.75%/M)
 
2/1/2017
 
7/29/2022
 
14,518

 
14,361

 
14,518

 
 
 
 
Second lien (4)(10)
 
10.32% (L + 8.75%/M)
 
11/5/2015
 
7/29/2022
 
4,154

 
4,123

 
4,154

 
 
 
 
Second lien (4)(10)
 
10.82% (L + 9.25%/M)
 
2/1/2016
 
7/29/2022
 
3,273

 
3,248

 
3,273

 
 
 
 
Second lien (3)(10)
 
10.57% (L + 9.00%/M)
 
10/14/2016
 
7/29/2022
 
2,361

 
2,341

 
2,361

 
 
 
 
Second lien (3)(10)
 
10.82% (L + 9.25%/M)
 
8/8/2016
 
7/29/2022
 
1,825

 
1,810

 
1,825

 
 
 
 
Second lien (4)(10)
 
10.82% (L + 9.25%/M)
 
8/8/2016
 
7/29/2022
 
300

 
298

 
300

 
 
 
 
 
 
 
 
 
 
 
 
41,431

 
41,072

 
41,431

 
4.00
 %
   Salient CRGT Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Federal Services
 
First lien (2)
 
7.32% (L + 5.75%/M)
 
1/6/2015
 
2/28/2022
 
40,894

 
40,421

 
41,251

 
3.99
 %
   Tenawa Resource Holdings LLC (13)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Tenawa Resource Management LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Energy
 
First lien (3)(10)
 
10.50% (Base + 8.00%/Q)
 
5/12/2014
 
10/30/2024
 
39,900

 
39,835

 
39,900

 
3.86
 %

The accompanying notes are an integral part of these consolidated financial statements.
20
New Mountain Finance Corporation
 
Consolidated Schedule of Investments (Continued)
 December 31, 2017
(in thousands, except shares)




Portfolio Company, Location and Industry(1)
 
Type of
Investment
 
Interest Rate(9)
 
Acquisition Date
 
Maturity/Expiration
Date
 
Principal
Amount,
Par Value
or Shares
 
Cost
 
Fair Value
 
Percent of
Net
Assets
   VetCor Professional Practices LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Consumer Services
 
First lien (4)
 
7.69% (L + 6.00%/Q)
 
5/15/2015
 
4/20/2021
 
$
19,111

 
$
18,996

 
$
19,134

 
 
 
 
First lien (2)
 
7.69% (L + 6.00%/Q)
 
5/15/2015
 
4/20/2021
 
7,714

 
7,603

 
7,724

 
 
 
 
First lien (3)(11) - Drawn
 
7.69% (L + 6.00%/Q)
 
2/24/2017
 
4/20/2021
 
6,005

 
5,891

 
6,013

 
 
 
 
First lien (4)
 
7.69% (L + 6.00%/Q)
 
5/15/2015
 
4/20/2021
 
2,650

 
2,632

 
2,654

 
 
 
 
First lien (2)
 
7.69% (L + 6.00%/Q)
 
6/24/2016
 
4/20/2021
 
1,632

 
1,606

 
1,634

 
 
 
 
First lien (4)
 
7.69% (L + 6.00%/Q)
 
3/31/2016
 
4/20/2021
 
495

 
487

 
496

 
 
 
 
First lien (3)(11) - Drawn
 
7.69% (L + 6.00%/Q)
 
5/15/2015
 
4/20/2021
 
1,426

 
1,412

 
1,428

 
 
 
 
 
 
 
 
 
 
 
 
39,033

 
38,627

 
39,083

 
3.78
 %
   Frontline Technologies Group Holdings, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Education
 
First lien (2)(10)
 
8.09% (L + 6.50%/Q)
 
9/18/2017
 
9/18/2023
 
16,750

 
16,629

 
16,625

 
 
 
 
First lien (4)(10)
 
8.09% (L + 6.50%/Q)
 
9/18/2017
 
9/18/2023
 
22,613

 
22,450

 
22,444

 
 
 
 
 
 
 
 
 
 
 
 
39,363

 
39,079

 
39,069

 
3.77
 %
   Kronos Incorporated
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Software
 
Second lien (2)
 
9.63% (L + 8.25%/Q)
 
10/26/2012
 
11/1/2024
 
36,000

 
35,508

 
37,449

 
3.62
 %
   Valet Waste Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Services
 
First lien (2)(10)
 
8.57% (L + 7.00%/M)
 
9/24/2015
 
9/24/2021
 
29,325

 
29,078

 
29,325

 
 
 
 
First lien (2)(10)
 
8.57% (L + 7.00%/M)
 
7/27/2017
 
9/24/2021
 
3,731

 
3,697

 
3,731

 
 
 
 
 
 
 
 
 
 
 
 
33,056

 
32,775

 
33,056

 
3.19
 %
   Evo Payments International, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Services
 
Second lien (2)
 
10.57% (L + 9.00%/M)
 
12/8/2016
 
12/23/2024
 
25,000

 
24,824

 
25,250

 
 
 
 
Second lien (3)
 
10.57% (L + 9.00%/M)
 
12/8/2016
 
12/23/2024
 
5,000

 
5,052

 
5,050

 
 
 
 
 
 
 
 
 
 
 
 
30,000

 
29,876

 
30,300

 
2.93
 %
   Wirepath LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Distribution & Logistics
 
First lien (2)
 
6.87% (L + 5.25%/Q)
 
7/31/2017
 
8/5/2024
 
27,731

 
27,598

 
28,112

 
2.72
 %
   Ansira Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Services
 
First lien (2)
 
8.19% (L + 6.50%/Q)
 
12/19/2016
 
12/20/2022
 
25,920

 
25,809

 
25,855

 
 
 
 
First lien (3)(11) - Drawn
 
8.19% (L + 6.50%/Q)
 
12/19/2016
 
12/20/2022
 
2,107

 
2,097

 
2,102

 
 
 
 
 
 
 
 
 
 
 
 
28,027

 
27,906

 
27,957

 
2.70
 %
   TW-NHME Holdings Corp. (20)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   National HME, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Healthcare Services
 
Second lien (4)(10)
 
10.95% (L + 9.25%/Q)
 
7/14/2015
 
7/14/2022
 
21,500

 
21,301

 
21,646

 
 
 
 
Second lien (3)(10)
 
10.95% (L + 9.25%/Q)
 
7/14/2015
 
7/14/2022
 
5,800

 
5,737

 
5,839

 
 
 
 
 
 
 
 
 
 
 
 
27,300

 
27,038

 
27,485

 
2.66
 %
   Navicure, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Healthcare Services
 
Second lien (3)
 
8.86% (L + 7.50%/M)
 
10/23/2017
 
10/31/2025
 
26,952

 
26,819

 
27,154

 
2.62
 %
   Trader Interactive, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Services
 
First lien (2)(10)
 
7.50% (L + 6.00%/M)
 
6/15/2017
 
6/17/2024
 
27,190

 
26,999

 
26,986

 
2.61
 %
   Marketo, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Software
 
First lien (3)(10)
 
11.19% (L + 9.50%/Q)
 
8/16/2016
 
8/16/2021
 
26,820

 
26,509

 
26,820

 
2.59
 %
   Keystone Acquisition Corp.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Healthcare Services
 
First lien (2)
 
6.94% (L + 5.25%/Q)
 
5/10/2017
 
5/1/2024
 
19,950

 
19,764

 
20,087

 
 
 
 
Second lien (3)
 
10.94% (L + 9.25%/Q)
 
5/10/2017
 
5/1/2025
 
4,500

 
4,457

 
4,511

 
 
 
 
 
 
 
 
 
 
 
 
24,450

 
24,221

 
24,598

 
2.38
 %

The accompanying notes are an integral part of these consolidated financial statements.
21
New Mountain Finance Corporation
 
Consolidated Schedule of Investments (Continued)
 December 31, 2017
(in thousands, except shares)




Portfolio Company, Location and Industry(1)
 
Type of
Investment
 
Interest Rate(9)
 
Acquisition Date
 
Maturity/Expiration
Date
 
Principal
Amount,
Par Value
or Shares
 
Cost
 
Fair Value
 
Percent of
Net
Assets
   iPipeline, Inc. (Internet Pipeline, Inc.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Software
 
First lien (4)(10)
 
8.82% (L + 7.25%/M)
 
8/4/2015
 
8/4/2022
 
$
17,589

 
$
17,464

 
$
17,589

 
 
 
 
First lien (4)(10)
 
7.74% (L + 6.25%/M)
 
6/16/2017
 
8/4/2022
 
4,577

 
4,556

 
4,554

 
 
 
 
First lien (2)(10)
 
7.74% (L + 6.25%/M)
 
9/25/2017
 
8/4/2022
 
1,161

 
1,155

 
1,155

 
 
 
 
First lien (4)(10)
 
7.74% (L + 6.25%/M)
 
9/25/2017
 
8/4/2022
 
511

 
508

 
508

 
 
 
 
 
 
 
 
 
 
 
 
23,838

 
23,683

 
23,806

 
2.30
 %
   AAC Holding Corp.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Education
 
First lien (2)(10)
 
9.62% (L + 8.25%/M)
 
9/30/2015
 
9/30/2020
 
23,161

 
22,953

 
23,161

 
2.24
 %
   BackOffice Associates Holdings, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Services
 
First lien (2)(10)
 
8.06% (L + 6.50%/M)
 
8/25/2017
 
8/25/2023
 
22,869

 
22,679

 
22,669

 
2.19
 %
   TWDiamondback Holdings Corp. (15)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Diamondback Drugs of Delaware, L.L.C. (TWDiamondback II Holdings LLC)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Distribution & Logistics
 
First lien (4)(10)
 
10.49% (L + 8.75%/Q)
 
11/19/2014
 
11/19/2019
 
19,895

 
19,895

 
19,895

 
 
 
 
First lien (3)(10)
 
10.44% (L + 8.75%/Q)
 
11/19/2014
 
11/19/2019
 
2,158

 
2,158

 
2,158

 
 
 
 
First lien (4)(10)
 
10.44% (L + 8.75%/Q)
 
11/19/2014
 
11/19/2019
 
605

 
605

 
605

 
 
 
 
 
 
 
 
 
 
 
 
22,658

 
22,658

 
22,658

 
2.19
 %
   EN Engineering, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Services
 
First lien (2)(10)
 
7.69% (L + 6.00%/Q)
 
7/30/2015
 
6/30/2021
 
20,893

 
20,760

 
20,893

 
 
 
 
First lien (2)(10)
 
7.69% (L + 6.00%/Q)
 
7/30/2015
 
6/30/2021
 
1,208

 
1,200

 
1,208

 
 
 
 
 
 
 
 
 
 
 
 
22,101

 
21,960

 
22,101

 
2.14
 %
   Avatar Topco, Inc (23)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   EAB Global, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Education
 
Second lien (3)
 
8.99% (L + 7.50%/M)
 
11/17/2017
 
11/17/2025
 
21,450

 
21,132

 
21,236

 
2.05
 %
   DigiCert Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Services
 
Second lien (3)
 
9.38% (L + 8.00%/Q)
 
9/20/2017
 
10/31/2025
 
20,176

 
20,077

 
20,347

 
1.97
 %
   DiversiTech Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Distribution & Logistics
 
Second lien (3)
 
9.20% (L + 7.50%/Q)
 
5/18/2017
 
6/2/2025
 
19,500

 
19,315

 
19,744

 
1.91
 %
   ABILITY Network Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Healthcare Information Technology
 
Second lien (3)
 
9.21% (L + 7.75%/M)
 
12/11/2017
 
12/12/2025
 
18,851

 
18,839

 
18,945

 
1.83
 %
   KeyPoint Government Solutions, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Federal Services
 
First lien (2)(10)
 
7.35% (L + 6.00%/Q)
 
4/18/2017
 
4/18/2024
 
18,413

 
18,243

 
18,597

 
1.80
 %
   AgKnowledge Holdings Company, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Services
 
Second lien (2)(10)
 
9.82% (L + 8.25%/M)
 
7/23/2014
 
7/23/2020
 
18,500

 
18,409

 
18,500

 
1.79
 %
   VF Holding Corp.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Software
 
Second lien (3)(10)
 
10.57% (L + 9.00%/M)
 
7/7/2016
 
6/28/2024
 
17,086

 
17,396

 
17,598

 
1.70
 %
   DCA Investment Holding, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Healthcare Services
 
First lien (2)(10)
 
6.94% (L + 5.25%/Q)
 
7/2/2015
 
7/2/2021
 
17,453

 
17,344

 
17,453

 
1.69
 %
   OEConnection LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Services
 
Second lien (3)
 
9.69% (L + 8.00%/Q)
 
11/22/2017
 
11/22/2025
 
16,841

 
16,548

 
16,841

 
1.63
 %
   TIBCO Software Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
       Software
 
Subordinated (3)
 
11.38%/S
 
11/24/2014
 
12/1/2021
 
15,000

 
14,714

 
16,378

 
1.58
 %
   American Tire Distributors, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Distribution & Logistics
 
Subordinated (3)
 
10.25%/S
 
2/10/2015
 
3/1/2022
 
15,520

 
15,267

 
16,063

 
1.55
 %

The accompanying notes are an integral part of these consolidated financial statements.
22
New Mountain Finance Corporation
 
Consolidated Schedule of Investments (Continued)
 December 31, 2017
(in thousands, except shares)




Portfolio Company, Location and Industry(1)
 
Type of
Investment
 
Interest Rate(9)
 
Acquisition Date
 
Maturity/Expiration
Date
 
Principal
Amount,
Par Value
or Shares
 
Cost
 
Fair Value
 
Percent of
Net
Assets
   Hill International, Inc.**
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Services
 
First lien (2)(10)
 
7.32% (L + 5.75%/M)
 
6/21/2017
 
6/21/2023
 
$
15,721

 
$
15,648

 
$
15,642

 
1.51
 %
   Netsmart Inc. / Netsmart Technologies, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Healthcare Information Technology
 
Second lien (2)
 
10.98% (L + 9.50%/Q)
 
4/18/2016
 
10/19/2023
 
15,000

 
14,686

 
15,075

 
1.46
 %
   Transcendia Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
       Packaging
 
Second lien (3)
 
9.57% (L + 8.00%/M)
 
6/28/2017
 
5/30/2025
 
14,500

 
14,309

 
14,391

 
1.39
 %
   SW Holdings, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Services
 
Second lien (4)(10)
 
10.44% (L + 8.75%/Q)
 
6/30/2015
 
12/30/2021
 
14,265

 
14,167

 
14,331

 
1.38
 %
   Peraton Holding Corp. (fka MHVC Acquisition Corp.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Federal Services
 
First lien (2)
 
6.95% (L + 5.25%/Q)
 
4/25/2017
 
4/29/2024
 
14,030

 
13,987

 
14,135

 
1.37
 %
   Ministry Brands, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Software
 
First lien (3)
 
6.38% (L + 5.00%/Q)
 
12/7/2016
 
12/2/2022
 
2,993

 
2,980

 
2,993

 
 
 
 
First lien (3)(10)(11) - Drawn
 
6.57% (L + 5.00%/M)
 
12/7/2016
 
12/2/2022
 
1,000

 
995

 
1,000

 
 
 
 
Second lien (3)(10)
 
10.63% (L + 9.25%/Q)
 
12/7/2016
 
6/2/2023
 
7,840

 
7,788

 
7,840

 
 
 
 
Second lien (3)(10)
 
10.63% (L + 9.25%/Q)
 
12/7/2016
 
6/2/2023
 
2,160

 
2,146

 
2,160

 
 
 
 
 
 
 
 
 
 
 
 
13,993

 
13,909

 
13,993

 
1.35
 %
   nThrive, Inc. (fka Precyse Acquisition Corp.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Healthcare Services
 
Second lien (2)(10)
 
11.32% (L + 9.75%/M)
 
4/19/2016
 
4/20/2023
 
13,000

 
12,813

 
12,702

 
1.23
 %
   FR Arsenal Holdings II Corp.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Services
 
First lien (2)(10)
 
8.81% (L + 7.25%/Q)
 
9/29/2016
 
9/8/2022
 
12,356

 
12,252

 
12,373

 
1.19
 %
   Amerijet Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     Distribution & Logistics
 
First lien (4)(10)
 
9.57% (L + 8.00%/M)
 
7/15/2016
 
7/15/2021
 
10,403

 
10,344

 
10,458

 
 
 
 
First lien (4)(10)
 
9.57% (L + 8.00%/M)
 
7/15/2016
 
7/15/2021
 
1,734

 
1,724

 
1,743

 
 
 
 
 
 
 
 
 
 
 
 
12,137

 
12,068

 
12,201

 
1.18
 %
   SSH Group Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Education
 
First lien (2)(10)
 
6.69% (L + 5.00%/Q)
 
10/13/2017
 
10/2/2024
 
8,407

 
8,366

 
8,365

 
 
 
 
Second lien (3)(10)
 
10.69% (L + 9.00%/Q)
 
10/13/2017
 
10/2/2025
 
3,363

 
3,330

 
3,329

 
 
 
 
 
 
 
 
 
 
 
 
11,770

 
11,696

 
11,694

 
1.13
 %
   ProQuest LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Services
 
Second lien (3)
 
10.55% (L + 9.00%/M)
 
12/14/2015
 
12/15/2022
 
11,620

 
11,440

 
11,620

 
1.12
 %
   Xactly Corporation
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Software
 
First lien (4)(10)
 
8.82% (L + 7.25%/M)
 
7/31/2017
 
7/29/2022
 
11,600

 
11,492

 
11,484

 
1.11
 %
   Zywave, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Software
 
Second lien (4)(10)
 
10.42% (L + 9.00%/Q)
 
11/22/2016
 
11/17/2023
 
11,000

 
10,927

 
11,011

 
 
 
 
First lien (3)(10)(11) - Drawn
 
8.50% (P + 4.00%/Q)
 
11/22/2016
 
11/17/2022
 
200

 
199

 
200

 
 
 
 
First lien (3)(10)(11) - Drawn
 
6.57% (L + 5.00%/Q)
 
11/22/2016
 
11/17/2022
 
250

 
248

 
250

 
 
 
 
 
 
 
 
 
 
 
 
11,450

 
11,374

 
11,461

 
1.11
 %
   QC McKissock Investment, LLC (14)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   McKissock, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Education
 
First lien (2)(10)
 
7.94% (L + 6.25%/Q)
 
8/6/2014
 
8/5/2021
 
6,415

 
6,386

 
6,415

 
 
 
 
First lien (2)(10)
 
7.94% (L + 6.25%/Q)
 
8/6/2014
 
8/5/2021
 
3,058

 
3,046

 
3,058

 
 
 
 
First lien (2)(10)
 
7.94% (L + 6.25%/Q)
 
8/6/2014
 
8/5/2021
 
987

 
983

 
987

 
 
 
 
 
 
 
 
 
 
 
 
10,460

 
10,415

 
10,460

 
1.01
 %

The accompanying notes are an integral part of these consolidated financial statements.
23
New Mountain Finance Corporation
 
Consolidated Schedule of Investments (Continued)
 December 31, 2017
(in thousands, except shares)




Portfolio Company, Location and Industry(1)
 
Type of
Investment
 
Interest Rate(9)
 
Acquisition Date
 
Maturity/Expiration
Date
 
Principal
Amount,
Par Value
or Shares
 
Cost
 
Fair Value
 
Percent of
Net
Assets
   Masergy Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Services
 
Second lien (2)
 
10.19% (L + 8.50%/Q)
 
12/14/2016
 
12/16/2024
 
$
10,000

 
$
9,943

 
$
10,144

 
0.98
 %
   Idera, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Software
 
Second lien (4)
 
10.57% (L + 9.00%/M)
 
6/27/2017
 
6/27/2025
 
10,000

 
9,856

 
10,100

 
0.97
 %
   Quest Software US Holdings Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Software
 
First lien (2)
 
6.92% (L + 5.50%/Q)
 
10/31/2016
 
10/31/2022
 
9,899

 
9,775

 
10,071

 
0.97
 %
   PowerPlan Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Software
 
Second lien (2)(10)
 
10.57% (L + 9.00%/M)
 
2/23/2015
 
2/23/2023
 
10,000

 
9,927

 
10,000

 
0.97
 %
   WD Wolverine Holdings, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Healthcare Services
 
First lien (2)
 
7.07% (L + 5.50%/M)
 
2/22/2017
 
8/16/2022
 
9,813

 
9,534

 
9,512

 
0.92
 %
   Pelican Products, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Products
 
Second lien (2)
 
9.94% (L + 8.25%/Q)
 
4/9/2014
 
4/9/2021
 
9,500

 
9,533

 
9,500

 
0.92
 %
   J.D. Power (fka J.D. Power and Associates)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Services
 
Second lien (3)
 
10.19% (L + 8.50%/Q)
 
6/9/2016
 
9/7/2024
 
9,333

 
9,230

 
9,473

 
0.91
 %
   Harley Marine Services, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Distribution & Logistics
 
Second lien (2)
 
10.63% (L + 9.25%/Q)
 
12/18/2013
 
12/20/2019
 
9,000

 
8,929

 
8,955

 
0.86
 %
   JAMF Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Software
 
First lien (3)(10)
 
9.41% (L + 8.00%/Q)
 
11/13/2017
 
11/11/2022
 
8,757

 
8,672

 
8,670

 
0.84
 %
   Autodata, Inc. (Autodata Solutions, Inc.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Services
 
Second lien (3)
 
8.82% (L + 7.25%/Q)
 
12/12/2017
 
12/12/2025
 
7,406

 
7,387

 
7,387

 
0.71
 %
   MH Sub I, LLC (Micro Holding Corp.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Software
 
Second lien (3)
 
9.09% (L + 7.50%/Q)
 
8/16/2017
 
9/15/2025
 
7,000

 
6,932

 
7,048

 
0.68
 %
   First American Payment Systems, L.P.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Services
 
First lien (2)
 
7.14% (L + 5.75%/M)
 
1/3/2017
 
1/5/2024
 
6,844

 
6,783

 
6,880

 
0.66
 %
   Solera LLC / Solera Finance, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Software
 
Subordinated (3)
 
10.50%/S
 
2/29/2016
 
3/1/2024
 
5,000

 
4,791

 
5,650

 
0.55
 %
   Pathway Partners Vet Management Company LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Consumer Services
 
Second lien (4)
 
9.57% (L + 8.00%/M)
 
10/4/2017
 
10/10/2025
 
5,556

 
5,527

 
5,527

 
0.53
 %
   Applied Systems, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Software
 
Second lien (3)
 
8.69% (L + 7.00%/Q)
 
9/14/2017
 
9/19/2025
 
4,923

 
4,923

 
5,106

 
0.49
 %
   ADG, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Healthcare Services
 
Second lien (3)(10)
 
10.57% (L + 9.00%/M)
 
10/3/2016
 
3/28/2024
 
5,000

 
4,934

 
5,038

 
0.49
 %
   Vencore, Inc. (fka The SI Organization Inc.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Federal Services
 
Second lien (3)
 
10.44% (L + 8.75%/Q)
 
6/14/2016
 
5/23/2020
 
4,400

 
4,350

 
4,450

 
0.43
 %
   Affinity Dental Management, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Healthcare Services
 
First lien (2)(10)
 
7.59% (L + 6.00%/Q)
 
9/15/2017
 
9/15/2023
 
4,344

 
4,302

 
4,301

 
0.41
 %
   York Risk Services Holding Corp.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Services
 
Subordinated (3)
 
8.50%/S
 
9/17/2014
 
10/1/2022
 
3,000

 
3,000

 
2,940

 
0.28
 %
   Ensemble S Merger Sub, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Software
 
Subordinated (3)
 
9.00%/S
 
9/21/2015
 
9/30/2023
 
2,000

 
1,946

 
2,125

 
0.20
 %

The accompanying notes are an integral part of these consolidated financial statements.
24
New Mountain Finance Corporation
 
Consolidated Schedule of Investments (Continued)
 December 31, 2017
(in thousands, except shares)




Portfolio Company, Location and Industry(1)
 
Type of
Investment
 
Interest Rate(9)
 
Acquisition Date
 
Maturity/Expiration
Date
 
Principal
Amount,
Par Value
or Shares
 
Cost
 
Fair Value
 
Percent of
Net
Assets
   Education Management Corporation (12)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Education Management II LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Education
 
First lien (2)
 
5.85% (L + 4.50%/Q)
 
1/5/2015
 
7/2/2020
 
$
211

 
$
205

 
$
82

 
 
 
 
First lien (3)
 
5.85% (L + 4.50%/Q)
 
1/5/2015
 
7/2/2020
 
119

 
116

 
46

 
 
 
 
First lien (2)
 
8.85% (L + 7.50%/Q)
 
1/5/2015
 
7/2/2020
 
475

 
437

 
10

 
 
 
 
First lien (3)
 
8.85% (L + 7.50%/Q)
 
1/5/2015
 
7/2/2020
 
268

 
247

 
6

 
 
 
 
 
 
 
 
 
 
 
 
1,073

 
1,005

 
144

 
0.01
 %
Total Funded Debt Investments - United States
 
 
 
 
 
 
 
 
 
$
1,319,560

 
$
1,309,577

 
$
1,325,328

 
128.05
 %
Total Funded Debt Investments
 
 
 
 
 
 
 
 
 
$
1,399,913

 
$
1,388,666

 
$
1,404,984

 
135.75
 %
Equity - Hong Kong
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Bach Special Limited (Bach Preference Limited)**
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Education
 
Preferred shares (3)(10)(22)
 
—
 
9/1/2017
 
—
 
58,868

 
$
5,807

 
$
5,806

 
0.56
 %
Total Shares - Hong Kong
 
 
 
 
 
 
 
 
 
 
 
$
5,807

 
$
5,806

 
0.56
 %
Equity - United States
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Avatar Topco, Inc. (23)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Education
 
Preferred shares (3)(10)(23)
 
—
 
11/17/2017
 
—
 
35,750

 
$
35,220

 
$
35,204

 
3.40
 %
   Tenawa Resource Holdings LLC (13)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   QID NGL LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Energy
 
Ordinary shares (7)(10)
 
—
 
5/12/2014
 
—
 
5,290,997

 
5,291

 
8,154

 
 
 
 
Preferred shares (7)(10)
 
—
 
10/30/2017
 
—
 
620,706

 
621

 
1,007

 
 
 
 
 
 
 
 
 
 
 
 
 
 
5,912

 
9,161

 
0.88
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   TWDiamondback Holdings Corp. (15)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Distribution & Logistics
 
Preferred shares (4)(10)
 
—
 
11/19/2014
 
—
 
200

 
2,000

 
4,508

 
0.44
 %
   TW-NHME Holdings Corp. (20)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Healthcare Services
 
Preferred shares (4)(10)
 
—
 
7/14/2015
 
—
 
100

 
1,000

 
944

 
 
 
 
Preferred shares (4)(10)
 
—
 
1/5/2016
 
—
 
16

 
158

 
149

 
 
 
 
Preferred shares (4)(10)
 
—
 
6/30/2016
 
—
 
6

 
68

 
58

 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,226

 
1,151

 
0.11
 %
   Ancora Acquisition LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Education
 
Preferred shares (6)(10)
 
—
 
8/12/2013
 
—
 
372

 
83

 
393

 
0.04
 %
   Education Management Corporation (12)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Education
 
Preferred shares (2)
 
—
 
1/5/2015
 
—
 
3,331

 
200

 
—

 
 
 
 
Preferred shares (3)
 
—
 
1/5/2015
 
—
 
1,879

 
113

 
—

 
 
 
 
Ordinary shares (2)
 
—
 
1/5/2015
 
—
 
2,994,065

 
100

 
10

 
 
 
 
Ordinary shares (3)
 
—
 
1/5/2015
 
—
 
1,688,976

 
56

 
6

 
 
 
 
 
 
 
 
 
 
 
 
 
 
469

 
16

 
0.00
 %
Total Shares - United States
 
 
 
 
 
 
 
 
 
 
 
$
44,910

 
$
50,433

 
4.87
 %
Total Shares
 
 
 
 
 
 
 
 
 
 
 
$
50,717

 
$
56,239

 
5.43
 %

The accompanying notes are an integral part of these consolidated financial statements.
25
New Mountain Finance Corporation
 
Consolidated Schedule of Investments (Continued)
 December 31, 2017
(in thousands, except shares)




Portfolio Company, Location and Industry(1)
 
Type of
Investment
 
Interest Rate(9)
 
Acquisition Date
 
Maturity/Expiration
Date
 
Principal
Amount,
Par Value
or Shares
 
Cost
 
Fair Value
 
Percent of
Net
Assets
Warrants - United States
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   ASP LCG Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Education
 
Warrants (3)(10)
 
—
 
5/5/2014
 
5/5/2026
 
622

 
$
37

 
$
1,089

 
0.11
 %
   Ancora Acquisition LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Education
 
Warrants (6)(10)
 
—
 
8/12/2013
 
8/12/2020
 
20

 
—

 
—

 
—
 %
   YP Equity Investors, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Media
 
Warrants (5)(10)
 
—
 
5/3/2012
 
5/8/2022
 
5

 
—

 
—

 
—
 %
Total Warrants - United States
 
 
 
 
 
 
 
 
 
 
 
$
37

 
$
1,089

 
0.11
 %
Total Funded Investments
 
 
 
 
 
 
 
 
 
 
 
$
1,439,420

 
$
1,462,312

 
141.29
 %
Unfunded Debt Investments - United States
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   PetVet Care Centers LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Consumer Services
 
First lien (3)(10)(11) - Undrawn
 
—
 
6/8/2017
 
6/8/2019
 
$
4,439

 
$
(16
)
 
$
44

 
0.00
 %
   VetCor Professional Practices LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Consumer Services
 
First lien (3)(11) - Undrawn
 
—
 
5/15/2015
 
4/20/2021
 
1,274

 
(13
)
 
2

 
 
 
 
First lien (3)(11) - Undrawn
 
—
 
12/29/2017
 
12/29/2019
 
8,552

 
(75
)
 
11

 
 
 
 
 
 
 
 
 
 
 
 
9,826

 
(88
)
 
13

 
0.00
 %
   DCA Investment Holding, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Healthcare Services
 
First lien (3)(10)(11) - Undrawn
 
—
 
7/2/2015
 
7/2/2021
 
2,100

 
(21
)
 
—

 
 
 
 
First lien (3)(10)(11) - Undrawn
 
—
 
12/20/2017
 
12/20/2019
 
13,465

 
(118
)
 
—

 
 
 
 
 
 
 
 
 
 
 
 
15,565

 
(139
)
 
—

 
—
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   iPipeline, Inc. (Internet Pipeline, Inc.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Software
 
First lien (3)(10)(11) - Undrawn
 
—
 
8/4/2015
 
8/4/2021
 
1,000

 
(10
)
 
—

 
—
 %
   Valet Waste Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Services
 
First lien (3)(10)(11) - Undrawn
 
—
 
9/24/2015
 
9/24/2021
 
3,750

 
(47
)
 
—

 
—
 %
   Zywave, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Software
 
First lien (3)(10)(11) - Undrawn
 
—
 
11/22/2016
 
11/17/2022
 
1,550

 
(12
)
 
—

 
—
 %
   Marketo, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Software
 
First lien (3)(10)(11) - Undrawn
 
—
 
8/16/2016
 
8/16/2021
 
1,788

 
(27
)
 
—

 
—
 %
   Ansira Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Services
 
First lien (3)(11) - Undrawn
 
—
 
12/19/2016
 
12/20/2018
 
1,700

 
(9
)
 
(4
)
 
(0.00
)%
   JAMF Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Software
 
First lien (3)(10)(11) - Undrawn
 
—
 
11/13/2017
 
11/11/2022
 
750

 
(8
)
 
(8
)
 
(0.00
)%
   Xactly Corporation
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Software
 
First lien (3)(10)(11) - Undrawn
 
—
 
7/31/2017
 
7/29/2022
 
992

 
(10
)
 
(10
)
 
(0.00
)%
   Pathway Partners Vet Management Company LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Consumer Services
 
Second lien (4)(11) - Undrawn
 
—
 
10/4/2017
 
10/10/2019
 
2,444

 
(12
)
 
(12
)
 
(0.00
)%

The accompanying notes are an integral part of these consolidated financial statements.
26
New Mountain Finance Corporation
 
Consolidated Schedule of Investments (Continued)
 December 31, 2017
(in thousands, except shares)




Portfolio Company, Location and Industry(1)
 
Type of
Investment
 
Interest Rate(9)
 
Acquisition Date
 
Maturity/Expiration
Date
 
Principal
Amount,
Par Value
or Shares
 
Cost
 
Fair Value
 
Percent of
Net
Assets
   Trader Interactive, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Services
 
First lien (3)(10)(11) - Undrawn
 
—
 
6/15/2017
 
6/15/2023
 
$
1,673

 
$
(13
)
 
$
(13
)
 
(0.00
)%
   BackOffice Associates Holdings, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Services
 
First lien (3)(10)(11) - Undrawn
 
—
 
8/25/2017
 
8/24/2018
 
3,448

 
(13
)
 
(13
)
 
 
 
 
First lien (3)(10)(11) - Undrawn
 
—
 
8/25/2017
 
8/25/2023
 
2,586

 
(23
)
 
(23
)
 
 
 
 
 
 
 
 
 
 
 
 
6,034

 
(36
)
 
(36
)
 
(0.00
)%
   Affinity Dental Management, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Healthcare Services
 
First lien (3)(10)(11) - Undrawn
 
—
 
9/15/2017
 
3/15/2019
 
11,584

 
(29
)
 
(29
)
 
 
 
 
First lien (3)(10)(11) - Undrawn
 
—
 
9/15/2017
 
3/15/2023
 
1,738

 
(17
)
 
(17
)
 
 
 
 
 
 
 
 
 
 
 
 
13,322

 
(46
)
 
(46
)
 
(0.00
)%
   Frontline Technologies Group Holdings, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Education
 
First lien (3)(10)(11) - Undrawn
 
—
 
9/18/2017
 
9/18/2019
 
7,738

 
(58
)
 
(58
)
 
(0.01
)%
Total Unfunded Debt Investments - United States
 
 
 
 
 
 
 
 
 
$
72,571

 
$
(531
)
 
$
(130
)
 
(0.01
)%
Total Non-Controlled/Non-Affiliated Investments
 
 
 
 
 
 
 
 
 
 
 
$
1,438,889

 
$
1,462,182

 
141.28
 %
Non-Controlled/Affiliated Investments(24)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Funded Debt Investments - United States
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Edmentum Ultimate Holdings, LLC (16)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Edmentum, Inc. (fka Plato, Inc.) (Archipelago Learning, Inc.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Education
 
Second lien (3)(10)(11) - Drawn
 
5.00%/M
 
6/9/2015
 
6/9/2020
 
$
3,172

 
$
3,172

 
$
3,172

 
 
 
 
Subordinated (3)(10)
 
8.50% PIK/Q*
 
6/9/2015
 
6/9/2020
 
4,491

 
4,486

 
4,491

 
 
 
 
Subordinated (2)(10)
 
10.00% PIK/Q*
 
6/9/2015
 
6/9/2020
 
16,760

 
16,760

 
13,408

 
 
 
 
Subordinated (3)(10)
 
10.00% PIK/Q*
 
6/9/2015
 
6/9/2020
 
4,123

 
4,123

 
3,298

 
 
 
 
 
 
 
 
 
 
 
 
28,546

 
28,541

 
24,369

 
2.36
 %
   Permian Holdco 1, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Permian Holdco 2, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Energy
 
Subordinated (3)(10)
 
14.00% PIK/Q*
 
10/31/2016
 
10/15/2021
 
2,007

 
2,007

 
2,007

 
 
 
 
Subordinated (3)(10)(11) - Drawn
 
14.00% PIK/Q*
 
10/31/2016
 
10/15/2021
 
696

 
696

 
696

 
 
 
 
 
 
 
 
 
 
 
 
2,703

 
2,703

 
2,703

 
0.26
 %
Total Funded Debt Investments - United States
 
 
 
 
 
 
 
 
 
$
31,249

 
$
31,244

 
$
27,072

 
2.62
 %
Equity - United States
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   HI Technology Corp.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Services
 
Preferred shares (3)(10)(21)
 
—
 
3/21/2017
 
—
 
2,768,000

 
$
105,155

 
$
105,155

 
10.16
 %
   NMFC Senior Loan Program I LLC**
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Investment Fund
 
Membership interest (3)(10)
 
—
 
6/13/2014
 
—
 
—

 
23,000

 
23,000

 
2.22
 %

The accompanying notes are an integral part of these consolidated financial statements.
27
New Mountain Finance Corporation
 
Consolidated Schedule of Investments (Continued)
 December 31, 2017
(in thousands, except shares)




Portfolio Company, Location and Industry(1)
 
Type of
Investment
 
Interest Rate(9)
 
Acquisition Date
 
Maturity/Expiration
Date
 
Principal
Amount,
Par Value
or Shares
 
Cost
 
Fair Value
 
Percent of
Net
Assets
   Sierra Hamilton Holdings Corporation
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Energy
 
Ordinary shares (2)(10)
 
—
 
7/31/2017
 
—
 
25,000,000

 
$
11,501

 
$
11,094

 
 
 
 
Ordinary shares (3)(10)
 
—
 
7/31/2017
 
—
 
2,786,000

 
1,281

 
1,236

 
 
 
 
 
 
 
 
 
 
 
 
 
 
12,782

 
12,330

 
1.19
 %
   Permian Holdco 1, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Energy
 
Preferred shares (3)(10)(17)
 
—
 
10/31/2016
 
—
 
1,569,226

 
6,829

 
8,631

 
 
 
 
Ordinary shares (3)(10)
 
—
 
10/31/2016
 
—
 
1,366,452

 
1,350

 
1,399

 
 
 
 
 
 
 
 
 
 
 
 
 
 
8,179

 
10,030

 
0.97
 %
   Edmentum Ultimate Holdings, LLC (16)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Education
 
Ordinary shares (3)(10)
 
—
 
6/9/2015
 
—
 
123,968

 
11

 
262

 
 
 
 
Ordinary shares (2)(10)
 
—
 
6/9/2015
 
—
 
107,143

 
9

 
227

 
 
 
 
 
 
 
 
 
 
 
 
 
 
20

 
489

 
0.05
 %
Total Shares - United States
 
 
 
 
 
 
 
 
 
 
 
$
149,136

 
$
151,004

 
14.59
 %
Total Funded Investments
 
 
 
 
 
 
 
 
 
 
 
$
180,380

 
$
178,076

 
17.21
 %
Unfunded Debt Investments - United States
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Edmentum Ultimate Holdings, LLC (16)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Edmentum, Inc. (fka Plato, Inc.) (Archipelago Learning, Inc.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Education
 
Second lien (3)(10)(11) - Undrawn
 
—
 
6/9/2015
 
6/9/2020
 
$
1,709

 
$
—

 
$
—

 
—
 %
   Permian Holdco 1, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Permian Holdco 2, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Energy
 
Subordinated (3)(10)(11) - Undrawn
 
—
 
10/31/2016
 
10/15/2021
 
342

 
—

 
—

 
—
 %
Total Unfunded Debt Investments - United States
 
 
 
 
 
 
 
 
 
$
2,051

 
$
—

 
$
—

 
—
 %
Total Non-Controlled/Affiliated Investments
 
 
 
 
 
 
 
 
 
 
 
$
180,380

 
$
178,076

 
17.21
 %
Controlled Investments(25)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Funded Debt Investments - United States
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   UniTek Global Services, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Services
 
First lien (2)(10)
 
10.20% (L + 8.50%/Q)
 
1/13/2015
 
1/13/2019
 
$
10,846

 
$
10,846

 
$
10,846

 
 
 
 
First lien (2)(10)
 
9.84% (L + 7.50% + 1.00% PIK/Q)*
 
1/13/2015
 
1/13/2019
 
797

 
797

 
797

 
 
 
 
Subordinated (2)(10)
 
15.00% PIK/Q*
 
1/13/2015
 
7/13/2019
 
2,003

 
2,003

 
2,003

 
 
 
 
Subordinated (3)(10)
 
15.00% PIK/Q*
 
1/13/2015
 
7/13/2019
 
1,198

 
1,198

 
1,198

 
 
 
 
 
 
 
 
 
 
 
 
14,844

 
14,844

 
14,844

 
1.43
 %
Total Funded Debt Investments - United States
 
 
 
 
 
 
 
 
 
$
14,844

 
$
14,844

 
$
14,844

 
1.43
 %
Equity - Canada
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  NM APP Canada Corp.**
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Net Lease
 
Membership interest (8)(10)
 
—
 
9/13/2016
 
—
 
—

 
$
7,345

 
$
7,962

 
0.77
 %
Total Shares - Canada
 
 
 
 
 
 
 
 
 
 
 
$
7,345

 
$
7,962

 
0.77
 %

The accompanying notes are an integral part of these consolidated financial statements.
28
New Mountain Finance Corporation
 
Consolidated Schedule of Investments (Continued)
 December 31, 2017
(in thousands, except shares)




Portfolio Company, Location and Industry(1)
 
Type of
Investment
 
Interest Rate(9)
 
Acquisition Date
 
Maturity/Expiration
Date
 
Principal
Amount,
Par Value
or Shares
 
Cost
 
Fair Value
 
Percent of
Net
Assets
Equity - United States
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   NMFC Senior Loan Program II LLC**
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Investment Fund
 
Membership interest (3)(10)
 
—
 
5/3/2016
 
—
 
—

 
$
79,400

 
$
79,400

 
7.67
 %
   UniTek Global Services, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Services
 
Preferred shares (2)(10)(18)
 
—
 
1/13/2015
 
—
 
21,753,102

 
19,373

 
19,288

 
 
 
 
Preferred shares (3)(10)(18)
 
—
 
1/13/2015
 
—
 
6,011,522

 
5,353

 
5,330

 
 
 
 
Preferred shares (3)(10)(19)
 
—
 
6/30/2017
 
—
 
10,863,583

 
10,864

 
10,864

 
 
 
 
Ordinary shares (2)(10)
 
—
 
1/13/2015
 
—
 
2,096,477

 
1,925

 
7,313

 
 
 
 
Ordinary shares (3)(10)
 
—
 
1/13/2015
 
—
 
1,993,749

 
531

 
6,954

 
 
 
 
 
 
 
 
 
 
 
 
 
 
38,046

 
49,749

 
4.81
 %
   NM CLFX LP
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Net Lease
 
Membership interest (8)(10)
 
—
 
10/6/2017
 
—
 
—

 
12,538

 
12,538

 
1.21
 %
   NM KRLN LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Net Lease
 
Membership interest (8)(10)
 
—
 
11/15/2016
 
—
 
—

 
7,510

 
8,195

 
0.79
 %
   NM DRVT LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Net Lease
 
Membership interest (8)(10)
 
—
 
11/18/2016
 
—
 
—

 
5,152

 
5,385

 
0.52
 %
   NM APP US LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Net Lease
 
Membership interest (8)(10)
 
—
 
9/13/2016
 
—
 
—

 
5,080

 
5,138

 
0.50
 %
   NM JRA LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Net Lease
 
Membership interest (8)(10)
 
—
 
8/12/2016
 
—
 
—

 
2,043

 
2,191

 
0.21
 %
Total Shares - United States
 
 
 
 
 
 
 
 
 
 
 
$
149,769

 
$
162,596

 
15.71
 %
Total Shares
 
 
 
 
 
 
 
 
 
 
 
$
157,114

 
$
170,558

 
16.48
 %
Warrants - United States
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   UniTek Global Services, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Services
 
Warrants (3)(10)
 
—
 
6/30/2017
 
12/31/2018
 
526,925

 
$
—

 
$
—

 
—
 %
Total Warrants - United States
 
 
 
 
 
 
 
 
 
 
 
$
—

 
$
—

 
—
 %
Total Funded Investments
 
 
 
 
 
 
 
 
 
 
 
$
171,958

 
$
185,402

 
17.91
 %
Unfunded Debt Investments - United States
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   UniTek Global Services, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Services
 
First lien (3)(10)(11) - Undrawn
 
—
 
1/13/2015
 
1/13/2019
 
$
2,048

 
$
—

 
$
—

 
 
 
 
First lien (3)(10)(11) - Undrawn
 
—
 
1/13/2015
 
1/13/2019
 
758

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
2,806

 
—

 
—

 
—
 %
Total Unfunded Debt Investments - United States
 
 
 
 
 
 
 
 
 
$
2,806

 
$
—

 
$
—

 
—
 %
Total Controlled Investments
 
 
 
 
 
 
 
 
 
 
 
$
171,958

 
$
185,402

 
17.91
 %
Total Investments
 
 
 
 
 
 
 
 
 
 
 
$
1,791,227

 
$
1,825,660

 
176.4
 %
_______________________________________________________________________________
(1)
New Mountain Finance Corporation (the "Company") generally acquires its investments in private transactions exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"). These investments are generally subject to certain limitations on resale, and may be deemed to be "restricted securities" under the Securities Act.

The accompanying notes are an integral part of these consolidated financial statements.
29
New Mountain Finance Corporation
 
Consolidated Schedule of Investments (Continued)
 December 31, 2017
(in thousands, except shares)




(2)
Investment is pledged as collateral for the Holdings Credit Facility, a revolving credit facility among the Company as Collateral Manager, New Mountain Finance Holdings, L.L.C. ("NMF Holdings") as the Borrower, Wells Fargo Securities, LLC as the Administrative Agent, and Wells Fargo Bank, National Association, as the Lender and Collateral Custodian. See Note 7. Borrowings, for details.
(3)
Investment is pledged as collateral for the NMFC Credit Facility, a revolving credit facility among the Company as the Borrower and Goldman Sachs Bank USA as the Administrative Agent and the Collateral Agent and Goldman Sachs Bank USA, Morgan Stanley Bank, N.A. and Stifel Bank & Trust as Lenders. See Note 7. Borrowings, for details.
(4)
Investment is held in New Mountain Finance SBIC, L.P.
(5)
Investment is held in NMF YP Holdings, Inc.
(6)
Investment is held in NMF Ancora Holdings, Inc.
(7)
Investment is held in NMF QID NGL Holdings, Inc.
(8)
Investment is held in New Mountain Net Lease Corporation.
(9)
All interest is payable in cash unless otherwise indicated. A majority of the variable rate debt investments bear interest at a rate that may be determined by reference to the London Interbank Offered Rate (L), the Prime Rate (P) and the alternative base rate (Base) and which resets monthly (M), quarterly (Q), semi-annually (S) or annually (A). For each investment the current interest rate provided reflects the rate in effect as of December 31, 2017.
(10)
The fair value of the Company's investment is determined using unobservable inputs that are significant to the overall fair value measurement. See Note 4. Fair Value, for details.
(11)
Par Value amounts represent the drawn or undrawn (as indicated in type of investment) portion of revolving credit facilities or delayed draws. Cost amounts represent the cash received at settlement date net the impact of paydowns and cash paid for drawn revolvers or delayed draws.
(12)
The Company holds investments in Education Management Corporation and one related entity of Education Management Corporation. The Company holds series A-1 convertible preferred stock and common stock in Education Management Corporation and holds a tranche A first lien term loan and a tranche B first lien term loan in Education Management II LLC, which is an indirect subsidiary of Education Management Corporation.
(13)
The Company holds investments in three related entities of Tenawa Resource Holdings LLC. The Company holds 4.77% of the common units in QID NGL LLC (which at closing represented 98.1% of the ownership in the common units in Tenawa Resource Holdings LLC), class A preferred units in QID NGL LLC and a first lien investment in Tenawa Resource Management LLC, a wholly-owned subsidiary of Tenawa Resource Holdings LLC.
(14)
The Company holds investments in QC McKissock Investment, LLC and one related entity of QC McKissock Investment, LLC. The Company holds a first lien term loan in QC McKissock Investment, LLC (which at closing represented 71.1% of the ownership in the Series A common units of McKissock Investment Holdings, LLC) and holds a first lien term loan and a delayed draw term loan in McKissock, LLC, a wholly-owned subsidiary of McKissock Investment Holdings, LLC.
(15)
The Company holds investments in TWDiamondback Holdings Corp. and one related entity of TWDiamondback Holdings Corp. The Company holds preferred equity in TWDiamondback Holdings Corp. and holds a first lien last out term loan and a delayed draw term loan in Diamondback Drugs of Delaware LLC, a wholly-owned subsidiary of TWDiamondback Holdings Corp.
(16)
The Company holds investments in Edmentum Ultimate Holdings, LLC and its related entities. The Company holds subordinated notes and ordinary equity in Edmentum Ultimate Holdings, LLC and holds a second lien revolver in Edmentum, Inc. and Archipelago Learning, Inc., which are wholly-owned subsidiaries of Edmentum Ultimate Holdings, LLC.
(17)
The Company holds preferred equity in Permian Holdco 1, Inc. that is entitled to receive cumulative preferential dividends at a rate of 12.0% per annum payable in additional shares.
(18)
The Company holds preferred equity in UniTek Global Services, Inc. that is entitled to receive cumulative preferential dividends at a rate of 13.5% per annum payable in additional shares.
(19)
The Company holds preferred equity in UniTek Global Services, Inc. that is entitled to receive cumulative preferential dividends at a rate of 19.0% per annum payable in additional shares.
(20)
The Company holds equity investments in TW-NHME Holdings Corp., and holds a second lien term loan investment in National HME, Inc., a wholly-owned subsidiary of TW-NHME Holdings Corp.
(21)
The Company holds convertible preferred equity in HI Technology Corp that is accruing dividends at a rate of 15.0% per annum.
(22)
The Company holds preferred equity in Bach Special Limited (Bach Preference Limited) that is entitled to receive cumulative preferential dividends at a rate of 12.25% per annum payable in additional shares.
(23)
The Company holds preferred equity in Avatar Topco, Inc., and holds a second lien term loan investment in EAB Global, Inc., a wholly-owned subsidiary of Avatar Topco, Inc. The preferred equity is entitled to receive cumulative preferential dividends at a rate of L + 11.00% per annum.

The accompanying notes are an integral part of these consolidated financial statements.
30
New Mountain Finance Corporation
 
Consolidated Schedule of Investments (Continued)
 December 31, 2017
(in thousands, except shares)




(24)
Denotes investments in which the Company is an “Affiliated Person”, as defined in the Investment Company Act of 1940, as amended (the "1940 Act"), due to owning or holding the power to vote 5.0% or more of the outstanding voting securities of the investment but not controlling the company. Fair value as of December 31, 2017 and December 31, 2016 along with transactions during the year ended December 31, 2017 in which the issuer was a non-controlled/affiliated investment is as follows:
Portfolio Company
 
Fair Value at December 31, 2016
 
Gross
Additions (A)
 
Gross
Redemptions
(B)
 
Net
Realized
Gains
(Losses)
 
Net Change In
Unrealized
Appreciation
(Depreciation)
 
Fair Value at December 31, 2017
 
Interest
Income
 
Dividend
Income
 
Other
Income
Edmentum Ultimate Holdings, LLC/Edmentum Inc.
 
$
23,247

 
$
10,912

 
$
(5,381
)
 
$
—

 
$
(3,920
)
 
$
24,858

 
$
2,538

 
$
—

 
$
—

HI Technology Corp.
 
—

 
105,155

 
—

 
—

 
—

 
105,155

 
—

 
11,667

 
—

NMFC Senior Loan Program I LLC
 
23,000

 
—

 
—

 
—

 
—

 
23,000

 
—

 
3,498

 
1,156

Permian Holdco 1, Inc. / Permian Holdco 2, Inc.
 
11,193

 
1,916

 
—

 
—

 
(376
)
 
12,733

 
270

 
960

 
30

Sierra Hamilton Holdings Corporation
 
—

 
12,782

 
—

 
—

 
(452
)
 
12,330

 
—

 
—

 
—

Total Non-Controlled/Affiliated Investments
 
$
57,440

 
$
130,765

 
$
(5,381
)
 
$
—

 
$
(4,748
)
 
$
178,076

 
$
2,808

 
$
16,125

 
$
1,186

_______________________________________________________________________________
(A)
Gross additions include increases in the cost basis of investments resulting from new portfolio investments, payment-in-kind (“PIK”) interest or dividends, the amortization of discounts, reorganizations or restructurings and the movement at fair value of an existing portfolio company into this category from a different category.
(B)
Gross redemptions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, reorganizations or restructurings and the movement of an existing portfolio company out of this category into a different category.
(25)
Denotes investments in which the Company is in “Control”, as defined in the 1940 Act, due to owning or holding the power to vote 25.0% or more of the outstanding voting securities of the investment. Fair value as of December 31, 2017 and December 31, 2016 along with transactions during the year ended December 31, 2017 in which the issuer was a controlled investment, is as follows:
Portfolio Company
 
Fair Value at
December 31, 2016
 
Gross
Additions
(A)
 
Gross
Redemptions
(B)
 
Net 
Realized
Gains
(Losses)
 
Net Change In
Unrealized
Appreciation
(Depreciation)
 
Fair Value at December 31, 2017
 
Interest
Income
 
Dividend
Income
 
Other
Income
New Mountain Net Lease Corporation
 
$
27,000

 
$
—

 
$
(27,000
)
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

NM APP CANADA CORP
 
—

 
7,345

 
—

 
—

 
617

 
7,962

 
—

 
911

 
—

NM APP US LLC
 
—

 
5,080

 
—

 
—

 
58

 
5,138

 
—

 
594

 
—

NM CLFX LP
 
—

 
12,538

 
—

 
—

 
—

 
12,538

 
—

 
341

 
—

NM DRVT LLC
 
—

 
5,152

 
—

 
—

 
233

 
5,385

 
—

 
520

 
—

NM JRA LLC
 
—

 
2,043

 
—

 
—

 
148

 
2,191

 
—

 
232

 
—

NM KRLN LLC
 
—

 
7,510

 
—

 
—

 
685

 
8,195

 
—

 
736

 
—

NMFC Senior Loan Program II LLC
 
71,460

 
7,940

 
—

 
—

 
—

 
79,400

 
—

 
12,406

 
—

UniTek Global Services, Inc.
 
56,361

 
14,777

 
(4,006
)
 
—

 
(2,539
)
 
64,593

 
1,709

 
4,415

 
819

Total Controlled Investments
 
$
154,821

 
$
62,385

 
$
(31,006
)
 
$
—

 
$
(798
)
 
$
185,402

 
$
1,709

 
$
20,155

 
$
819

_______________________________________________________________________________
(A)
Gross additions include increases in the cost basis of investments resulting from new portfolio investments, PIK interest or dividends, the amortization of discounts, reorganizations or restructurings and the movement at fair value of an existing portfolio company into this category from a different category.
(B)
Gross redemptions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, reorganizations or restructurings and the movement of an existing portfolio company out of this category into a different category.
*
All or a portion of interest contains PIK interest.
**
Indicates assets that the Company deems to be “non-qualifying assets” under Section 55(a) of the 1940 Act. Qualifying assets must represent at least 70.0% of the Company’s total assets at the time of acquisition of any additional non-qualifying assets. As of December 31, 2017, 11.0% of the Company’s total investments were non-qualifying assets.

The accompanying notes are an integral part of these consolidated financial statements.
31
New Mountain Finance Corporation
 
Consolidated Schedule of Investments (Continued)
 December 31, 2017
(in thousands, except shares)




 
 
December 31, 2017
Investment Type
 
Percent of Total
Investments at Fair Value
First lien
 
37.99
%
Second lien
 
37.41
%
Subordinated
 
3.85
%
Equity and other
 
20.75
%
Total investments
 
100.00
%
 
 
 
December 31, 2017
Industry Type
 
Percent of Total
Investments at Fair Value
Business Services
 
31.85
%
Software
 
16.33
%
Healthcare Services
 
9.60
%
Education
 
9.48
%
Consumer Services
 
7.18
%
Distribution & Logistics
 
6.15
%
Investment Fund
 
5.61
%
Federal Services
 
4.30
%
Energy
 
4.06
%
Net Lease
 
2.27
%
Healthcare Information Technology
 
1.86
%
Packaging
 
0.79
%
Business Products
 
0.52
%
Total investments
 
100.00
%
 
 
 
December 31, 2017
Interest Rate Type
 
Percent of Total
Investments at Fair Value
Floating rates
 
87.48
%
Fixed rates
 
12.52
%
Total investments
 
100.00
%


The accompanying notes are an integral part of these consolidated financial statements.
32


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation
 
March 31, 2018
(in thousands, except share data)
(unaudited)
Note 1. Formation and Business Purpose
New Mountain Finance Corporation (“NMFC” or the “Company”) is a Delaware corporation that was originally incorporated on June 29, 2010 and completed its initial public offering ("IPO") on May 19, 2011. NMFC is a closed-end, non-diversified management investment company that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). As such, NMFC is obligated to comply with certain regulatory requirements. NMFC has elected to be treated, and intends to comply with the requirements to continue to qualify annually, as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). NMFC is also registered as an investment adviser under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). Since NMFC’s IPO, and through March 31, 2018, NMFC raised approximately $614,581 in net proceeds from additional offerings of its common stock.
New Mountain Finance Advisers BDC, L.L.C. (the “Investment Adviser”) is a wholly-owned subsidiary of New Mountain Capital, L.L.C. ("New Mountain Capital", defined as New Mountain Capital Group, L.L.C. and its affiliates). New Mountain Capital is a firm with a track record of investing in the middle market. New Mountain Capital focuses on investing in defensive growth companies across its private equity, public equity and credit investment vehicles. The Investment Adviser manages the Company's day-to-day operations and provides it with investment advisory and management services. New Mountain Finance Administration, L.L.C. (the "Administrator”), a wholly-owned subsidiary of New Mountain Capital, provides the administrative services necessary to conduct the Company's day-to-day operations.
The Company’s wholly-owned subsidiary, New Mountain Finance Holdings, L.L.C. (“NMF Holdings”), is a Delaware limited liability company whose assets are used to secure NMF Holdings’ credit facility. NMF Ancora Holdings Inc. (“NMF Ancora”), NMF QID NGL Holdings, Inc. (“NMF QID”) and NMF YP Holdings Inc. (“NMF YP”), the Company's wholly-owned subsidiaries, are structured as Delaware entities that serve as tax blocker corporations which hold equity or equity-like investments in portfolio companies organized as limited liability companies (or other forms of pass-through entities). The Company consolidates its tax blocker corporations for accounting purposes. The tax blocker corporations are not consolidated for income tax purposes and may incur income tax expense as a result of their ownership of portfolio companies. Additionally, the Company has a wholly-owned subsidiary, New Mountain Finance Servicing, L.L.C. (“NMF Servicing”), that serves as the administrative agent on certain investment transactions. New Mountain Finance SBIC, L.P. (“SBIC I”) and its general partner, New Mountain Finance SBIC G.P., L.L.C. (“SBIC I GP”), were organized in Delaware as a limited partnership and limited liability company, respectively. New Mountain Finance SBIC II, L.P. (“SBIC II”) and its general partner, New Mountain Finance SBIC II G.P., L.L.C. (“SBIC II GP”), were also organized in Delaware as a limited partnership and limited liability company, respectively. SBIC I, SBIC I GP, SBIC II and SBIC II GP are consolidated wholly-owned direct and indirect subsidiaries of the Company. SBIC I and SBIC II received a license from the United States ("U.S.") Small Business Administration (the “SBA”) to operate as small business investment companies (“SBICs”) under Section 301(c) of the Small Business Investment Act of 1958, as amended (the “1958 Act”). The Company's wholly-owned subsidiary, New Mountain Net Lease Corporation ("NMNLC"), a Maryland corporation, was formed to acquire commercial real properties that are subject to "triple net" leases and has qualified and intends to continue to qualify as a real estate investment trust, or REIT, within the meaning of Section 856(a) of the Code.
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 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 the Company invests in the “last out” tranche. In some cases, the Company’s investments may also include equity interests. The primary focus is in the debt of defensive growth companies, which are defined as generally exhibiting the following characteristics: (i) sustainable secular growth drivers, (ii) high barriers to competitive entry, (iii) high free cash flow after capital expenditure and working capital needs, (iv) high returns on assets and (v) niche market dominance. Similar to the Company, SBIC I and SBIC II's investment objective is to generate current income and capital appreciation under the investment criteria used by the Company. However, SBIC I and SBIC II's investments must be in SBA eligible small businesses. The Company’s portfolio may be concentrated in a limited number of industries. As of March 31, 2018, the

33

Company’s top five industry concentrations were business services, software, healthcare services, education and distribution & logistics.
Note 2. Summary of Significant Accounting Policies
Basis of accounting—The Company’s consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"). The Company is an investment company following accounting and reporting guidance in Accounting Standards Codification Topic 946, Financial Services—Investment Companies, (“ASC 946”). NMFC consolidates its wholly-owned direct and indirect subsidiaries: NMF Holdings, NMF Servicing, NMNLC, SBIC I, SBIC I GP, SBIC II, SBIC II GP, NMF Ancora, NMF QID and NMF YP.
The Company’s consolidated financial statements reflect all adjustments and reclassifications which, in the opinion of management, are necessary for the fair presentation of the results of operations and financial condition for all periods presented. All intercompany transactions have been eliminated. Revenues are recognized when earned and expenses when incurred. The financial results of the Company’s portfolio investments are not consolidated in the financial statements.
The Company’s interim consolidated financial statements are prepared in accordance with GAAP and pursuant to the requirements for reporting on Form 10-Q and Article 6 or 10 of Regulation S-X. Accordingly, the Company’s interim consolidated financial statements do not include all of the information and notes required by GAAP for annual financial statements. In the opinion of management, all adjustments, consisting solely of normal recurring accruals considered necessary for the fair presentation of financial statements for the interim period, have been included. The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the fiscal year ending December 31, 2018.
Investments—The Company applies fair value accounting in accordance with GAAP. Fair value is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Investments are reflected on the Company’s Consolidated Statements of Assets and Liabilities at fair value, with changes in unrealized gains and losses resulting from changes in fair value reflected in the Company’s Consolidated Statements of Operations as “Net change in unrealized appreciation (depreciation) of investments” and realizations on portfolio investments reflected in the Company’s Consolidated Statements of Operations as “Net realized gains (losses) on investments”.
The Company values its assets on a quarterly basis, or more frequently if required under the 1940 Act. In all cases, the Company’s board of directors is ultimately and solely responsible for determining the fair value of the portfolio investments on a quarterly basis in good faith, including investments that are not publicly traded, those whose market prices are not readily available and any other situation where its portfolio investments require a fair value determination. Security transactions are accounted for on a trade date basis. The Company’s quarterly valuation procedures are set forth in more detail below:
(1)
Investments for which market quotations are readily available on an exchange are valued at such market quotations based on the closing price indicated from independent pricing services.
(2)
Investments for which indicative prices are obtained from various pricing services and/or brokers or dealers are valued through a multi-step valuation process, as described below, to determine whether the quote(s) obtained is representative of fair value in accordance with GAAP.
a.
Bond quotes are obtained through independent pricing services. Internal reviews are performed by the investment professionals of the Investment Adviser to ensure that the quote obtained is representative of fair value in accordance with GAAP and, if so, the quote is used. If the Investment Adviser is unable to sufficiently validate the quote(s) internally and if the investment’s par value or its fair value exceeds the materiality threshold, the investment is valued similarly to those assets with no readily available quotes (see (3) below); and
b.
For investments other than bonds, the Company looks at the number of quotes readily available and performs the following procedures:
i.
Investments for which two or more quotes are received from a pricing service are valued using the mean of the mean of the bid and ask of the quotes obtained.
ii.
Investments for which one quote is received from a pricing service are validated internally. The investment professionals of the Investment Adviser analyze the market quotes obtained using an array of valuation methods (further described below) to validate the fair value. If the Investment Adviser is unable to sufficiently validate the quote internally and if the investment’s par value or its fair value exceeds the materiality threshold, the investment is valued similarly to those assets with no readily available quotes (see (3) below).

34

(3)
Investments for which quotations are not readily available through exchanges, pricing services, brokers, or dealers are valued through a multi-step valuation process:
a.
Each portfolio company or investment is initially valued by the investment professionals of the Investment Adviser responsible for the credit monitoring;
b.
Preliminary valuation conclusions will then be documented and discussed with the Company’s senior management;
c.
If an investment falls into (3) above for four consecutive quarters and if the investment’s par value or its fair value exceeds the materiality threshold, then at least once each fiscal year, the valuation for each portfolio investment for which the Company does not have a readily available market quotation will be reviewed by an independent valuation firm engaged by the Company’s board of directors; and
d.
When deemed appropriate by the Company’s management, an independent valuation firm may be engaged to review and value investment(s) of a portfolio company, without any preliminary valuation being performed by the Investment Adviser. The investment professionals of the Investment Adviser will review and validate the value provided.
For investments in revolving credit facilities and delayed draw commitments, the cost basis of the funded investments purchased is offset by any costs/netbacks received for any unfunded portion on the total balance committed. The fair value is also adjusted for the price appreciation or depreciation on the unfunded portion. As a result, the purchase of a commitment not completely funded may result in a negative fair value until it is called and funded.
The values assigned to investments are based upon available information and do not necessarily represent amounts which might ultimately be realized, since such amounts depend on future circumstances and cannot be reasonably determined until the individual positions are liquidated. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company’s investments may fluctuate from period to period and the fluctuations could be material.
See Note 3. Investments, for further discussion relating to investments.
New Mountain Net Lease Corporation
NMNLC was formed to acquire commercial real properties that are subject to "triple net" leases. NMNLC's investments are disclosed on the Company's Consolidated Schedule of Investments as of March 31, 2018.
Below is certain summarized property information for NMNLC as of March 31, 2018:
 
 
 
 
Lease
 
 
 
Total
 
Fair Value as of
Portfolio Company
 
Tenant
 
Expiration Date
 
Location
 
Square Feet
 
March 31, 2018
NM GLCR LLC
 
Artic Glacier U.S.A.
 
2/28/2038
 
Los Angeles, CA/
San Diego, CA/
Bakersfield, CA/
East Bay, CA
 
214
 
$
14,750

NM CLFX LP
 
Victor Equipment Company
 
08/31/2033
 
Denton, TX
 
423
 
12,538

NM KRLN LLC
 
Kirlin Group, LLC
 
6/30/2029
 
Rockville, MD
 
95
 
8,328

NM APP Canada Corp.
 
A.P. Plasman, Inc.
 
9/30/2031
 
Ontario, Canada
 
436
 
8,234

NM DRVT LLC
 
FMH Conveyors, LLC
 
10/31/2031
 
Jonesboro, AR
 
195
 
5,446

NM APP US LLC
 
Plasman Corp, LLC / A-Brite LP
 
9/30/2033
 
Fort Payne, AL/Cleveland, OH
 
261
 
5,206

NM JRA LLC
 
J.R. Automation Technologies, LLC
 
1/31/2031
 
Holland, MI
 
88
 
2,215

 
 
 
 
 
 
 
 
 
 
$
56,717

Collateralized agreements or repurchase financings—The Company follows the guidance in Accounting Standards Codification Topic 860, Transfers and Servicing—Secured Borrowing and Collateral, (“ASC 860”) when accounting for transactions involving the purchases of securities under collateralized agreements to resell (resale agreements). These transactions are treated as collateralized financing transactions and are recorded at their contracted resale or repurchase

35

amounts, as specified in the respective agreements. Interest on collateralized agreements is accrued and recognized over the life of the transaction and included in interest income. As of March 31, 2018 and December 31, 2017, the Company held one collateralized agreement to resell with a cost basis of $30,000 and $30,000, respectively, and a carrying value of $25,200 and $25,212, respectively. The collateralized agreement to resell is guaranteed by a private hedge fund. The private hedge fund is currently in liquidation under the laws of the Cayman Islands. Pursuant to the terms of the collateralized agreement, the private hedge fund was obligated to repurchase the collateral from the Company at the par value of the collateralized agreement. The private hedge fund has breached its agreement to repurchase the collateral under the collateralized agreement. A claim has been filed with the Cayman Islands joint official liquidators to resolve this matter.
Cash and cash equivalents—Cash and cash equivalents include cash and short-term, highly liquid investments. The Company defines cash equivalents as securities that are readily convertible into known amounts of cash and so near maturity that there is insignificant risk of changes in value. These securities have original maturities of three months or less. The Company did not hold any cash equivalents as of March 31, 2018 and December 31, 2017.
Revenue recognition
Sales and paydowns of investments:  Realized gains and losses on investments are determined on the specific identification method.
Interest and dividend income:  Interest income, including amortization of premium and discount using the effective interest method, is recorded on the accrual basis and periodically assessed for collectability. Interest income also includes interest earned from cash on hand. Upon the prepayment of a loan or debt security, any prepayment penalties are recorded as part of interest income. The Company has loans and certain preferred equity investments in the portfolio that contain a payment-in-kind (“PIK”) interest or dividend provision. PIK interest and dividends are accrued and recorded as income at the contractual rates, if deemed collectible. The PIK interest and dividends are added to the principal or share balances on the capitalization dates and are generally due at maturity or when redeemed by the issuer. For the three months ended March 31, 2018 and March 31, 2017, the Company recognized PIK and non-cash interest from investments of $1,674 and $868, respectively, and PIK and non-cash dividends from investments of $6,787 and $1,477, respectively.
Dividend income on common equity is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies. Dividend income on preferred securities is recorded as dividend income on an accrual basis to the extent that such amounts are deemed collectible.
Non-accrual income:  Investments are placed on non-accrual status when principal or interest payments are past due for 30 days or more and when there is reasonable doubt that principal or interest will be collected. Accrued cash and un-capitalized PIK interest or dividends are reversed when an investment is placed on non-accrual status. Previously capitalized PIK interest or dividends are not reversed when an investment is placed on non-accrual status. Interest or dividend payments received on non-accrual investments may be recognized as income or applied to principal depending upon management’s judgment of the ultimate outcome. Non-accrual investments are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current.
Other income:  Other income represents delayed compensation, consent or amendment fees, revolver fees, structuring fees, upfront fees, management fees from a non-controlled/affiliated investment and other miscellaneous fees received and are typically non-recurring in nature. Delayed compensation is income earned from counterparties on trades that do not settle within a set number of business days after trade date. Other income may also include fees from bridge loans. The Company may from time to time enter into bridge financing commitments, an obligation to provide interim financing to a counterparty until permanent credit can be obtained. These commitments are short-term in nature and may expire unfunded. A fee is received by the Company for providing such commitments. Structuring fees and upfront fees are recognized as income when earned, usually when paid at the closing of the investment, and are non-refundable.
Interest and other financing expenses—Interest and other financing fees are recorded on an accrual basis by the Company. See Note 7. Borrowings, for details.
Deferred financing costs—The deferred financing costs of the Company consist of capitalized expenses related to the origination and amending of the Company’s borrowings. The Company amortizes these costs into expense over the stated life of the related borrowing. See Note 7. Borrowings, for details.
Deferred offering costs—The Company's deferred offering costs consist of fees and expenses incurred in connection with equity offerings and the filing of shelf registration statements. Upon the issuance of shares, offering costs are charged as a direct reduction to net assets. Deferred offering costs are included in other assets on the Company's Consolidated Statements of Assets and Liabilities.

36

Income taxes—The Company has elected to be treated, and intends to comply with the requirements to qualify annually, as a RIC under Subchapter M of the Code. As a RIC, the Company is not subject to U.S. federal income tax on the portion of taxable income and gains timely distributed to its stockholders.
To continue to qualify and be subject to tax as a RIC, the Company is required to meet certain income and asset diversification tests in addition to distributing at least 90.0% of its investment company taxable income, as defined by the Code. Since U.S. federal income tax regulations differ from GAAP, distributions in accordance with tax regulations may differ from net investment income and realized gains recognized for financial reporting purposes.
Differences between taxable income and the results of operations for financial reporting purposes may be permanent or temporary in nature. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.
For U.S. federal income tax purposes, distributions paid to stockholders of the Company are reported as ordinary income, return of capital, long term capital gains or a combination thereof.
The Company will be subject to a 4.0% nondeductible federal excise tax on certain undistributed income unless the Company distributes, in a timely manner as required by the Code, an amount at least equal to the sum of (1) 98.0% of its respective net ordinary income earned for the calendar year and (2) 98.2% of its respective capital gain net income for the one-year period ending October 31 in the calendar year.
Certain consolidated subsidiaries of the Company are subject to U.S. federal and state income taxes. These taxable entities are not consolidated for income tax purposes and may generate income tax liabilities or assets from permanent and temporary differences in the recognition of items for financial reporting and income tax purposes.
For the three months ended March 31, 2018 and March 31, 2017, the Company recognized a total income tax benefit of approximately $66 and $675, respectively, for the Company’s consolidated subsidiaries. For the three months ended March 31, 2018 and March 31, 2017, the Company recorded current income tax expense of approximately $16 and $80, respectively, and deferred income tax benefit of approximately $82 and $755, respectively.
As of March 31, 2018 and December 31, 2017, the Company had $812 and $894, respectively, of deferred tax liabilities primarily relating to deferred taxes attributable to certain differences between the computation of income for U.S. federal income tax purposes as compared to GAAP.
The Company has adopted the Income Taxes topic of the Accounting Standards Codification Topic 740 (“ASC 740”). ASC 740 provides guidance for income taxes, including how uncertain income tax positions should be recognized, measured, and disclosed in the financial statements. Based on its analysis, the Company has determined that there were no uncertain income tax positions that do not meet the more likely than not threshold through December 31, 2017. The 2014 through 2017 tax years remain subject to examination by the U.S. federal, state, and local tax authorities.
Distributions—Distributions to common stockholders of the Company are recorded on the record date as set by the board of directors. The Company intends to make distributions to its stockholders that will be sufficient to enable the Company to maintain its status as a RIC. The Company intends to distribute approximately all of its net investment income on a quarterly basis and substantially all of its taxable income on an annual basis, except that the Company may retain certain net capital gains for reinvestment.
The Company has adopted a dividend reinvestment plan that provides for reinvestment of any distributions declared on behalf of its stockholders, unless a stockholder elects to receive cash.
The Company applies the following in implementing the dividend reinvestment plan. If the price at which newly issued shares are to be credited to stockholders’ accounts is equal to or greater than 110.0% of the last determined net asset value of the shares, the Company will use only newly issued shares to implement its dividend reinvestment plan. Under such circumstances, the number of shares to be issued to a stockholder is determined by dividing the total dollar amount of the distribution payable to such stockholder by the market price per share of the Company’s common stock on the New York Stock Exchange (“NYSE”) on the distribution payment date. Market price per share on that date will be the closing price for such shares on the NYSE or, if no sale is reported for such day, the average of their electronically reported bid and ask prices.
If the price at which newly issued shares are to be credited to stockholders’ accounts is less than 110.0% of the last determined net asset value of the shares, the Company will either issue new shares or instruct the plan administrator to purchase shares in the open market to satisfy the additional shares required. Shares purchased in open market transactions by the plan administrator will be allocated to a stockholder based on the average purchase price, excluding any brokerage charges or other charges, of all shares of common stock purchased in the open market. The number of shares of the Company’s common stock to be outstanding after giving effect to payment of the distribution cannot be established until the value per share at which additional shares will be issued has been determined and elections of the Company’s stockholders have been tabulated.

37

Share repurchase program—On February 4, 2016, the Company's board of directors authorized a program for the purpose of repurchasing up to $50,000 worth of the Company's common stock. Under the repurchase program, the Company was permitted, but was not obligated, to repurchase its outstanding common stock in the open market from time to time provided that it complied with the Company's code of ethics and the guidelines specified in Rule 10b-18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act), including certain price, market volume and timing constraints. In addition, any repurchases were conducted in accordance with the 1940 Act. On December 29, 2017, the Company's board of directors extended the Company's repurchase program and the Company expects the repurchase program to be in place until the earlier of December 31, 2018 or until $50,000 of its outstanding shares of common stock have been repurchased. During the three months ended March 31, 2018 and March 31, 2017, the Company did not repurchase any shares of the Company's common stock. The Company has previously repurchased $2,948 of its common stock under the share repurchase program.
Earnings per share—The Company’s earnings per share (“EPS”) amounts have been computed based on the weighted-average number of shares of common stock outstanding for the period. Basic EPS is computed by dividing net increase (decrease) in net assets resulting from operations by the weighted average number of shares of common stock outstanding during the period of computation. Diluted EPS is computed by dividing net increase (decrease) in net assets resulting from operations by the weighted average number of shares of common stock assuming all potential shares had been issued, and its related net impact to net assets accounted for, and the additional shares of common stock were dilutive. Diluted EPS reflects the potential dilution, using the as-if-converted method for convertible debt, which could occur if all potentially dilutive securities were exercised.
Foreign securities—The accounting records of the Company are maintained in U.S. dollars. Investment securities denominated in foreign currencies are translated into U.S. dollars based on the rate of exchange of such currencies on the date of valuation. Purchases and sales of investment securities and income and expense items denominated in foreign currencies are translated into U.S. dollars based on the rate of exchange of such currencies on the respective dates of the transactions. The Company does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with “Net change in unrealized appreciation (depreciation) of investments” and “Net realized gains (losses) on investments” in the Company’s Consolidated Statements of Operations.
Investments denominated in foreign currencies may be negatively affected by movements in the rate of exchange between the U.S. dollar and such foreign currencies. This movement is beyond the control of the Company and cannot be predicted.
Use of estimates—The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the Company’s consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Changes in the economic environment, financial markets, and other metrics used in determining these estimates could cause actual results to differ from the estimates used, and the differences could be material.
Dividend income recorded related to distributions received from flow-through investments is an accounting estimate based on the most recent estimate of the tax treatment of the distribution.
Note 3. Investments
At March 31, 2018, the Company’s investments consisted of the following:
Investment Cost and Fair Value by Type
 
Cost
 
Fair Value
First lien
$
734,071

 
$
738,027

Second lien
766,631

 
774,515

Subordinated
69,223

 
67,918

Equity and other
375,733

 
397,463

Total investments
$
1,945,658

 
$
1,977,923


38

Investment Cost and Fair Value by Industry
 
Cost
 
Fair Value
Business Services
$
633,138

 
$
650,179

Software
287,848

 
294,622

Healthcare Services
264,881

 
264,355

Education
190,454

 
186,089

Distribution & Logistics
113,409

 
117,396

Investment Fund
102,400

 
102,400

Consumer Services
85,204

 
86,145

Federal Services
75,765

 
77,273

Energy
70,015

 
73,904

Net Lease
54,418

 
56,717

Healthcare Information Technology
33,534

 
34,008

Business Products
20,279

 
20,444

Packaging
14,313

 
14,391

Total investments
$
1,945,658

 
$
1,977,923

At December 31, 2017, the Company’s investments consisted of the following:
Investment Cost and Fair Value by Type
 
Cost
 
Fair Value
First lien
$
688,696

 
$
693,563

Second lien
674,536

 
682,950

Subordinated
70,991

 
70,257

Equity and other
357,004

 
378,890

Total investments
$
1,791,227

 
$
1,825,660

Investment Cost and Fair Value by Industry
 
Cost
 
Fair Value
Business Services
$
566,344

 
$
581,434

Software
291,445

 
298,172

Healthcare Services
174,046

 
175,348

Education
176,399

 
173,072

Consumer Services
129,311

 
131,116

Distribution & Logistics
107,835

 
112,241

Investment Fund
102,400

 
102,400

Federal Services
77,001

 
78,433

Energy
69,411

 
74,124

Net Lease
39,668

 
41,409

Healthcare Information Technology
33,525

 
34,020

Packaging
14,309

 
14,391

Business Products
9,533

 
9,500

Total investments
$
1,791,227

 
$
1,825,660

    

39

During the first quarter of 2018, the Company placed its first lien positions in Education Management II LLC ("EDMC") on non-accrual status as EDMC announced its intention to wind down and liquidate the business. As of March 31, 2018, the Company's investment in EDMC placed on non-accrual status represented an aggregate cost basis of $1,004, an aggregate fair value of $89 and total unearned interest income of $67 for the three months then ended.
During the first quarter of 2017, the Company placed its entire first lien notes position in Sierra Hamilton LLC / Sierra Hamilton Finance, Inc. ("Sierra") on non-accrual status due to its ongoing restructuring. As of June 30, 2017, the Company's investment in Sierra placed on non-accrual status represented an aggregate cost basis of $27,231, an aggregate fair value of $12,725 and total unearned interest income of $1,388 for the six months then ended. In July 2017, Sierra completed a restructuring which resulted in a material modification of the original terms and an extinguishment of the Company’s original investment in Sierra. Prior to the extinguishment in July 2017, the Company’s original investment in Sierra had an aggregate cost of $27,307, an aggregate fair value of $12,858 and total unearned interest income of $1,687. The extinguishment resulted in a realized loss of $14,449. As a result of the restructuring, the Company received common shares in Sierra Hamilton Holding Corporation. As of March 31, 2018, the Company’s investment has an aggregate cost basis of $12,782 and an aggregate fair value of $12,456.
As of March 31, 2018, the Company had unfunded commitments on revolving credit facilities and bridge facilities of $23,963 and $0, respectively. As of March 31, 2018, the Company had unfunded commitments in the form of delayed draws or other future funding commitments of $57,915. The unfunded commitments on revolving credit facilities and delayed draws are disclosed on the Company’s Consolidated Schedule of Investments as of March 31, 2018.
As of December 31, 2017, the Company had unfunded commitments on revolving credit facilities and bridge facilities of $23,716 and $0, respectively. As of December 31, 2017, the Company had unfunded commitments in the form of delayed draws or other future funding commitments of $53,712. The unfunded commitments on revolving credit facilities and delayed draws are disclosed on the Company’s Consolidated Schedule of Investments as of December 31, 2017.
NMFC Senior Loan Program I LLC
NMFC Senior Loan Program I LLC (“SLP I”) was formed as a Delaware limited liability company on May 27, 2014 and commenced operations on June 10, 2014. SLP I is a portfolio company held by the Company. SLP I is structured as a private investment fund, in which all of the investors are qualified purchasers, as such term is defined under the 1940 Act. Transfer of interests in SLP I is subject to restrictions and, as a result, such interests are not readily marketable. SLP I operates under a limited liability company agreement (the “SLP I Agreement”) and will continue in existence until June 10, 2019, subject to earlier termination pursuant to certain terms of the SLP I Agreement. The term may be extended for up to one year pursuant to certain terms of the SLP I Agreement. SLP I had a three year re-investment period. In June 2017, the re-investment period was extended for one additional year. SLP I invests in senior secured loans issued by companies within the Company’s core industry verticals. These investments are typically broadly syndicated first lien loans.
SLP I is capitalized with $93,000 of capital commitments and $265,000 of debt from a revolving credit facility and is managed by the Company. The Company’s capital commitment is $23,000, representing less than 25.0% ownership, with third party investors representing the remaining capital commitments. As of March 31, 2018, SLP I had total investments with an aggregate fair value of approximately $351,541, debt outstanding of $235,367 and capital that had been called and funded of $93,000. As of December 31, 2017, SLP I had total investments with an aggregate fair value of approximately $348,652, debt outstanding of $223,667 and capital that had been called and funded of $93,000. The Company’s investment in SLP I is disclosed on the Company’s Consolidated Schedules of Investments as of March 31, 2018 and December 31, 2017.
The Company, as an investment adviser registered under the Advisers Act, acts as the collateral manager to SLP I and is entitled to receive a management fee for its investment management services provided to SLP I. As a result, SLP I is classified as an affiliate of the Company. No management fee is charged on the Company's investment in SLP I in connection with the administrative services provided to SLP I. For the three months ended March 31, 2018 and March 31, 2017, the Company earned approximately $295 and $290, respectively, in management fees related to SLP I, which is included in other income. As of March 31, 2018 and December 31, 2017, approximately $586 and $291, respectively, of management fees related to SLP I was included in receivable from affiliates. For the three months ended March 31, 2018 and March 31, 2017, the Company earned approximately $845 and $1,004, respectively, of dividend income related to SLP I, which is included in dividend income. As of March 31, 2018 and December 31, 2017, approximately $939 and $836, respectively, of dividend income related to SLP I was included in interest and dividend receivable.
NMFC Senior Loan Program II LLC
NMFC Senior Loan Program II LLC ("SLP II") was formed as a Delaware limited liability company on March 9, 2016 and commenced operations on April 12, 2016. SLP II is structured as a private joint venture investment fund between the Company and SkyKnight Income, LLC (“SkyKnight”) and operates under a limited liability company agreement (the "SLP II Agreement"). The purpose of the joint venture is to invest primarily in senior secured loans issued by portfolio companies

40

within the Company's core industry verticals. These investments are typically broadly syndicated first lien loans. All investment decisions must be unanimously approved by the board of managers of SLP II, which has equal representation from the Company and SkyKnight. SLP II has a three year investment period and will continue in existence until April 12, 2021. The term may be extended for up to one year pursuant to certain terms of the SLP II Agreement.
SLP II is capitalized with equity contributions which are called from its members, on a pro-rata basis based on their equity commitments, as transactions were completed. Any decision by SLP II to call down on capital commitments requires approval by the board of managers of SLP II. As of March 31, 2018, the Company and SkyKnight have committed and contributed $79,400 and $20,600, respectively, of equity to SLP II. The Company’s investment in SLP II is disclosed on the Company’s Consolidated Schedules of Investments as of March 31, 2018 and December 31, 2017.
On April 12, 2016, SLP II closed its $275,000 revolving credit facility with Wells Fargo Bank, National Association, which matures on April 12, 2021 and bears interest at a rate of the London Interbank Offered Rate ("LIBOR") plus 1.75% per annum. Effective April 1, 2018, SLP II's revolving credit facility will bear interest at a rate of LIBOR plus 1.60% per annum. As of March 31, 2018 and December 31, 2017, SLP II had total investments with an aggregate fair value of approximately $372,099 and $382,534, respectively, and debt outstanding under its credit facility of $255,070 and $266,270, respectively. As of March 31, 2018 and December 31, 2017, none of SLP II's investments were on non-accrual. Additionally, as of March 31, 2018 and December 31, 2017, SLP II had unfunded commitments in the form of delayed draws of $5,906 and $4,863, respectively. Below is a summary of SLP II's portfolio, along with a listing of the individual investments in SLP II's portfolio as of March 31, 2018 and December 31, 2017:
    
 
 
March 31, 2018
 
December 31, 2017
First lien investments (1)
 
376,233

 
386,100

Weighted average interest rate on first lien investments (2)
 
6.36
%
 
6.05
%
Number of portfolio companies in SLP II
 
32

 
35

Largest portfolio company investment (1)
 
17,281

 
17,369

Total of five largest portfolio company investments (1)
 
79,442

 
81,728

 
(1)
Reflects principal amount or par value of investment.
(2)
Computed as the all in interest rate in effect on accruing investments divided by the total principal amount of investments.
    

41

The following table is a listing of the individual investments in SLP II's portfolio as of March 31, 2018:
Portfolio Company and Type of Investment
 
Industry
 
Interest Rate (1)
 
Maturity Date
 
 Principal Amount or Par Value
 
 Cost
 
Fair
Value (2)
Funded Investments - First lien:
 
 
 
 
 
 
 
 
 
 
 
 
Access CIG, LLC
 
Business Services
 
 5.63% (L + 3.75%)
 
2/27/2025
 
$
8,273

 
$
8,232

 
$
8,379

ADG, LLC
 
Healthcare Services
 
 6.63% (L + 4.75%)
 
9/28/2023
 
16,991

 
16,852

 
16,736

ASG Technologies Group, Inc.
 
Software
 
 5.38% (L + 3.50%)
 
7/31/2024
 
7,463

 
7,428

 
7,490

AVSC Holding Corp.
 
Business Services
 
 5.13% (L + 3.25%)
 
3/3/2025
 
1,500

 
1,496

 
1,503

Beaver-Visitec International Holdings, Inc.
 
Healthcare Products
 
 7.30% (L + 5.00%)
 
8/21/2023
 
14,775

 
14,656

 
14,849

DigiCert, Inc.
 
Business Services
 
 6.52% (L + 4.75%)
 
10/31/2024
 
10,000

 
9,952

 
10,129

FPC Holdings, Inc.
 
Distribution & Logistics
 
 5.88% (L + 4.50%)
 
11/18/2022
 
15,000

 
14,550

 
14,681

Globallogic Holdings Inc.
 
Business Services
 
 6.05% (L + 3.75%)
 
6/20/2022
 
9,677

 
9,615

 
9,762

Greenway Health, LLC
 
Software
 
 6.55% (L + 4.25%)
 
2/16/2024
 
14,887

 
14,823

 
15,036

Idera, Inc.
 
Software
 
 6.38% (L + 4.50%)
 
6/28/2024
 
12,588

 
12,472

 
12,729

J.D. Power (fka J.D. Power and Associates)
 
Business Services
 
 6.55% (L + 4.25%)
 
9/7/2023
 
13,324

 
13,276

 
13,390

Keystone Acquisition Corp.
 
Healthcare Services
 
 7.55% (L + 5.25%)
 
5/1/2024
 
5,373

 
5,325

 
5,407

LSCS Holdings, Inc.
 
Healthcare Services
 
 6.40% (L + 4.25%)
 
3/17/2025
 
4,400

 
4,378

 
4,389

Market Track, LLC
 
Business Services
 
 6.55% (L + 4.25%)
 
6/5/2024
 
11,910

 
11,856

 
11,940

Medical Solutions Holdings, Inc.
 
Healthcare Services
 
 5.63% (L + 3.75%)
 
6/14/2024
 
6,965

 
6,933

 
6,998

Ministry Brands, LLC
 
Software
 
 6.88% (L + 5.00%)
 
12/2/2022
 
2,132

 
2,123

 
2,132

Ministry Brands, LLC
 
Software
 
 6.88% (L + 5.00%)
 
12/2/2022
 
7,748

 
7,717

 
7,748

Navex Global, Inc.
 
Software
 
 6.13% (L + 4.25%)
 
11/19/2021
 
14,859

 
14,695

 
14,924

Navicure, Inc.
 
Healthcare Services
 
 5.63% (L + 3.75%)
 
11/1/2024
 
14,962

 
14,891

 
15,056

OEConnection LLC
 
Business Services
 
 6.46% (L + 4.00%)
 
11/22/2024
 
14,963

 
14,890

 
15,056

Pathway Partners Vet Management Company LLC
 
Consumer Services
 
 6.13% (L + 4.25%)
 
10/10/2024
 
1,878

 
1,868

 
1,882

Pathway Partners Vet Management Company LLC
 
Consumer Services
 
 6.13% (L + 4.25%)
 
10/10/2024
 
6,945

 
6,913

 
6,963

Peraton Corp. (fka MHVC Acquisition Corp.)
 
Federal Services
 
 7.56% (L + 5.25%)
 
4/29/2024
 
10,421

 
10,375

 
10,499

Poseidon Intermediate, LLC
 
Software
 
 6.13% (L + 4.25%)
 
8/15/2022
 
14,852

 
14,849

 
14,926

Project Accelerate Parent, LLC
 
Business Services
 
 5.94% (L + 4.25%)
 
1/2/2025
 
15,000

 
14,927

 
15,131

PSC Industrial Holdings Corp.
 
Industrial Services
 
 6.04% (L + 4.25%)
 
10/11/2024
 
10,474

 
10,375

 
10,578

Quest Software US Holdings Inc.
 
Software
 
 7.27% (L + 5.50%)
 
10/31/2022
 
9,899

 
9,780

 
10,095

Salient CRGT Inc.
 
Federal Services
 
 7.63% (L + 5.75%)
 
2/28/2022
 
14,076

 
13,962

 
14,252

Severin Acquisition, LLC
 
Software
 
 6.64% (L + 4.75%)
 
7/30/2021
 
14,850

 
14,793

 
14,999

Shine Acquisition Co. S.a.r.l./ Boing US Holdco Inc.
 
Consumer Services
 
 5.29% (L + 3.50%)
 
10/3/2024
 
14,962

 
14,927

 
15,047

Sierra Acquisition Inc.
 
Food & Beverage
 
 6.13% (L + 4.25%)
 
11/11/2024
 
3,741

 
3,723

 
3,772

WP CityMD Bidco LLC
 
Healthcare Services
 
 6.30% (L + 4.00%)
 
6/7/2024
 
14,925

 
14,891

 
15,009

YI, LLC
 
Healthcare Services
 
 6.30% (L + 4.00%)
 
11/7/2024
 
1,103

 
1,111

 
1,109

YI, LLC
 
Healthcare Services
 
 6.30% (L + 4.00%)
 
11/7/2024
 
12,130

 
12,119

 
12,190

Zywave, Inc.
 
Software
 
 7.18% (L + 5.00%)
 
11/17/2022
 
17,281

 
17,212

 
17,281

Total Funded Investments
 
 
 
 
 
 
 
$
370,327

 
$
367,985

 
$
372,067

Unfunded Investments - First lien:
 
 
 
 
 
 
 
 
 
 
 
 
Access CIG, LLC
 
Business Services
 
—
 
8/27/2018
 
$
1,727

 
$
—

 
$
22

LSCS Holdings, Inc.
 
Healthcare Services
 
—
 
9/17/2018
 
1,100

 
(6
)
 
(3
)
Pathway Partners Vet Management Company LLC
 
Consumer Services
 
—
 
10/10/2019
 
1,142

 
(6
)
 
3

YI, LLC
 
Healthcare Services
 
—
 
11/7/2018
 
1,937

 
(10
)
 
10

Total Unfunded Investments
 
 
 
 
 
 
 
$
5,906

 
$
(22
)
 
$
32

Total Investments
 
 
 
 
 
 
 
$
376,233

 
$
367,963

 
$
372,099

 
(1)
All interest is payable in cash unless otherwise indicated. A majority of the variable rate debt investments bear interest at a rate that may be determined by reference to the LIBOR (L), the Prime Rate (P) and the alternative base rate (Base). For each investment, the current interest rate provided reflects the rate in effect as of March 31, 2018.
(2)
Represents the fair value in accordance with Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures (“ASC 820”). The Company's board of directors does not determine the fair value of the investments held by SLP II.

42


The following table is a listing of the individual investments in SLP II's portfolio as of December 31, 2017:
Portfolio Company and Type of Investment

Industry

Interest Rate (1)

Maturity Date

 Principal Amount or Par Value

 Cost

Fair
Value (2)
Funded Investments - First lien












ADG, LLC

Healthcare Services

 6.32% (L + 4.75%)

9/28/2023

$
17,034


$
16,890


$
16,779

ASG Technologies Group, Inc.

Software

 6.32% (L + 4.75%)

7/31/2024

7,481


7,446


7,547

Beaver-Visitec International Holdings, Inc.

Healthcare Products

 6.69% (L + 5.00%)

8/21/2023

14,812


14,688


14,813

DigiCert, Inc.

Business Services

 6.13% (L + 4.75%)

10/31/2024

10,000


9,951


10,141

Emerald 2 Limited

Business Services

 5.69% (L + 4.00%)

5/14/2021

1,266


1,211


1,267

Evo Payments International, LLC

Business Services

 5.57% (L + 4.00%)

12/22/2023

17,369


17,292


17,492

Explorer Holdings, Inc.

Healthcare Services

 5.13% (L + 3.75%)

5/2/2023

2,940


2,917


2,973

Globallogic Holdings Inc.

Business Services

 6.19% (L + 4.50%)

6/20/2022

9,677


9,611


9,755

Greenway Health, LLC

Software

 5.94% (L + 4.25%)

2/16/2024

14,925


14,858


15,074

Idera, Inc.

Software

 6.57% (L + 5.00%)

6/28/2024

12,619


12,499


12,556

J.D. Power (fka J.D. Power and Associates)

Business Services

 5.94% (L + 4.25%)

9/7/2023

13,357


13,308


13,407

Keystone Acquisition Corp.

Healthcare Services

 6.94% (L + 5.25%)

5/1/2024

5,386


5,336


5,424

Market Track, LLC

Business Services

 5.94% (L + 4.25%)

6/5/2024

11,940


11,884


11,940

McGraw-Hill Global Education Holdings, LLC

Education

 5.57% (L + 4.00%)

5/4/2022

9,850


9,813


9,844

Medical Solutions Holdings, Inc.

Healthcare Services

 5.82% (L + 4.25%)

6/14/2024

6,965


6,932


7,043

Ministry Brands, LLC

Software

 6.38% (L + 5.00%)

12/2/2022

2,138


2,128


2,138

Ministry Brands, LLC

Software

 6.38% (L + 5.00%)

12/2/2022

7,768


7,735


7,768

Navex Global, Inc.

Software

 5.82% (L + 4.25%)

11/19/2021

14,897


14,724


14,971

Navicure, Inc.

Healthcare Services

 5.11% (L + 3.75%)

11/1/2024

15,000


14,926


15,000

OEConnection LLC

Business Services

 5.69% (L + 4.00%)

11/22/2024

15,000


14,925


14,981

Pathway Partners Vet Management Company LLC

Consumer Services

 5.82% (L + 4.25%)

10/10/2024

6,963


6,929


6,980

Pathway Partners Vet Management Company LLC

Consumer Services

 5.82% (L + 4.25%)

10/10/2024

291


290


292

Peraton Corp. (fka MHVC Acquisition Corp.)

Federal Services

 6.95% (L + 5.25%)

4/29/2024

10,448


10,399


10,526

Poseidon Intermediate, LLC

Software

 5.82% (L + 4.25%)

8/15/2022

14,881


14,877


14,955

Project Accelerate Parent, LLC

Business Services

 5.94% (L + 4.25%)

1/2/2025

15,000


14,925


15,038

PSC Industrial Holdings Corp.

Industrial Services

 5.71% (L + 4.25%)

10/11/2024

10,500


10,398


10,500

Quest Software US Holdings Inc.

Software

 6.92% (L + 5.50%)

10/31/2022

9,899


9,775


10,071

Salient CRGT Inc.

Federal Services

 7.32% (L + 5.75%)

2/28/2022

14,433


14,310


14,559

Severin Acquisition, LLC

Software

 6.32% (L + 4.75%)

7/30/2021

14,888


14,827


14,813

Shine Acquisitoin Co. S.à.r.l / Boing US Holdco Inc.

Consumer Services

 4.88% (L + 3.50%)

10/3/2024

15,000


14,964


15,108

Sierra Acquisition, Inc.

Food & Beverage

 5.68% (L + 4.25%)

11/11/2024

3,750


3,731


3,789

TMK Hawk Parent, Corp.

Distribution & Logistics

 4.88% (L + 3.50%)

8/28/2024

1,671


1,667


1,686

University Support Services LLC (St. George's University Scholastic Services LLC)

Education

 5.82% (L + 4.25%)

7/6/2022

1,875


1,875


1,900

Vencore, Inc. (fka SI Organization, Inc., The)

Federal Services

 6.44% (L + 4.75%)

11/23/2019

10,686


10,673


10,835

WP CityMD Bidco LLC

Healthcare Services

 5.69% (L + 4.00%)

6/7/2024

14,963


14,928


15,009

YI, LLC

Healthcare Services

 5.69% (L + 4.00%)

11/7/2024

8,240


8,204


8,230

Zywave, Inc.

Software

 6.61% (L + 5.00%)

11/17/2022

17,325


17,252


17,325

Total Funded Investments







$
381,237


$
379,098


$
382,529

Unfunded Investments - First lien















Pathway Partners Vet Management Company LLC

Consumer Services

—

10/10/2019

$
2,728


$
(14
)

$
7

TMK Hawk Parent, Corp.

Distribution & Logistics

—

3/28/2018

75


—


1

YI, LLC

Healthcare Services

—

11/7/2018

2,060


(9
)

(3
)
Total Unfunded Investments







$
4,863


$
(23
)

$
5

Total Investments







$
386,100


$
379,075


$
382,534

 
(1)
All interest is payable in cash unless otherwise indicated. A majority of the variable rate debt investments bear interest at a rate that may be determined by reference to the LIBOR (L), the Prime Rate (P) and the alternative base rate (Base). For each investment, the current interest rate provided reflects the rate in effect as of December 31, 2017.
(2)
Represents the fair value in accordance with ASC 820. The Company's board of directors does not determine the fair value of the investments held by SLP II.

43

    
Below is certain summarized financial information for SLP II as of March 31, 2018 and December 31, 2017 and for the three months ended March 31, 2018 and March 31, 2017:
Selected Balance Sheet Information:
March 31, 2018
 
December 31, 2017
Investments at fair value (cost of $367,963 and $379,075, respectively)
$
372,099

 
$
382,534

Receivable from unsettled securities sold
19,466

 
—

Cash and other assets
7,585

 
8,065

Total assets
$
399,150

 
$
390,599

 
 
 
 
Credit facility
$
255,070

 
$
266,270

Deferred financing costs
(1,818
)
 
(1,966
)
Payable for unsettled securities purchased
34,636

 
15,964

Distribution payable
3,300

 
3,500

Other liabilities
3,191

 
2,891

Total liabilities
294,379

 
286,659

 
 
 
 
Members' capital
$
104,771

 
$
103,940

Total liabilities and members' capital
$
399,150

 
$
390,599

 
Three Months Ended
Selected Statement of Operations Information:
March 31, 2018
 
March 31, 2017
Interest income
$
5,630

 
$
5,173

Other income
22

 
214

Total investment income
5,652

 
5,387

 
 
 
 
Interest and other financing expenses
2,428

 
1,849

Other expenses
224

 
162

Total expenses
2,652

 
2,011

Net investment income
3,000

 
3,376

 
 
 
 
Net realized gains on investments
453

 
1,108

Net change in unrealized appreciation (depreciation) of investments
677

 
(106
)
Net increase in members' capital
$
4,130

 
$
4,378

For the three months ended March 31, 2018 and March 31, 2017, the Company earned approximately $2,620 and $3,434, respectively, of dividend income related to SLP II, which is included in dividend income. As of March 31, 2018 and December 31, 2017, approximately $2,620 and $2,779, respectively, of dividend income related to SLP II was included in interest and dividend receivable.
The Company has determined that SLP II is an investment company under ASC 946; however, in accordance with such guidance the Company will generally not consolidate its investment in a company other than a wholly-owned investment company subsidiary. Furthermore, Accounting Standards Codification Topic 810, Consolidation, concludes that in a joint venture where both members have equal decision making authority, it is not appropriate for one member to consolidate the joint venture since neither has control. Accordingly, the Company does not consolidate SLP II.
Unconsolidated Significant Subsidiaries
In accordance with Regulation S-X Rule 10-01(b)(1), the Company evaluates its unconsolidated controlled portfolio companies as significant subsidiaries under this rule. As of March 31, 2018, the Company did not have any significant unconsolidated subsidiaries under Regulation S-X Rule 10-01(b)(1).
Investment Risk Factors
First and second lien debt that the Company invests in is entirely, or almost entirely, rated below investment grade or may be unrated. Debt investments rated below investment grade are often referred to as “leveraged loans”, “high yield” or

44

“junk” debt investments, and may be considered “high risk” compared to debt investments that are rated investment grade. These debt investments are considered speculative because of the credit risk of the issuers. Such issuers are considered more likely than investment grade issuers to default on their payments of interest and principal, and such risk of default could reduce the net asset value and income distributions of the Company. In addition, some of the Company’s debt investments will not fully amortize during their lifetime, which could result in a loss or a substantial amount of unpaid principal and interest due upon maturity. First and second lien debt may also lose significant market value before a default occurs. Furthermore, an active trading market may not exist for these first and second lien debt investments. This illiquidity may make it more difficult to value the debt.
Subordinated debt is generally subject to similar risks as those associated with first and second lien debt, except that such debt is subordinated in payment and/or lower in lien priority. Subordinated debt is subject to the additional risk that the cash flow of the borrower and the property securing the debt, if any, may be insufficient to meet scheduled payments after giving effect to the senior secured and unsecured obligations of the borrower.
The Company may directly invest in the equity of private companies or, in some cases, equity investments could be made in connection with a debt investment. Equity investments may or may not fluctuate in value, resulting in recognized realized gains or losses upon disposition.
Note 4. Fair Value
Fair value is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a fair value hierarchy that prioritizes and ranks the inputs to valuation techniques used in measuring investments at fair value. The hierarchy classifies the inputs used in measuring fair value into three levels as follows:
Level I—Quoted prices (unadjusted) are available in active markets for identical investments and the Company has the ability to access such quotes as of the reporting date. The type of investments which would generally be included in Level I include active exchange-traded equity securities and exchange-traded derivatives. As required by ASC 820, the Company, to the extent that it holds such investments, does not adjust the quoted price for these investments, even in situations where the Company holds a large position and a sale could reasonably impact the quoted price.
Level II—Pricing inputs are observable for the investments, either directly or indirectly, as of the reporting date, but are not the same as those used in Level I. Level II inputs include the following:
•
Quoted prices for similar assets or liabilities in active markets;
•
Quoted prices for identical or similar assets or liabilities in non-active markets (examples include corporate and municipal bonds, which trade infrequently);
•
Pricing models whose inputs are observable for substantially the full term of the asset or liability (examples include most over-the-counter derivatives, including foreign exchange forward contracts); and
•
Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability.
Level III—Pricing inputs are unobservable for the investment and include situations where there is little, if any, market activity for the investment.
The inputs used to measure fair value may fall into different levels. In all instances when the inputs fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level of input that is significant to the fair value measurement in its entirety. As such, a Level III fair value measurement may include inputs that are both observable and unobservable. Gains and losses for such assets categorized within the Level III table below may include changes in fair value that are attributable to both observable inputs and unobservable inputs.
The inputs into the determination of fair value require significant judgment or estimation by management and consideration of factors specific to each investment. A review of the fair value hierarchy classifications is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in the transfer of certain investments within the fair value hierarchy from period to period. Reclassifications impacting the fair value hierarchy are reported as transfers in/out of the respective leveling categories as of the beginning of the period in which the reclassifications occur.

45

The following table summarizes the levels in the fair value hierarchy that the Company’s portfolio investments fall into as of March 31, 2018:
 
Total
 
Level I
 
Level II
 
Level III
First lien
$
738,027

 
$
—

 
$
88,636

 
$
649,391

Second lien
774,515

 
—

 
336,379

 
438,136

Subordinated
67,918

 
—

 
39,726

 
28,192

Equity and other
397,463

 
17

 
—

 
397,446

Total investments
$
1,977,923

 
$
17

 
$
464,741

 
$
1,513,165

The following table summarizes the levels in the fair value hierarchy that the Company’s portfolio investments fall into as of December 31, 2017:
 
Total
 
Level I
 
Level II
 
Level III
First lien
$
693,563

 
$
—

 
$
136,866

 
$
556,697

Second lien
682,950

 
—

 
239,868

 
443,082

Subordinated
70,257

 
—

 
43,156

 
27,101

Equity and other
378,890

 
16

 
—

 
378,874

Total investments
$
1,825,660

 
$
16

 
$
419,890

 
$
1,405,754


The following table summarizes the changes in fair value of Level III portfolio investments for the three months ended March 31, 2018, as well as the portion of appreciation (depreciation) included in income attributable to unrealized appreciation (depreciation) related to those assets and liabilities still held by the Company at March 31, 2018:
 
Total
 
First Lien
 
Second Lien
 
Subordinated
 
Equity and other
Fair value, December 31, 2017
$
1,405,754

 
$
556,697

 
$
443,082

 
$
27,101

 
$
378,874

Total gains or losses included in earnings:
 

 
 

 
 

 
 

 
 

Net realized gains on investments
97

 
97

 
—

 
—

 
—

Net change in unrealized (depreciation) appreciation
(1,554
)
 
(282
)
 
(1,009
)
 
(107
)
 
(156
)
Purchases, including capitalized PIK and revolver fundings
198,319

 
134,287

 
44,106

 
1,198

 
18,728

Proceeds from sales and paydowns of investments
(89,333
)
 
(89,333
)
 
—

 
—

 
—

Transfers into Level III(1)
76,037

 
76,037

 
—

 
—

 
—

Transfers out of Level III(1)
(76,155
)
 
(28,112
)
 
(48,043
)
 
—

 
—

Fair Value, March 31, 2018
$
1,513,165

 
$
649,391

 
$
438,136

 
$
28,192

 
$
397,446

Unrealized (depreciation) appreciation for the period relating to those Level III assets that were still held by the Company at the end of the period:
$
(1,043
)
 
$
229

 
$
(1,009
)
 
$
(107
)
 
$
(156
)
 
(1)
As of March 31, 2018, portfolio investments were transferred into Level III from Level II and out of Level III into Level II at fair value as of the beginning of the period in which the reclassification occurred.


46

The following table summarizes the changes in fair value of Level III portfolio investments for the three months ended March 31, 2017, as well as the portion of appreciation (depreciation) included in income attributable to unrealized appreciation (depreciation) related to those assets and liabilities still held by the Company at March 31, 2017:
 
Total
 
First Lien
 
Second Lien
 
Subordinated
 
Equity and other
Fair value, December 31, 2016
$
1,066,878

 
$
530,601

 
$
324,177

 
$
24,653

 
$
187,447

Total gains or losses included in earnings:
 

 
 

 
 

 
 

 
 

Net realized gains on investments
311

 
19

 
292

 
—

 
—

Net change in unrealized (depreciation) appreciation
(964
)
 
139

 
1,770

 
211

 
(3,084
)
Purchases, including capitalized PIK and revolver fundings
196,404

 
37,058

 
44,020

 
739

 
114,587

Proceeds from sales and paydowns of investments
(50,061
)
 
(34,425
)
 
(15,636
)
 
—

 
—

Transfers into Level III(1)
44,352

 
19,608

 
24,744

 
—

 
—

Transfers out of Level III(1)
(57,881
)
 
(26,032
)
 
(31,848
)
 
—

 
(1
)
Fair Value, March 31, 2017
$
1,199,039

 
$
526,968

 
$
347,519

 
$
25,603

 
$
298,949

Unrealized (depreciation) appreciation for the period relating to those Level III assets that were still held by the Company at the end of the period:
$
(744
)
 
$
359

 
$
1,770

 
$
211

 
$
(3,084
)
 
(1)
As of March 31, 2017, portfolio investments were transferred into Level III from Level II and out of Level III into Level II at fair value as of the beginning of the period in which the reclassification occurred.
Except as noted in the tables above, there were no other transfers in or out of Level I, II, or III during the three months ended March 31, 2018 and March 31, 2017. Transfers into Level III occur as quotations obtained through pricing services are not deemed representative of fair value as of the balance sheet date and such assets are internally valued. As quotations obtained through pricing services are substantiated through additional market sources, investments are transferred out of Level III. In addition, transfers out of Level III and transfers into Level III occur based on the increase or decrease in the availability of certain observable inputs.
The Company invests in revolving credit facilities. These investments are categorized as Level III investments as these assets are not actively traded and their fair values are often implied by the term loans of the respective portfolio companies.
The Company generally uses the following framework when determining the fair value of investments where there are little, if any, market activity or observable pricing inputs. The Company typically determines the fair value of its performing debt investments utilizing an income approach. Additional consideration is given using a market based approach, as well as reviewing the overall underlying portfolio company’s performance and associated financial risks. The following outlines additional details on the approaches considered:
Company Performance, Financial Review, and Analysis:  Prior to investment, as part of its due diligence process, the Company evaluates the overall performance and financial stability of the portfolio company. Post investment, the Company analyzes each portfolio company’s current operating performance and relevant financial trends versus prior year and budgeted results, including, but not limited to, factors affecting its revenue and earnings before interest, taxes, depreciation, and amortization (“EBITDA”) growth, margin trends, liquidity position, covenant compliance and changes to its capital structure. The Company also attempts to identify and subsequently track any developments at the portfolio company, within its customer or vendor base or within the industry or the macroeconomic environment, generally, that may alter any material element of its original investment thesis. This analysis is specific to each portfolio company. The Company leverages the knowledge gained from its original due diligence process, augmented by this subsequent monitoring, to continually refine its outlook for each of its portfolio companies and ultimately form the valuation of its investment in each portfolio company. When an external event such as a purchase transaction, public offering or subsequent sale occurs, the Company will consider the pricing indicated by the external event to corroborate the private valuation.
For debt investments, the Company may employ the Market Based Approach (as described below) to assess the total enterprise value of the portfolio company, in order to evaluate the enterprise value coverage of the Company’s debt investment. For equity investments or in cases where the Market Based Approach implies a lack of enterprise value coverage for the debt investment, the Company may additionally employ a discounted cash flow analysis based on the free cash flows of the portfolio company to assess the total enterprise value.
After enterprise value coverage is demonstrated for the Company’s debt investments through the method(s) above, the Income Based Approach (as described below) may be employed to estimate the fair value of the investment.

47

Market Based Approach:  The Company may estimate the total enterprise value of each portfolio company by utilizing market value cash flow (EBITDA) multiples of publicly traded comparable companies and comparable transactions. The Company considers numerous factors when selecting the appropriate companies whose trading multiples are used to value its portfolio companies. These factors include, but are not limited to, the type of organization, similarity to the business being valued, and relevant risk factors, as well as size, profitability and growth expectations. The Company may apply an average of various relevant comparable company EBITDA multiples to the portfolio company’s latest twelve month (“LTM”) EBITDA or projected EBITDA to calculate the enterprise value of the portfolio company. Significant increases or decreases in the EBITDA multiple will result in an increase or decrease in enterprise value, which may result in an increase or decrease in the fair value estimate of the investment. In applying the market based approach as of March 31, 2018 and December 31, 2017, the Company used the relevant EBITDA multiple ranges set forth in the table below to determine the enterprise value of its portfolio companies. The Company believes these were reasonable ranges in light of current comparable company trading levels and the specific portfolio companies involved.
Income Based Approach: The Company also may use a discounted cash flow analysis to estimate the fair value of the investment. Projected cash flows represent the relevant security’s contractual interest, fee and principal payments plus the assumption of full principal recovery at the investment’s expected maturity date. These cash flows are discounted at a rate established utilizing a yield calibration approach, which incorporates changes in the credit quality (as measured by relevant statistics) of the portfolio company, as compared to changes in the yield associated with comparable credit quality market indices, between the date of origination and the valuation date. Significant increases or decreases in the discount rate would result in a decrease or increase in the fair value measurement. In applying the income based approach as of March 31, 2018 and December 31, 2017, the Company used the discount ranges set forth in the table below to value investments in its portfolio companies.
The unobservable inputs used in the fair value measurement of the Company's Level III investments as of March 31, 2018 were as follows:
 
 
 
 
 
 
 
Range
Type
Fair Value as of March 31, 2018
 
Approach
 
Unobservable Input
 
Low
 
High
 
Weighted
Average
First lien
$
424,391

 
Market & income approach
 
EBITDA multiple
 
2.0x

 
20.0x

 
11.6x

 
 
 
 
 
Revenue multiple
 
1.3x

 
6.0x

 
3.2x

 
 

 
 
 
Discount rate
 
7.0
%
 
12.3
%
 
9.5
%
 
145,485

 
Market quote
 
Broker quote
 
N/A

 
N/A

 
N/A

 
79,515

 
Other
 
N/A(1)
 
N/A

 
N/A

 
N/A

Second lien
247,912

 
Market & income approach
 
EBITDA multiple
 
7.5x

 
16.8x

 
12.7x

 
 

 
 
 
Discount rate
 
9.5
%
 
13.3
%
 
11.3
%
 
190,224

 
Market quote
 
Broker quote
 
N/A

 
N/A

 
N/A

Subordinated
28,192

 
Market & income approach
 
EBITDA multiple
 
4.5x

 
12.3x

 
9.0x

 
 

 
 
 
Discount rate
 
8.0
%
 
14.5
%
 
13.1
%
Equity and other
396,225

 
Market & income approach
 
EBITDA multiple
 
2.5x

 
18.0x

 
11.1x

 
 

 
 
 
Discount rate
 
7.0
%
 
23.2
%
 
12.2
%
 
1,221

 
Black Scholes analysis
 
Expected life in years
 
8.0

 
8.0

 
8.0

 
 

 
 
 
Volatility
 
39.3
%
 
39.3
%
 
39.3
%
 
 

 
 
 
Discount rate
 
3.0
%
 
3.0
%
 
3.0
%
 
$
1,513,165

 
 
 
 
 
 

 
 

 
 

 
 
(1)
Fair value was determined based on transaction pricing or recent acquisition or sale as the best measure of fair value with no material changes in operations of the related portfolio company since the transaction date.

48

The unobservable inputs used in the fair value measurement of the Company's Level III investments as of December 31, 2017 were as follows:
 
 
 
 
 
 
 
Range
Type
Fair Value as of December 31, 2017
 
Approach
 
Unobservable Input
 
Low
 
High
 
Weighted
Average
First lien
$
458,543

 
Market & income approach
 
EBITDA multiple
 
2.0x

 
20.0x

 
11.8x

 
 

 
 
 
Revenue multiple
 
3.5x

 
8.0x

 
6.1x

 
 
 
 
 
Discount rate
 
6.5
%
 
11.2
%
 
9.2
%
 
98,154

 
Market quote
 
Broker quote
 
N/A

 
N/A

 
N/A

Second lien
220,597

 
Market & income approach
 
EBITDA multiple
 
8.0x

 
16.0x

 
11.4x

 
 

 
 
 
Discount rate
 
7.9
%
 
12.5
%
 
10.8
%
 
215,098

 
Market quote
 
Broker quote
 
N/A

 
N/A

 
N/A

 
7,387

 
Other
 
N/A(1)
 
N/A

 
N/A

 
N/A

Subordinated
27,101

 
Market & income approach
 
EBITDA multiple
 
4.5x

 
11.8x

 
9.0x

 
 

 
 
 
Revenue multiple
 
0.5x

 
1.0x

 
0.8x

 


 

 
Discount rate
 
7.9
%
 
14.9
%
 
12.8
%
Equity and other
377,785

 
Market & income approach
 
EBITDA multiple
 
2.5x

 
18.0x

 
9.9x

 
 

 
 
 
Revenue multiple
 
0.5x

 
1.0x

 
0.8x

 
 
 
 
 
Discount rate
 
7.0
%
 
23.6
%
 
14.5
%
 
1,089

 
Black Scholes analysis
 
Expected life in years
 
8.3

 
8.3

 
8.3

 
 

 
 
 
Volatility
 
39.4
%
 
39.4
%
 
39.4
%
 
 

 
 
 
Discount rate
 
2.4
%
 
2.4
%
 
2.4
%
 
$
1,405,754

 
 
 
 
 
 

 
 

 
 

 
 
(1)
Fair value was determined based on transaction pricing or recent acquisition or sale as the best measure of fair value with no material changes in operations of the related portfolio company since the transaction date.
Based on a comparison to similar BDC credit facilities, the terms and conditions of the Holdings Credit Facility and the NMFC Credit Facility (as defined in Note 7. Borrowings) are representative of market. The carrying values of the Holdings Credit Facility and NMFC Credit Facility approximate fair value as of March 31, 2018, as the facilities are continually monitored and examined by both the borrower and the lender. The carrying value of the SBA-guaranteed debentures and Unsecured Notes (as defined in Note 7. Borrowings) approximate fair value as of March 31, 2018 based on a comparison of market interest rates for the Company’s borrowings and similar entities. The fair value of the Holdings Credit Facility, NMFC Credit Facility, SBA-guaranteed debentures and Unsecured Notes are considered Level III. The fair value of the Convertible Notes (as defined in Note 7. Borrowings) as of March 31, 2018 was $160,047, which was based on quoted prices and considered Level II. See Note 7. Borrowings, for details. The carrying value of the collateralized agreement approximates fair value as of March 31, 2018 and is considered Level III. The fair value of other financial assets and liabilities approximates their carrying value based on the short-term nature of these items.
Fair value risk factors—The Company seeks investment opportunities that offer the possibility of attaining substantial capital appreciation. Certain events particular to each industry in which the Company’s portfolio companies conduct their operations, as well as general economic and political conditions, may have a significant negative impact on the operations and profitability of the Company’s investments and/or on the fair value of the Company’s investments. The Company’s investments are subject to the risk of non-payment of scheduled interest or principal, resulting in a reduction in income to the Company and their corresponding fair valuations. Also, there may be risk associated with the concentration of investments in one geographic region or in certain industries. These events are beyond the control of the Company and cannot be predicted. Furthermore, the ability to liquidate investments and realize value is subject to uncertainties.

49

Note 5. Agreements
The Company entered into an investment advisory and management agreement (the “Investment Management Agreement”) with the Investment Adviser, which was most recently re-approved by the Company's board of directors on February 7, 2018. Under the Investment Management Agreement, the Investment Adviser manages the day-to-day operations of, and provides investment advisory services to, the Company. For providing these services, the Investment Adviser receives a fee from the Company, consisting of two components—a base management fee and an incentive fee.
Pursuant to the Investment Management Agreement, the base management fee is calculated at an annual rate of 1.75% of the Company’s gross assets, which equals the Company’s total assets on the Consolidated Statements of Assets and Liabilities, less (i) the borrowings under the SLF Credit Facility (as defined below) and (ii) cash and cash equivalents. The base management fee is payable quarterly in arrears, and is calculated based on the average value of the Company’s gross assets, which equals the Company’s total assets, as determined in accordance with GAAP, less the borrowings under the SLF Credit Facility and cash and cash equivalents at the end of each of the two most recently completed calendar quarters, and appropriately adjusted on a pro rata basis for any equity capital raises or repurchases during the current calendar quarter. The Company has not invested, and currently is not invested, in derivatives. To the extent the Company invests in derivatives in the future, the Company will use the actual value of the derivatives, as reported on the Consolidated Statements of Assets and Liabilities, for purposes of calculating its base management fee.
Since the IPO, the base management fee calculation has deducted the borrowings under the New Mountain Finance SPV Funding, L.L.C. Loan and Security Agreement, as amended and restated, dated October 27, 2010 (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 the NMF Holdings Loan and Security Agreement, as amended and restated, dated May 19, 2011, and into the Holdings Credit Facility on December 18, 2014 (as defined in Note 7. Borrowings). The amendment merged the credit facilities and combined the amount of borrowings previously available. Post credit facility merger and to be consistent with the methodology since the IPO, the Investment Adviser will continue to waive management fees on the leverage associated with those assets that share the same underlying yield characteristics with investments leveraged under the legacy SLF Credit Facility, which as of March 31, 2018 and March 31, 2017 was approximately $323,280 and $322,346, respectively. The Investment Adviser cannot recoup management fees that the Investment Adviser has previously waived. For the three months ended March 31, 2018 and March 31, 2017, management fees waived were approximately $1,322 and $1,356, respectively.
The incentive fee consists of two parts. The first part is calculated and payable quarterly in arrears and equals 20.0% of the Company’s “Pre-Incentive Fee Net Investment Income” for the immediately preceding quarter, subject to a “preferred return”, or “hurdle”, and a “catch-up” feature. “Pre-Incentive Fee Net Investment Income” means interest income, dividend income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, upfront, diligence and consulting fees or other fees that the Company receives from portfolio companies) accrued during the calendar quarter, minus the Company’s operating expenses for the quarter (including the base management fee, expenses payable under an administration agreement, as amended and restated (the “Administration Agreement”), with the Administrator, and any interest expense and distributions paid on any issued and outstanding preferred stock (of which there are none as of March 31, 2018), but excluding the incentive fee). Pre-Incentive Fee Net Investment Income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with PIK interest and zero coupon securities), accrued income that the Company has not yet received in cash. Pre-Incentive Fee Net Investment Income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation.
Pre-Incentive Fee Net Investment Income, expressed as a rate of return on the value of the Company’s net assets at the end of the immediately preceding calendar quarter, will be compared to a “hurdle rate” of 2.0% per quarter (8.0% annualized), subject to a “catch-up” provision measured as of the end of each calendar quarter. The hurdle rate is appropriately pro-rated for any partial periods. The calculation of the Company’s incentive fee with respect to the Pre-Incentive Fee Net Investment Income for each quarter is as follows:
•
No incentive fee is payable to the Investment Adviser in any calendar quarter in which the Company’s Pre-Incentive Fee Net Investment Income does not exceed the hurdle rate of 2.0% (the “preferred return” or “hurdle”).
•
100.0% of the Company’s Pre-Incentive Fee Net Investment Income with respect to that portion of such Pre-Incentive Fee Net Investment Income, if any, that exceeds the hurdle rate but is less than or equal to 2.5% in any calendar quarter (10.0% annualized) is payable to the Investment Adviser. This portion of the Company’s Pre-Incentive Fee Net Investment Income (which exceeds the hurdle rate but is less than or equal to 2.5%) is referred to as the “catch-up”. The catch-up provision is intended to provide the Investment Adviser with an incentive fee of 20.0% on all of the Company’s Pre-Incentive Fee Net Investment Income as if a hurdle rate did not apply when the Company’s Pre-Incentive Fee Net Investment Income exceeds 2.5% in any calendar quarter.

50

•
20.0% of the amount of the Company’s Pre-Incentive Fee Net Investment Income, if any, that exceeds 2.5% in any calendar quarter (10.0% annualized) is payable to the Investment Adviser once the hurdle is reached and the catch-up is achieved.
For the three months ended March 31, 2018 and March 31, 2017, incentive fees waived by the Investment Adviser were approximately $0 and $1,800, respectively. The Investment Adviser cannot recoup incentive fees that the Investment Adviser has previously waived.
The second part of the incentive fee will be determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Management Agreement) and will equal 20.0% of the Company’s realized capital gains, if any, on a cumulative basis from inception through the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fee.
In accordance with GAAP, the Company accrues a hypothetical capital gains incentive fee based upon the cumulative net realized capital gains and realized capital losses and the cumulative net unrealized capital appreciation and unrealized capital depreciation on investments held at the end of each period. Actual amounts paid to the Investment Adviser are consistent with the Investment Management Agreement and are based only on actual realized capital gains computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis from inception through the end of each calendar year as if the entire portfolio was sold at fair value.
The following table summarizes the management fees and incentive fees incurred by the Company for the three months ended March 31, 2018 and March 31, 2017.
 
Three Months Ended
 
March 31, 2018
 
March 31, 2017
Management fee
$
8,692

 
$
7,614

Less: management fee waiver
(1,322
)
 
(1,356
)
Total management fee
7,370

 
6,258

Incentive fee, excluding accrued capital gains incentive fees
$
6,434

 
$
5,408

Less: incentive fee waiver
—

 
(1,800
)
Total incentive fee
6,434

 
3,608

Accrued capital gains incentive fees(1)
$
—

 
$
—

 
(1)
As of March 31, 2018 and March 31, 2017, no actual capital gains incentive fee was owed under the Investment Management Agreement by the Company, as cumulative net realized capital gains did not exceed cumulative unrealized capital depreciation.
The Company has entered into the Administration Agreement with the Administrator under which the Administrator provides administrative services. The Administrator maintains, or oversees the maintenance of, the Company’s consolidated financial records, prepares reports filed with the United States Securities and Exchange Commission (the "SEC"), generally monitors the payment of the Company’s expenses and oversees the performance of administrative and professional services rendered by others. The Company will reimburse the Administrator for the Company’s allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations to the Company under the Administration Agreement. Pursuant to the Administration Agreement and further restricted by the Company, the Administrator may, in its own discretion, submit to the Company for reimbursement some or all of the expenses that the Administrator has incurred on behalf of the Company during any quarterly period. As a result, the amount of expenses for which the Company will have to reimburse the Administrator may fluctuate in future quarterly periods and there can be no assurance given as to when, or if, the Administrator may determine to limit the expenses that the Administrator submits to the Company for reimbursement in the future. However, it is expected that the Administrator will continue to support part of the expense burden of the Company in the near future and may decide to not calculate and charge through certain overhead related amounts as well as continue to cover some of the indirect costs. The Administrator cannot recoup any expenses that the Administrator has previously waived. For the three months ended March 31, 2018 and March 31, 2017, approximately $659 and $412, respectively, of indirect administrative expenses were included in administrative expenses of which $0 and $412, respectively, of indirect administrative expenses were waived by the Administrator. As of March 31, 2018 and December 31, 2017, approximately $1,074 and $444, respectively, of indirect administrative expenses were included in payable to affiliates.

51

The Company, the Investment Adviser and the Administrator have also entered into a Trademark License Agreement, as amended, with New Mountain Capital, pursuant to which New Mountain Capital has agreed to grant the Company, the Investment Adviser and the Administrator a non-exclusive, royalty-free license to use the “New Mountain” and the “New Mountain Finance” names. Under the Trademark License Agreement, as amended, subject to certain conditions, the Company, the Investment Adviser and the Administrator will have a right to use the “New Mountain” and “New Mountain Finance” names, for so long as the Investment Adviser or one of its affiliates remains the investment adviser of the Company. Other than with respect to this limited license, the Company, the Investment Adviser and the Administrator will have no legal right to the “New Mountain” or the “New Mountain Finance” names.
Note 6. Related Parties
The Company has entered into a number of business relationships with affiliated or related parties.
The Company has entered into the Investment Management Agreement with the Investment Adviser, a wholly-owned subsidiary of New Mountain Capital. Therefore, New Mountain Capital is entitled to any profits earned by the Investment Adviser, which includes any fees payable to the Investment Adviser under the terms of the Investment Management Agreement, less expenses incurred by the Investment Adviser in performing its services under the Investment Management Agreement.
The Company has entered into the Administration Agreement with the Administrator, a wholly-owned subsidiary of New Mountain Capital. The Administrator arranges office space for the Company and provides office equipment and administrative services necessary to conduct their respective day-to-day operations pursuant to the Administration Agreement. The Company reimburses the Administrator for the allocable portion of overhead and other expenses incurred by it in performing its obligations to the Company under the Administration Agreement, which includes the fees and expenses associated with performing administrative, finance and compliance functions, and the compensation of the Company’s chief financial officer and chief compliance officer and their respective staffs.
The Company, the Investment Adviser and the Administrator have entered into a royalty-free Trademark License Agreement, as amended, with New Mountain Capital, pursuant to which New Mountain Capital has agreed to grant the Company, the Investment Adviser and the Administrator a non-exclusive, royalty-free license to use the name “New Mountain” and “New Mountain Finance”.
The Company has adopted a formal code of ethics that governs the conduct of its officers and directors. These officers and directors also remain subject to the duties imposed by the 1940 Act, the Delaware General Corporation Law and the Delaware Limited Liability Company Act.
The Investment Adviser and its affiliates may also manage other funds in the future that may have investment mandates that are similar, in whole or in part, to the Company’s investment mandates. The Investment Adviser and its affiliates may determine that an investment is appropriate for the Company or for one or more of those other funds. In such event, depending on the availability of such investment and other appropriate factors, the Investment Adviser or its affiliates may determine that the Company should invest side-by-side with one or more other funds. Any such investments will be made only to the extent permitted by applicable law and interpretive positions of the SEC and its staff and consistent with the Investment Adviser’s allocation procedures. On December 18, 2017, the SEC issued an exemptive order (the “Exemptive Order”), which superseded a prior order issued on June 5, 2017, which permits the Company to co-invest in portfolio companies with certain funds or entities managed by the Investment Adviser or its affiliates in certain negotiated transactions where co-investing would otherwise be prohibited under the 1940 Act, subject to the conditions of the Exemptive Order. Pursuant to the Exemptive Order, the Company is permitted to co-invest with its affiliates if a “required majority” (as defined in Section 57(o) of the 1940 Act) of the Company's independent directors make certain conclusions in connection with a co-investment transaction, including, but not limited to, that (1) the terms of the potential co-investment transaction, including the consideration to be paid, are reasonable and fair to the Company and its stockholders and do not involve overreaching in respect of the Company or its stockholders on the part of any person concerned, and (2) the potential co-investment transaction is consistent with the interests of the Company's stockholders and is consistent with its then-current investment objective and strategies.
Note 7. Borrowings
Holdings Credit Facility—On December 18, 2014, the Company entered into the Second Amended and Restated Loan and Security Agreement, among the Company, as the Collateral Manager, NMF Holdings, as the Borrower, Wells Fargo Securities, LLC, as the Administrative Agent and Wells Fargo Bank, National Association, as the Lender and Collateral Custodian, which is structured as a revolving credit facility and matures on December 18, 2019. On October 24, 2017 the Company entered into the Third Amended and Restated Loan and Security Agreement (the "Holdings Credit Facility"), among the Company as the Collateral Manager, NMF Holdings as the Borrower and Wells Fargo Bank, National Association as the Administrative Agent and Collateral Custodian, which extended the maturity date to October 24, 2022.
The maximum amount of revolving borrowings available under the Holdings Credit Facility is $495,000. Under the Holdings Credit Facility, NMF Holdings is permitted to borrow up to 25.0%, 45.0% or 70.0% of the purchase price of pledged

52

assets, subject to approval by Wells Fargo Bank, National Association Agent. The Holdings Credit Facility is non-recourse to the Company and is collateralized by all of the investments of NMF Holdings on an investment by investment basis. All fees associated with the origination or upsizing of the Holdings Credit Facility are capitalized on the Company’s Consolidated Statement of Assets and Liabilities and charged against income as other financing expenses over the life of the Holdings Credit Facility. The Holdings Credit Facility contains certain customary affirmative and negative covenants and events of default. In addition, the Holdings Credit Facility requires the Company to maintain a minimum asset coverage ratio. The covenants are generally not tied to mark to market fluctuations in the prices of NMF Holdings investments, but rather to the performance of the underlying portfolio companies.
The Holdings Credit Facility bears interest at a rate of LIBOR plus 1.75% per annum for Broadly Syndicated Loans (as defined in the Loan and Security Agreement) and LIBOR plus 2.50% per annum for all other investments. Effective April 1, 2018, the Holdings Credit Facility will bear interest at a rate of LIBOR plus 1.75% per annum for Broadly Syndicated Loans (as defined in the Loan and Security Agreement) and LIBOR plus 2.25% per annum for all other investments. The Holdings Credit Facility also charges a non-usage fee, based on the unused facility amount multiplied by the Non-Usage Fee Rate (as defined in the Loan and Security Agreement).
The following table summarizes the interest expense, non-usage fees and amortization of financing costs incurred on the Holdings Credit Facility for the three months ended March 31, 2018 and March 31, 2017.
 
Three Months Ended
 
March 31, 2018
 
March 31, 2017
Interest expense
$
3,126

 
$
2,709

Non-usage fee
$
212

 
$
184

Amortization of financing costs
$
616

 
$
397

Weighted average interest rate
3.9
%
 
3.1
%
Effective interest rate
5.0
%
 
3.9
%
Average debt outstanding
$
322,943

 
$
346,033

As of March 31, 2018 and December 31, 2017, the outstanding balance on the Holdings Credit Facility was $355,663 and $312,363, respectively, and NMF Holdings was in compliance with the applicable covenants in the Holdings Credit Facility on such dates.
NMFC Credit Facility—The Senior Secured Revolving Credit Agreement, as amended (together with the related guarantee and security agreement, the "NMFC Credit Facility"), dated June 4, 2014, among the Company, as the Borrower, Goldman Sachs Bank USA, as the Administrative Agent and Collateral Agent, and Goldman Sachs Bank USA, Morgan Stanley Bank, N.A. and Stifel Bank & Trust, as Lenders, is structured as a senior secured revolving credit facility and matures on June 4, 2019. On February 27, 2018, the Company entered into an amendment to the NMFC Credit Facility, which extended the maturity date to June 4, 2022. The NMFC Credit Facility is guaranteed by certain domestic subsidiaries of the Company and proceeds from the NMFC Credit Facility may be used for general corporate purposes, including the funding of portfolio investments.
As of March 31, 2018, the maximum amount of revolving borrowings available under the NMFC Credit Facility was $150,000. The Company is permitted to borrow at various advance rates depending on the type of portfolio investment, as outlined in the Senior Secured Revolving Credit Agreement. All fees associated with the origination of the NMFC Credit Facility are capitalized on the Company’s Consolidated Statement of Assets and Liabilities and charged against income as other financing expenses over the life of the NMFC Credit Facility. The NMFC Credit Facility contains certain customary affirmative and negative covenants and events of default, including certain financial covenants related to asset coverage and liquidity and other maintenance covenants.
The NMFC Credit Facility generally bears interest at a rate of LIBOR plus 2.50% per annum or the prime rate plus 1.50% per annum, and charges a commitment fee, based on the unused facility amount multiplied by 0.375% per annum (as defined in the Senior Secured Revolving Credit Agreement).

53

The following table summarizes the interest expense, non-usage fees and amortization of financing costs incurred on the NMFC Credit Facility for the three months ended March 31, 2018 and March 31, 2017.
 
Three Months Ended
 
March 31, 2018
 
March 31, 2017
Interest expense
$
852

 
$
290

Non-usage fee
$
57

 
$
82

Amortization of financing costs
$
112

 
$
96

Weighted average interest rate
4.2
%
 
3.3
%
Effective interest rate
5.1
%
 
5.5
%
Average debt outstanding
$
81,694

 
$
34,661

As of March 31, 2018 and December 31, 2017, the outstanding balance on the NMFC Credit Facility was $95,000 and $122,500, respectively, and NMFC was in compliance with the applicable covenants in the NMFC Credit Facility on such dates.
Convertible Notes—On June 3, 2014, the Company closed a private offering of $115,000 aggregate principal amount of unsecured convertible notes (the “Convertible Notes”), pursuant to an indenture, dated June 3, 2014 (the “Indenture”). The Convertible Notes were issued in a private placement only to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"). As of June 3, 2015, the restrictions under Rule 144A under the Securities Act were removed, allowing the Convertible Notes to be eligible and freely tradable without restrictions for resale pursuant to Rule 144(b)(1) under the Securities Act. On September 30, 2016, the Company closed a public offering of an additional $40,250 aggregate principal amount of the Convertible Notes. These additional Convertible Notes constitute a further issuance of, rank equally in right of payment with, and form a single series with the $115,000 aggregate principal amount of Convertible Notes that the Company issued on June 3, 2014.
The Convertible Notes bear interest at an annual rate of 5.0%, payable semi-annually in arrears on June 15 and December 15 of each year, which commenced on December 15, 2014. The Convertible Notes will mature on June 15, 2019 unless earlier converted or repurchased at the holder’s option.
The following table summarizes certain key terms related to the convertible features of the Company’s Convertible Notes as of March 31, 2018.
 
March 31, 2018
Initial conversion premium
12.5
%
Initial conversion rate(1)
62.7746

Initial conversion price
$
15.93

Conversion premium at March 31, 2018
11.7
%
Conversion rate at March 31, 2018 (1)(2)
63.2794

Conversion price at March 31, 2018 (2)(3)
$
15.80

Last conversion price calculation date
June 3, 2017

 
(1)
Conversion rates denominated in shares of common stock per $1 principal amount of the Convertible Notes converted.
(2)
Represents conversion rate and conversion price, as applicable, taking into account certain de minimis adjustments that will be made on the conversion date.
(3)
The conversion price in effect at March 31, 2018 was calculated on the last anniversary of the issuance and will be calculated again on the next anniversary, unless the exercise price shall have changed by more than 1.0% before the anniversary.
The conversion rate will be subject to adjustment upon certain events, such as stock splits and combinations, mergers, spin-offs, increases in dividends in excess of $0.34 per share per quarter and certain changes in control. Certain of these adjustments, including adjustments for increases in dividends, are subject to a conversion price floor of $14.05 per share. In no event will the total number of shares of common stock issuable upon conversion exceed 71.1893 per $1 principal amount of the Convertible Notes. The Company has determined that the embedded conversion option in the Convertible Notes is not required to be separately accounted for as a derivative under GAAP.

54

The Convertible Notes are unsecured obligations and rank senior in right of payment to the Company’s existing and future indebtedness that is expressly subordinated in right of payment to the Convertible Notes; equal in right of payment to the Company’s existing and future unsecured indebtedness that is not so subordinated; effectively junior in right of payment to any of the Company’s secured indebtedness (including existing unsecured indebtedness that the Company later secures) to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness (including trade payables) incurred by the Company’s subsidiaries and financing vehicles. As reflected in Note 11. Earnings Per Share, the issuance is considered part of the if-converted method for calculation of diluted earnings per share.
The Company may not redeem the Convertible Notes prior to maturity. No sinking fund is provided for the Convertible Notes. In addition, if certain corporate events occur, holders of the Convertible Notes may require the Company to repurchase for cash all or part of their Convertible Notes at a repurchase price equal to 100.0% of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest through, but excluding, the repurchase date.
The Indenture contains certain covenants, including covenants requiring the Company to provide financial information to the holders of the Convertible Note and the Trustee if the Company ceases to be subject to the reporting requirements of the Exchange Act. These covenants are subject to limitations and exceptions that are described in the Indenture.
The following table summarizes the interest expense, amortization of financing costs and amortization of premium incurred on the Convertible Notes for the three months ended March 31, 2018 and March 31, 2017.
 
Three Months Ended
 
March 31, 2018
 
March 31, 2017
Interest expense
$
1,941

 
$
1,941

Amortization of financing costs
$
293

 
$
293

Amortization of premium
$
(27
)
 
$
(27
)
Effective interest rate
5.8
%
 
5.8
%
Average debt outstanding
$
155,250

 
$
155,250

As of March 31, 2018 and December 31, 2017, the outstanding balance on the Convertible Notes was $155,250 and $155,250, respectively, and NMFC was in compliance with the terms of the Indenture on such dates.
Unsecured Notes—On May 6, 2016, the Company issued $50,000 in aggregate principal amount of five-year unsecured notes that mature on May 15, 2021 (the “2016 Unsecured Notes”), pursuant to a note purchase agreement, dated May 4, 2016, to an institutional investor in a private placement. On September 30, 2016, the Company entered into an amended and restated note purchase agreement (the "NPA") and issued an additional $40,000 in aggregate principal amount of 2016 Unsecured Notes to institutional investors in a private placement. On June 30, 2017, the Company issued $55,000 in aggregate principal amount of five-year unsecured notes that mature on July 15, 2022 (the "2017A Unsecured Notes"), pursuant to the NPA and a supplement to the NPA. On January 30, 2018, the Company issued $90,000 in aggregate principal amount of five year unsecured notes that mature on January 30, 2023 (the "2018A Unsecured Notes" and together with the 2016 Unsecured Notes and 2017A Unsecured Notes, the "Unsecured Notes") pursuant to the NPA and a second supplement to the NPA. The NPA provides for future issuances of Unsecured Notes in separate series or tranches. The Unsecured Notes are equal in priority with the Company’s other unsecured indebtedness, including the Company’s Convertible Notes.
The 2016 Unsecured Notes bear interest at an annual rate of 5.313%, payable semi-annually on May 15 and November 15 of each year, which commenced on November 15, 2016. The 2017A Unsecured Notes bear interest at an annual rate of 4.760%, payable semi-annually on January 15 and July 15 of each year, which commenced on January 15, 2018. The 2018A Unsecured Notes bear interest at an annual rate of 4.87%, payable semi-annually on February 15 and August 15 of each year, which commences on August 15, 2018. These interest rates are subject to increase in the event that: (i) subject to certain exceptions, the Unsecured Notes or the Company ceases to have an investment grade rating or (ii) the aggregate amount of the Company’s unsecured debt falls below $150,000.  In each such event, the Company has the option to offer to prepay the Unsecured Notes at par, in which case holders of the Unsecured Notes who accept the offer would not receive the increased interest rate. In addition, the Company is obligated to offer to prepay the Unsecured Notes at par if the Investment Adviser, or an affiliate thereof, ceases to be the Company’s investment adviser or if certain change in control events occur with respect to the Investment Adviser. 
The NPA contains customary terms and conditions for unsecured notes issued in a private placement, including, without limitation, an option to offer to prepay all or a portion of the Unsecured Notes at par (plus a make-whole amount, if applicable), affirmative and negative covenants such as information reporting, maintenance of the Company’s status as a BDC under the 1940 Act and a RIC under the Code, minimum stockholders’ equity, minimum asset coverage ratio, and prohibitions on certain fundamental changes at the Company or any subsidiary guarantor, as well as customary events of default with

55

customary cure and notice, including, without limitation, nonpayment, misrepresentation in a material respect, breach of covenant, cross-default under other indebtedness of the Company or certain significant subsidiaries, certain judgments and orders, and certain events of bankruptcy.
The following table summarizes the interest expense and amortization of financing costs incurred on the Unsecured Notes for the three months ended March 31, 2018 and March 31, 2017.
 
Three Months Ended
 
March 31, 2018
 
March 31, 2017
Interest expense
$
2,592

 
$
1,195

Amortization of financing costs
$
162

 
$
101

Weighted average interest rate
5.1
%
 
5.3
%
Effective interest rate
5.4
%
 
5.8
%
Average debt outstanding
$
206,000

 
$
90,000


As of March 31, 2018 and December 31, 2017, the outstanding balance on the Unsecured Notes was $235,000 and $145,000, respectively, and the Company was in compliance with the terms of the NPA.
SBA-guaranteed debentures—On August 1, 2014 and August 25, 2017, SBIC I and SBIC II received SBIC licenses from the SBA to operate as SBICs.
The SBIC license allows SBICs to obtain leverage by issuing SBA-guaranteed debentures, subject to the issuance of a capital commitment by the SBA and other customary procedures. SBA-guaranteed debentures are non-recourse to the Company, interest only debentures with interest payable semi-annually and have a ten year maturity. The principal amount of SBA-guaranteed debentures is not required to be paid prior to maturity but may be prepaid at any time without penalty. The interest rate of SBA-guaranteed debentures is fixed on a semi-annual basis at a market-driven spread over U.S. Treasury Notes with ten year maturities. The SBA, as a creditor, will have a superior claim to the assets of SBIC I and SBIC II over the Company’s stockholders in the event SBIC I and SBIC are liquidated or the SBA exercises remedies upon an event of default.
The maximum amount of borrowings available under current SBA regulations for a single licensee is $150,000 as long as the licensee has at least $75,000 in regulatory capital, receives a capital commitment from the SBA and has been through an examination by the SBA subsequent to licensing.
As of March 31, 2018 and December 31, 2017, SBIC I had regulatory capital of $75,000 and $75,000, respectively, and SBA-guaranteed debentures outstanding of $150,000 and $150,000, respectively. As of March 31, 2018 and December 31, 2017, SBIC II had regulatory capital of $2,500 and $2,500, respectively, and no SBA-guaranteed debentures outstanding. The SBA-guaranteed debentures incur upfront fees of 3.425%, which consists of a 1.00% commitment fee and a 2.425% issuance discount, which are amortized over the life of the SBA-guaranteed debentures. The following table summarizes the Company’s SBA-guaranteed debentures as of March 31, 2018.
Issuance Date
 
Maturity Date
 
Debenture Amount
 
Interest Rate
 
SBA Annual Charge
Fixed SBA-guaranteed debentures:
 
 
 
 

 
 

 
 

March 25, 2015
 
March 1, 2025
 
$
37,500

 
2.517
%
 
0.355
%
September 23, 2015
 
September 1, 2025
 
37,500

 
2.829
%
 
0.355
%
September 23, 2015
 
September 1, 2025
 
28,795

 
2.829
%
 
0.742
%
March 23, 2016
 
March 1, 2026
 
13,950

 
2.507
%
 
0.742
%
September 21, 2016
 
September 1, 2026
 
4,000

 
2.051
%
 
0.742
%
September 20, 2017
 
September 1, 2027
 
13,000

 
2.518
%
 
0.742
%
March 21, 2018
 
March 1, 2028
 
15,255

 
3.187
%
 
0.742
%
Total SBA-guaranteed debentures
 
 
 
$
150,000

 
 

 
 

Prior to pooling, the SBA-guaranteed debentures bear interest at an interim floating rate of LIBOR plus 0.30%. Once pooled, which occurs in March and September each year, the SBA-guaranteed debentures bear interest at a fixed rate that is set to the current 10-year treasury rate plus a spread at each pooling date.

56

The following table summarizes the interest expense and amortization of financing costs incurred on the SBA-guaranteed debentures for the three months ended March 31, 2018 and March 31, 2017.
 
Three Months Ended
 
March 31, 2018
 
March 31, 2017
Interest expense
$
1,160

 
$
953

Amortization of financing costs
$
124

 
$
101

Weighted average interest rate
3.1
%
 
3.2
%
Effective interest rate
3.5
%
 
3.5
%
Average debt outstanding
$
150,000

 
$
121,745

The SBIC program is designed to stimulate the flow of private investor capital into eligible smaller businesses, as defined by the SBA. Under SBA regulations, SBICs are subject to regulatory requirements, including making investments in SBA-eligible businesses, investing at least 25.0% of its investment capital in eligible small businesses, as defined under the 1958 Act, placing certain limitations on the financing terms of investments, regulating the types of financing, prohibiting investments in small businesses with certain characteristics or in certain industries and requiring capitalization thresholds that limit distributions to the Company. SBICs are subject to an annual periodic examination by an SBA examiner to determine SBIC's compliance with the relevant SBA regulations and an annual financial audit of its financial statements that are prepared on a basis of accounting other than GAAP (such as ASC 820) by an independent auditor. As of March 31, 2018 and December 31, 2017, SBIC I and SBIC II were in compliance with SBA regulatory requirements.
Note 8. Regulation
The Company has elected to be treated, and intends to comply with the requirements to continue to qualify annually, as a RIC under Subchapter M of the Code. In order to continue to qualify and be subject to tax as a RIC, among other things, the Company is required to timely distribute to its stockholders at least 90.0% of investment company taxable income, as defined by the Code, for each year. The Company, among other things, intends to make and will continue to make the requisite distributions to its stockholders, which will generally relieve the Company from U.S. federal, state, and local income taxes (excluding excise taxes which may be imposed under the Code).
Additionally, as a BDC, the Company must not acquire any assets other than “qualifying assets” specified in the 1940 Act unless, at the time the acquisition is made, at least 70.0% of its total assets are qualifying assets (with certain limited exceptions). In addition, the Company must offer to make available to all eligible portfolio companies managerial assistance.
Note 9. Commitments and Contingencies
In the normal course of business, the Company may enter into contracts that contain a variety of representations and warranties and which provide general indemnifications. The Company may also enter into future funding commitments such as revolving credit facilities, bridge financing commitments or delayed draw commitments. As of March 31, 2018, the Company had unfunded commitments on revolving credit facilities of $23,963, no outstanding bridge financing commitments and other future funding commitments of $57,915. As of December 31, 2017, the Company had unfunded commitments on revolving credit facilities of $23,716, no outstanding bridge financing commitments and other future funding commitments of $53,712. The unfunded commitments on revolving credit facilities and delayed draws are disclosed on the Company’s Consolidated Schedule of Investments.
The Company also has revolving borrowings available under the Holdings Credit Facility and the NMFC Credit Facility as of March 31, 2018 and December 31, 2017. See Note 7. Borrowings, for details.
The Company may from time to time enter into financing commitment letters. As of March 31, 2018 and December 31, 2017, the Company had commitment letters to purchase investments in the aggregate par amount of $24,033 and $13,907, respectively, which could require funding in the future.
As of March 31, 2018, the Company owed $12,000 related to a settlement agreement with a trustee of Black Elk Energy Offshore Operations, LLC. The Company will make semi-annual payments of $3,000 beginning in June 2018 with the final payment due in December 2019. See Item 3. Legal Proceedings in the Company's Annual Report on Form 10-K for the year ended December 31, 2017.


57

Note 10. Net Assets
The table below illustrates the effect of certain transactions on the net asset accounts of the Company:
 
Common Stock
 
Paid in
Capital in
 
Accumulated Undistributed
Net Investment
 
Accumulated
Undistributed 
Net Realized 
 
Net 
Unrealized
(Depreciation)
 
Total
 
Shares
 
Par Amount
 
Excess of Par
 
Income
 
(Losses) Gains
 
Appreciation
 
Net Assets
Balance at December 31, 2017
75,935,093

 
$
759

 
$
1,053,468

 
$
39,165

 
$
(76,681
)
 
$
18,264

 
$
1,034,975

Distributions declared
—

 
—

 
—

 
(25,818
)
 
—

 
—

 
(25,818
)
Net increase (decrease) in net assets resulting from operations
—

 
—

 
—

 
25,736

 
206

 
(2,098
)
 
23,844

Balance at March 31, 2018
75,935,093

 
$
759

 
$
1,053,468

 
$
39,083

 
$
(76,475
)
 
$
16,166

 
$
1,033,001


Note 11. Earnings Per Share
The following information sets forth the computation of basic and diluted net increase in the Company’s net assets per share resulting from operations for the three months ended March 31, 2018 and March 31, 2017:
 
 
Three Months Ended
 
 
March 31, 2018
 
March 31, 2017
Earnings per share—basic
 
 

 
 

Numerator for basic earnings per share:
 
$
23,844

 
$
30,417

Denominator for basic weighted average share:
 
75,935,093

 
69,718,968

Basic earnings per share:
 
$
0.31

 
$
0.44

Earnings per share—diluted(1)
 
 

 
 

Numerator for increase in net assets per share
 
$
23,844

 
$
30,417

Adjustment for interest on Convertible Notes and incentive fees, net
 
1,553

 
1,553

Numerator for diluted earnings per share:
 
$
25,397

 
$
31,970

Denominator for basic weighted average share
 
75,935,093

 
69,718,968

Adjustment for dilutive effect of Convertible Notes
 
9,824,127

 
9,824,127

Denominator for diluted weighted average share
 
85,759,220

 
79,543,095

Diluted earnings per share
 
$
0.30

 
$
0.40

 
(1)
In applying the if-converted method, conversion is not assumed for purposes of computing diluted earnings per share if the effect would be anti-dilutive.


58

Note 12. Financial Highlights
The following information sets forth the Company's financial highlights for the three months ended March 31, 2018 and March 31, 2017.
 
Three Months Ended
 
March 31, 2018
 
March 31, 2017
Per share data(1):
 

 
 

Net asset value, January 1, 2018 and January 1, 2017, respectively
$
13.63

 
$
13.46

Net investment income
0.34

 
0.34

Net realized and unrealized gains (losses)
(0.03
)
 
0.10

Total net increase
0.31

 
0.44

Distributions declared to stockholders from net investment income
(0.34
)
 
(0.34
)
Net asset value, March 31, 2018 and March 31, 2017, respectively
$
13.60

 
$
13.56

Per share market value, March 31, 2018 and March 31, 2017, respectively
$
13.15

 
$
14.90

Total return based on market value(2)
(0.46
)%
 
8.09
%
Total return based on net asset value(3)
2.30
 %
 
3.25
%
Shares outstanding at end of period
75,935,093

 
69,821,693

Average weighted shares outstanding for the period
75,935,093

 
69,718,698

Average net assets for the period
$
1,033,023

 
$
946,651

Ratio to average net assets:
 

 
 

Net investment income
10.10
 %
 
10.04
%
Total expenses, before waivers/reimbursements
11.18
 %
 
10.07
%
Total expenses, net of waivers/reimbursements
10.66
 %
 
8.52
%
Average debt outstanding—Holdings Credit Facility
$
322,943

 
$
346,033

Average debt outstanding—Convertible Notes
155,250

 
155,250

Average debt outstanding—SBA-guaranteed debentures
150,000

 
121,745

Average debt outstanding—Unsecured Notes
206,000

 
90,000

Average debt outstanding—NMFC Credit Facility
81,694

 
34,661

Asset coverage ratio(4)
222.82
 %
 
227.10
%
Portfolio turnover
4.41
 %
 
7.50
%
 
(1)
Per share data is based on weighted average shares outstanding for the respective period (except for distributions declared to stockholders, which is based on actual rate per share).
(2)
Total return is calculated assuming a purchase of common stock at the opening of the first day of the year and a sale on the closing of the last business day of the period. Dividends and distributions, if any, are assumed for purposes of this calculation, to be reinvested at prices obtained under the Company’s dividend reinvestment plan.
(3)
Total return is calculated assuming a purchase at net asset value on the opening of the first day of the year and a sale at net asset value on the last day of the period. Dividends and distributions, if any, are assumed for purposes of this calculation, to be reinvested at the net asset value on the last day of the respective quarter.
(4)
On November 5, 2014, the Company received exemptive relief from the SEC allowing the Company to modify the asset coverage requirement to exclude the SBA-guaranteed debentures from this calculation.
Note 13. Recent Accounting Standards Updates
In January 2016, the FASB issued Accounting Standards Update No. 2016-01, Financial Instruments—Overall Subtopic 825-10—Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). ASU 2016-01 amends certain aspects of recognition, measurement, presentation and disclosure of financial assets and liabilities. ASU 2016-01 is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The new guidance must be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair values (including disclosure requirements) should be applied prospectively to equity investments that exist as

59

of the date of adoption of ASU 2016-01. The Company is in the process of evaluating the impact that this guidance will have on the Company’s consolidated financial statements and disclosures.
Note 14. Subsequent Events

The Company’s management has evaluated subsequent events through the date of issuance of the consolidated financial statements included herein. There have been no subsequent events that occurred during such period that would require disclosure in this Form 10-Q or would be required to be recognized in the consolidated financial statements as of and for the three months ended March 31, 2018, except as discussed below.
On May 2, 2018, the Company's board of directors declared a second quarter 2018 distribution of $0.34 per share payable on June 29, 2018 to holders of record as of June 15, 2018.


60

deloittelogoa19.jpg
 
Deloitte & Touche LLP
 
30 Rockefeller Plaza
New York, NY 10112
USA
 
Tel:    212 436 2000
Fax:   212 436 5000
www.deloitte.com


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the shareholders and the board of directors of New Mountain Finance Corporation
Results of Review of Interim Financial Information
We have reviewed the accompanying consolidated statement of assets and liabilities of New Mountain Finance Corporation and subsidiaries (the “Company”), including the consolidated schedule of investments, as of March 31, 2018, and the related consolidated statements of operations, changes in net assets and cash flows for the three-month periods ended March 31, 2018 and 2017, and the related notes (collectively referred to as the "interim financial information"). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial information for it to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statement of assets and liabilities of the Company, including the consolidated schedule of investments, as of December 31, 2017, and the related consolidated statements of operations, changes in net assets and cash flows for the year then ended (not presented herein); and in our report dated February 28, 2018, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated statement of assets and liabilities as of December 31, 2017, is fairly stated, in all material respects, in relation to the consolidated statement of assets and liabilities from which it has been derived.
Basis for Review Results
This interim financial information is the responsibility of the Company's management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our reviews in accordance with standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
/s/ DELOITTE & TOUCHE LLP

May 7, 2018




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Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The information in management's discussion and analysis of financial condition and results of operations relates to New Mountain Finance Corporation, including its wholly-owned direct and indirect subsidiaries (collectively, "we", "us", "our", "NMFC" or the "Company").
Forward-Looking Statements
The information contained in this section should be read in conjunction with the financial data and consolidated financial statements and notes thereto appearing elsewhere in this report. Some of the statements in this report (including in the following discussion) constitute forward-looking statements, which relate to future events or our future performance or our financial condition. The forward-looking statements contained in this section involve a number of risks and uncertainties, including:
•
statements concerning the impact of a protracted decline in the liquidity of credit markets;
•
the general economy, including interest and inflation rates, and its impact on the industries in which we invest;
•
our future operating results, our business prospects and the adequacy of our cash resources and working capital;
•
the ability of our portfolio companies to achieve their objectives;
•
our ability to make investments consistent with our investment objectives, including with respect to the size, nature and terms of our investments;
•
the ability of New Mountain Finance Advisers BDC, L.L.C. (the "Investment Adviser") or its affiliates to attract and retain highly talented professionals;
•
actual and potential conflicts of interest with the Investment Adviser and New Mountain Capital L.L.C. ("New Mountain Capital", defined as New Mountain Capital Group, L.L.C. and its affiliates); and
•
the risk factors set forth in Item 1A.—Risk Factors contained in our annual report on Form 10-K for the year ended December 31, 2017.
Forward-looking statements are identified by their use of such terms and phrases such as “anticipate”, “believe”, “continue”, “could”, “estimate”, “expect”, “intend”, “may”, “plan”, “potential”, “project”, “seek”, “should”, “target”, “will”, “would” or similar expressions. Actual results could differ materially from those projected in the forward-looking statements for any reason, including the factors set forth in Item 1A.—Risk Factors contained in our annual report on Form 10-K for the year ended December 31, 2017.
We have based the forward-looking statements included in this report on information available to us on the date of this report. We assume no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Although we undertake no obligation to revise or update any forward-looking statements, you are advised to consult any additional disclosures that we may make directly to you or through reports that we have filed or in the future may file with the United States Securities and Exchange Commission (the "SEC"), including annual reports on Form 10-K, registration statements on Form N-2, quarterly reports on Form 10-Q and current reports on Form 8-K.
Overview
We are a Delaware corporation that was originally incorporated on June 29, 2010 and completed our initial public offering ("IPO") on May 19, 2011. We are a closed-end, non-diversified management investment company that has elected to be regulated as a business development company ("BDC") under the Investment Company Act of 1940, as amended (the "1940 Act"). As such, we are obligated to comply with certain regulatory requirements. We have elected to be treated, and intend to comply with the requirements to continue to qualify annually, as a regulated investment company ("RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). NMFC is also registered as an investment adviser under the Investment Advisers Act of 1940, as amended (the "Advisers Act"). Since our IPO, and through March 31, 2018, we raised approximately $614.6 million in net proceeds from additional offerings of common stock.
The Investment Adviser is a wholly-owned subsidiary of New Mountain Capital. New Mountain Capital is a firm with a track record of investing in the middle market. New Mountain Capital focuses on investing in defensive growth companies across its private equity, public equity and credit investment vehicles. The Investment Adviser manages our day-to-day operations and provides us with investment advisory and management services. New Mountain Finance Administration, L.L.C. (the "Administrator”), a wholly-owned subsidiary of New Mountain Capital, provides the administrative services necessary to conduct our day-to-day operations.

62

Our wholly-owned subsidiary, New Mountain Finance Holdings, L.L.C. (“NMF Holdings”), is a Delaware limited liability company whose assets are used to secure NMF Holdings’ credit facility. NMF Ancora Holdings Inc. (“NMF Ancora”), NMF QID NGL Holdings, Inc. (“NMF QID”) and NMF YP Holdings Inc. (“NMF YP”), our wholly-owned subsidiaries, are structured as Delaware entities that serve as tax blocker corporations which hold equity or equity-like investments in portfolio companies organized as limited liability companies (or other forms of pass-through entities). We consolidate our tax blocker corporations for accounting purposes. The tax blocker corporations are not consolidated for income tax purposes and may incur income tax expense as a result of their ownership of the portfolio companies. Additionally, our wholly-owned subsidiary, New Mountain Finance Servicing, L.L.C. (“NMF Servicing”), serves as the administrative agent on certain investment transactions. New Mountain Finance SBIC, L.P. (“SBIC I”) and its general partner, New Mountain Finance SBIC G.P., L.L.C. (“SBIC I GP”), were organized in Delaware as a limited partnership and limited liability company, respectively. New Mountain Finance SBIC II, L.P. (“SBIC II”) and its general partner, New Mountain Finance SBIC II G.P., L.L.C. (“SBIC II GP”), were also organized in Delaware as a limited partnership and limited liability company, respectively. SBIC I, SBIC I GP, SBIC II and SBIC II GP are our consolidated wholly-owned direct and indirect subsidiaries. SBIC I and SBIC II received licenses from the United States ("U.S.") Small Business Administration (the “SBA”) to operate as a small business investment company (“SBIC”) under Section 301(c) of the Small Business Investment Act of 1958, as amended (the “1958 Act”). Our wholly-owned subsidiary, New Mountain Net Lease Corporation ("NMNLC"), a Maryland corporation, was formed to acquire commercial real properties that are subject to "triple net" leases and intends to qualify as a real estate investment trust, or REIT, within the meaning of Section 856(a) of the Code.
Our 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 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 us to the risks associated with second lien and subordinated loans to the extent it invests in the “last out” tranche. In some cases, our investments may also include equity interests.
Our primary focus is in the debt of defensive growth companies, which are defined as generally exhibiting the following characteristics: (i) sustainable secular growth drivers, (ii) high barriers to competitive entry, (iii) high free cash flow after capital expenditure and working capital needs, (iv) high returns on assets and (v) niche market dominance. Similar to us, SBIC I's and SBIC II's investment objective is to generate current income and capital appreciation under our investment criteria. However, SBIC I's and SBIC II's investments must be in SBA eligible small businesses. Our portfolio may be concentrated in a limited number of industries. As of March 31, 2018, our top five industry concentrations were business services, software, healthcare services, education and distribution & logistics.
As of March 31, 2018, our net asset value was $1,033.0 million and our portfolio had a fair value of approximately $1,977.9 million in 89 portfolio companies, with a weighted average yield to maturity at cost for income producing investments ("YTM at Cost") of approximately 11.1% and a weighted average yield to maturity at cost for all investments ("YTM at Cost for Investments") of approximately 11.1%. The YTM at Cost calculation assumes that all investments, including secured collateralized agreements, not on non-accrual are purchased at cost on the quarter end date and held until their respective maturities with no prepayments or losses and exited at par at maturity. The YTM at Cost for Investments calculation assumes that all investments, including secured collateralized agreements, are purchased as cost on the quarter end date and held until their respective maturities with no prepayments or losses and exited at par at maturity. YTM at Cost and YTM at Cost for Investment calculations exclude the impact of existing leverage. YTM at Cost and YTM at Cost for Investments uses the London Interbank Offered Rate ("LIBOR") curves at each quarter's end date. The actual yield to maturity may be higher or lower due to the future selection of the LIBOR contracts by the individual companies in our portfolio or other factors.
Recent Developments
On April 12, 2018, our board of directors, including a ‘‘required majority’’ (as such term is defined in Section 57(o) of the 1940 Act) approved the application of the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act, as amended by the Small Business Credit Availability Act (the "SBCA"). As a result, our asset coverage requirements for senior securities will be changed from 200% to 150%, effective April 12, 2019. On the same day, the board of directors recommended the submission of a proposal for stockholders to approve the application of the 150% minimum asset coverage ratio to us at a special meeting of stockholders scheduled to be held on June 8, 2018. If the stockholder proposal is approved by the required votes of our stockholders at such special meeting of stockholders, we would become subject to the 150% minimum asset coverage ratio the day after such stockholder approval instead of April 12, 2019. Changing the asset coverage ratio would permit us to double our leverage, which would result in increased leverage risk and increased expenses.
On April 25, 2018, NMFC and SkyKnight Income II, LLC ("SkyKnight II") entered into a limited liability company agreement to establish a joint venture, NMFC Senior Loan Program III LLC ("SLP III"). NMFC and SkyKnight II have committed to provide $80.0 million and $20.0 million, respectively, of equity to SLP III. The purpose of the joint venture is to

63

invest primarily in senior secured loans issued by portfolio companies within our core industry verticals. All investment decisions must be unanimously approved by the investment committee of SLP III, which has equal representations from NMFC and SkyKnight II. On May 2, 2018, SLP III closed its $300.0 million revolving credit facility with Citibank, N.A. which matures on May 2, 2023 and bears interest at a rate of LIBOR plus 1.70% per annum.
On April 27, 2018, we exited our investment in American Tire Distributors, Inc. (“ATD”), due to ATD’s reported loss of its largest supplier. As of March 31, 2018, our investment in ATD had a cost basis of approximately $12.3 million and a fair value of approximately $12.8 million. The sale will result in a realized loss of approximately $5.8 million for the quarter ended June 30, 2018.
On May 2, 2018, our board of directors declared a second quarter 2018 distribution of $0.34 per share payable on June 29, 2018 to holders of record as of June 15, 2018.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following items as critical accounting policies.
Basis of Accounting
We consolidate our wholly-owned direct and indirect subsidiaries: NMF Holdings, NMF Servicing, NMNLC, SBIC I, SBIC I GP, SBIC II, SBIC II GP, NMF Ancora, NMF QID and NMF YP. We are an investment company following accounting and reporting guidance as described in Accounting Standards Codification Topic 946, Financial Services—Investment Companies, ("ASC 946").
Valuation and Leveling of Portfolio Investments
At all times consistent with GAAP and the 1940 Act, we conduct a valuation of assets, which impacts our net asset value.
We value our assets on a quarterly basis, or more frequently if required under the 1940 Act. In all cases, our board of directors is ultimately and solely responsible for determining the fair value of our portfolio investments on a quarterly basis in good faith, including investments that are not publicly traded, those whose market prices are not readily available and any other situation where our portfolio investments require a fair value determination. Security transactions are accounted for on a trade date basis. Our quarterly valuation procedures are set forth in more detail below:
(1)
Investments for which market quotations are readily available on an exchange are valued at such market quotations based on the closing price indicated from independent pricing services.
(2)
Investments for which indicative prices are obtained from various pricing services and/or brokers or dealers are valued through a multi-step valuation process, as described below, to determine whether the quote(s) obtained is representative of fair value in accordance with GAAP.
a.
Bond quotes are obtained through independent pricing services. Internal reviews are performed by the investment professionals of the Investment Adviser to ensure that the quote obtained is representative of fair value in accordance with GAAP and, if so, the quote is used. If the Investment Adviser is unable to sufficiently validate the quote(s) internally and if the investment's par value or its fair value exceeds the materiality threshold, the investment is valued similarly to those assets with no readily available quotes (see (3) below); and
b.
For investments other than bonds, we look at the number of quotes readily available and perform the following procedures:
i.
Investments for which two or more quotes are received from a pricing service are valued using the mean of the mean of the bid and ask of the quotes obtained;
ii.
Investments for which one quote is received from a pricing service are validated internally. The investment professionals of the Investment Adviser analyze the market quotes obtained using an array of valuation methods (further described below) to validate the fair value. If the Investment Adviser is unable to sufficiently validate the quote internally and if the investment's par value or its fair value exceeds the materiality threshold, the investment is valued similarly to those assets with no readily available quotes (see (3) below).

64

(3)
Investments for which quotations are not readily available through exchanges, pricing services, brokers, or dealers are valued through a multi-step valuation process:
a.
Each portfolio company or investment is initially valued by the investment professionals of the Investment Adviser responsible for the credit monitoring;
b.
Preliminary valuation conclusions will then be documented and discussed with our senior management;
c.
If an investment falls into (3) above for four consecutive quarters and if the investment's par value or its fair value exceeds the materiality threshold, then at least once each fiscal year, the valuation for each portfolio investment for which we do not have a readily available market quotation will be reviewed by an independent valuation firm engaged by our board of directors; and
d.
When deemed appropriate by our management, an independent valuation firm may be engaged to review and value investment(s) of a portfolio company, without any preliminary valuation being performed by the Investment Adviser. The investment professionals of the Investment Adviser will review and validate the value provided.
For investments in revolving credit facilities and delayed draw commitments, the cost basis of the funded investments purchased is offset by any costs/netbacks received for any unfunded portion on the total balance committed. The fair value is also adjusted for the price appreciation or depreciation on the unfunded portion. As a result, the purchase of a commitment not completely funded may result in a negative fair value until it is called and funded.
The values assigned to investments are based upon available information and do not necessarily represent amounts which might ultimately be realized, since such amounts depend on future circumstances and cannot be reasonably determined until the individual positions are liquidated. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may fluctuate from period to period and the fluctuations could be material.
GAAP fair value measurement guidance classifies the inputs used in measuring fair value into three levels as follows:
Level I—Quoted prices (unadjusted) are available in active markets for identical investments and we have the ability to access such quotes as of the reporting date. The type of investments which would generally be included in Level I include active exchange-traded equity securities and exchange-traded derivatives. As required by Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures ("ASC 820"), we, to the extent that we hold such investments, do not adjust the quoted price for these investments, even in situations where we hold a large position and a sale could reasonably impact the quoted price.
Level II—Pricing inputs are observable for the investments, either directly or indirectly, as of the reporting date, but are not the same as those used in Level I. Level II inputs include the following:
•
Quoted prices for similar assets or liabilities in active markets;
•
Quoted prices for identical or similar assets or liabilities in non-active markets (examples include corporate and municipal bonds, which trade infrequently);
•
Pricing models whose inputs are observable for substantially the full term of the asset or liability (examples include most over-the-counter derivatives, including foreign exchange forward contracts); and
•
Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability.
Level III—Pricing inputs are unobservable for the investment and include situations where there is little, if any, market activity for the investment.
The inputs used to measure fair value may fall into different levels. In all instances when the inputs fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level of input that is significant to the fair value measurement in its entirety. As such, a Level III fair value measurement may include inputs that are both observable and unobservable. Gains and losses for such assets categorized within the Level III table below may include changes in fair value that are attributable to both observable inputs and unobservable inputs.
The inputs into the determination of fair value require significant judgment or estimation by management and consideration of factors specific to each investment. A review of the fair value hierarchy classifications is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in the transfer of certain investments within the fair value hierarchy from period to period. Reclassifications impacting the fair value hierarchy are reported as transfers in/out of the respective leveling categories as of the beginning of the period in which the reclassifications occur.

65

The following table summarizes the levels in the fair value hierarchy that our portfolio investments fall into as of March 31, 2018:
(in thousands)
 
Total
 
Level I
 
Level II
 
Level III
First lien
 
$
738,027

 
$
—

 
$
88,636

 
$
649,391

Second lien
 
774,515

 
—

 
336,379

 
438,136

Subordinated
 
67,918

 
—

 
39,726

 
28,192

Equity and other
 
397,463

 
17

 
—

 
397,446

Total investments
 
$
1,977,923

 
$
17

 
$
464,741

 
$
1,513,165

We generally use the following framework when determining the fair value of investments where there are little, if any, market activity or observable pricing inputs. We typically determine the fair value of our performing debt investments utilizing an income approach. Additional consideration is given using a market based approach, as well as reviewing the overall underlying portfolio company's performance and associated financial risks. The following outlines additional details on the approaches considered:
Company Performance, Financial Review, and Analysis:  Prior to investment, as part of our due diligence process, we evaluate the overall performance and financial stability of the portfolio company. Post investment, we analyze each portfolio company's current operating performance and relevant financial trends versus prior year and budgeted results, including, but not limited to, factors affecting its revenue and earnings before interest, taxes, depreciation, and amortization ("EBITDA") growth, margin trends, liquidity position, covenant compliance and changes to its capital structure. We also attempt to identify and subsequently track any developments at the portfolio company, within its customer or vendor base or within the industry or the macroeconomic environment, generally, that may alter any material element of our original investment thesis. This analysis is specific to each portfolio company. We leverage the knowledge gained from our original due diligence process, augmented by this subsequent monitoring, to continually refine our outlook for each of our portfolio companies and ultimately form the valuation of our investment in each portfolio company. When an external event such as a purchase transaction, public offering or subsequent sale occurs, we will consider the pricing indicated by the external event to corroborate the private valuation.
For debt investments, we may employ the Market Based Approach (as described below) to assess the total enterprise value of the portfolio company, in order to evaluate the enterprise value coverage of our debt investment. For equity investments or in cases where the Market Based Approach implies a lack of enterprise value coverage for the debt investment, we may additionally employ a discounted cash flow analysis based on the free cash flows of the portfolio company to assess the total enterprise value.
After enterprise value coverage is demonstrated for our debt investments through the method(s) above, the Income Based Approach (as described below) may be employed to estimate the fair value of the investment.
Market Based Approach:  We may estimate the total enterprise value of each portfolio company by utilizing market value cash flow (EBITDA) multiples of publicly traded comparable companies and comparable transactions. We consider numerous factors when selecting the appropriate companies whose trading multiples are used to value our portfolio companies. These factors include, but are not limited to, the type of organization, similarity to the business being valued, and relevant risk factors, as well as size, profitability and growth expectations. We may apply an average of various relevant comparable company EBITDA multiples to the portfolio company's latest twelve month ("LTM") EBITDA or projected EBITDA to calculate the enterprise value of the portfolio company. Significant increases or decreases in the EBITDA multiple will result in an increase or decrease in enterprise value, which may result in an increase or decrease in the fair value estimate of the investment. In applying the market based approach as of March 31, 2018, we used the relevant EBITDA multiple ranges set forth in the table below to determine the enterprise value of our portfolio companies. We believe these were reasonable ranges in light of current comparable company trading levels and the specific portfolio companies involved.
Income Based Approach:  We also may use a discounted cash flow analysis to estimate the fair value of the investment. Projected cash flows represent the relevant security's contractual interest, fee and principal payments plus the assumption of full principal recovery at the investment's expected maturity date. These cash flows are discounted at a rate established utilizing a yield calibration approach, which incorporates changes in the credit quality (as measured by relevant statistics) of the portfolio company, as compared to changes in the yield associated with comparable credit quality market indices, between the date of origination and the valuation date. Significant increases or decreases in the discount rate would result in a decrease or increase in the fair value measurement. In applying the income based approach as of March 31, 2018, we used the discount ranges set forth in the table below to value investments in our portfolio companies.

66

The unobservable inputs used in the fair value measurement of our Level III investments as of March 31, 2018 were as follows:
(in thousands)
 
 
 
 
 
 
Range
 
Type
Fair Value as of March 31, 2018
 
Approach
 
Unobservable Input
 
Low
 
High
 
Weighted
Average
 
First lien
$
424,391

 
Market & income approach
 
EBITDA multiple
 
2.0x

 
20.0x

 
11.6x

 
 
 
 
 
 
Revenue multiple
 
1.3x

 
6.0x

 
3.2x

 
 
 

 
 
 
Discount rate
 
7.0
%
 
12.3
%
 
9.5
%
 
 
145,485

 
Market quote
 
Broker quote
 
N/A

 
N/A

 
N/A

 
 
79,515

 
Other
 
N/A(1)
 
N/A

 
N/A

 
N/A

 
Second lien
247,912

 
Market & income approach
 
EBITDA multiple
 
7.5x

 
16.8x

 
12.7x

 
 
 
 
 
 
Revenue multiple
 
N/A

 
N/A

 
N/A

 
 
 

 
 
 
Discount rate
 
9.5
%
 
13.3
%
 
11.3
%
 
 
190,224

 
Market quote
 
Broker quote
 
N/A

 
N/A

 
N/A

 
Subordinated
28,192

 
Market & income approach
 
EBITDA multiple
 
4.5x

 
12.3x

 
9.0x

 
 
 
 
 
 
Revenue multiple
 
N/A

 
N/A

 
N/A

 
 
 

 
 
 
Discount rate
 
8.0
%
 
14.5
%
 
13.1
%
 
Equity and other
396,225

 
Market & income approach
 
EBITDA multiple
 
2.5x

 
18.0x

 
11.1x

 
 
 
 
 
 
Revenue multiple
 
N/A

 
N/A

 
N/A

 
 
 

 
 
 
Discount rate
 
7.0
%
 
23.2
%
 
12.2
%
 
 
1,221

 
Black Scholes analysis
 
Expected life in years
 
8.0

 
8.0

 
8.0

 
 
 

 
 
 
Volatility
 
39.3
%
 
39.3
%
 
39.3
%
 
 
 

 
 
 
Discount rate
 
3.0
%
 
3.0
%
 
3.0
%
 
 
$
1,513,165

 
 
 
 
 
 

 
 

 
 

 
 
 
(1)
Fair value was determined based on transaction pricing or recent acquisition or sale as the best measure of fair value with no material changes in operations of the related portfolio company since the transaction date.
NMFC Senior Loan Program I LLC
NMFC Senior Loan Program I LLC ("SLP I") was formed as a Delaware limited liability company on May 27, 2014 and commenced operations on June 10, 2014. SLP I is a portfolio company held by us. SLP I is structured as a private investment fund, in which all of the investors are qualified purchasers, as such term is defined under the 1940 Act. Transfer of interests in SLP I is subject to restrictions and, as a result, such interests are not readily marketable. SLP I operates under a limited liability company agreement (the "SLP I Agreement") and will continue in existence until June 10, 2019, subject to earlier termination pursuant to certain terms of the SLP I Agreement. The term may be extended for up to one year pursuant to certain terms of the SLP I Agreement. SLP I had a three year re-investment period. In June 2017, the re-investment period was extended for one additional year. SLP I invests in senior secured loans issued by companies within our core industry verticals. These investments are typically broadly syndicated first lien loans.
SLP I is capitalized with $93.0 million of capital commitments and $265.0 million of debt from a revolving credit facility and is managed by us. Our capital commitment is $23.0 million, representing less than 25.0% ownership, with third party investors representing the remaining capital commitments. As of March 31, 2018, SLP I had total investments with an aggregate fair value of approximately $351.5 million, debt outstanding of $235.4 million and capital that had been called and funded of $93.0 million. As of December 31, 2017, SLP I had total investments with an aggregate fair value of approximately $348.7 million, debt outstanding of $223.7 million and capital that had been called and funded of $93.0 million. Our investment in SLP I is disclosed on our Consolidated Schedule of Investments as of March 31, 2018 and December 31, 2017.
    

67

We, as an investment adviser registered under the Advisers Act, act as the collateral manager to SLP I and are entitled to receive a management fee for our investment management services provided to SLP I. As a result, SLP I is classified as our affiliate. No management fee is charged on our investment in SLP I in connection with the administrative services provided to SLP I. For the three months ended March 31, 2018 and March 31, 2017, we earned approximately $0.3 million and $0.3 million, respectively, in management fees related to SLP I, which is included in other income. As of March 31, 2018 and December 31, 2017, approximately $0.6 million and $0.3 million, respectively, of management fees related to SLP I was included in receivable from affiliates. For the three months ended March 31, 2018 and March 31, 2017, we earned approximately $0.8 million and $1.0 million, respectively, of dividend income related to SLP I, which is included in dividend income. As of March 31, 2018 and December 31, 2017, approximately $0.9 million and $0.8 million, respectively, of dividend income related to SLP I was included in interest and dividend receivable.
NMFC Senior Loan Program II LLC
NMFC Senior Loan Program II LLC ("SLP II") was formed as a Delaware limited liability company on March 9, 2016 and commenced operations on April 12, 2016. SLP II is structured as a private joint venture investment fund between us and SkyKnight Income, LLC (“SkyKnight”) and operates under a limited liability company agreement (the "SLP II Agreement"). The purpose of the joint vesenture is to invest primarily in senior secured loans issued by portfolio companies within our core industry verticals. These investments are typically broadly syndicated first lien loans. All investment decisions must be unanimously approved by the board of managers of SLP II, which has equal representation from us and SkyKnight. SLP II has a three year investment period and will continue in existence until April 12, 2021. The term may be extended for up to one year pursuant to certain terms of the SLP II Agreement.
SLP II is capitalized with equity contributions which were called from its members, on a pro-rata basis based on their equity commitments, as transactions were completed. Any decision by SLP II to call down on capital commitments required approval by the board of managers of SLP II. As of March 31, 2018, we and SkyKnight have committed and contributed $79.4 million and $20.6 million, respectively, of equity to SLP II. Our investment in SLP II is disclosed on our Consolidated Schedule of Investments as of March 31, 2018 and December 31, 2017.
On April 12, 2016, SLP II closed its $275.0 million revolving credit facility with Wells Fargo Bank, National Association, which matures on April 12, 2021 and bears interest at a rate of LIBOR plus 1.75% per annum. Effective April 1, 2018, SLP II's revolving credit facility will bear interest at a rate of LIBOR plus 1.60% per annum. As of March 31, 2018 and December 31, 2017, SLP II had total investments with an aggregate fair value of approximately $372.1 million and $382.5 million, respectively, and debt outstanding under its credit facility of $255.1 million and $266.3 million, respectively. As of March 31, 2018 and December 31, 2017, none of SLP II's investments were on non-accrual. Additionally, as of March 31, 2018 and December 31, 2017, SLP II had unfunded commitments in the form of delayed draws of $5.9 million and $4.9 million, respectively. Below is a summary of SLP II's portfolio, along with a listing of the individual investments in SLP II's portfolio as of March 31, 2018 and December 31, 2017:
(in thousands)
 
March 31, 2018
 
December 31, 2017
First lien investments (1)
 
376,233

 
386,100

Weighted average interest rate on first lien investments (2)
 
6.36
%
 
6.05
%
Number of portfolio companies in SLP II
 
32

 
35

Largest portfolio company investment (1)
 
17,281

 
17,369

Total of five largest portfolio company investments (1)
 
79,442

 
81,728

 
(1)
Reflects principal amount or par value of investments.
(2)
Computed as the all in interest rate in effect on accruing investments divided by the total principal amount of investments.
    


68

The following table is a listing of the individual investments in SLP II's portfolio as of March 31, 2018:
Portfolio Company and Type of Investment
 
Industry
 
Interest Rate (1)
 
Maturity Date
 
 Principal Amount or Par Value
 
 Cost
 
Fair
Value (2)
Funded Investments - First lien:
 
 
 
 
 
 
 
(in thousands)
 
(in thousands)
 
(in thousands)
Access CIG, LLC
 
Business Services
 
 5.63% (L + 3.75%)
 
2/27/2025
 
$
8,273

 
$
8,232

 
$
8,379

ADG, LLC
 
Healthcare Services
 
 6.63% (L + 4.75%)
 
9/28/2023
 
16,991

 
16,852

 
16,736

ASG Technologies Group, Inc.
 
Software
 
 5.38% (L + 3.50%)
 
7/31/2024
 
7,463

 
7,428

 
7,490

AVSC Holding Corp.
 
Business Services
 
 5.13% (L + 3.25%)
 
3/3/2025
 
1,500

 
1,496

 
1,503

Beaver-Visitec International Holdings, Inc.
 
Healthcare Products
 
 7.30% (L + 5.00%)
 
8/21/2023
 
14,775

 
14,656

 
14,849

DigiCert, Inc.
 
Business Services
 
 6.52% (L + 4.75%)
 
10/31/2024
 
10,000

 
9,952

 
10,129

FPC Holdings, Inc.
 
Distribution & Logistics
 
 5.88% (L + 4.50%)
 
11/18/2022
 
15,000

 
14,550

 
14,681

Globallogic Holdings Inc.
 
Business Services
 
 6.05% (L + 3.75%)
 
6/20/2022
 
9,677

 
9,615

 
9,762

Greenway Health, LLC
 
Software
 
 6.55% (L + 4.25%)
 
2/16/2024
 
14,887

 
14,823

 
15,036

Idera, Inc.
 
Software
 
 6.38% (L + 4.50%)
 
6/28/2024
 
12,588

 
12,472

 
12,729

J.D. Power (fka J.D. Power and Associates)
 
Business Services
 
 6.55% (L + 4.25%)
 
9/7/2023
 
13,324

 
13,276

 
13,390

Keystone Acquisition Corp.
 
Healthcare Services
 
 7.55% (L + 5.25%)
 
5/1/2024
 
5,373

 
5,325

 
5,407

LSCS Holdings, Inc.
 
Healthcare Services
 
 6.40% (L + 4.25%)
 
3/17/2025
 
4,400

 
4,378

 
4,389

Market Track, LLC
 
Business Services
 
 6.55% (L + 4.25%)
 
6/5/2024
 
11,910

 
11,856

 
11,940

Medical Solutions Holdings, Inc.
 
Healthcare Services
 
 5.63% (L + 3.75%)
 
6/14/2024
 
6,965

 
6,933

 
6,998

Ministry Brands, LLC
 
Software
 
 6.88% (L + 5.00%)
 
12/2/2022
 
2,132

 
2,123

 
2,132

Ministry Brands, LLC
 
Software
 
 6.88% (L + 5.00%)
 
12/2/2022
 
7,748

 
7,717

 
7,748

Navex Global, Inc.
 
Software
 
 6.13% (L + 4.25%)
 
11/19/2021
 
14,859

 
14,695

 
14,924

Navicure, Inc.
 
Healthcare Services
 
 5.63% (L + 3.75%)
 
11/1/2024
 
14,962

 
14,891

 
15,056

OEConnection LLC
 
Business Services
 
 6.46% (L + 4.00%)
 
11/22/2024
 
14,963

 
14,890

 
15,056

Pathway Partners Vet Management Company LLC
 
Consumer Services
 
 6.13% (L + 4.25%)
 
10/10/2024
 
1,878

 
1,868

 
1,882

Pathway Partners Vet Management Company LLC
 
Consumer Services
 
 6.13% (L + 4.25%)
 
10/10/2024
 
6,945

 
6,913

 
6,963

Peraton Corp. (fka MHVC Acquisition Corp.)
 
Federal Services
 
 7.56% (L + 5.25%)
 
4/29/2024
 
10,421

 
10,375

 
10,499

Poseidon Intermediate, LLC
 
Software
 
 6.13% (L + 4.25%)
 
8/15/2022
 
14,852

 
14,849

 
14,926

Project Accelerate Parent, LLC
 
Business Services
 
 5.94% (L + 4.25%)
 
1/2/2025
 
15,000

 
14,927

 
15,131

PSC Industrial Holdings Corp.
 
Industrial Services
 
 6.04% (L + 4.25%)
 
10/11/2024
 
10,474

 
10,375

 
10,578

Quest Software US Holdings Inc.
 
Software
 
 7.27% (L + 5.50%)
 
10/31/2022
 
9,899

 
9,780

 
10,095

Salient CRGT Inc.
 
Federal Services
 
 7.63% (L + 5.75%)
 
2/28/2022
 
14,076

 
13,962

 
14,252

Severin Acquisition, LLC
 
Software
 
 6.64% (L + 4.75%)
 
7/30/2021
 
14,850

 
14,793

 
14,999

Shine Acquisition Co. S.a.r.l./ Boing US Holdco Inc.
 
Consumer Services
 
 5.29% (L + 3.50%)
 
10/3/2024
 
14,962

 
14,927

 
15,047

Sierra Acquisition Inc.
 
Food & Beverage
 
 6.13% (L + 4.25%)
 
11/11/2024
 
3,741

 
3,723

 
3,772

WP CityMD Bidco LLC
 
Healthcare Services
 
 6.30% (L + 4.00%)
 
6/7/2024
 
14,925

 
14,891

 
15,009

YI, LLC
 
Healthcare Services
 
 6.30% (L + 4.00%)
 
11/7/2024
 
1,103

 
1,111

 
1,109

YI, LLC
 
Healthcare Services
 
 6.30% (L + 4.00%)
 
11/7/2024
 
12,130

 
12,119

 
12,190

Zywave, Inc.
 
Software
 
 7.18% (L + 5.00%)
 
11/17/2022
 
17,281

 
17,212

 
17,281

Total Funded Investments
 
 
 
 
 
 
 
$
370,327

 
$
367,985

 
$
372,067

Unfunded Investments - First lien:
 
 
 
 
 
 
 
 
 
 
 
 
Access CIG, LLC
 
Business Services
 
—
 
8/27/2018
 
$
1,727

 
$
—

 
$
22

LSCS Holdings, Inc.
 
Healthcare Services
 
—
 
9/17/2018
 
1,100

 
(6
)
 
(3
)
Pathway Partners Vet Management Company LLC
 
Consumer Services
 
—
 
10/10/2019
 
1,142

 
(6
)
 
3

YI, LLC
 
Healthcare Services
 
—
 
11/7/2018
 
1,937

 
(10
)
 
10

Total Unfunded Investments
 
 
 
 
 
 
 
$
5,906

 
$
(22
)
 
$
32

 
 
 
 
 
 
 
 
$
376,233

 
$
367,963

 
$
372,099

 
(1)
All interest is payable in cash unless otherwise indicated. A majority of the variable rate debt investments bear interest at a rate that may be determined by reference to the LIBOR (L), the Prime Rate (P) and the alternative base rate (Base). For each investment, the current interest rate provided reflects the rate in effect as of March 31, 2018.
(2)
Represents the fair value in accordance with ASC 820. Our board of directors does not determine the fair value of the investments held by SLP II.
    


69

The following table is a listing of the individual investments in SLP II's portfolio as of December 31, 2017:
Portfolio Company and Type of Investment
 
Industry
 
Interest Rate (1)
 
Maturity Date
 
 Principal Amount or Par Value
 
 Cost
 
Fair
Value (2)
Funded Investments - First lien
 
 
 
 
 
 
 
(in thousands)
 
(in thousands)
 
(in thousands)
ADG, LLC
 
Healthcare Services
 
 6.32% (L + 4.75%)
 
9/28/2023
 
$
17,034

 
$
16,890

 
$
16,779

ASG Technologies Group, Inc.
 
Software
 
 6.32% (L + 4.75%)
 
7/31/2024
 
7,481

 
7,446

 
7,547

Beaver-Visitec International Holdings, Inc.
 
Healthcare Products
 
 6.69% (L + 5.00%)
 
8/21/2023
 
14,812

 
14,688

 
14,813

DigiCert, Inc.
 
Business Services
 
 6.13% (L + 4.75%)
 
10/31/2024
 
10,000

 
9,951

 
10,141

Emerald 2 Limited
 
Business Services
 
 5.69% (L + 4.00%)
 
5/14/2021
 
1,266

 
1,211

 
1,267

Evo Payments International, LLC
 
Business Services
 
 5.57% (L + 4.00%)
 
12/22/2023
 
17,369

 
17,292

 
17,492

Explorer Holdings, Inc.
 
Healthcare Services
 
 5.13% (L + 3.75%)
 
5/2/2023
 
2,940

 
2,917

 
2,973

Globallogic Holdings Inc.
 
Business Services
 
 6.19% (L + 4.50%)
 
6/20/2022
 
9,677

 
9,611

 
9,755

Greenway Health, LLC
 
Software
 
 5.94% (L + 4.25%)
 
2/16/2024
 
14,925

 
14,858

 
15,074

Idera, Inc.
 
Software
 
 6.57% (L + 5.00%)
 
6/28/2024
 
12,619

 
12,499

 
12,556

J.D. Power (fka J.D. Power and Associates)
 
Business Services
 
 5.94% (L + 4.25%)
 
9/7/2023
 
13,357

 
13,308

 
13,407

Keystone Acquisition Corp.
 
Healthcare Services
 
 6.94% (L + 5.25%)
 
5/1/2024
 
5,386

 
5,336

 
5,424

Market Track, LLC
 
Business Services
 
 5.94% (L + 4.25%)
 
6/5/2024
 
11,940

 
11,884

 
11,940

McGraw-Hill Global Education Holdings, LLC
 
Education
 
 5.57% (L + 4.00%)
 
5/4/2022
 
9,850

 
9,813

 
9,844

Medical Solutions Holdings, Inc.
 
Healthcare Services
 
 5.82% (L + 4.25%)
 
6/14/2024
 
6,965

 
6,932

 
7,043

Ministry Brands, LLC
 
Software
 
 6.38% (L + 5.00%)
 
12/2/2022
 
2,138

 
2,128

 
2,138

Ministry Brands, LLC
 
Software
 
 6.38% (L + 5.00%)
 
12/2/2022
 
7,768

 
7,735

 
7,768

Navex Global, Inc.
 
Software
 
 5.82% (L + 4.25%)
 
11/19/2021
 
14,897

 
14,724

 
14,971

Navicure, Inc.
 
Healthcare Services
 
 5.11% (L + 3.75%)
 
11/1/2024
 
15,000

 
14,926

 
15,000

OEConnection LLC
 
Business Services
 
 5.69% (L + 4.00%)
 
11/22/2024
 
15,000

 
14,925

 
14,981

Pathway Partners Vet Management Company LLC
 
Consumer Services
 
 5.82% (L + 4.25%)
 
10/10/2024
 
6,963

 
6,929

 
6,980

Pathway Partners Vet Management Company LLC
 
Consumer Services
 
 5.82% (L + 4.25%)
 
10/10/2024
 
291

 
290

 
292

Peraton Corp. (fka MHVC Acquisition Corp.)
 
Federal Services
 
 6.95% (L + 5.25%)
 
4/29/2024
 
10,448

 
10,399

 
10,526

Poseidon Intermediate, LLC
 
Software
 
 5.82% (L + 4.25%)
 
8/15/2022
 
14,881

 
14,877

 
14,955

Project Accelerate Parent, LLC
 
Business Services
 
 5.94% (L + 4.25%)
 
1/2/2025
 
15,000

 
14,925

 
15,038

PSC Industrial Holdings Corp.
 
Industrial Services
 
 5.71% (L + 4.25%)
 
10/11/2024
 
10,500

 
10,398

 
10,500

Quest Software US Holdings Inc.
 
Software
 
 6.92% (L + 5.50%)
 
10/31/2022
 
9,899

 
9,775

 
10,071

Salient CRGT Inc.
 
Federal Services
 
 7.32% (L + 5.75%)
 
2/28/2022
 
14,433

 
14,310

 
14,559

Severin Acquisition, LLC
 
Software
 
 6.32% (L + 4.75%)
 
7/30/2021
 
14,888

 
14,827

 
14,813

Shine Acquisitoin Co. S.à.r.l / Boing US Holdco Inc.
 
Consumer Services
 
 4.88% (L + 3.50%)
 
10/3/2024
 
15,000

 
14,964

 
15,108

Sierra Acquisition, Inc.
 
Food & Beverage
 
 5.68% (L + 4.25%)
 
11/11/2024
 
3,750

 
3,731

 
3,789

TMK Hawk Parent, Corp.
 
Distribution & Logistics
 
 4.88% (L + 3.50%)
 
8/28/2024
 
1,671

 
1,667

 
1,686

University Support Services LLC (St. George's University Scholastic Services LLC)
 
Education
 
 5.82% (L + 4.25%)
 
7/6/2022
 
1,875

 
1,875

 
1,900

Vencore, Inc. (fka SI Organization, Inc., The)
 
Federal Services
 
 6.44% (L + 4.75%)
 
11/23/2019
 
10,686

 
10,673

 
10,835

WP CityMD Bidco LLC
 
Healthcare Services
 
 5.69% (L + 4.00%)
 
6/7/2024
 
14,963

 
14,928

 
15,009

YI, LLC
 
Healthcare Services
 
 5.69% (L + 4.00%)
 
11/7/2024
 
8,240

 
8,204

 
8,230

Zywave, Inc.
 
Software
 
 6.61% (L + 5.00%)
 
11/17/2022
 
17,325

 
17,252

 
17,325

Total Funded Investments
 
 
 
 
 
 
 
$
381,237

 
$
379,098

 
$
382,529

Unfunded Investments - First lien
 
 
 
 
 
 
 
 
 
 
 
 
Pathway Partners Vet Management Company LLC
 
Consumer Services
 
—
 
10/10/2019
 
$
2,728

 
$
(14
)
 
$
7

TMK Hawk Parent, Corp.
 
Distribution & Logistics
 
—
 
3/28/2018
 
75

 
—

 
1

YI, LLC
 
Healthcare Services
 
—
 
11/7/2018
 
2,060

 
(9
)
 
(3
)
Total Unfunded Investments
 

 

 

 
$
4,863

 
$
(23
)
 
$
5

Total Investments
 

 

 

 
$
386,100

 
$
379,075

 
$
382,534

 
(1)
All interest is payable in cash unless otherwise indicated. A majority of the variable rate debt investments bear interest at a rate that may be determined by reference to the LIBOR (L), the Prime Rate (P) and the alternative base rate (Base). For each investment, the current interest rate provided reflects the rate in effect as of December 31, 2017.
(2)
Represents the fair value in accordance with ASC 820. Our board of directors does not determine the fair value of the investments held by SLP II.


70

Below is certain summarized financial information for SLP II as of March 31, 2018 and December 31, 2017 and for the three months ended March 31, 2018 and March 31, 2017:
Selected Balance Sheet Information:
March 31, 2018
 
December 31, 2017
 
(in thousands)
 
(in thousands)
Investments at fair value (cost of $367,963 and $379,075, respectively)
$
372,099

 
$
382,534

Receivable from unsettled securities sold
19,466

 
—

Cash and other assets
7,585

 
8,065

Total assets
$
399,150

 
$
390,599

 
 
 
 
Credit facility
$
255,070

 
$
266,270

Deferred financing costs
(1,818
)
 
(1,966
)
Payable for unsettled securities purchased
34,636

 
15,964

Distribution payable
3,300

 
3,500

Other liabilities
3,191

 
2,891

Total liabilities
294,379

 
286,659

 
 
 
 
Members' capital
$
104,771

 
$
103,940

Total liabilities and members' capital
$
399,150

 
$
390,599

 
Three Months Ended
Selected Statement of Operations Information:
March 31, 2018
 
March 31, 2017
 
(in thousands)
 
(in thousands)
Interest income
$
5,630

 
$
5,173

Other income
22

 
214

Total investment income
5,652

 
5,387

 
 
 
 
Interest and other financing expenses
2,428

 
1,849

Other expenses
224

 
162

Total expenses
2,652

 
2,011

Net investment income
3,000

 
3,376

 
 
 
 
Net realized gains on investments
453

 
1,108

Net change in unrealized appreciation (depreciation) of investments
677

 
(106
)
Net increase in members' capital
$
4,130

 
$
4,378

For the three months ended March 31, 2018 and March 31, 2017, we earned approximately $2.6 million and $3.4 million, respectively, of dividend income related to SLP II, which is included in dividend income. As of March 31, 2018 and December 31, 2017, approximately $2.6 million and $2.8 million, respectively, of dividend income related to SLP II was included in interest and dividend receivable.
We have determined that SLP II is an investment company under ASC 946; however, in accordance with such guidance we will generally not consolidate our investment in a company other than a wholly-owned investment company subsidiary. Furthermore, Accounting Standards Codification Topic 810, Consolidation, concludes that in a joint venture where both members have equal decision making authority, it is not appropriate for one member to consolidate the joint venture since neither has control. Accordingly, we do not consolidate SLP II.

71

New Mountain Net Lease Corporation
     NMNLC was formed to acquire commercial real properties that are subject to "triple net" leases. NMNLC's investments are disclosed on our Consolidated Schedule of Investments as of March 31, 2018.
Below is certain summarized property information for NMNLC as of March 31, 2018:
 
 
 
 
Lease
 
 
 
Total
 
Fair Value as of
Portfolio Company
 
Tenant
 
Expiration Date
 
Location
 
Square Feet
 
March 31, 2018
 
 
 
 
 
 
 
 
(in thousands)
 
(in thousands)
NM GLCR LLC
 
Artic Glacier U.S.A.
 
2/28/2038
 
Los Angeles, CA/
San Diego, CA/
Bakersfield, CA/
East Bay, CA
 
214
 
$
14,750

NM CLFX LP
 
Victor Equipment Company
 
08/31/2033
 
Denton, TX
 
423
 
12,538

NM KRLN LLC
 
Kirlin Group, LLC
 
6/30/2029
 
Rockville, MD
 
95
 
8,328

NM APP Canada Corp.
 
A.P. Plasman, Inc.
 
9/30/2031
 
Ontario, Canada
 
436
 
8,234

NM DRVT LLC
 
FMH Conveyors, LLC
 
10/31/2031
 
Jonesboro, AR
 
195
 
5,446

NM APP US LLC
 
Plasman Corp, LLC / A-Brite LP
 
9/30/2033
 
Fort Payne, AL/Cleveland, OH
 
261
 
5,206

NM JRA LLC
 
J.R. Automation Technologies, LLC
 
1/31/2031
 
Holland, MI
 
88
 
2,215

 
 
 
 
 
 
 
 
 
 
$
56,717

Collateralized agreements or repurchase financings
We follow the guidance in Accounting Standards Codification Topic 860, Transfers and Servicing—Secured Borrowing and Collateral, (“ASC 860”) when accounting for transactions involving the purchases of securities under collateralized agreements to resell (resale agreements). These transactions are treated as collateralized financing transactions and are recorded at their contracted resale or repurchase amounts, as specified in the respective agreements. Interest on collateralized agreements is accrued and recognized over the life of the transaction and included in interest income. As of March 31, 2018 and December 31, 2017, we held one collateralized agreement to resell with a cost basis of $30.0 million and $30.0 million, respectively, and a carrying value of $25.2 million and $25.2 million, respectively. The collateralized agreement to resell is guaranteed by a private hedge fund. The private hedge fund is currently in liquidation under the laws of the Cayman Islands. Pursuant to the terms of the collateralized agreement, the private hedge fund was obligated to repurchase the collateral from us at the par value of the collateralized agreement. The private hedge fund has breached its agreement to repurchase the collateral under the collateralized agreement. A claim has been filed with the Cayman Islands joint official liquidators to resolve this matter.
Revenue Recognition
Sales and paydowns of investments:  Realized gains and losses on investments are determined on the specific identification method.
Interest and dividend income:  Interest income, including amortization of premium and discount using the effective interest method, is recorded on the accrual basis and periodically assessed for collectability. Interest income also includes interest earned from cash on hand. Upon the prepayment of a loan or debt security, any prepayment penalties are recorded as part of interest income. We have loans and certain preferred equity investments in the portfolio that contain a payment-in-kind (“PIK”) interest or dividend provision. PIK interest and dividends are accrued and recorded as income at the contractual rates, if deemed collectible. The PIK interest and dividends are added to the principal or share balances on the capitalization dates and generally due at maturity or when redeemed by the issuer. The PIK interest and dividends are added to the principal or share balances on the capitalization dates and are generally due at maturity or when redeemed by the issuer. For the three months ended March 31, 2018 and March 31, 2017, we recognized PIK and non-cash interest from investments of $1.7 million and $0.9 million, respectively, and PIK and non-cash dividends from investments of $6.8 million and $1.5 million, respectively.
Dividend income on common equity is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies. Dividend income on preferred securities is recorded as dividend income on an accrual basis to the extent that such amounts are deemed collectible.
Non-accrual income:  Investments are placed on non-accrual status when principal or interest payments are past due for 30 days or more and when there is reasonable doubt that principal or interest will be collected. Accrued cash and un-capitalized PIK interest or dividends are reversed when an investment is placed on non-accrual status. Previously capitalized

72

PIK interest or dividends are not reversed when an investment is placed on non-accrual status. Interest or dividend payments received on non-accrual investments may be recognized as income or applied to principal depending upon management’s judgment of the ultimate outcome. Non-accrual investments are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current.
Other income:  Other income represents delayed compensation, consent or amendment fees, revolver fees, structuring fees, upfront fees, management fees from a non-controlled/affiliated investment and other miscellaneous fees received and are typically non-recurring in nature. Delayed compensation is income earned from counterparties on trades that do not settle within a set number of business days after trade date. Other income may also include fees from bridge loans. We may from time to time enter into bridge financing commitments, an obligation to provide interim financing to a counterparty until permanent credit can be obtained. These commitments are short-term in nature and may expire unfunded. A fee is received for providing such commitments. Structuring fees and upfront fees are recognized as income when earned, usually when paid at the closing of the investment, and are non-refundable.
Monitoring of Portfolio Investments
We monitor the performance and financial trends of our portfolio companies on at least a quarterly basis. We attempt to identify any developments within the portfolio company, the industry or the macroeconomic environment that may alter any material element of our original investment strategy.
We use an investment rating system to characterize and monitor the credit profile and expected level of returns on each investment in the portfolio. We use a four-level numeric rating scale as follows:
•
Investment Rating 1—Investment is performing materially above expectations;
•
Investment Rating 2—Investment is performing materially in-line with expectations. All new loans are rated 2 at initial purchase;
•
Investment Rating 3—Investment is performing materially below expectations and while significant loss is not expected, the risk of loss has increased since the original investment; and
•
Investment Rating 4—Investment is performing substantially below expectations and risks have increased substantially since the original investment. Payments may be delinquent. There is meaningful possibility that we will not recoup our original cost basis in the investment and may realize a substantial loss upon exit.
The following table shows the distribution of our investments on the 1 to 4 investment rating scale at fair value as of March 31, 2018:
(in millions)
 
March 31, 2018
Investment Rating
 
Fair Value
 
Percent
Investment Rating 1
 
$
172.2

 
8.7
%
Investment Rating 2
 
1,805.2

 
91.3
%
Investment Rating 3
 
—

 
—
%
Investment Rating 4
 
0.5

 
—
%
 
 
$
1,977.9

 
100.0
%
As of March 31, 2018, all investments in our portfolio had an Investment Rating of 1 or 2 with the exception of two portfolio companies that had an Investment Rating of 4.
During the first quarter of 2018, we placed our first lien positions in Education Management II LLC on non-accrual status as the portfolio company announced its intention to wind down and liquidate the business. Our first lien positions and our preferred and commons shares in Education Management Corporation ("EDMC") have an investment rating of 4. As of March 31, 2018, our investments in EDMC had an aggregate cost basis of $1.5 million, an aggregate fair value of $0.1 million and total unearned interest income of less than $0.1 million for the three months then ended.
Our preferred shares and warrants in Ancora Acquisition LLC ("Ancora") have an investment rating of 4. As of March 31, 2018, our investments in Ancora had an aggregate cost basis of $0.1 million and an aggregate fair value of $0.4 million.
Portfolio and Investment Activity
The fair value of our investments was approximately $1,977.9 million in 89 portfolio companies at March 31, 2018 and approximately $1,825.7 million in 84 portfolio companies at December 31, 2017.

73


The following table shows our portfolio and investment activity for the three months ended March 31, 2018 and March 31, 2017:
 
 
Three Months Ended
(in millions)
 
March 31, 2018
 
March 31, 2017
New investments in 21 and 24 portfolio companies, respectively
 
$
237.8

 
$
349.4

Debt repayments in existing portfolio companies
 
84.0

 
99.1

Sales of securities in 1 and 8 portfolio companies, respectively
 
3.1

 
34.7

Change in unrealized appreciation on 22 and 42 portfolio companies, respectively
 
5.0

 
13.3

Change in unrealized depreciation on 61 and 32 portfolio companies, respectively
 
(7.2
)
 
(7.1
)
Recent Accounting Standards Updates
See Item 1.—Financial Statements—Note 13. Recent Accounting Standards for details on recent accounting standards updates.
Results of Operations for the Three Months Ended March 31, 2018 and March 31, 2017
Revenue
 
 
Three Months Ended
(in thousands)
 
March 31, 2018
 
March 31, 2017
Interest income
 
$
36,739

 
$
33,998

Total dividend income
 
12,357

 
6,733

Other income
 
3,793

 
2,576

Total investment income
 
$
52,889

 
$
43,307

Our total investment income increased by approximately $9.6 million for the three months ended March 31, 2018 as compared to the three months ended March 31, 2017. For the three months ended March 31, 2018, total investment income of $52.9 million consisted of approximately $32.8 million in cash interest from investments, approximately $1.7 million in PIK and non-cash interest from investments, approximately $1.3 million in prepayment fees, net amortization of purchase premiums and discounts of approximately $0.9 million, approximately $5.6 million in cash dividends from investments, $6.8 million in PIK and non-cash dividends from investments and approximately $3.8 million in other income. The 22% increase in total investment income primarily results from increased interest income due to rising LIBOR rates and prepayment fees from three different portfolio companies. The increase in dividend income of approximately $5.6 million during the three months ended March 31, 2018 as compared to the three months ended March 31, 2017 was attributable to PIK and non-cash dividend income from five equity positions. The increase of approximately $1.2 million of other income during the three months ended March 31, 2018, which represents fees that are generally non-recurring in nature, was primarily attributable to upfront, amendment and consent fees from twelve different portfolio companies.

74

Operating Expenses
 
 
Three Months Ended
(in thousands)
 
March 31, 2018
 
March 31, 2017
Management fee
 
$
8,692

 
$
7,614

Less: management fee waiver
 
(1,322
)
 
(1,356
)
Total management fee
 
7,370

 
6,258

Incentive fee
 
6,434

 
5,408

Less: incentive fee waiver
 
—

 
(1,800
)
Total incentive fee
 
6,434

 
3,608

Interest and other financing expenses
 
11,290

 
8,376

Professional fees
 
694

 
850

Administrative expenses
 
939

 
708

Other general and administrative expenses
 
410

 
466

Total expenses
 
27,137

 
20,266

Less: expenses waived and reimbursed
 
—

 
(470
)
Net expenses before income taxes
 
27,137

 
19,796

Income tax expense
 
16

 
80

Net expenses after income taxes
 
$
27,153

 
$
19,876

Our total net operating expenses increased by approximately $7.3 million for the three months ended March 31, 2018 as compared to the three months ended March 31, 2017. Our management fee increased by approximately $1.1 million, net of a management fee waiver, and our incentive fees increased by approximately $2.8 million, net of an incentive fee waiver, for the three months ended March 31, 2018 as compared to the three months ended March 31, 2017. The increase in management fees and incentive fees from the three months ended March 31, 2017 to the three months ended March 31, 2018 was attributable to larger invested balances, driven by the proceeds from our April 2017 primary offering of our common stock, our unsecured notes issuances, our January 2018 unsecured notes issuance and our use of leverage from our revolving credit facilities and SBA-guaranteed debentures to originate new investments. Additionally, no incentive fees were waived for the three months ended March 31, 2018 as compared to an incentive fee waiver of $1.8 million for the three months ended March 31, 2017.
Interest and other financing expenses increased by approximately $2.9 million during the three months ended March 31, 2018 as compared to the three months ended March 31, 2017, primarily due to our issuances of unsecured notes and higher drawn balances on our SBA-guaranteed debentures and NMFC Credit Facility (as defined below). Our total professional fees, total administrative expenses and total other general and administrative expenses remained relatively flat for the three months ended March 31, 2018 as compared to the three months ended March 31, 2017.
Net Realized Gains (Losses) and Net Change in Unrealized Appreciation (Depreciation)
 
 
Three Months Ended
(in thousands)
 
March 31, 2018
 
March 31, 2017
Net realized gains on investments
 
$
206

 
$
826

Net change in unrealized (depreciation) appreciation of investments
 
(2,168
)
 
6,205

Net change in unrealized (depreciation) appreciation securities purchased under collateralized agreements to resell
 
(12
)
 
(800
)
Benefit for taxes
 
82

 
755

Net realized and unrealized gains (losses)
 
$
(1,892
)
 
$
6,986

Our net realized gains and unrealized losss resulted in a net loss of approximately $1.9 million for the three months ended March 31, 2018 compared to net realized and unrealized gains resulting in a net gain of approximately $7.0 million for the same period in 2017. As movement in unrealized appreciation or depreciation can be the result of realizations, we look at net realized and unrealized gains or losses together. The net loss for the three months ended March 31, 2018 was primarily driven by the overall decrease in the market prices of our investments during the period. The benefit for income taxes was attributable to equity investments that are held as of March 31, 2018 in three of our corporate subsidiaries. The net gain for the three months ended March 31, 2017 was primarily driven by the overall increase in the market prices of our investments during the period.

75

Liquidity and Capital Resources
The primary use of existing funds and any funds raised in the future is expected to be for repayment of indebtedness, investments in portfolio companies, cash distributions to our stockholders or for other general corporate purposes.
Since our IPO, and through March 31, 2018, we raised approximately $614.6 million in net proceeds from additional offerings of our common stock.
Our liquidity is generated and generally available through advances from the revolving credit facilities, from cash flows from operations, and, we expect, through periodic follow-on equity offerings. In addition, we may from time to time enter into additional debt facilities, increase the size of existing facilities or issue additional debt securities, including unsecured debt and/or debt securities convertible into common stock. Any such incurrence or issuance would be subject to prevailing market conditions, our liquidity requirements, contractual and regulatory restrictions and other factors. In accordance with the 1940 Act, with certain limited exceptions, we are only allowed to borrow amounts such that our asset coverage, calculated pursuant to the 1940 Act, is at least 200.0% (or 150.0%, if certain requirements), are met after such borrowing.
At March 31, 2018 and December 31, 2017, we had cash and cash equivalents of approximately $29.6 million and $34.9 million, respectively. Our cash used in operating activities during the three months ended March 31, 2018 and March 31, 2017 was approximately $83.8 million and $141.8 million, respectively. We expect that all current liquidity needs will be met with cash flows from operations and other activities.
Borrowings
Holdings Credit Facility—On December 18, 2014, we entered into the Second Amended and Restated Loan and Security Agreement, among us, as the Collateral Manager, NMF Holdings, as the Borrower, Wells Fargo Securities, LLC, as the Administrative Agent and Wells Fargo Bank, National Association, as the Lender and Collateral Custodian, which is structured as a revolving credit facility and matures on December 18, 2019. On October 24, 2017 we entered into the Third Amended and Restated Loan and Security Agreement (the "Holdings Credit Facility"), among us as the Collateral Manager, NMF Holdings as the Borrower and Wells Fargo Bank, National Association as the Administrative Agent and Collateral Custodian, which extended the maturity date to October 24, 2022.
The maximum amount of revolving borrowings available under the Holdings Credit Facility is $495.0 million. Under the Holdings Credit Facility, NMF Holdings is permitted to borrow up to 25.0%, 45.0% or 70.0% of the purchase price of pledged assets, subject to approval by Wells Fargo Bank, National Association as Administrative Agent. The Holdings Credit Facility is non-recourse to us and is collateralized by all of the investments of NMF Holdings on an investment by investment basis. All fees associated with the origination or upsizing of the Holdings Credit Facility are capitalized on our Consolidated Statement of Assets and Liabilities and charged against income as other financing expenses over the life of the Holdings Credit Facility. The Holdings Credit Facility contains certain customary affirmative and negative covenants and events of default. In addition, the Holdings Credit Facility requires us to maintain a minimum asset coverage ratio. The covenants are generally not tied to mark to market fluctuations in the prices of NMF Holdings investments, but rather to the performance of the underlying portfolio companies.
The Holdings Credit Facility bears interest at a rate of LIBOR plus 1.75% per annum for Broadly Syndicated Loans (as defined in the Loan and Security Agreement) and LIBOR plus 2.50% per annum for all other investments. Effective April 1, 2018, the Holdings Credit Facility will bear interest at a rate of LIBOR plus 1.75% per annum for Broadly Syndicated Loans (as defined in the Loan and Security Agreement) and LIBOR plus 2.25% per annum for all other investments. The Holdings Credit Facility also charges a non-usage fee, based on the unused facility amount multiplied by the Non-Usage Fee Rate (as defined in the Loan and Security Agreement).
The following table summarizes the interest expense, non-usage fees and amortization of financing costs incurred on the Holdings Credit Facility for the three months ended March 31, 2018 and March 31, 2017.
 
 
Three Months Ended
(in millions)
 
March 31, 2018
 
March 31, 2017
Interest expense
 
$
3.1

 
$
2.7

Non-usage fee
 
$
0.2

 
$
0.2

Amortization of financing costs
 
$
0.6

 
$
0.4

Weighted average interest rate
 
3.9
%
 
3.1
%
Effective interest rate
 
5.0
%
 
3.9
%
Average debt outstanding
 
$
322.9

 
$
346.0


76

As of March 31, 2018 and December 31, 2017, the outstanding balance on the Holdings Credit Facility was $355.7 million and $312.4 million, respectively, and NMF Holdings was in compliance with the applicable covenants in the Holdings Credit Facility on such dates.
NMFC Credit Facility—The Senior Secured Revolving Credit Agreement, as amended (together with the related guarantee and security agreement, the "NMFC Credit Facility"), dated June 4, 2014, among us, as the Borrower, Goldman Sachs Bank USA, as the Administrative Agent and Collateral Agent, and Goldman Sachs Bank USA, Morgan Stanley Bank, N.A. and Stifel Bank & Trust, as Lenders, is structured as a senior secured revolving credit facility and matures on June 4, 2019. On February 27, 2018, we entered into an amendment to the NMFC Credit Facility which extended the maturity date to June 4, 2022. The NMFC Credit Facility is guaranteed by certain of our domestic subsidiaries and proceeds from the NMFC Credit Facility may be used for general corporate purposes, including the funding of portfolio investments.
As of March 31, 2018, the maximum amount of revolving borrowings available under the NMFC Credit Facility was $150.0 million. We are permitted to borrow at various advance rates depending on the type of portfolio investment as outlined in the Senior Secured Revolving Credit Agreement. All fees associated with the origination of the NMFC Credit Facility are capitalized on our Consolidated Statement of Assets and Liabilities and charged against income as other financing expenses over the life of the NMFC Credit Facility. The NMFC Credit Facility contains certain customary affirmative and negative covenants and events of default, including certain financial covenants related to asset coverage and liquidity and other maintenance covenants.
The NMFC Credit Facility generally bears interest at a rate of LIBOR plus 2.50% per annum or the prime rate plus 1.50% per annum, and charges a commitment fee, based on the unused facility amount multiplied by 0.375% per annum (as defined in the Senior Secured Revolving Credit Agreement).
The following table summarizes the interest expense, non-usage fees and amortization of financing costs incurred on the NMFC Credit Facility for the three months ended March 31, 2018 and March 31, 2017.
 
 
Three Months Ended
 
(in millions)
 
March 31, 2018
 
March 31, 2017
 
Interest expense
 
$
0.9

 
$
0.3

 
Non-usage fee
 
$
0.1

 
$
0.1

 
Amortization of financing costs
 
$
0.1

 
$
0.1

 
Weighted average interest rate
 
4.2
%
 
3.3
%
 
Effective interest rate
 
5.1
%
 
5.5
%
 
Average debt outstanding
 
$
81.7

 
$
34.7

 
As of March 31, 2018 and December 31, 2017, the outstanding balance on the NMFC Credit Facility was $95.0 million and $122.5 million, respectively, and NMFC was in compliance with the applicable covenants in the NMFC Credit Facility on such dates.
Convertible Notes—On June 3, 2014, we closed a private offering of $115.0 million aggregate principal amount of unsecured convertible notes (the "Convertible Notes"), pursuant to an indenture, dated June 3, 2014 (the "Indenture"). The Convertible Notes were issued in a private placement only to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"). As of June 3, 2015, the restrictions under Rule 144A under the Securities Act were removed, allowing the Convertible Notes to be eligible and freely tradable without restrictions for resale pursuant to Rule 144(b)(1) under the Securities Act. On September 30, 2016, we closed a public offering of an additional $40.3 million aggregate principal amount of the Convertible Notes. These additional Convertible Notes constitute a further issuance of, rank equally in right of payment with, and form a single series with the $115.0 million aggregate principal amount of Convertible Notes that we issued on June 3, 2014.
The Convertible Notes bear interest at an annual rate of 5.0%, payable semi-annually in arrears on June 15 and December 15 of each year, which commenced on December 15, 2014. The Convertible Notes will mature on June 15, 2019 unless earlier converted or repurchased at the holder's option.

77


The following table summarizes certain key terms related to the convertible features of our Convertible Notes as of March 31, 2018.
 
March 31, 2018
Initial conversion premium
12.5
%
Initial conversion rate (1)
62.7746

Initial conversion price
$
15.93

Conversion premium at March 31, 2018
11.7
%
Conversion rate at March 31, 2018 (1)(2)
63.2794

Conversion price at March 31, 2018 (2)(3)
$
15.80

Last conversion price calculation date
June 3, 2017

 
(1)
Conversion rates denominated in shares of common stock per $1.0 thousand principal amount of the Convertible Notes converted.
(2)
Represents conversion rate and conversion price, as applicable, taking into account certain de minimis adjustments that will be made on the conversion date.
(3)
The conversion price in effect at March 31, 2018 was calculated on the last anniversary of the issuance and will be calculated again on the next anniversary, unless the exercise price shall have changed by more than 1.0% before the anniversary.
The conversion rate will be subject to adjustment upon certain events, such as stock splits and combinations, mergers, spin-offs, increases in distributions in excess of $0.34 per share per quarter and certain changes in control. Certain of these adjustments, including adjustments for increases in distributions, are subject to a conversion price floor of $14.05 per share. In no event will the total number of shares of common stock issuable upon conversion exceed 71.1893 per $1.0 thousand principal amount of the Convertible Notes. We have determined that the embedded conversion option in the Convertible Notes is not required to be separately accounted for as a derivative under GAAP.
The Convertible Notes are unsecured obligations and rank senior in right of payment to our existing and future indebtedness that is expressly subordinated in right of payment to the Convertible Notes; equal in right of payment to our existing and future unsecured indebtedness that is not so subordinated; effectively junior in right of payment to any of our secured indebtedness (including existing unsecured indebtedness that we later secure) to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness (including trade payables) incurred by our subsidiaries and financing vehicles. The issuance is considered part of the if-converted method for calculation of diluted earnings per share.
We may not redeem the Convertible Notes prior to maturity. No sinking fund is provided for the Convertible Notes. In addition, if certain corporate events occur, holders of the Convertible Notes may require us to repurchase for cash all or part of their Convertible Notes at a repurchase price equal to 100.0% of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest through, but excluding, the repurchase date.
The Indenture contains certain covenants, including covenants requiring us to provide financial information to the holders of the Convertible Note and the Trustee if we cease to be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These covenants are subject to limitations and exceptions that are described in the Indenture.

78


The following table summarizes the interest expense, amortization of financing costs and amortization of premium incurred on the Convertible Notes for the three months ended March 31, 2018 and March 31, 2017.
 
 
Three Months Ended
 
(in millions)
 
March 31, 2018
 
March 31, 2017
 
Interest expense
 
$
1.9

 
$
1.9

 
Amortization of financing costs
 
$
0.3

 
$
0.3

 
Amortization of premium
 
$
—

(1)
$
—

(1)
Effective interest rate
 
5.8
%
 
5.8
%
 
Average debt outstanding
 
$
155.3

 
$
155.3

 
 
(1)
For the three months ended March 31, 2018 and March 31, 2017, the total amortization of premium was less than $50 thousand.
As of March 31, 2018 and December 31, 2017, the outstanding balance on the Convertible Notes was $155.3 million and $155.3 million, respectively, and NMFC was in compliance with the terms of the Indenture on such dates.
Unsecured Notes—On May 6, 2016, we issued $50.0 million in aggregate principal amount of five-year unsecured notes that mature on May 15, 2021 (the “2016 Unsecured Notes”), pursuant to a note purchase agreement, dated May 4, 2016, to an institutional investor in a private placement. On September 30, 2016, we entered into an amended and restated note purchase agreement (the "NPA") and issued an additional $40.0 million in aggregate principal amount of 2016 Unsecured Notes to institutional investors in a private placement. On June 30, 2017, we issued $55.0 million in aggregate principal amount of five-year unsecured notes that mature on July 15, 2022 (the "2017A Unsecured Notes"), pursuant to the NPA and a supplement to the NPA. On January 30, 2018, we issued $90.0 million in aggregate principal amount of five year unsecured notes that mature on January 30, 2023 (the "2018A Unsecured Notes" and together with the 2016 Unsecured Notes and 2017A Unsecured Notes, the "Unsecured Notes") pursuant to the NPA and a second supplement to the NPA. The NPA provides for future issuances of Unsecured Notes in separate series or tranches. The Unsecured Notes are equal in priority with our other unsecured indebtedness, including our Convertible Notes.
The 2016 Unsecured Notes bear interest at an annual rate of 5.313%, payable semi-annually on May 15 and November 15 of each year, which commenced on November 15, 2016. The 2017A Unsecured Notes bear interest at an annual rate of 4.760%, payable semi-annually on January 15 and July 15 of each year, which commenced on January 15, 2018. The 2018A Unsecured Notes bear interest at an annual rate of 4.87%, payable semi-annually on February 15 and August 15 of each year, which commences on August 15, 2018. These interest rates are subject to increase in the event that: (i) subject to certain exceptions, the Unsecured Notes or we cease to have an investment grade rating or (ii) the aggregate amount of our unsecured debt falls below $150.0 million.  In each such event, we have the option to offer to prepay the Unsecured Notes at par, in which case holders of the Unsecured Notes who accept the offer would not receive the increased interest rate. In addition, we are obligated to offer to prepay the Unsecured Notes at par if the Investment Adviser, or an affiliate thereof, ceases to be our investment adviser or if certain change in control events occur with respect to the Investment Adviser. 
The NPA contains customary terms and conditions for unsecured notes issued in a private placement, including, without limitation, an option to offer to prepay all or a portion of the Unsecured Notes at par (plus a make-whole amount, if applicable), affirmative and negative covenants such as information reporting, maintenance of our status as a BDC under the 1940 Act and a RIC under the Code, minimum stockholders’ equity, minimum asset coverage ratio, and prohibitions on certain fundamental changes at NMFC or any subsidiary guarantor, as well as customary events of default with customary cure and notice, including, without limitation, nonpayment, misrepresentation in a material respect, breach of covenant, cross-default under other indebtedness of NMFC or certain significant subsidiaries, certain judgments and orders, and certain events of bankruptcy.

79


The following table summarizes the interest expense and amortization of financing costs incurred on the Unsecured Notes for the three months ended March 31, 2018 and March 31, 2017.
 
 
Three Months Ended
 
(in millions)
 
March 31, 2018
 
March 31, 2017
 
Interest expense
 
$
2.6

 
$
1.2

 
Amortization of financing costs
 
$
0.2

 
$
0.1

 
Weighted average interest rate
 
5.1
%
 
5.3
%
 
Effective interest rate
 
5.4
%
 
5.8
%
 
Average debt outstanding
 
$
206.0

 
$
90.0

 
As of March 31, 2018 and December 31, 2017, the outstanding balance on the Unsecured Notes was $235.0 million and $145.0 million, respectively, and we were in compliance with the terms of the NPA.
SBA-guaranteed debentures—On August 1, 2014 and August 25, 2017, SBIC I and SBIC II received SBIC licenses from the SBA to operate as SBICs.
The SBIC license allows SBICs to obtain leverage by issuing SBA-guaranteed debentures, subject to the issuance of a capital commitment by the SBA and other customary procedures. SBA-guaranteed debentures are non-recourse to us, interest only debentures with interest payable semi-annually and have a ten year maturity. The principal amount of SBA-guaranteed debentures is not required to be paid prior to maturity but may be prepaid at any time without penalty. The interest rate of SBA-guaranteed debentures is fixed on a semi-annual basis at a market-driven spread over U.S. Treasury Notes with ten year maturities. The SBA, as a creditor, will have a superior claim to the assets of SBIC I and SBIC II over our stockholders in the event SBIC I and SBIC are liquidated or the SBA exercises remedies upon an event of default.
The maximum amount of borrowings available under current SBA regulations for a single licensee is $150.0 million as long as the licensee has at least $75.0 million in regulatory capital, receives a capital commitment from the SBA and has been through an examination by the SBA subsequent to licensing.
As of March 31, 2018 and December 31, 2017, SBIC I had regulatory capital of $75.0 million and $75.0 million, respectively, and SBA-guaranteed debentures outstanding of $150.0 million and $150.0 million, respectively. As of March 31, 2018 and December 31, 2017, SBIC II had regulatory capital of $2.5 million and $2.5 million, respectively, and no SBA-guaranteed debentures outstanding. The SBA-guaranteed debentures incur upfront fees of 3.425%, which consists of a 1.00% commitment fee and a 2.425% issuance discount, which are amortized over the life of the SBA-guaranteed debentures. The following table summarizes our SBA-guaranteed debentures as of March 31, 2018.
(in millions)
 
 
 
 
 
 
 
 
Issuance Date
 
Maturity Date
 
Debenture Amount
 
Interest Rate
 
SBA Annual Charge
Fixed SBA-guaranteed debentures:
 
 
 
 

 
 

 
 

March 25, 2015
 
March 1, 2025
 
$
37.5

 
2.517
%
 
0.355
%
September 23, 2015
 
September 1, 2025
 
37.5

 
2.829
%
 
0.355
%
September 23, 2015
 
September 1, 2025
 
28.8

 
2.829
%
 
0.742
%
March 23, 2016
 
March 1, 2026
 
13.9

 
2.507
%
 
0.742
%
September 21, 2016
 
September 1, 2026
 
4.0

 
2.051
%
 
0.742
%
September 20, 2017
 
September 1, 2027
 
13.0

 
2.518
%
 
0.742
%
March 21, 2018
 
March 1, 2028
 
15.3

 
3.187
%
 
0.742
%
Total SBA-guaranteed debentures
 
 
 
$
150.0

 
 

 
 

Prior to pooling, the SBA-guaranteed debentures bear interest at an interim floating rate of LIBOR plus 0.30%. Once pooled, which occurs in March and September each year, the SBA-guaranteed debentures bear interest at a fixed rate that is set to the current 10-year treasury rate plus a spread at each pooling date.

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The following table summarizes the interest expense and amortization of financing costs incurred on the SBA-guaranteed debentures for the three months ended March 31, 2018 and March 31, 2017.
 
 
Three Months Ended
(in millions)
 
March 31, 2018
 
March 31, 2017
Interest expense
 
$
1.2

 
$
1.0

Amortization of financing costs
 
$
0.1

 
$
0.1

Weighted average interest rate
 
3.1
%
 
3.2
%
Effective interest rate
 
3.5
%
 
3.5
%
Average debt outstanding
 
$
150.0

 
$
121.7

The SBIC program is designed to stimulate the flow of private investor capital into eligible smaller businesses, as defined by the SBA. Under SBA regulations, SBICs are subject to regulatory requirements, including making investments in SBA-eligible businesses, investing at least 25.0% of its investment capital in eligible small businesses, as defined under the 1958 Act, placing certain limitations on the financing terms of investments, regulating the types of financing, prohibiting investments in small businesses with certain characteristics or in certain industries and requiring capitalization thresholds that limit distributions to us. SBICs are subject to an annual periodic examination by an SBA examiner to determine the SBIC's compliance with the relevant SBA regulations and an annual financial audit of its financial statements that are prepared on a basis of accounting other than GAAP (such as ASC 820) by an independent auditor. As of March 31, 2018 and December 31, 2017, SBIC I and SBIC II were in compliance with SBA regulatory requirements.
Off-Balance Sheet Arrangements
We may become a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of our portfolio companies. These instruments may include commitments to extend credit and involve, to varying degrees, elements of liquidity and credit risk in excess of the amount recognized in the balance sheet. As of March 31, 2018 and December 31, 2017, we had outstanding commitments to third parties to fund investments totaling $81.9 million and $77.4 million, respectively, under various undrawn revolving credit facilities, delayed draw commitments or other future funding commitments.
We may from time to time enter into financing commitment letters or bridge financing commitments, which could require funding in the future. As of March 31, 2018 and December 31, 2017, we had commitment letters to purchase investments in an aggregate par amount of $24.0 million and $13.9 million, respectively. As of March 31, 2018 and December 31, 2017, we had not entered into any bridge financing commitments which could require funding in the future.
As of March 31, 2018 we owed $12.0 million related to a settlement agreement with a trustee of Black Elk Energy Offshore Operations, LLC. We will make semi-annual payments of $3.0 million beginning in June 2018, with the final payment due in December 2019.
Contractual Obligations
A summary of our significant contractual payment obligations as of March 31, 2018 is as follows:
 
 
Contractual Obligations Payments Due by Period
(in millions)
 
Total
 
Less than
1 Year
 
1 - 3 Years
 
3 - 5 Years
 
More than
5 Years
Holdings Credit Facility(1)
 
$
355.7

 
$
—

 
$
—

 
$
355.7

 
$
—

Unsecured Notes(2)
 
235.0

 
—

 
—

 
235.0

 
—

Convertible Notes(3)
 
155.3

 
—

 
155.3

 
—

 
—

SBA-guaranteed debentures(4)
 
150.0

 
—

 
—

 
—

 
150.0

NMFC Credit Facility(5)
 
95.0

 
—

 
—

 
95.0

 
—

Total Contractual Obligations
 
$
991.0

 
$
—

 
$
155.3

 
$
685.7

 
$
150.0

 
(1)
Under the terms of the $495.0 million Holdings Credit Facility, all outstanding borrowings under that facility ($355.7 million as of March 31, 2018) must be repaid on or before October 24, 2022. As of March 31, 2018, there was approximately $139.3 million of possible capacity remaining under the Holdings Credit Facility.

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(2)
$90.0 million 2016 Unsecured Notes will mature on May 15, 2021 unless earlier repurchased, $55.0 million of 2017A Unsecured Notes will mature on July 15, 2022 unless earlier repurchased and $90.0 million in 2018A Unsecured Notes will mature on January 30, 2023 unless earlier repurchased.
(3)
The $155.3 million Convertible Notes will mature on June 15, 2019 unless earlier converted or repurchased at the holder’s option.
(4)
Our SBA-guaranteed debentures will begin to mature on March 1, 2025.
(5)
Under the terms of the $150.0 million NMFC Credit Facility, all outstanding borrowings under that facility ($95.0 million as of March 31, 2018) must be repaid on or before June 4, 2022. As of March 31, 2018, there was approximately $55.0 million of possible capacity remaining under the NMFC Credit Facility.
We have entered into the Investment Management Agreement with the Investment Adviser in accordance with the 1940 Act. Under the Investment Management Agreement, the Investment Adviser has agreed to provide us with investment advisory and management services. We have agreed to pay for these services (1) a management fee and (2) an incentive fee based on our performance.
We have also entered into the Administration Agreement with the Administrator. Under the Administration Agreement, the Administrator has agreed to arrange office space for us and provide office equipment and clerical, bookkeeping and record keeping services and other administrative services necessary to conduct our respective day-to-day operations. The Administrator has also agreed to maintain, or oversee the maintenance of, our financial records, our reports to stockholders and reports filed with the SEC.
If any of the contractual obligations discussed above are terminated, our costs under any new agreements that are entered into may increase. In addition, we would likely incur significant time and expense in locating alternative parties to provide the services we expect to receive under the Investment Management Agreement and the Administration Agreement.
Distributions and Dividends
Distributions declared and paid to stockholders for the three months ended March 31, 2018 totaled approximately $25.8 million.
The following table reflects cash distributions, including dividends and returns of capital, if any, per share that have been declared by our board of directors for the two most recent fiscal years and the current fiscal year to date:
Fiscal Year Ended
 
Date Declared
 
Record Date
 
Payment Date
 
Per Share
Amount (1)
December 31, 2018
 

 

 

 


First Quarter
 
February 21, 2018
 
March 15, 2018
 
March 29, 2018
 
$
0.34

 
 
 
 
 
 
 
 
$
0.34

December 31, 2017
 
 
 
 
 
 
 
 
Fourth Quarter
 
November 2, 2017
 
December 15, 2017
 
December 28, 2017
 
$
0.34

Third Quarter
 
August 4, 2017
 
September 15, 2017
 
September 29, 2017
 
0.34

Second Quarter
 
May 4, 2017
 
June 16, 2017
 
June 30, 2017
 
0.34

First Quarter
 
February 23, 2017
 
March 17, 2017
 
March 31, 2017
 
0.34

 
 
 
 
 
 
 
 
$
1.36

December 31, 2016
 
 
 
 
 
 
 
 

Fourth Quarter
 
November 4, 2016
 
December 15, 2016
 
December 29, 2016
 
$
0.34

Third Quarter
 
August 2, 2016
 
September 16, 2016
 
September 30, 2016
 
0.34

Second Quarter
 
May 3, 2016
 
June 16, 2016
 
June 30, 2016
 
0.34

First Quarter
 
February 22, 2016
 
March 17, 2016
 
March 31, 2016
 
0.34

 
 
 
 
 
 
 
 
$
1.36

 
(1)
Tax characteristics of all distributions paid are reported to stockholders on Form 1099 after the end of the calendar year. For the years ended December 31, 2017 and December 31, 2016, total distributions were $100.9 million and $88.8 million, respectively, of which the distributions were comprised of approximately 71.50% and 89.46%, respectively, of ordinary income, 0.00% and 0.00%, respectively, of long-term capital gains and approximately 28.50% and 10.54%, respectively, of a return of capital. Future quarterly distributions, if any, will be determined by our board of directors.

82

We intend to pay quarterly distributions to our stockholders in amounts sufficient to maintain our status as a RIC. We intend to distribute approximately all of our net investment income on a quarterly basis and substantially all of our taxable income on an annual basis, except that we may retain certain net capital gains for reinvestment.
We maintain an "opt out" dividend reinvestment plan on behalf of our common stockholders, pursuant to which each of our stockholders' cash distributions will be automatically reinvested in additional shares of common stock, unless the stockholder elects to receive cash. See Item 1— Financial Statements—Note 2. Summary of Significant Accounting Policies for additional details regarding our dividend reinvestment plan.
Related Parties
We have entered into a number of business relationships with affiliated or related parties, including the following:
•
We have entered into the Investment Management Agreement with the Investment Adviser, a wholly-owned subsidiary of New Mountain Capital. Therefore, New Mountain Capital is entitled to any profits earned by the Investment Adviser, which includes any fees payable to the Investment Adviser under the terms of the Investment Management Agreement, less expenses incurred by the Investment Adviser in performing its services under the Investment Management Agreement.
•
We have entered into the Administration Agreement with the Administrator, a wholly-owned subsidiary of New Mountain Capital. The Administrator arranges our office space and provides office equipment and administrative services necessary to conduct our respective day-to-day operations pursuant to the Administration Agreement. We reimburse the Administrator for the allocable portion of overhead and other expenses incurred by it in performing its obligations to us under the Administration Agreement, which includes the fees and expenses associated with performing administrative, finance, and compliance functions, and the compensation of our chief financial officer and chief compliance officer and their respective staffs. Pursuant to the Administration Agreement and further restricted by us, the Administrator may, in its own discretion, submit to us for reimbursement some or all of the expenses that the Administrator has incurred on our behalf during any quarterly period. As a result, the amount of expenses for which we will have to reimburse the Administrator may fluctuate in future quarterly periods and there can be no assurance given as to when, or if, the Administrator may determine to limit the expenses that the Administrator submits to us for reimbursement in the future. However, it is expected that the Administrator will continue to support part of our expense burden in the near future and may decide to not calculate and charge through certain overhead related amounts as well as continue to cover some of the indirect costs. The Administrator cannot recoup any expenses that the Administrator has previously waived. For the three months ended March 31, 2018, approximately $0.7 million of indirect administrative expenses were included in administrative expenses, of which none of the indirect administrative expenses were waived by the Administrator. As of March 31, 2018, $1.1 million of indirect administrative expenses were included in payable to affiliates.
•
We, the Investment Adviser and the Administrator have entered into a royalty-free Trademark License Agreement, as amended, with New Mountain Capital, pursuant to which New Mountain Capital has agreed to grant us, the Investment Adviser and the Administrator a non-exclusive, royalty-free license to use the name "New Mountain" and "New Mountain Finance".
In addition, we have adopted a formal code of ethics that governs the conduct of our officers and directors. These officers and directors also remain subject to the duties imposed by the 1940 Act, the Delaware General Corporation Law and the Delaware Limited Liability Company Act.
The Investment Adviser and its affiliates may also manage other funds in the future that may have investment mandates that are similar, in whole or in part, to our investment mandates. The Investment Adviser and its affiliates may determine that an investment is appropriate for us and for one or more of those other funds. In such event, depending on the availability of such investment and other appropriate factors, the Investment Adviser or its affiliates may determine that we should invest side-by-side with one or more other funds. Any such investments will be made only to the extent permitted by applicable law and interpretive positions of the SEC and its staff, and consistent with the Investment Adviser's allocation procedures. On December 18, 2017, the SEC issued an exemptive order (the “Exemptive Order”), which superseded a prior order issued on June 5, 2017, which permits us to co-invest in portfolio companies with certain funds or entities managed by the Investment Adviser or its affiliates in certain negotiated transactions where co-investing would otherwise be prohibited under the 1940 Act, subject to the conditions of the Exemptive Order. Pursuant to the Exemptive Order, we are permitted to co-invest with our affiliates if a “required majority” (as defined in Section 57(o) of the 1940 Act) of our independent directors make certain conclusions in connection with a co-investment transaction, including, but not limited to, that (1) the terms of the potential co-investment transaction, including the consideration to be paid, are reasonable and fair to us and our stockholders and do not involve overreaching in respect of us or our stockholders on the part of any person concerned, and (2) the potential co-investment transaction is consistent with the interests of our stockholders and is consistent with our then-current investment objective and strategies.

83

Item 3.
Quantitative and Qualitative Disclosures About Market Risk
We are subject to certain financial market risks, such as interest rate fluctuations. During the three months ended March 31, 2018, certain of the loans held in our portfolio had floating interest rates. As of March 31, 2018, approximately 86.8% of investments at fair value (excluding investments on non-accrual, unfunded debt investments and non-interest bearing equity investments) represent floating-rate investments with a LIBOR floor (includes investments bearing prime interest rate contracts) and approximately 13.2% of investments at fair value represent fixed-rate investments. Additionally, our senior secured revolving credit facilities are also subject to floating interest rates and are currently paid based on one-month floating LIBOR rates.
The following table estimates the potential changes in net cash flow generated from interest income and expenses, should interest rates increase by 100, 200 or 300 basis points, or decrease by 25 basis points. Interest income is calculated as revenue from interest generated from our portfolio of investments held on March 31, 2018. Interest expense is calculated based on the terms of our outstanding revolving credit facilities, convertible notes and unsecured notes. For our floating rate credit facilities, we use the outstanding balance as of March 31, 2018. Interest expense on our floating rate credit facilities is calculated using the interest rate as of March 31, 2018, adjusted for the hypothetical changes in rates, as shown below. The base interest rate case assumes the rates on our portfolio investments remain unchanged from the actual effective interest rates as of March 31, 2018. These hypothetical calculations are based on a model of the investments in our portfolio, held as of March 31, 2018, and are only adjusted for assumed changes in the underlying base interest rates.
Actual results could differ significantly from those estimated in the table.
Change in Interest Rates
 
Estimated
Percentage
Change in Interest
Income Net of
Interest Expense (unaudited)
 
 
-25 Basis Points
 
0.08
%
 
(1)
Base Interest Rate
 
—
%
 
 
+100 Basis Points
 
7.89
%
 
 
+200 Basis Points
 
15.91
%
 
 
+300 Basis Points
 
23.92
%
 
 
 
(1)
Limited to the lesser of the March 31, 2018 LIBOR rates or a decrease of 25 basis points.



84

Item 4.
Controls and Procedures
(a)
Evaluation of Disclosure Controls and Procedures 
As of March 31, 2018 (the end of the period covered by this report), we, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Act of 1934, as amended). Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective and provided reasonable assurance that information required to be disclosed in our periodic United States Securities and Exchange Commission filings is recorded, processed, summarized and reported within the time periods specified in the United States Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. However, in evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of such possible controls and procedures.
(b)
Changes in Internal Controls Over Financial Reporting
Management has not identified any change in our internal control over financial reporting that occurred during the quarter ended March 31, 2018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


85

PART II. OTHER INFORMATION
The terms “we”, “us”, “our” and the “Company” refers to New Mountain Finance Corporation and its consolidated subsidiaries.
Item 1.
Legal Proceedings
There have been no material changes during the three months ended March 31, 2018 to the Legal Proceedings discussed in Item 3. Legal Proceedings in our Annual Report on Form 10-K for the year ended December 31, 2017.
We, and our consolidated subsidiaries, the Investment Adviser and the Administrator are not currently subject to any material pending legal proceedings threatened against us as of March 31, 2018. From time to time, we may be a party to certain legal proceedings incidental to the normal course of our business including the enforcement of our rights under contracts with our portfolio companies. While the outcome of these legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a material effect upon our business, financial condition or results of operations.
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, which could materially affect our business, financial condition and/or operating results. The risks described in our Annual Report on Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results. Other than as set forth below, there have been no material changes during the three months ended March 31, 2018 to the risk factors discussed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2017.

The terms of our credit facilities may contractually limit our ability to incur additional indebtedness.

We will need additional capital to fund new investments and grow our portfolio of investments. We intend to access the capital markets periodically to issue debt or equity securities or borrow from financial institutions in order to obtain such additional capital. We believe that having the flexibility to incur additional leverage could augment the returns to our stockholders and would be in the best interests of our stockholders. Even though our board of directors has approved a resolution permitting the Company to be subject to a 150% asset coverage ratio to be effective on April 12, 2019, and if we receive approval of our stockholders to be effective the day after a special stockholder’s meeting scheduled to be held on June 8, 2018, contractual leverage limitations under our existing credit facilities or future borrowings may limit our ability to incur additional indebtedness. Currently, our NMFC Credit Facility restricts our ability to incur additional indebtedness if after incurring such additional debt, our asset coverage ratio would be below 200%. We cannot assure you that we will be able to negotiate a change to our credit facilities to allow us to incur additional leverage or that any such an amendment will be available to us on favorable terms. An inability on our part to amend the contractual asset coverage limitation and access additional leverage could limit our ability to take advantage of the benefits described above related to our ability to incur additional leverage and could decrease our earnings, if any, which would have an adverse effect on our results of operations and the value of our shares of common stock.

Recent legislation may allow us to incur additional leverage which could increase the risk of investing in the Company.

The 1940 Act generally prohibits us from incurring indebtedness unless immediately after such borrowing we have an asset coverage for total borrowings of at least 200% (i.e., the amount of debt may not exceed 50% of the value of our assets). (i.e., the amount of debt may not exceed 66.7% of the value of our assets). However, on March 23, 2018, the Consolidated Appropriations Act of 2018, which includes the SBCA, was signed into law. The SBCA amends the 1940 Act to permit a BDC to reduce the required minimum asset coverage ratio applicable to it from 200% to 150% (i.e., the amount of debt may not exceed 66.7% of the value of our assets), subject to certain requirements described therein. On April 12, 2018, our board of directors, including a ‘‘required majority’’ (as such term is defined in Section 57(o) of the 1940 Act) approved the application of the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act, as amended by the SBCA. As a result, the Company’s asset coverage requirements for senior securities will be changed from 200% to 150%, effective April 12, 2019. On the same day, the board of directors recommended the submission of a proposal for stockholders to approve the application of the 150% minimum asset coverage ratio to the Company at a special meeting of stockholders scheduled to be held on June 8, 2018. If the stockholder proposal is approved by the required votes of the Company’s stockholders at such special meeting of stockholders, the Company would become subject to the 150% minimum asset coverage ratio the day after such stockholder approval instead of April 12, 2019. Changing the asset coverage ratio would permit the Company to double its leverage, which would result in increased leverage risk and increased expenses.


86

As a result of this legislation, we may be able to increase our leverage up to an amount that reduces our asset coverage ratio from 200% to 150%. Leverage magnifies the potential for loss on investments in our indebtedness and on invested equity capital. As we use leverage to partially finance our investments, you will experience increased risks of investing in our securities. If the value of our assets increases, then leveraging would cause the net asset value attributable to our common stock to increase more sharply than it would have had we not leveraged. Conversely, if the value of our assets decreases, leveraging would cause net asset value to decline more sharply than it otherwise would have had we not leveraged our business. Similarly, any increase in our income in excess of interest payable on the borrowed funds would cause our net investment income to increase more than it would without the leverage, while any decrease in our income would cause net investment income to decline more sharply than it would have had we not borrowed. Such a decline could negatively affect our ability to pay common stock dividends, scheduled debt payments or other payments related to our securities. Leverage is generally considered a speculative investment technique.

In addition, in December 2015, the 2016 omnibus spending bill approved by the U.S. Congress and signed into law by the President increased the amount of SBA-guaranteed debentures that affiliated SBIC funds can have outstanding from $225.0 million to $350.0 million, subject to SBA approval. This new legislation may allow us to issue additional SBIC debentures above the $225.0 million of SBA-guaranteed debentures previously permitted pending application for and receipt of additional SBIC licenses. If we incur this additional indebtedness in the future, your risk of an investment in our securities may increase.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
We did not engage in unregistered sales of equity securities during the quarter ended March 31, 2018.
Issuer Purchases of Equity Securities
Dividend Reinvestment Plan
During the quarter ended March 31, 2018, we did not purchase any of our common stock in the open market in connection with our dividend reinvestment plan.
Stock Repurchase Program
On February 4, 2016, our board of directors authorized a program for the purpose of repurchasing up to $50.0 million worth of our common stock. Under the repurchase program, we were permitted, but were not obligated to, repurchase our outstanding common stock in the open market from time to time, provided that we complied with our code of ethics and the guidelines specified in Rule 10b-18 of the Exchange Act, including certain price, market volume and timing constraints. In addition, any repurchases were conducted in accordance with the 1940 Act. On December 29, 2017, our board of directors extended our repurchase program and we expect the repurchase program to be in place until the earlier of December 31, 2018 or until $50.0 million of outstanding shares of common stock have been repurchased. We did not repurchase any shares of our common stock under the repurchase program during the quarter ended March 31, 2018.
Item 3.
Defaults Upon Senior Securities
None.
Item 4.
Mine Safety Disclosures
Not applicable.
Item 5.
Other Information
None.


87

Item 6.
Exhibits
(a)
Exhibits
The following exhibits are filed as part of this report or hereby incorporated by reference to exhibits previously filed with the United States Securities and Exchange Commission:
Exhibit
Number
 
Description
3.1(a)

 
 
 
 
3.1(b)

 
 
 
 
3.2

 
 
 
 
4.1

 
 
 
 
10.1

 
 
 
 
10.2

 
 
 
 
10.3

 
 
 
 
10.4

 
 
 
 
11.1

 
Computation of Per Share Earnings for New Mountain Finance Corporation (included in the notes to the financial statements contained in this report)
 
 
 
31.1

 
 
 
 
31.2

 
 
 
 
32.1

 
 
 
 
32.2

 
 
(1)
Previously filed in connection with New Mountain Finance Holdings, L.L.C.’s registration statement on Form N-2 Pre-Effective Amendment No. 3 (File Nos. 333-168280 and 333-172503) filed on May 9, 2011.
(2)
Previously filed in connection with New Mountain Finance Corporation’s quarterly report on Form 10-Q filed on August 11, 2011.
(3)
Previously filed in connection with New Mountain Finance Corporation and New Mountain Finance AIV Holdings Corporation report on Form 8-K filed on August 25, 2011.
(4)
Previously filed in connection with New Mountain Finance Corporation’s annual report on Form 10-K filed on February 28, 2018.
(5)
Previously filed in connection with New Mountain Finance Corporation’s report on Form 8-K filed on April 5, 2018.


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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on May 7, 2018.
 
NEW MOUNTAIN FINANCE CORPORATION
 
 
 
By:
/s/ ROBERT A. HAMWEE
 
 
Robert A. Hamwee
 
 
Chief Executive Officer
 
 
(Principal Executive Officer)
 
 
 
By:
/s/ SHIRAZ Y. KAJEE
 
 
Shiraz Y. Kajee
 
 
Chief Financial Officer and Treasurer
 
 
(Principal Financial and Accounting Officer)

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