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 September 30, 2017
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 November 7, 2017
Common stock, par value $0.01 per share
 
75,805,019
 

Table of Contents

FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2017
TABLE OF CONTENTS
 
PAGE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2
Table of Contents

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)
 
September 30, 2017
 
December 31, 2016
Assets
 

 
 

Investments at fair value
 

 
 

Non-controlled/non-affiliated investments (cost of $1,480,226 and $1,379,603, respectively)
$
1,501,544

 
$
1,346,556

Non-controlled/affiliated investments (cost of $175,576 and $54,996, respectively)
173,619

 
57,440

Controlled investments (cost of $157,902 and $140,579, respectively)
170,880

 
154,821

Total investments at fair value (cost of $1,813,704 and $1,575,178, respectively)
1,846,043

 
1,558,817

Securities purchased under collateralized agreements to resell (cost of $30,000 and $30,000 respectively)
26,836

 
29,218

Cash and cash equivalents
39,646

 
45,928

Interest and dividend receivable
27,800

 
17,833

Receivable from unsettled securities sold
3,496

 
990

Receivable from affiliates
339

 
346

Other assets
6,455

 
2,886

Total assets
$
1,950,615

 
$
1,656,018

Liabilities
 

 
 

Borrowings
 
 
 
     Holdings Credit Facility
$
376,163

 
$
333,513

     Convertible Notes
155,440

 
155,523

     Unsecured Notes
145,000

 
90,000

     SBA-guaranteed debentures
144,000

 
121,745

     NMFC Credit Facility
19,000

 
10,000

     Deferred financing costs (net of accumulated amortization of $15,333 and $12,279, respectively)
(12,502
)
 
(14,041
)
Net borrowings
827,101

 
696,740

Payable for unsettled securities purchased
67,499

 
2,740

Management fee payable
6,939

 
5,852

Incentive fee payable
6,573

 
5,745

Interest payable
6,098

 
3,172

Payable to affiliates
786

 
136

Deferred tax liability
509

 
1,034

Other liabilities
3,027

 
2,037

Total liabilities
918,532

 
717,456

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, 75,805,019 and 69,755,387 shares issued, respectively, and 75,805,019 and 69,717,814 shares outstanding, respectively
758

 
698

Paid in capital in excess of par
1,087,474

 
1,001,862

Treasury stock at cost, 0 and 37,573 shares held, respectively
—

 
(460
)
Accumulated undistributed net investment income
2,462

 
2,073

Accumulated undistributed net realized losses on investments
(76,790
)
 
(36,947
)
Net unrealized appreciation (depreciation) (net of provision for taxes of $509 and $1,034, respectively)
18,179

 
(28,664
)
Total net assets
$
1,032,083

 
$
938,562

Total liabilities and net assets
$
1,950,615

 
$
1,656,018

Number of shares outstanding
75,805,019

 
69,717,814

Net asset value per share
$
13.61

 
$
13.46


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

New Mountain Finance Corporation
 
Consolidated Statements of Operations
(in thousands, except shares and per share data)
(unaudited)
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2017
 
September 30, 2016
 
September 30, 2017
 
September 30, 2016
Investment income
 
 
 
 
 
 
 
From non-controlled/non-affiliated investments:
 
 
 
 
 
 
 
Interest income
$
38,511

 
$
34,735

 
$
107,905

 
$
106,743

Dividend income
—

 
83

 
159

 
175

Non-cash dividend income
59

 
—

 
72

 
—

Other income
1,196

 
2,557

 
5,545

 
4,776

From non-controlled/affiliated investments:
 
 
 
 
 
 
 
Interest income
718

 
720

 
2,077

 
3,929

Dividend income
816

 
1,061

 
2,662

 
2,868

Non-cash dividend income
3,994

 
—

 
8,625

 
—

Other income
294

 
284

 
888

 
902

From controlled investments:
 
 
 
 
 
 
 
Interest income
409

 
462

 
1,293

 
1,447

Dividend income
3,659

 
1,151

 
11,739

 
1,151

Non-cash dividend income
1,342

 
768

 
3,016

 
2,229

Other income
238

 
13

 
581

 
80

Total investment income
51,236

 
41,834

 
144,562

 
124,300

Expenses
 
 
 
 
 
 
 
Incentive fee
6,573

 
5,432

 
18,430

 
16,266

Management fee
8,422

 
6,883

 
24,311

 
20,537

Interest and other financing expenses
9,509

 
7,171

 
26,930

 
20,544

Professional fees
819

 
723

 
2,391

 
2,461

Administrative expenses
652

 
586

 
2,022

 
2,054

Other general and administrative expenses
346

 
390

 
1,214

 
1,206

Total expenses
26,321

 
21,185

 
75,298

 
63,068

Less: management and incentive fees waived (See Note 5)
(1,483
)
 
(1,102
)
 
(6,124
)
 
(3,662
)
Less: expenses waived and reimbursed (See Note 5)
—

 
—

 
(474
)
 
(347
)
Net expenses
24,838

 
20,083

 
68,700

 
59,059

Net investment income before income taxes
26,398

 
21,751

 
75,862

 
65,241

Income tax expense
106

 
22

 
341

 
113

Net investment income
26,292

 
21,729

 
75,521

 
65,128

Net realized (losses) gains:
 
 
 
 
 
 
 
Non-controlled/non-affiliated investments
(14,216
)
 
1,150

 
(39,843
)
 
2,191

Net change in unrealized appreciation (depreciation):
 
 
 
 
 
 
 
Non-controlled/non-affiliated investments
19,755

 
3,837

 
54,365

 
2,955

Non-controlled/affiliated investments
(3,807
)
 
109

 
(4,401
)
 
84

Controlled investments
(1,305
)
 
(800
)
 
(1,264
)
 
7,677

Securities purchased under collateralized agreements to resell
(1,549
)
 
(957
)
 
(2,382
)
 
(1,031
)
(Provision) benefit for taxes
(394
)
 
11

 
525

 
819

Net realized and unrealized gains (losses)
(1,516
)
 
3,350

 
7,000

 
12,695

Net increase in net assets resulting from operations
$
24,776

 
$
25,079

 
$
82,521

 
$
77,823

Basic earnings per share
$
0.33

 
$
0.39

 
$
1.12

 
$
1.22

Weighted average shares of common stock outstanding - basic (See Note 11)
75,688,429

 
63,758,062

 
73,618,794

 
63,843,730

Diluted earnings per share
$
0.31

 
$
0.37

 
$
1.04

 
$
1.14

Weighted average shares of common stock outstanding - diluted (See Note 11)
85,512,556

 
71,145,932

 
83,442,921

 
71,158,044

Distributions declared and paid per share
$
0.34

 
$
0.34

 
$
1.02

 
$
1.02


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

New Mountain Finance Corporation
 
Consolidated Statements of Changes in Net Assets
(in thousands, except shares and per share data)
(unaudited)
 
Nine Months Ended
 
September 30, 2017
 
September 30, 2016
Increase (decrease) in net assets resulting from operations:
 
 
 
Net investment income
$
75,521

 
$
65,128

Net realized (losses) gains on investments
(39,843
)
 
2,191

Net change in unrealized appreciation (depreciation) of investments
48,700

 
10,716

Net change in unrealized (depreciation) appreciation of securities purchased under collateralized agreements to resell
(2,382
)
 
(1,031
)
Benefit for taxes
525

 
819

Net increase in net assets resulting from operations
82,521

 
77,823

Capital transactions
 
 
 
Net proceeds from shares sold
81,478

 
—

Deferred offering costs
(172
)
 
38

Distributions declared to stockholders from net investment income
(75,132
)
 
(65,095
)
Reinvestment of distributions
4,907

 
1,486

Repurchase of shares under repurchase program
—

 
(2,948
)
Other
(81
)
 
—

Total net increase (decrease) in net assets resulting from capital transactions
11,000

 
(66,519
)
Net increase in net assets
93,521

 
11,304

Net assets at the beginning of the period
938,562

 
836,908

Net assets at the end of the period
$
1,032,083

 
$
848,212

 
 
 
 
Capital share activity
 
 
 
Shares sold
5,750,000

 
—

Shares issued from the reinvestment of distributions
299,632

 
—

Shares reissued from repurchase program in connection with the reinvestment of distributions
37,573

 
107,970

Shares repurchased under repurchase program
—

 
(248,499
)
Net increase (decrease) in shares outstanding
6,087,205

 
(140,529
)



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

New Mountain Finance Corporation
 
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
 
Nine Months Ended
 
September 30, 2017
 
September 30, 2016
Cash flows from operating activities
 
 
 
Net increase in net assets resulting from operations
$
82,521

 
$
77,823

Adjustments to reconcile net (increase) decrease in net assets resulting from operations to net cash provided by (used in) operating activities:
 
 
 
Net realized losses (gains) on investments
39,843

 
(2,191
)
Net change in unrealized (appreciation) depreciation of investments
(48,700
)
 
(10,716
)
Net change in unrealized depreciation (appreciation) of securities purchased under collateralized agreements to resell
2,382

 
1,031

Amortization of purchase discount
(6,458
)
 
(2,342
)
Amortization of deferred financing costs
3,054

 
2,446

Amortization of premium on Convertible Notes
(83
)
 
—

Non-cash investment income
(6,236
)
 
(5,101
)
(Increase) decrease in operating assets:
 
 
 
Purchase of investments and delayed draw facilities
(810,119
)
 
(336,310
)
Proceeds from sales and paydowns of investments
542,563

 
352,607

Cash received for purchase of undrawn portion of revolving credit or delayed draw facilities
339

 
86

Cash paid on drawn revolvers
(11,387
)
 
(10,899
)
Cash repayments on drawn revolvers
12,929

 
8,111

Interest and dividend receivable
(9,967
)
 
(2,822
)
Receivable from unsettled securities sold
(2,506
)
 
—

Receivable from affiliates
7

 
(485
)
Other assets
(2,954
)
 
(299
)
Increase (decrease) in operating liabilities:
 
 
 
Payable for unsettled securities purchased
64,759

 
40,249

Management fee payable
1,087

 
315

Incentive fee payable
828

 
(190
)
Interest payable
2,926

 
2,027

Payable to affiliates
650

 
3

Deferred tax liability
(525
)
 
(819
)
Other liabilities
585

 
311

Net cash flows (used in) provided by operating activities
(144,462
)
 
112,835

Cash flows from financing activities
 
 
 
Net proceeds from shares sold
81,478

 
—

Distributions paid
(70,225
)
 
(63,609
)
Offering costs paid
(441
)
 
(155
)
Proceeds from Holdings Credit Facility
435,750

 
128,500

Repayment of Holdings Credit Facility
(393,100
)
 
(238,900
)
Proceeds from Convertible Notes
—

 
40,552

Proceeds from Unsecured Notes
55,000

 
90,000

Proceeds from SBA-guaranteed debentures
22,255

 
4,000

Proceeds from NMFC Credit Facility
251,100

 
156,500

Repayment of NMFC Credit Facility
(242,100
)
 
(204,000
)
Other
(81
)
 
—

Deferred financing costs paid
(1,456
)
 
(3,083
)
Repurchase of shares under repurchase program
—

 
(2,948
)
Net cash flows provided by (used in) financing activities
138,180

 
(93,143
)
Net (decrease) increase in cash and cash equivalents
(6,282
)
 
19,692

Cash and cash equivalents at the beginning of the period
45,928

 
30,102

Cash and cash equivalents at the end of the period
$
39,646

 
$
49,794

Supplemental disclosure of cash flow information
 
 
 
Cash interest paid
$
20,064

 
$
15,975

Income taxes paid
175

 
11

Non-cash operating activities:
 
 
 
Non-cash activity on investments
$
12,858

 
$
167

Non-cash financing activities:
 
 
 
Value of shares issued in connection with the distribution reinvestment plan
$
4,347

 
$
—

Value of shares reissued from repurchase program in connection with the distribution reinvestment plan
560

 
1,486

Accrual for offering costs
944

 
576

Accrual for deferred financing costs
158

 
371



The accompanying notes are an integral part of these consolidated financial statements.
6
Table of Contents
New Mountain Finance Corporation
 
Consolidated Schedule of Investments
September 30, 2017
(in thousands, except shares)
(unaudited)

Portfolio Company, Location and Industry (1)
 
Type of Investment
 
Interest Rate(9)
 
Maturity / Expiration Date
 
 Principal
 Amount,
 Par Value
 or Shares
 
 Cost
 
 Fair
 Value
 
Percent of Net
Assets
Non-Controlled/Non-Affiliated Investments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Funded Debt Investments - Luxembourg
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pinnacle Holdco S.à.r.l. / Pinnacle (US) Acquisition Co Limited**
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Software
 
First lien (2)
 
6.84% (L + 3.50% + 2.00% PIK/Q)*
 
7/30/2019
 
$
2,984

 
$
2,616

 
$
2,955

 
 
 
 
First lien (3)
 
6.84% (L + 3.50% + 2.00% PIK/Q)*
 
7/30/2019
 
1,719

 
1,515

 
1,702

 
 
 
 
Second lien (2)
 
10.58% (L + 9.25%/Q)
 
7/30/2020
 
24,630

 
24,381

 
23,275

 
 
 
 
Second lien (3)
 
10.58% (L + 9.25%/Q)
 
7/30/2020
 
8,204

 
8,338

 
7,753

 
 
 
 
 
 
 
 
 
 
37,537

 
36,850

 
35,685

 
3.46
 %
Total Funded Debt Investments - Luxembourg
 
 
 
 
 
 
 
$
37,537

 
$
36,850

 
$
35,685

 
3.46
 %
Funded Debt Investments - Netherlands
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Eiger Acquisition B.V. (Eiger Co-Borrower, LLC)**
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Software
 
First lien (2)
 
6.52% (L + 5.25%/Q)
 
2/18/2022
 
$
14,274

 
$
14,282

 
$
14,372

 
 
 
 
Second lien (3)
 
10.40% (L + 9.13%/Q)
 
2/17/2023
 
29,227

 
28,689

 
29,080

 
 
 
 
 
 
 
 
 
 
43,501

 
42,971

 
43,452

 
4.21
 %
Total Funded Debt Investments - Netherlands
 
 
 
 
 
 
 
$
43,501

 
$
42,971

 
$
43,452

 
4.21
 %
Funded Debt Investments - United Kingdom
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Air Newco LLC**
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Software
 
Second lien (3)
 
10.81% (L + 9.50%/Q)
 
1/31/2023
 
$
40,000

 
$
38,998

 
$
39,000

 
3.78
 %
Shine Acquisition Co. S.à.r.l. / Boing US Holdco Inc.**
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer Services
 
Second lien (3)
 
8.73% (L+7.50%/M)
 
10/3/2025
 
40,353

 
40,050

 
40,050

 
3.88
 %
Total Funded Debt Investments - United Kingdom
 
 
 
 
 
 
 
$
80,353

 
$
79,048

 
$
79,050

 
7.66
 %
Funded Debt Investments - United States
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AmWINS Group, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
Second lien (3)
 
7.99% (L + 6.75%/M)
 
1/25/2025
 
$
57,000

 
$
56,800

 
$
58,378

 
5.66
 %
DigiCert Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
First lien (2)
 
 6.24% (L + 5.00%/M)
 
10/21/2021
 
34,374

 
33,873

 
34,589

 
 
 
 
Second lien (3)
 
 9.24% (L + 8.00%/M)
 
10/31/2025
 
20,176

 
20,076

 
20,403

 
 
 
 
 
 
 
 
 
 
54,550

 
53,949

 
54,992

 
5.33
 %
Alegeus Technologies, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Healthcare Services
 
Second lien (3)(10)
 
9.83% (L + 8.50%/Q)
 
10/30/2023
 
23,500

 
23,500

 
23,500

 
 
 
 
Second lien (4)(10)
 
9.83% (L + 8.50%/Q)
 
10/30/2023
 
22,500

 
22,500

 
22,500

 
 
 
 
 
 
 
 
 
 
46,000

 
46,000

 
46,000

 
4.46
 %
Salient CRGT Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Federal Services
 
First lien (2)
 
6.99% (L + 5.75%/M)
 
2/28/2022
 
41,766

 
41,258

 
41,662

 
4.04
 %
Severin Acquisition, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Software
 
Second lien (4)(10)
 
9.99% (L + 8.75%/M)
 
7/29/2022
 
15,000

 
14,887

 
15,000

 
 
 
 
Second lien (3)(10)
 
9.99% (L + 8.75%/M)
 
7/29/2022
 
14,518

 
14,354

 
14,518

 
 
 
 
Second lien (4)(10)
 
9.99% (L + 8.75%/M)
 
7/29/2022
 
4,154

 
4,122

 
4,154

 
 
 
 
Second lien (4)(10)
 
10.49% (L + 9.25%/M)
 
7/29/2022
 
3,273

 
3,246

 
3,273

 
 
 
 
Second lien (3)(10)
 
10.24% (L + 9.00%/M)
 
7/29/2022
 
2,361

 
2,340

 
2,361

 
 
 
 
Second lien (3)(10)
 
10.49% (L + 9.25%/M)
 
7/29/2022
 
1,825

 
1,809

 
1,825

 
 
 
 
Second lien (4)(10)
 
10.49% (L + 9.25%/M)
 
7/29/2022
 
300

 
297

 
300

 
 
 
 
 
 
 
 
 
 
41,431

 
41,055

 
41,431

 
4.01
 %

The accompanying notes are an integral part of these consolidated financial statements.
7
Table of Contents
New Mountain Finance Corporation
 
Consolidated Schedule of Investments (Continued)
September 30, 2017
(in thousands, except shares)
(unaudited)

Portfolio Company, Location and Industry (1)
 
Type of Investment
 
Interest Rate(9)
 
Maturity / Expiration Date
 
 Principal
 Amount,
 Par Value
 or Shares
 
 Cost
 
 Fair
 Value
 
Percent of Net
Assets
PetVet Care Centers LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer Services
 
First lien (2)(10)
 
7.33% (L + 6.00%/Q)
 
6/8/2023
 
$
34,613

 
$
34,491

 
$
34,486

 
 
 
 
First lien (3)(10)(11) - Drawn
 
7.32% (L + 6.00%/Q)
 
6/8/2023
 
5,813

 
5,792

 
5,792

 
 
 
 
First lien (3)(10)(11) - Drawn
 
7.27% (L + 6.00%/Q)
 
6/8/2023
 
605

 
603

 
603

 
 
 
 
 
 
 
 
 
 
41,031

 
40,886

 
40,881

 
3.96
 %
Tenawa Resource Holdings LLC (13)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Tenawa Resource Management LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Energy
 
First lien (3)(10)
 
10.50% (Base + 8.00%/Q)
 
5/12/2019
 
39,900

 
39,831

 
39,900

 
3.87
 %
Frontline Technologies Group Holdings, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Education
 
First lien (2)
 
7.82% (L+ 6.50%Q)
 
9/18/2023
 
16,792

 
16,667

 
16,666

 
 
 
 
First lien (4)
 
7.82% (L+ 6.50%Q)
 
9/18/2023
 
22,670

 
22,501

 
22,500

 
 
 
 
 
 
 
 
 
 
39,462

 
39,168

 
39,166

 
3.79
 %
Kronos Incorporated
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Software
 
Second lien (2)
 
9.56% (L + 8.25%/Q)
 
11/1/2024
 
36,000

 
35,495

 
37,233

 
3.61
 %
VetCor Professional Practices LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer Services
 
First lien (4)(10)
 
7.33% (L + 6.00%/Q)
 
4/20/2021
 
19,160

 
19,036

 
19,160

 
 
 
 
First lien (2)(10)
 
7.33% (L + 6.00%/Q)
 
4/20/2021
 
7,734

 
7,615

 
7,733

 
 
 
 
First lien (3)(10)(11) - Drawn
 
7.33% (L + 6.00%/Q)
 
4/20/2021
 
2,721

 
2,669

 
2,721

 
 
 
 
First lien (4)(10)
 
7.33% (L + 6.00%/Q)
 
4/20/2021
 
2,657

 
2,638

 
2,657

 
 
 
 
First lien (2)(10)
 
7.33% (L + 6.00%/Q)
 
4/20/2021
 
1,636

 
1,608

 
1,636

 
 
 
 
First lien (4)(10)
 
7.33% (L + 6.00%/Q)
 
4/20/2021
 
496

 
488

 
496

 
 
 
 
First lien (3)(10)(11) - Drawn
 
7.33% (L + 6.00%/Q)
 
4/20/2021
 
180

 
178

 
180

 
 
 
 
 
 
 
 
 
 
34,584

 
34,232

 
34,583

 
3.35
 %
Weston Solutions, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
First lien (2)(10)
 
10.74% (L + 9.50%/M)
 
12/31/2020
 
33,214

 
33,214

 
34,211

 
3.31
 %
Valet Waste Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
First lien (2)(10)
 
8.24% (L + 7.00%/M)
 
9/24/2021
 
29,400

 
29,138

 
29,400

 
 
 
 
First lien (2)(10)
 
8.24% (L + 7.00%/M)
 
9/24/2021
 
3,741

 
3,705

 
3,741

 
 
 
 
 
 
 
 
 
 
33,141

 
32,843

 
33,141

 
3.21
 %
Evo Payments International, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
Second lien (2)
 
10.24% (L + 9.00%/M)
 
12/23/2024
 
25,000

 
24,821

 
25,218

 
 
 
 
Second lien (3)
 
10.24% (L + 9.00%/M)
 
12/23/2024
 
5,000

 
5,052

 
5,044

 
 
 
 
 
 
 
 
 
 
30,000

 
29,873

 
30,262

 
2.93
 %
Redbox Automated Retail, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer Services
 
First lien (2)
 
8.74% (L + 7.50%/M)
 
9/27/2021
 
29,258

 
28,963

 
29,441

 
2.85
 %
Integro Parent Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
First lien (2)
 
7.06% (L + 5.75%/Q)
 
10/31/2022
 
19,656

 
19,353

 
19,607

 
 
 
 
Second lien (3)
 
10.56% (L + 9.25%/Q)
 
10/30/2023
 
10,000

 
9,917

 
9,800

 
 
 
 
 
 
 
 
 
 
29,656

 
29,270

 
29,407

 
2.85
 %
Ansira Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
First lien (2)
 
7.83% (L + 6.50%/Q)
 
12/20/2022
 
25,985

 
25,869

 
25,920

 
 
 
 
First lien (3)(11) - Drawn
 
7.82% (L + 6.50%/Q)
 
12/20/2022
 
2,113

 
2,102

 
2,107

 
 
 
 
 
 
 
 
 
 
28,098

 
27,971

 
28,027

 
2.72
 %
Wirepath LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distribution & Logistics
 
First lien (2)
 
6.56% (L + 5.25%/Q)
 
8/5/2024
 
27,800

 
27,663

 
27,948

 
2.71
 %

The accompanying notes are an integral part of these consolidated financial statements.
8
Table of Contents
New Mountain Finance Corporation
 
Consolidated Schedule of Investments (Continued)
September 30, 2017
(in thousands, except shares)
(unaudited)

Portfolio Company, Location and Industry (1)
 
Type of Investment
 
Interest Rate(9)
 
Maturity / Expiration Date
 
 Principal
 Amount,
 Par Value
 or Shares
 
 Cost
 
 Fair
 Value
 
Percent of Net
Assets
TW-NHME Holdings Corp. (20)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
National HME, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Healthcare Services
 
Second lien (4)(10)
 
10.59% (L + 9.25%/Q)
 
7/14/2022
 
$
21,500

 
$
21,292

 
$
21,690

 
 
 
 
Second lien (3)(10)
 
10.59% (L + 9.25%/Q)
 
7/14/2022
 
5,800

 
5,734

 
5,852

 
 
 
 
 
 
 
 
 
 
27,300

 
27,026

 
27,542

 
2.67
 %
Trader Interactive, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
First lien (2)(10)
 
7.48% (L + 6.25%/M)
 
6/17/2024
 
27,259

 
27,061

 
27,054

 
2.62
 %
Marketo, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Software
 
First lien (3)(10)
 
10.83% (L + 9.50%/Q)
 
8/16/2021
 
26,820

 
26,491

 
26,820

 
2.60
 %
nThrive, Inc. (fka Precyse Acquisition Corp.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Healthcare Services
 
Second lien (2)(10)
 
10.99% (L + 9.75%/M)
 
4/20/2023
 
25,000

 
24,628

 
24,808

 
2.40
 %
Keystone Acquisition Corp.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Healthcare Services
 
First lien (2)
 
6.58% (L + 5.25%/Q)
 
5/1/2024
 
20,000

 
19,808

 
20,017

 
 
 
 
Second lien (3)
 
10.58% (L + 9.25%/Q)
 
5/1/2025
 
4,500

 
4,456

 
4,469

 
 
 
 
 
 
 
 
 
 
24,500

 
24,264

 
24,486

 
2.37
 %
iPipeline, Inc. (Internet Pipeline, Inc.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Software
 
First lien (4)(10)
 
8.49% (L + 7.25%/M)
 
8/4/2022
 
17,589

 
17,458

 
17,589

 
 
 
 
First lien (4)(10)
 
7.48% (L + 6.25%/M)
 
8/4/2022
 
4,589

 
4,567

 
4,566

 
 
 
 
First lien (2)(10)
 
7.48% (L + 6.25%/M)
 
8/4/2022
 
1,164

 
1,158

 
1,158

 
 
 
 
First lien (4)(10)
 
7.48% (L + 6.25%/M)
 
8/4/2022
 
512

 
510

 
509

 
 
 
 
 
 
 
 
 
 
23,854

 
23,693

 
23,822

 
2.31
 %
AAC Holding Corp.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Education
 
First lien (2)(10)
 
9.49% (L + 8.25%/M)
 
9/30/2020
 
23,350

 
23,123

 
23,350

 
2.26
 %
TWDiamondback Holdings Corp. (15)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Diamondback Drugs of Delaware, L.L.C. (TWDiamondback II Holdings LLC)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distribution & Logistics
 
First lien (4)(10)
 
10.30% (L + 8.75%/Q)
 
11/19/2019
 
19,895

 
19,895

 
20,094

 
 
 
 
First lien (3)(10)
 
10.09% (L + 8.75%/Q)
 
11/19/2019
 
2,158

 
2,158

 
2,180

 
 
 
 
First lien (4)(10)
 
10.09% (L + 8.75%/Q)
 
11/19/2019
 
605

 
605

 
611

 
 
 
 
 
 
 
 
 
 
22,658

 
22,658

 
22,885

 
2.22
 %
BackOffice Associates Holdings, L.L.C.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
First lien (2)(10)
 
7.74% (L + 6.50%/M)
 
8/25/2023
 
22,927

 
22,729

 
22,726

 
2.20
 %
EN Engineering, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
First lien (2)(10)
 
7.33% (L + 6.00%/Q)
 
6/30/2021
 
20,946

 
20,805

 
20,946

 
 
 
 
First lien (2)(10)
 
7.33% (L + 6.00%/Q)
 
6/30/2021
 
1,211

 
1,202

 
1,211

 
 
 
 
 
 
 
 
 
 
22,157

 
22,007

 
22,157

 
2.15
 %
DiversiTech Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distribution & Logistics
 
Second lien (3)
 
8.84% (L + 7.50%/Q)
 
6/2/2025
 
19,500

 
19,310

 
19,817

 
1.92
 %
DCA Investment Holding, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Healthcare Services
 
First lien (2)(10)
 
6.58% (L + 5.25%/Q)
 
7/2/2021
 
17,498

 
17,381

 
17,498

 
 
 
 
First lien (3)(10)(11) - Drawn
 
8.50% (P + 4.25%/Q)
 
7/2/2021
 
1,025

 
1,015

 
1,025

 
 
 
 
 
 
 
 
 
 
18,523

 
18,396

 
18,523

 
1.79
 %
KeyPoint Government Solutions, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Federal Services
 
First lien (2)(10)
 
7.30% (L + 6.00%/Q)
 
4/18/2024
 
18,652

 
18,475

 
18,465

 
1.79
 %
AgKnowledge Holdings Company, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
Second lien (2)(10)
 
9.49% (L + 8.25%/M)
 
7/23/2020
 
18,500

 
18,401

 
18,315

 
1.77
 %
VF Holding Corp.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Software
 
Second lien (3)(10)
 
10.24% (L + 9.00%/M)
 
6/28/2024
 
17,086

 
17,404

 
17,598

 
1.71
 %

The accompanying notes are an integral part of these consolidated financial statements.
9
Table of Contents
New Mountain Finance Corporation
 
Consolidated Schedule of Investments (Continued)
September 30, 2017
(in thousands, except shares)
(unaudited)

Portfolio Company, Location and Industry (1)
 
Type of Investment
 
Interest Rate(9)
 
Maturity / Expiration Date
 
 Principal
 Amount,
 Par Value
 or Shares
 
 Cost
 
 Fair
 Value
 
Percent of Net
Assets
ProQuest LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
Second lien (3)
 
10.24% (L + 9.00%/M)
 
12/15/2022
 
$
17,220

 
$
16,942

 
$
17,220

 
1.67
 %
TIBCO Software Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Software
 
Subordinated (3)
 
11.38%/S
 
12/1/2021
 
15,000

 
14,700

 
16,463

 
1.60
 %
American Tire Distributors, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distribution & Logistics
 
Subordinated (3)
 
10.25%/S
 
3/1/2022
 
15,520

 
15,257

 
16,261

 
1.58
 %
Hill International, Inc.**
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
First lien (2)(10)
 
6.99% (L + 5.75%/M)
 
6/21/2023
 
15,761

 
15,685

 
15,682

 
1.52
 %
Netsmart Inc. / Netsmart Technologies, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Healthcare Information Technology
 
Second lien (2)
 
10.82% (L + 9.50%/Q)
 
10/19/2023
 
15,000

 
14,676

 
15,075

 
1.46
 %
Transcendia Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Packaging
 
Second lien (3)
 
9.24% (L + 8.00%/M)
 
5/30/2025
 
14,500

 
14,304

 
14,391

 
1.39
 %
SW Holdings, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
Second lien (4)(10)
 
10.08% (L + 8.75%/Q)
 
12/30/2021
 
14,265

 
14,162

 
14,368

 
1.39
 %
Amerijet Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distribution & Logistics
 
First lien (4)(10)
 
9.24% (L + 8.00%/M)
 
7/15/2021
 
12,054

 
11,982

 
12,120

 
 
 
 
First lien (4)(10)
 
9.24% (L + 8.00%/M)
 
7/15/2021
 
2,009

 
1,997

 
2,020

 
 
 
 
 
 
 
 
 
 
14,063

 
13,979

 
14,140

 
1.37
 %
Poseidon Intermediate, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Software
 
Second lien (2)(10)
 
9.81% (L + 8.50%/Q)
 
8/15/2023
 
13,000

 
12,844

 
13,130

 
1.27
 %
Ministry Brands, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Software
 
First lien (3)(10)
 
6.24% (L + 5.00%/M)
 
12/2/2022
 
3,000

 
2,987

 
3,028

 
 
 
 
Second lien (3)(10)
 
10.49% (L + 9.25%/M)
 
6/2/2023
 
7,840

 
7,787

 
7,841

 
 
 
 
Second lien (3)(10)
 
10.49% (L + 9.25%/M)
 
6/2/2023
 
2,160

 
2,145

 
2,160

 
 
 
 
 
 
 
 
 
 
13,000

 
12,919

 
13,029

 
1.26
 %
Peraton Holding Corp. (fka MHVC Acquisition Corp.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Federal Services
 
First lien (2)
 
6.49% (L + 5.25%/M)
 
4/29/2024
 
12,569

 
12,509

 
12,662

 
1.23
 %
FR Arsenal Holdings II Corp.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
First lien (2)(10)
 
8.63% (L + 7.25%/Q)
 
9/8/2022
 
12,388

 
12,279

 
12,388

 
1.20
 %
Xactly Corporation
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Software
 
First lien (4)(10)
 
8.49% (L + 7.25%/M)
 
7/29/2022
 
11,600

 
11,487

 
11,484

 
1.11
 %
Zywave, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Software
 
Second lien (4)(10)
 
10.31% (L + 9.00%/Q)
 
11/17/2023
 
11,000

 
10,925

 
11,026

 
1.07
 %
QC McKissock Investment, LLC (14)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
McKissock, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Education
 
First lien (2)(10)
 
7.58% (L + 6.25%/Q)
 
8/5/2021
 
6,431

 
6,401

 
6,431

 
 
 
 
First lien (2)(10)
 
7.58% (L + 6.25%/Q)
 
8/5/2021
 
3,066

 
3,053

 
3,066

 
 
 
 
First lien (2)(10)
 
7.58% (L + 6.25%/Q)
 
8/5/2021
 
989

 
985

 
989

 
 
 
 
 
 
 
 
 
 
10,486

 
10,439

 
10,486

 
1.02
 %
Masergy Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
Second lien (2)
 
9.83% (L + 8.50%/Q)
 
12/16/2024
 
10,000

 
9,942

 
10,125

 
0.98
 %
Quest Software US Holdings Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Software
 
First lien (2)
 
7.24% (L + 6.00%/M)
 
10/31/2022
 
9,924

 
9,794

 
10,069

 
0.98
 %
PowerPlan Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Software
 
Second lien (2)(10)
 
10.24% (L + 9.00%/M)
 
2/23/2023
 
10,000

 
9,924

 
10,000

 
0.97
 %
Cvent, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Software
 
Second lien (3)(10)
 
11.24% (L + 10.00%/M)
 
5/29/2024
 
10,000

 
9,861

 
9,953

 
0.96
 %

The accompanying notes are an integral part of these consolidated financial statements.
10
Table of Contents
New Mountain Finance Corporation
 
Consolidated Schedule of Investments (Continued)
September 30, 2017
(in thousands, except shares)
(unaudited)

Portfolio Company, Location and Industry (1)
 
Type of Investment
 
Interest Rate(9)
 
Maturity / Expiration Date
 
 Principal
 Amount,
 Par Value
 or Shares
 
 Cost
 
 Fair
 Value
 
Percent of Net
Assets
Idera, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Software
 
Second lien (4)
 
10.24% (L + 9.00%/M)
 
6/27/2025
 
$
10,000

 
$
9,853

 
$
9,913

 
0.96
 %
Pelican Products, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Products
 
Second lien (2)
 
9.58% (L + 8.25%/Q)
 
4/9/2021
 
9,500

 
9,535

 
9,500

 
0.92
 %
WD Wolverine Holdings, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Healthcare Services
 
First lien (2)
 
6.83% (L + 5.50%/Q)
 
8/16/2022
 
9,875

 
9,582

 
9,474

 
0.92
 %
J.D. Power and Associates
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
Second lien (3)
 
9.83% (L + 8.50%/Q)
 
9/7/2024
 
9,333

 
9,227

 
9,473

 
0.92
 %
Harley Marine Services, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distribution & Logistics
 
Second lien (2)
 
10.50% (L + 9.25%/M)
 
12/20/2019
 
9,000

 
8,920

 
8,955

 
0.87
 %
MH Sub I, LLC (Micro Holding Corp.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Software
 
Second lien (3)
 
8.82% (L + 7.50%/Q)
 
9/15/2025
 
7,000

 
6,930

 
6,987

 
0.67
 %
First American Payment Systems, L.P.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
First lien (2)
 
6.98% (L + 5.75%/M)
 
1/5/2024
 
6,906

 
6,843

 
6,912

 
0.67
 %
Solera LLC / Solera Finance, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Software
 
Subordinated (3)
 
10.50%/S
 
3/1/2024
 
5,000

 
4,785

 
5,717

 
0.55
 %
Applied Systems, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Software
 
Second lien (3)
 
8.32% (L + 7.00%/Q)
 
9/19/2025
 
4,923

 
4,923

 
5,065

 
0.49
 %
ADG, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Healthcare Services
 
Second lien (3)(10)
 
10.25% (L + 9.00%/M)
 
3/28/2024
 
5,000

 
4,932

 
5,047

 
0.49
 %
Vencore, Inc. (fka The SI Organization Inc.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Federal Services
 
Second lien (3)
 
10.08% (L + 8.75%/Q)
 
5/23/2020
 
4,400

 
4,345

 
4,450

 
0.43
 %
Affinity Dental Management, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Healthcare Services
 
First lien (2)
 
7.32% (L + 6.00%/Q)
 
9/15/2023
 
4,344

 
4,301

 
4,301

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

 
3,000

 
2,970

 
0.29
 %
Ensemble S Merger Sub, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Software
 
Subordinated (3)
 
9.00%/S
 
9/30/2023
 
2,000

 
1,944

 
2,083

 
0.20
 %
Education Management Corporation (12)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Education Management II LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Education
 
First lien (2)
 
5.80% (L + 4.50%/Q)
 
7/2/2020
 
250

 
242

 
106

 
 
 
 
First lien (3)
 
5.80% (L + 4.50%/Q)
 
7/2/2020
 
141

 
137

 
60

 
 
 
 
First lien (2)
 
8.80% (L + 7.50%/Q)
 
7/2/2020
 
475

 
433

 
10

 
 
 
 
First lien (3)
 
8.80% (L + 7.50%/Q)
 
7/2/2020
 
268

 
245

 
6

 
 
 
 
 
 
 
 
 
 
1,134

 
1,057

 
182

 
0.02
 %
Total Funded Debt Investments - United States
 
 
 
 
 
 
 
$
1,317,688

 
$
1,306,942

 
$
1,324,012

 
128.28
 %
Total Funded Debt Investments
 
 
 
 
 
 
 
$
1,479,079

 
$
1,465,811

 
$
1,482,199

 
143.61
 %
Equity - Hong Kong
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Bach Special Limited (Bach Preference Limited)**
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Education
 
Preferred shares (3)(22)
 
—
 
—
 
58,000

 
$
5,720

 
$
5,720

 
0.56
 %
Total Shares - Hong Kong
 
 
 
 
 
 
 
 
 
$
5,720

 
$
5,720

 
0.56
 %
Equity - United States
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Tenawa Resource Holdings LLC (13)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
QID NGL LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Energy
 
Ordinary shares (7)(10)
 
—
 
—
 
5,290,997

 
$
5,291

 
$
7,759

 
0.75
 %

The accompanying notes are an integral part of these consolidated financial statements.
11
Table of Contents
New Mountain Finance Corporation
 
Consolidated Schedule of Investments (Continued)
September 30, 2017
(in thousands, except shares)
(unaudited)

Portfolio Company, Location and Industry (1)
 
Type of Investment
 
Interest Rate(9)
 
Maturity / Expiration Date
 
 Principal
 Amount,
 Par Value
 or Shares
 
 Cost
 
 Fair
 Value
 
Percent of Net
Assets
TWDiamondback Holdings Corp. (15)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distribution & Logistics
 
Preferred shares (4)(10)
 
—
 
—
 
200

 
$
2,000

 
$
3,142

 
0.30
 %
TW-NHME Holdings Corp. (20)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Healthcare Services
 
Preferred shares (4)(10)
 
—
 
—
 
100

 
1,000

 
1,336

 
 
 
 
Preferred shares (4)(10)
 
—
 
—
 
16

 
158

 
211

 
 
 
 
Preferred shares (4)(10)
 
—
 
—
 
6

 
68

 
81

 
 
 
 
 
 
 
 
 
 
 
 
1,226

 
1,628

 
0.16
 %
Ancora Acquisition LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Education
 
Preferred shares (6)(10)
 
—
 
—
 
372

 
83

 
393

 
0.04
 %
Education Management Corporation (12)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Education
 
Preferred shares (2)
 
—
 
—
 
3,331

 
200

 
 
 
 
 
 
Preferred shares (3)
 
—
 
—
 
1,879

 
113

 
 
 
 
 
 
Ordinary shares (2)
 
—
 
—
 
2,994,065

 
100

 
15

 
 
 
 
Ordinary shares (3)
 
—
 
—
 
1,688,976

 
56

 
8

 
 
 
 
 
 
 
 
 
 
 
 
469

 
23

 
—
 %
Total Shares - United States
 
 
 
 
 
 
 
 
 
$
9,069

 
$
12,945

 
1.25
 %
Total Shares
 
 
 
 
 
 
 
 
 
$
14,789

 
$
18,665

 
1.81
 %
Warrants - United States
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ASP LCG Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Education
 
Warrants (3)(10)
 
—
 
5/5/2026
 
622

 
$
37

 
$
895

 
0.09
 %
Ancora Acquisition LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Education
 
Warrants (6)(10)
 
—
 
8/12/2020
 
20

 
—

 
—

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

 
—

 
—

 
—
 %
Total Warrants - United States
 
 
 
 
 
 
 
 
 
$
37

 
$
895

 
0.09
 %
Total Funded Investments
 
 
 
 
 
 
 
 
 
$
1,480,637

 
$
1,501,759

 
145.51
 %
Unfunded Debt Investments - United States
 
 
 
 
 
 
 
 
 
 
 
 
 
 
VetCor Professional Practices LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer Services
 
First lien (3)(10)(11) - Undrawn
 
—
 
4/20/2021
 
$
2,520

 
$
(25
)
 
$
—

 
 
 
 
First lien (3)(10)(11) - Undrawn
 
—
 
2/24/2019
 
3,291

 
(66
)
 
—

 
 
 
 
 
 
 
 
 
 
5,811

 
(91
)
 
—

 
—
 %
DCA Investment Holding, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Healthcare Services
 
First lien (3)(10)(11) - Undrawn
 
—
 
7/2/2021
 
1,075

 
(11
)
 
—

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

 
(10
)
 
—

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

 
(47
)
 
—

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

 
(27
)
 
—

 
—
 %
Ministry Brands, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Software
 
First lien (3)(10)(11) - Undrawn
 
—
 
12/2/2022
 
1,000

 
(5
)
 
—

 
—
 %

The accompanying notes are an integral part of these consolidated financial statements.
12
Table of Contents
New Mountain Finance Corporation
 
Consolidated Schedule of Investments (Continued)
September 30, 2017
(in thousands, except shares)
(unaudited)

Portfolio Company, Location and Industry (1)
 
Type of Investment
 
Interest Rate(9)
 
Maturity / Expiration Date
 
 Principal
 Amount,
 Par Value
 or Shares
 
 Cost
 
 Fair
 Value
 
Percent of Net
Assets
Weston Solutions, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
First lien (3)(10)(11) - Undrawn
 
—
 
12/31/2020
 
$
10,000

 
$
—

 
$
—

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

 
(9
)
 
(4
)
 
—
 %
Xactly Corporation
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Software
 
First lien (3)(10)(11) - Undrawn
 
—
 
7/29/2022
 
992

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

 
(13
)
 
(13
)
 
—
 %
Zywave, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Software
 
First lien (3)(10)(11) - Undrawn
 
—
 
11/17/2022
 
2,000

 
(15
)
 
(15
)
 
—
 %
PetVet Care Centers LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer Services
 
First lien (3)(10)(11) - Undrawn
 
—
 
6/8/2019
 
7,287

 
(27
)
 
(27
)
 
 
 
 
First lien (3)(10)(11) - Undrawn
 
—
 
6/8/2023
 
1,595

 
(6
)
 
(6
)
 
 
 
 
 
 
 
 
 
 
8,882

 
(33
)
 
(33
)
 
—
 %
BackOffice Associates Holdings, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
First lien (3)(10)(11) - Undrawn
 
—
 
8/24/2018
 
3,447

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

 
(23
)
 
(23
)
 
 
 
 
 
 
 
 
 
 
6,033

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

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

 
(17
)
 
(17
)
 
 
 
 
 
 
 
 
 
 
13,321

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

 
(58
)
 
(58
)
 
(0.01
)%
Total Unfunded Debt Investments - United States
 
 
 
 
 
 
 
$
66,763

 
$
(411
)
 
$
(215
)
 
(0.02
)%
Total Non-Controlled/Non-Affiliated Investments
 
 
 
 
 
 
 
 
 
$
1,480,226

 
$
1,501,544

 
145.49
 %
Non-Controlled/Affiliated Investments (23)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Funded Debt Investments - United States
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Edmentum Ultimate Holdings, LLC (16)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Education
 
Subordinated (3)(10)
 
8.50% PIK/Q*
 
6/9/2020
 
$
4,395

 
$
4,390

 
$
4,395

 
 
 
 
Subordinated (2)(10)
 
10.00% PIK/Q*
 
6/9/2020
 
16,342

 
16,342

 
13,075

 
 
 
 
Subordinated (3)(10)
 
10.00% PIK/Q*
 
6/9/2020
 
4,020

 
4,020

 
3,216

 
 
 
 
 
 
 
 
 
 
24,757

 
24,752

 
20,686

 
2.00
 %
Permian Holdco 1, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Permian Holdco 2, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Energy
 
Subordinated (3)(10)
 
14.00% PIK/Q*
 
10/15/2021
 
1,939

 
1,939

 
1,939

 
0.19
 %
Total Funded Debt Investments - United States
 
 
 
 
 
 
 
$
26,696

 
$
26,691

 
$
22,625

 
2.19
 %

The accompanying notes are an integral part of these consolidated financial statements.
13
Table of Contents
New Mountain Finance Corporation
 
Consolidated Schedule of Investments (Continued)
September 30, 2017
(in thousands, except shares)
(unaudited)

Portfolio Company, Location and Industry (1)
 
Type of Investment
 
Interest Rate(9)
 
Maturity / Expiration Date
 
 Principal
 Amount,
 Par Value
 or Shares
 
 Cost
 
 Fair
 Value
 
Percent of Net
Assets
Equity - United States
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HI Technology Corp.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
Preferred shares (3)(10)(21)
 
—
 
—
 
2,768,000

 
$
105,155

 
$
105,155

 
10.19
 %
NMFC Senior Loan Program I LLC**
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investment Fund
 
Membership interest (3)(10)
 
—
 
—
 
—

 
23,000

 
23,000

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

 
11,501

 
10,911

 
 
 
 
Ordinary shares (3)(10)
 
—
 
—
 
2,786,000

 
1,281

 
1,216

 
 
 
 
 
 
 
 
 
 
 
 
12,782

 
12,127

 
1.18
 %
Permian Holdco 1, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Energy
 
Preferred shares (3)(10)(17)
 
—
 
—
 
1,523,520

 
6,578

 
8,379

 
 
 
 
Ordinary shares (3)(10)
 
—
 
—
 
1,366,452

 
1,350

 
1,682

 
 
 
 
 
 
 
 
 
 
 
 
7,928

 
10,061

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

 
11

 
349

 
 
 
 
Ordinary shares (2)(10)
 
—
 
—
 
107,143

 
9

 
302

 
 
 
 
 
 
 
 
 
 
 
 
20

 
651

 
0.06
 %
Total Shares - United States
 
 
 
 
 
 
 
 
 
$
148,885

 
$
150,994

 
14.63
 %
Total Funded Investments
 
 
 
 
 
 
 
 
 
$
175,576

 
$
173,619

 
16.82
 %
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
 
—
 
6/9/2020
 
$
4,881

 
$
—

 
$
—

 
—
 %
Permian Holdco 1, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Permian Holdco 2, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Energy
 
Subordinated (3)(10)(11) - Undrawn
 
—
 
10/15/2021
 
1,025

 
—

 
—

 
—
 %
Total Unfunded Debt Investments - United States
 
 
 
 
 
 
 
$
5,906

 
$
—

 
$
—

 
—
 %
Total Non-Controlled/Affiliated Investments
 
 
 
 
 
 
 
 
 
$
175,576

 
$
173,619

 
16.82
 %
Controlled Investments (24)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Funded Debt Investments - United States
 
 
 
 
 
 
 
 
 
 
 
 
 
 
UniTek Global Services, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
First lien (2)(10)
 
9.84% (L + 8.50%/Q)
 
1/13/2019
 
$
10,846

 
$
10,846

 
$
10,846

 
 
 
 
First lien (2)(10)
 
9.84% (L + 7.50% + 1.00% PIK/Q)*
 
1/13/2019
 
795

 
795

 
795

 
 
 
 
Subordinated (2)(10)
 
15.00% PIK/Q*
 
7/13/2019
 
1,929

 
1,929

 
1,929

 
 
 
 
Subordinated (3)(10)
 
15.00% PIK/Q*
 
7/13/2019
 
1,154

 
1,154

 
1,154

 
 
 
 
 
 
 
 
 
 
14,724

 
14,724

 
14,724

 
1.43
 %
Total Funded Debt Investments - United States
 
 
 
 
 
 
 
$
14,724

 
$
14,724

 
$
14,724

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

 
$
7,345

 
$
7,685

 
0.74
 %
Total Shares - Canada
 
 
 
 
 
 
 
 
 
$
7,345

 
$
7,685

 
0.74
 %

The accompanying notes are an integral part of these consolidated financial statements.
14
Table of Contents
New Mountain Finance Corporation
 
Consolidated Schedule of Investments (Continued)
September 30, 2017
(in thousands, except shares)
(unaudited)

Portfolio Company, Location and Industry (1)
 
Type of Investment
 
Interest Rate(9)
 
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)
 
—
 
—
 
—

 
$
79,400

 
$
79,400

 
7.69
 %
UniTek Global Services, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
Preferred shares (2)(10)(18)
 
—
 
—
 
21,042,904

 
18,663

 
18,228

 
 
 
 
Preferred shares (3)(10)(18)
 
—
 
—
 
5,815,258

 
5,158

 
5,038

 
 
 
 
Preferred shares (3)(10)(19)
 
—
 
—
 
10,370,962

 
10,371

 
10,371

 
 
 
 
Ordinary shares (2)(10)
 
—
 
—
 
2,096,477

 
1,925

 
7,940

 
 
 
 
Ordinary shares (3)(10)
 
—
 
—
 
1,993,749

 
531

 
7,552

 
 
 
 
 
 
 
 
 
 
 
 
36,648

 
49,129

 
4.76
 %
NM KRLN LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Lease
 
Membership interest (8)(10)
 
—
 
—
 
—

 
7,510

 
7,510

 
0.73
 %
NM DRVT LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Lease
 
Membership interest (8)(10)
 
—
 
—
 
—

 
5,152

 
5,152

 
0.50
 %
NM APP US LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Lease
 
Membership interest (8)(10)
 
—
 
—
 
—

 
5,080

 
5,119

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

 
2,043

 
2,161

 
0.21
 %
Total Shares - United States
 
 
 
 
 
 
 
 
 
$
135,833

 
$
148,471

 
14.39
 %
Total Shares
 
 
 
 
 
 
 
 
 
$
143,178

 
$
156,156

 
15.13
 %
Warrants - United States
 
 
 
 
 
 
 
 
 
 
 
 
 
 
UniTek Global Services, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
Warrants (3)(10)
 
—
 
12/31/2018
 
526,925

 
$
—

 
$
—

 
—
 %
Total Warrants - United States
 
 
 
 
 
 
 
 
 
$
—

 
$
—

 
—
 %
Total Funded Investments
 
 
 
 
 
 
 
 
 
$
157,902

 
$
170,880

 
16.56
 %
Unfunded Debt Investments - United States
 
 
 
 
 
 
 
 
 
 
 
 
 
 
UniTek Global Services, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
 
First lien (3)(10)(11) - Undrawn
 
—
 
1/13/2019
 
$
2,048

 
$
—

 
$
—

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

 
—

 
—

 
 
 
 
 
 
 
 
 
 
2,806

 
—

 
—

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

 
$
—

 
$
—

 
—
 %
Total Controlled Investments
 
 
 
 
 
 
 
 
 
$
157,902

 
$
170,880

 
16.56
 %
Total Investments
 
 
 
 
 
 
 
 
 
$
1,813,704

 
$
1,846,043

 
178.87
 %
 
(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.

The accompanying notes are an integral part of these consolidated financial statements.
15
Table of Contents
New Mountain Finance Corporation
 
Consolidated Schedule of Investments (Continued)
September 30, 2017
(in thousands, except shares)
(unaudited)

(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 September 30, 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 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 two 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) and holds 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.

The accompanying notes are an integral part of these consolidated financial statements.
16
Table of Contents
New Mountain Finance Corporation
 
Consolidated Schedule of Investments (Continued)
September 30, 2017
(in thousands, except shares)
(unaudited)


(23)
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 September 30, 2017 and December 31, 2016, along with transactions during the nine months ended September 30, 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
September 30, 2017
 
Interest
Income
 
Dividend
Income
 
Other
Income
Edmentum Ultimate Holdings, LLC/Edmentum Inc.
 
$
23,247

 
$
7,123

 
$
(5,381
)
 
$
—

 
$
(3,652
)
 
$
21,337

 
$
1,887

 
$
—

 
$
—

HI Technology Corp.
 
—

 
105,155

 
—

 
—

 
—

 
105,155

 
—

 
7,917

 
—

NMFC Senior Loan Program I LLC
 
23,000

 
—

 
—

 
—

 
—

 
23,000

 
—

 
2,662

 
865

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

 
901

 
—

 
—

 
(94
)
 
12,000

 
190

 
708

 
23

Sierra Hamilton Holdings Corporation
 
—

 
12,782

 
—

 
—

 
(655
)
 
12,127

 
—

 
—

 
—

Total Non-Controlled/Affiliated Investments
 
$
57,440

 
$
125,961

 
$
(5,381
)
 
$
—

 
$
(4,401
)
 
$
173,619

 
$
2,077

 
$
11,287

 
$
888

 
(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.
(24)
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 September 30, 2017 and December 31, 2016, along with transactions during the nine months ended September 30, 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
September 30, 2017
 
Interest
Income
 
Dividend
Income
 
Other
Income
New Mountain Net Lease Corporation
 
$
27,000

 
$
—

 
$
(27,000
)
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

NM APP Canada Corp.
 
—

 
7,345

 
—

 
—

 
340

 
7,685

 
—

 
662

 
—

NM APP US LLC
 
—

 
5,080

 
—

 
—

 
39

 
5,119

 
—

 
424

 
—

NM DRVT LLC
 
—

 
5,152

 
—

 
—

 
—

 
5,152

 
—

 
350

 
—

NM JRA LLC
 
—

 
2,043

 
—

 
—

 
118

 
2,161

 
—

 
150

 
—

NM KRLN LLC
 
—

 
7,510

 
—

 
—

 
—

 
7,510

 
—

 
526

 
—

NMFC Senior Loan Program II LLC
 
71,460

 
7,940

 
—

 
—

 
—

 
79,400

 
—

 
9,627

 
—

UniTek Global Services, Inc.
 
56,361

 
13,259

 
(4,006
)
 
—

 
(1,761
)
 
63,853

 
1,293

 
3,016

 
581

Total Controlled Investments
 
$
154,821

 
$
48,329

 
$
(31,006
)
 
$
—

 
$
(1,264
)
 
$
170,880

 
$
1,293

 
$
14,755

 
$
581

 
(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.
**
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 September 30, 2017, 14.9% of the Company’s total investments were non-qualifying assets.

The accompanying notes are an integral part of these consolidated financial statements.
17
Table of Contents
New Mountain Finance Corporation
 
Consolidated Schedule of Investments (Continued)
September 30, 2017
(unaudited)


 
 
September 30, 2017
Investment Type
 
Percent of Total
Investments at Fair Value
First lien
 
41.72
%
Second lien
 
36.83
%
Subordinated
 
3.75
%
Equity and other
 
17.70
%
Total investments
 
100.00
%
 
 
 
September 30, 2017
Industry Type
 
Percent of Total
Investments at Fair Value
Business Services
 
33.41
%
Software
 
21.12
%
Healthcare Services
 
8.76
%
Consumer Services
 
7.85
%
Distribution & Logistics
 
6.13
%
Investment Fund
 
5.55
%
Education
 
5.50
%
Federal Services
 
4.18
%
Energy
 
3.89
%
Net Lease
 
1.50
%
Healthcare Information Technology
 
0.82
%
Packaging
 
0.78
%
Business Products
 
0.51
%
Total investments
 
100.00
%
 
 
 
September 30, 2017
Interest Rate Type
 
Percent of Total
Investments at Fair Value
Floating rates
 
87.97
%
Fixed rates
 
12.03
%
Total investments
 
100.00
%


The accompanying notes are an integral part of these consolidated financial statements.
18
Table of Contents
New Mountain Finance Corporation
 
Consolidated Schedule of Investments
 December 31, 2016
(in thousands, except shares)

Portfolio Company, Location and Industry(1)
 
Type of
Investment
 
Interest Rate(9)
 
Maturity/Expiration
Date
 
Principal
Amount,
Par Value
or Shares
 
Cost
 
Fair Value
 
Percent of
Net
Assets
Non-Controlled/Non-Affiliated Investments
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Funded Debt Investments - Australia
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Project Sunshine IV Pty Ltd**
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Media
 
First lien (2)
 
 8.00% (L + 7.00%/M)
 
9/23/2019
 
$
6,012

 
$
5,992

 
$
6,005

 
0.64
 %
Total Funded Debt Investments - Australia
 
 
 
 
 
 
 
$
6,012

 
$
5,992

 
$
6,005

 
0.64
 %
Funded Debt Investments - Luxembourg
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Pinnacle Holdco S.à.r.l. / Pinnacle (US) Acquisition Co Limited**
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Software
 
Second lien (2)
 
 10.50% (L + 9.25%/Q)
 
7/30/2020
 
$
24,630

 
$
24,362

 
$
18,103

 
 
 
 
Second lien (3)
 
 10.50% (L + 9.25%/Q)
 
7/30/2020
 
8,204

 
8,332

 
6,030

 
 
 
 
 
 
 
 
 
 
32,834

 
32,694

 
24,133

 
2.57
 %
Total Funded Debt Investments - Luxembourg
 
 
 
 
 
 
 
$
32,834

 
$
32,694

 
$
24,133

 
2.57
 %
Funded Debt Investments - Netherlands
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Eiger Acquisition B.V. (Eiger Co-Borrower, LLC)**
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Software
 
Second lien (3)
 
 10.13% (L + 9.13%/Q)
 
2/17/2023
 
$
10,000

 
$
9,371

 
$
9,799

 
1.04
 %
Total Funded Debt Investments - Netherlands
 
 
 
 
 
 
 
$
10,000

 
$
9,371

 
$
9,799

 
1.04
 %
Funded Debt Investments - United Kingdom
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Air Newco LLC**
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Software
 
Second lien (3)
 
 10.50% (L + 9.50%/Q)
 
1/31/2023
 
$
32,500

 
$
31,814

 
$
29,514

 
3.14
 %
Total Funded Debt Investments - United Kingdom
 
 
 
 
 
 
 
$
32,500

 
$
31,814

 
$
29,514

 
3.14
 %
Funded Debt Investments - United States
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   TIBCO Software Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Software
 
First lien (2)
 
6.50% (L + 5.50%/M)
 
12/4/2020
 
$
29,475

 
$
28,444

 
$
29,634

 
 
 
 
Subordinated (3)
 
11.38%/S
 
12/1/2021
 
15,000

 
14,659

 
15,038

 
 
 
 
 
 
 
 
 
 
44,475

 
43,103

 
44,672

 
4.76
 %
   Navex Global, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Software
 
First lien (4)
 
5.99% (L + 4.75%/Q)
 
11/19/2021
 
4,563

 
4,530

 
4,540

 
 
 
 
First lien (2)
 
5.99% (L + 4.75%/Q)
 
11/19/2021
 
2,583

 
2,563

 
2,570

 
 
 
 
Second lien (4)
 
10.31% (L + 8.75%/Q)
 
11/18/2022
 
18,187

 
17,984

 
17,823

 
 
 
 
Second lien (3)
 
10.31% (L + 8.75%/Q)
 
11/18/2022
 
19,813

 
19,282

 
19,417

 
 
 
 
 
 
 
 
 
 
45,146

 
44,359

 
44,350

 
4.73
 %
   Hill International, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Services
 
First lien (2)(10)
 
7.75% (L + 6.75%/Q)
 
9/28/2020
 
41,544

 
41,150

 
41,543

 
4.43
 %
   AssuredPartners, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Services
 
Second lien (3)
 
10.00% (L + 9.00%/M)
 
10/20/2023
 
20,200

 
19,480

 
20,394

 
 
 
 
Second lien (2)
 
10.00% (L + 9.00%/M)
 
10/20/2023
 
20,000

 
19,282

 
20,192

 
 
 
 
 
 
 
 
 
 
40,200

 
38,762

 
40,586

 
4.32
 %
   Tenawa Resource Holdings LLC (13)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Tenawa Resource Management LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Energy
 
First lien (3)(10)
 
10.50% (Base + 8.00%/Q)
 
5/12/2019
 
40,000

 
39,903

 
39,825

 
4.24
 %
   Kronos Incorporated
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Software
 
Second lien (2)
 
9.25% (L + 8.25%/Q)
 
11/1/2024
 
36,000

 
35,458

 
37,159

 
3.96
 %

The accompanying notes are an integral part of these consolidated financial statements.
19
Table of Contents
New Mountain Finance Corporation
 
Consolidated Schedule of Investments (Continued)
 December 31, 2016
(in thousands, except shares)


Portfolio Company, Location and Industry(1)
 
Type of
Investment
 
Interest Rate(9)
 
Maturity/Expiration
Date
 
Principal
Amount,
Par Value
or Shares
 
Cost
 
Fair Value
 
Percent of
Net
Assets
   PetVet Care Centers LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Consumer Services
 
Second lien (3)(10)
 
10.25% (L + 9.25%/Q)
 
6/17/2021
 
$
24,000

 
$
23,820

 
$
24,240

 
 
 
 
Second lien (3)(10)
 
10.50% (L + 9.50%/Q)
 
6/17/2021
 
6,500

 
6,444

 
6,565

 
 
 
 
Second lien (3)(10)
 
9.50% (L + 8.50%/Q)
 
6/17/2021
 
6,000

 
5,910

 
5,910

 
 
 
 
 
 
 
 
 
 
36,500

 
36,174

 
36,715

 
3.91
 %
   Ascend Learning, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Education
 
Second lien (3)
 
9.50% (L + 8.50%/Q)
 
11/30/2020
 
35,227

 
34,895

 
34,963

 
3.73
 %
   Weston Solutions, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Services
 
First lien (2)(10)
 
10.50% (L + 9.50%/M)
 
12/31/2020
 
34,821

 
34,821

 
34,821

 
3.71
 %
   Redbox Automated Retail, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Consumer Services
 
First lien (2)
 
8.50% (L + 7.50%/Q)
 
9/27/2021
 
33,469

 
32,987

 
32,601

 
3.47
 %
   Valet Waste Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Services
 
First lien (2)(10)
 
8.00% (L + 7.00%/Q)
 
9/24/2021
 
29,625

 
29,320

 
29,625

 
 
 
 
First lien (3)(10)(11) - Drawn
 
8.00% (L + 7.00%/Q)
 
9/24/2021
 
2,250

 
2,222

 
2,250

 
 
 
 
 
 
 
 
 
 
31,875

 
31,542

 
31,875

 
3.40
 %
   VetCor Professional Practices LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Consumer Services
 
First lien (4)(10)
 
7.25% (L + 6.25%/Q)
 
4/20/2021
 
19,306

 
19,159

 
19,306

 
 
 
 
First lien (2)(10)
 
7.25% (L + 6.25%/Q)
 
4/20/2021
 
7,793

 
7,652

 
7,793

 
 
 
 
First lien (4)(10)
 
7.25% (L + 6.25%/Q)
 
4/20/2021
 
2,677

 
2,655

 
2,677

 
 
 
 
First lien (4)(10)
(11) - Drawn
 
7.25% (L + 6.25%/Q)
 
4/20/2021
 
373

 
365

 
373

 
 
 
 
 
 
 
 
 
 
30,149

 
29,831

 
30,149

 
3.21
 %
   Integro Parent Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Services
 
First lien (2)
 
6.75% (L + 5.75%/Q)
 
10/31/2022
 
19,806

 
19,463

 
19,607

 
 
 
 
Second lien (3)
 
10.25% (L + 9.25%/Q)
 
10/30/2023
 
10,000

 
9,910

 
9,750

 
 
 
 
 
 
 
 
 
 
29,806

 
29,373

 
29,357

 
3.13
 %
   ProQuest LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Services
 
Second lien (3)
 
10.00% (L + 9.00%/M)
 
12/15/2022
 
28,700

 
28,188

 
28,700

 
3.06
 %
   CRGT Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Federal Services
 
First lien (2)
 
7.50% (L + 6.50%/M)
 
12/19/2020
 
27,409

 
27,252

 
27,478

 
2.93
 %
   Evo Payments International, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Services
 
First lien (2)
 
6.00% (L + 5.00%/M)
 
12/22/2023
 
2,500

 
2,487

 
2,515

 
 
 
 
Second lien (2)
 
10.00% (L + 9.00%/M)
 
12/23/2024
 
25,000

 
24,813

 
24,813

 
 
 
 
 
 
 
 
 
 
27,500

 
27,300

 
27,328

 
2.91
 %
   Severin Acquisition, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Software
 
Second lien (4)(10)
 
9.75% (L + 8.75%/Q)
 
7/29/2022
 
15,000

 
14,873

 
15,000

 
 
 
 
Second lien (4)(10)
 
9.75% (L + 8.75%/Q)
 
7/29/2022
 
4,154

 
4,118

 
4,154

 
 
 
 
Second lien (4)(10)
 
10.25% (L + 9.25%/Q)
 
7/29/2022
 
3,273

 
3,243

 
3,305

 
 
 
 
Second lien (3)(10)
 
10.00% (L + 9.00%/Q)
 
7/29/2022
 
2,361

 
2,338

 
2,384

 
 
 
 
Second lien (3)(10)
 
10.25% (L + 9.25%/Q)
 
7/29/2022
 
1,825

 
1,807

 
1,843

 
 
 
 
Second lien (4)(10)
 
10.25% (L + 9.25%/Q)
 
7/29/2022
 
300

 
297

 
303

 
 
 
 
 
 
 
 
 
 
26,913

 
26,676

 
26,989

 
2.88
 %
   Marketo, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Software
 
First lien (3)(10)
 
10.50% (L + 9.50%/Q)
 
8/16/2021
 
26,820

 
26,442

 
26,418

 
2.81
 %
   Ansira Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Services
 
First lien (2)
 
7.50% (L + 6.50%/Q)
 
12/20/2022
 
26,182

 
26,051

 
26,051

 
2.78
 %

The accompanying notes are an integral part of these consolidated financial statements.
20
Table of Contents
New Mountain Finance Corporation
 
Consolidated Schedule of Investments (Continued)
 December 31, 2016
(in thousands, except shares)


Portfolio Company, Location and Industry(1)
 
Type of
Investment
 
Interest Rate(9)
 
Maturity/Expiration
Date
 
Principal
Amount,
Par Value
or Shares
 
Cost
 
Fair Value
 
Percent of
Net
Assets
   Pelican Products, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Products
 
Second lien (3)
 
9.25% (L + 8.25%/Q)
 
4/9/2021
 
$
15,500

 
$
15,506

 
$
15,170

 
 
 
 
Second lien (2)
 
9.25% (L + 8.25%/Q)
 
4/9/2021
 
10,000

 
10,107

 
9,788

 
 
 
 
 
 
 
 
 
 
25,500

 
25,613

 
24,958

 
2.66
 %
   DigiCert Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Software
 
First lien (2)
 
6.00% (L + 5.00%/Q)
 
10/21/2021
 
24,750

 
24,134

 
24,719

 
2.63
 %
   nThrive, Inc. (fka Precyse Acquisition Corp.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Healthcare Services
 
Second lien (2)(10)
 
10.75% (L + 9.75%/M)
 
4/20/2023
 
25,000

 
24,593

 
24,711

 
2.63
 %
   AAC Holding Corp.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Education
 
First lien (2)(10)
 
8.25% (L + 7.25%/M)
 
9/30/2020
 
23,918

 
23,637

 
23,918

 
2.55
 %
   Ryan, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Services
 
First lien (2)
 
6.75% (L + 5.75%/M)
 
8/7/2020
 
23,927

 
23,656

 
23,785

 
2.53
 %
   EN Engineering, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Services
 
First lien (2)(10)
 
7.00% (L + 6.00%/Q)
 
6/30/2021
 
21,107

 
20,940

 
21,107

 
 
 
 
First lien (2)(10)
 
7.78% (Base + 5.55%/Q)
 
6/30/2021
 
2,189

 
2,170

 
2,189

 
 
 
 
 
 
 
 
 
 
23,296

 
23,110

 
23,296

 
2.48
 %
   TWDiamondback Holdings Corp. (15)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Diamondback Drugs of Delaware, L.L.C. (TWDiamondback II Holdings LLC)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Distribution & Logistics
 
First lien (4)(10)
 
9.75% (L + 8.75%/Q)
 
11/19/2019
 
19,895

 
19,895

 
19,895

 
 
 
 
First lien (3)(10)
 
9.75% (L + 8.75%/Q)
 
11/19/2019
 
2,158

 
2,158

 
2,158

 
 
 
 
First lien (4)(10)
 
9.75% (L + 8.75%/Q)
 
11/19/2019
 
605

 
605

 
605

 
 
 
 
 
 
 
 
 
 
22,658

 
22,658

 
22,658

 
2.41
 %
   Vision Solutions, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Software
 
First lien (2)
 
7.50% (Base + 6.50%/Q)
 
6/16/2022
 
22,359

 
22,153

 
22,317

 
2.38
 %
   KeyPoint Government Solutions, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Federal Services
 
First lien (2)
 
7.75% (L + 6.50%/Q)
 
11/13/2017
 
22,411

 
22,312

 
22,299

 
2.38
 %
   TW-NHME Holdings Corp. (20)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   National HME, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Healthcare Services
 
Second lien (4)(10)
 
10.25% (L + 9.25%/Q)
 
7/14/2022
 
21,500

 
21,268

 
21,500

 
 
 
 
Second lien (3)(10)
 
10.25% (L + 9.25%/Q)
 
7/14/2022
 
500

 
494

 
500

 
 
 
 
 
 
 
 
 
 
22,000

 
21,762

 
22,000

 
2.34
 %
   IT'SUGAR LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Retail
 
First lien (4)(10)
 
10.50% (L + 9.50%/Q)
 
10/23/2019
 
20,790

 
20,189

 
20,467

 
2.18
 %
   First American Payment Systems, L.P.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Services
 
Second lien (2)
 
10.75% (L + 9.50%/M)
 
4/12/2019
 
18,643

 
18,483

 
18,643

 
1.99
 %
   DCA Investment Holding, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Healthcare Services
 
First lien (2)(10)
 
6.25% (L + 5.25%/Q)
 
7/2/2021
 
17,632

 
17,493

 
17,632

 
 
 
 
First lien (3)(10)(11) - Drawn
 
8.00% (P + 4.25%/Q)
 
7/2/2021
 
752

 
744

 
752

 
 
 
 
 
 
 
 
 
 
18,384

 
18,237

 
18,384

 
1.96
 %
   AgKnowledge Holdings Company, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Services
 
Second lien (2)(10)
 
9.25% (L + 8.25%/M)
 
7/23/2020
 
18,500

 
18,379

 
18,046

 
1.92
 %
   Project Alpha Intermediate Holding, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Software
 
First lien (2)(10)
 
9.25% (L + 8.25%/M)
 
8/22/2022
 
17,955

 
17,784

 
17,775

 
1.89
 %
   iPipeline, Inc. (Internet Pipeline, Inc.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Software
 
First lien (4)(10)
 
8.25% (L + 7.25%/Q)
 
8/4/2022
 
17,775

 
17,626

 
17,775

 
1.89
 %

The accompanying notes are an integral part of these consolidated financial statements.
21
Table of Contents
New Mountain Finance Corporation
 
Consolidated Schedule of Investments (Continued)
 December 31, 2016
(in thousands, except shares)


Portfolio Company, Location and Industry(1)
 
Type of
Investment
 
Interest Rate(9)
 
Maturity/Expiration
Date
 
Principal
Amount,
Par Value
or Shares
 
Cost
 
Fair Value
 
Percent of
Net
Assets
   Sierra Hamilton LLC / Sierra Hamilton Finance, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Energy
 
First lien (2)(10)
 
12.25%/S (8)
 
12/15/2018
 
$
25,000

 
$
25,000

 
$
16,012

 
 
 
 
First lien (3)(10)
 
12.25%/S (8)
 
12/15/2018
 
2,660

 
2,231

 
1,704

 
 
 
 
 
 
 
 
 
 
27,660

 
27,231

 
17,716

 
1.89
 %
   Greenway Health, LLC (fka Vitera Healthcare Solutions, LLC)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Software
 
First lien (2)
 
6.00% (L + 5.00%/Q)
 
11/4/2020
 
1,891

 
1,880

 
1,865

 
 
 
 
Second lien (2)
 
9.25% (L + 8.25%/Q)
 
11/4/2021
 
14,000

 
13,448

 
13,650

 
 
 
 
 
 
 
 
 
 
15,891

 
15,328

 
15,515

 
1.65
 %
   YP Holdings LLC / Print Media Holdings LLC (12)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   YP LLC / Print Media LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Media
 
First lien (2)
 
12.25% (L + 11.00%/M)
 
6/4/2018
 
15,267

 
15,197

 
15,191

 
1.62
 %
   Netsmart Inc. / Netsmart Technologies, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Healthcare Information Technology
 
Second lien (2)
 
10.50% (L + 9.50%/Q)
 
10/19/2023
 
15,000

 
14,648

 
14,944

 
1.59
 %
   Cvent, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Software
 
First lien (3)
 
6.00% (L + 5.00%/Q)
 
11/29/2023
 
5,000

 
4,963

 
5,064

 
 
 
 
Second lien (3)(10)
 
11.00% (L + 10.00%/Q)
 
5/29/2024
 
10,000

 
9,851

 
9,850

 
 
 
 
 
 
 
 
 
 
15,000

 
14,814

 
14,914

 
1.59
 %
   Amerijet Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Distribution & Logistics
 
First lien (4)(10)
 
9.00% (L + 8.00%/M)
 
7/15/2021
 
12,536

 
12,449

 
12,442

 
 
 
 
First lien (4)(10)
 
9.00% (L + 8.00%/M)
 
7/15/2021
 
2,089

 
2,075

 
2,074

 
 
 
 
 
 
 
 
 
 
14,625

 
14,524

 
14,516

 
1.55
 %
   SW Holdings, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Services
 
Second lien (4)(10)
 
9.75% (L + 8.75%/Q)
 
12/30/2021
 
14,265

 
14,147

 
14,265

 
1.52
 %
   Poseidon Intermediate, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Software
 
Second lien (2)(10)
 
9.50% (L + 8.50%/Q)
 
8/15/2023
 
13,000

 
12,829

 
13,000

 
1.39
 %
   Zywave, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Software
 
Second lien (4)
 
10.00% (L + 9.00%/Q)
 
11/17/2023
 
11,000

 
10,918

 
10,918

 
1.16
 %
   Aricent Technologies
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Services
 
Second lien (2)
 
9.50% (L + 8.50%/Q)
 
4/14/2022
 
12,500

 
12,316

 
10,719

 
1.14
 %
   QC McKissock Investment, LLC (14)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   McKissock, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Education
 
First lien (2)(10)
 
7.50% (L + 6.50%/Q)
 
8/5/2019
 
6,463

 
6,421

 
6,463

 
 
 
 
First lien (2)(10)
 
7.50% (L + 6.50%/Q)
 
8/5/2019
 
3,081

 
3,064

 
3,081

 
 
 
 
First lien (2)(10)
 
7.50% (L + 6.50%/Q)
 
8/5/2019
 
994

 
988

 
994

 
 
 
 
 
 
 
 
 
 
10,538

 
10,473

 
10,538

 
1.12
 %
   Quest Software US Holdings Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Software
 
First lien (2)
 
7.00% (L + 6.00%/Q)
 
10/31/2022
 
10,000

 
9,854

 
10,152

 
1.08
 %
   Masergy Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Services
 
Second lien (2)
 
9.50% (L + 8.50%/Q)
 
12/16/2024
 
10,000

 
9,938

 
10,000

 
1.07
 %
   PowerPlan Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Software
 
Second lien (2)(10)
 
10.00% (L + 9.00%/M)
 
2/23/2023
 
10,000

 
9,916

 
10,000

 
1.07
 %
   FR Arsenal Holdings II Corp.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Services
 
First lien (2)(10)
 
8.25% (L + 7.25%/Q)
 
9/8/2022
 
9,975

 
9,879

 
9,875

 
1.05
 %
   American Tire Distributors, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Distribution & Logistics
 
Subordinated (3)
 
10.25%/S
 
3/1/2022
 
9,700

 
9,523

 
9,353

 
1.00
 %
   Harley Marine Services, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Distribution & Logistics
 
Second lien (2)
 
10.50% (L + 9.25%/Q)
 
12/20/2019
 
9,000

 
8,897

 
8,640

 
0.92
 %

The accompanying notes are an integral part of these consolidated financial statements.
22
Table of Contents
New Mountain Finance Corporation
 
Consolidated Schedule of Investments (Continued)
 December 31, 2016
(in thousands, except shares)


Portfolio Company, Location and Industry(1)
 
Type of
Investment
 
Interest Rate(9)
 
Maturity/Expiration
Date
 
Principal
Amount,
Par Value
or Shares
 
Cost
 
Fair Value
 
Percent of
Net
Assets
   Ministry Brands, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Software
 
First lien (3)(11) - Drawn
 
6.00% (L + 5.00%/Q)
 
12/2/2022
 
$
350

 
$
348

 
$
348

 
 
 
 
Second lien (3)
 
10.25% (L + 9.25%/Q)
 
6/2/2023
 
7,840

 
7,782

 
7,781

 
 
 
 
 
 
 
 
 
 
8,190

 
8,130

 
8,129

 
0.87
 %
   Lonestar Intermediate Super Holdings, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Services
 
Subordinated (3)
 
10.00% (L + 9.00%/M)
 
8/31/2021
 
7,000

 
6,934

 
7,210

 
0.77
 %
   J.D. Power and Associates
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Services
 
Second lien (3)
 
9.50% (L + 8.50%/Q)
 
9/7/2024
 
7,000

 
6,898

 
7,035

 
0.75
 %
   Confie Seguros Holding II Co.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Consumer Services
 
Second lien (2)
 
10.25% (L + 9.00%/M)
 
5/8/2019
 
6,957

 
6,952

 
6,919

 
0.74
 %
   Sotera Defense Solutions, Inc. (Global Defense Technology & Systems, Inc.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Federal Services
 
First lien (2)
 
9.00% (L + 7.50%/Q)
 
4/21/2017
 
6,396

 
6,389

 
6,300

 
0.67
 %
   Solera LLC / Solera Finance, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Software
 
Subordinated (3)
 
10.50%/S
 
3/1/2024
 
5,000

 
4,768

 
5,650

 
0.60
 %
   VF Holding Corp.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Software
 
Second lien (3)
 
10.00% (L + 9.00%/Q)
 
6/28/2024
 
5,000

 
4,952

 
4,950

 
0.53
 %
   ADG, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Healthcare Services
 
Second lien (3)(10)
 
10.00% (L + 9.00%/Q)
 
3/28/2024
 
5,000

 
4,926

 
4,925

 
0.53
 %
   Vencore, Inc. (fka The SI Organization Inc.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Federal Services
 
Second lien (3)
 
9.75% (L + 8.75%/Q)
 
5/23/2020
 
4,000

 
3,928

 
4,039

 
0.43
 %
   Transtar Holding Company
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Distribution & Logistics
 
Second lien (3)
 
13.50% (P + 9.75%/Q) (8)
 
10/9/2019
 
36,112

 
3,155

 
2,167

 
 
 
 
Second lien (2)
 
13.50% (P + 9.75%/Q) (8)
 
10/9/2019
 
28,300

 
28,011

 
1,698

 
 
 
 
 
 
 
 
 
 
64,412

 
31,166

 
3,865

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

 
3,000

 
2,520

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

 
1,939

 
2,135

 
0.23
 %
   Education Management Corporation (19)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Education Management II LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Education
 
First lien (2)
 
5.50% (L + 4.50%/Q)
 
7/2/2020
 
250

 
239

 
61

 
 
 
 
First lien (3)
 
5.50% (L + 4.50%/Q)
 
7/2/2020
 
141

 
136

 
35

 
 
 
 
First lien (2)
 
8.50% (L + 1.00% + 6.50% PIK/Q)*
 
7/2/2020
 
467

 
416

 
22

 
 
 
 
First lien (3)
 
8.50% (L + 1.00% + 6.50% PIK/Q)*
 
7/2/2020
 
263

 
235

 
12

 
 
 
 
 
 
 
 
 
 
1,121

 
1,026

 
130

 
0.01
 %
Total Funded Debt Investments - United States
 
 
 
 
 
 
 
$
1,339,099

 
$
1,290,033

 
$
1,261,394

 
134.41
 %
Total Funded Debt Investments
 
 
 
 
 
 
 
$
1,420,445

 
$
1,369,904

 
$
1,330,845

 
141.80
 %
Equity - United States
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Tenawa Resource Holdings LLC (13)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   QID NGL LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Energy
 
Ordinary shares (7)(10)
 
—
 
—
 
5,290,997

 
$
5,291

 
$
6,434

 
0.69
 %
   TWDiamondback Holdings Corp. (15)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Distribution & Logistics
 
Preferred shares (4)(10)
 
—
 
—
 
200

 
2,000

 
2,664

 
0.28
 %

The accompanying notes are an integral part of these consolidated financial statements.
23
Table of Contents
New Mountain Finance Corporation
 
Consolidated Schedule of Investments (Continued)
 December 31, 2016
(in thousands, except shares)


Portfolio Company, Location and Industry(1)
 
Type of
Investment
 
Interest Rate(9)
 
Maturity/Expiration
Date
 
Principal
Amount,
Par Value
or Shares
 
Cost
 
Fair Value
 
Percent of
Net
Assets
   TW-NHME Holdings Corp. (20)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Healthcare Services
 
Preferred shares (4)(10)
 
—
 
—
 
100

 
$
1,000

 
$
1,497

 
 
 
 
Preferred shares (4)(10)
 
—
 
—
 
16

 
158

 
236

 
 
 
 
Preferred shares (4)(10)
 
—
 
—
 
6

 
68

 
91

 
 
 
 
 
 
 
 
 
 
 
 
1,226

 
1,824

 
0.19
 %
   Ancora Acquisition LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Education
 
Preferred shares (6)(10)
 
—
 
—
 
372

 
83

 
393

 
0.04
 %
   Education Management Corporation (19)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Education
 
Preferred shares (2)
 
—
 
—
 
3,331

 
200

 
1

 
 
 
 
Preferred shares (3)
 
—
 
—
 
1,879

 
113

 
1

 
 
 
 
Ordinary shares (2)
 
—
 
—
 
2,994,065

 
100

 
18

 
 
 
 
Ordinary shares (3)
 
—
 
—
 
1,688,976

 
56

 
10

 
 
 
 
 
 
 
 
 
 
 
 
469

 
30

 
—
 %
Total Shares - United States
 
 
 
 
 
 
 
 
 
$
9,069

 
$
11,345

 
1.20
 %
Warrants - United States
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   YP Holdings LLC / Print Media Holdings LLC (12)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   YP Equity Investors LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Media
 
Warrants (5)(10)
 
—
 
5/8/2022
 
5

 
$
—

 
$
2,966

 
0.32
 %
   IT'SUGAR LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Retail
 
Warrants (3)(10)
 
—
 
10/23/2025
 
94,672

 
817

 
549

 
0.06
 %
   ASP LCG Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Education
 
Warrants (3)(10)
 
—
 
5/5/2026
 
622

 
37

 
949

 
0.10
 %
   Ancora Acquisition LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Education
 
Warrants (6)(10)
 
—
 
8/12/2020
 
20

 
—

 
—

 
—
 %
Total Warrants - United States
 
 
 
 
 
 
 
 
 
$
854

 
$
4,464

 
0.48
 %
Total Funded Investments
 
 
 
 
 
 
 
 
 
$
1,379,827

 
$
1,346,654

 
143.48
 %
Unfunded Debt Investments - United States
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Mister Car Wash Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Consumer Services
 
First lien (3)(11) - Undrawn
 
—
 
12/14/2017
 
$
1,667

 
$
(13
)
 
$
8

 
—
 %
   DCA Investment Holding, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Healthcare Services
 
First lien (3)(10)(11) - Undrawn
 
—
 
7/2/2021
 
1,348

 
(13
)
 
—

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

 
(10
)
 
—

 
—
 %
   Valet Waste Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Services
 
First lien (3)(10)(11) - Undrawn
 
—
 
9/24/2021
 
1,500

 
(19
)
 
—

 
—
 %
   VetCor Professional Practices LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Consumer Services
 
First lien (3)(10)(11) - Undrawn
 
—
 
4/20/2021
 
2,700

 
(27
)
 
—

 
 
 
 
First lien (4)(10)(11) - Undrawn
 
—
 
3/30/2018
 
127

 
(3
)
 
—

 
 
 
 
First lien (2)(10)(11) - Undrawn
 
—
 
6/22/2018
 
1,644

 
(33
)
 
—

 
 
 
 
 
 
 
 
 
 
4,471

 
(63
)
 
—

 
—
 %
   Weston Solutions, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Services
 
First lien (3)(10)(11) - Undrawn
 
—
 
12/31/2020
 
10,000

 
—

 
—

 
—
 %

The accompanying notes are an integral part of these consolidated financial statements.
24
Table of Contents
New Mountain Finance Corporation
 
Consolidated Schedule of Investments (Continued)
 December 31, 2016
(in thousands, except shares)


Portfolio Company, Location and Industry(1)
 
Type of
Investment
 
Interest Rate(9)
 
Maturity/Expiration
Date
 
Principal
Amount,
Par Value
or Shares
 
Cost
 
Fair Value
 
Percent of
Net
Assets
   Zywave, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Software
 
First lien (3)(11) - Undrawn
 
—
 
11/17/2022
 
$
2,000

 
$
(15
)
 
$
(15
)
 
—
 %
   Ansira Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Services
 
First lien (3)(11) - Undrawn
 
—
 
12/20/2018
 
3,818

 
(19
)
 
(19
)
 
—
 %
   Marketo, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Software
 
First lien (3)(10)(11) - Undrawn
 
—
 
8/16/2021
 
1,788

 
(27
)
 
(27
)
 
—
 %
   Ministry Brands, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Software
 
First lien (3)(11) - Undrawn
 
—
 
12/2/2022
 
650

 
(3
)
 
(3
)
 
 
 
 
First lien (3)(11) - Undrawn
 
—
 
12/2/2017
 
5,169

 
(26
)
 
(26
)
 
 
 
 
Second lien (3)(11) - Undrawn
 
—
 
12/2/2017
 
2,160

 
(16
)
 
(16
)
 
 
 
 
 
 
 
 
 
 
7,979

 
(45
)
 
(45
)
 
(0.01
)%
Total Unfunded Debt Investments - United States
 
 
 
 
 
 
 
$
35,571

 
(224
)
 
$
(98
)
 
(0.01
)%
Total Non-Controlled/Non-Affiliated Investments
 
 
 
 
 
 
 
 
 
$
1,379,603

 
$
1,346,556

 
143.47
 %
Non-Controlled/Affiliated Investments(22)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Funded Debt Investments - United States
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Edmentum Ultimate Holdings, LLC (16)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Education
 
Subordinated (3)(10)
 
8.50% PIK/Q*
 
6/9/2020
 
$
4,124

 
$
4,118

 
$
4,124

 
 
 
 
Subordinated (2)(10)
 
10.00% PIK/Q*
 
6/9/2020
 
15,163

 
15,163

 
12,814

 
 
 
 
Subordinated (3)(10)
 
10.00% PIK/Q*
 
6/9/2020
 
3,730

 
3,730

 
3,152

 
 
 
 
 
 
 
 
 
 
23,017

 
23,011

 
20,090

 
2.14
 %
   Permian Holdco 1, Inc. (21)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Permian Holdco 2, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Energy
 
Subordinated (3)(10)
 
14.00% PIK/Q*
 
10/15/2021
 
1,749

 
1,749

 
1,749

 
0.19
 %
Total Funded Debt Investments - United States
 
 
 
 
 
 
 
$
24,766

 
$
24,760

 
$
21,839

 
2.33
 %
Equity - United States
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   NMFC Senior Loan Program I LLC**
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Investment Fund
 
Membership interest (3)(10)
 
—
 
—
 
—

 
$
23,000

 
$
23,000

 
2.45
 %
   Permian Holdco 1, Inc. (21)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Energy
 
Preferred shares (3)(10)(17)
 
—
 
—
 
1,394,237

 
5,866

 
7,668

 
 
 
 
Ordinary shares (3)(10)
 
—
 
—
 
1,366,452

 
1,350

 
1,776

 
 
 
 
 
 
 
 
 
 
 
 
7,216

 
9,444

 
1.00
 %
   Edmentum Ultimate Holdings, LLC (16)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Education
 
Ordinary shares (3)(10)
 
—
 
—
 
123,968

 
11

 
1,693

 
 
 
 
Ordinary shares (2)(10)
 
—
 
—
 
107,143

 
9

 
1,464

 
 
 
 
 
 
 
 
 
 
 
 
20

 
3,157

 
0.34
 %
Total Shares - United States
 
 
 
 
 
 
 
 
 
$
30,236

 
$
35,601

 
3.79
 %

The accompanying notes are an integral part of these consolidated financial statements.
25
Table of Contents
New Mountain Finance Corporation
 
Consolidated Schedule of Investments (Continued)
 December 31, 2016
(in thousands, except shares)


Portfolio Company, Location and Industry(1)
 
Type of
Investment
 
Interest Rate(9)
 
Maturity/Expiration
Date
 
Principal
Amount,
Par Value
or Shares
 
Cost
 
Fair Value
 
Percent of
Net
Assets
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
 
—
 
6/9/2020
 
$
4,881

 
$
—

 
$
—

 
—
 %
   Permian Holdco 1, Inc. (21)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Permian Holdco 2, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Energy
 
Subordinated (3)(10)(11) - Undrawn
 
—
 
10/15/2021
 
1,025

 
—

 
—

 
—
 %
Total Unfunded Debt Investments - United States
 
 
 
 
 
 
 
$
5,906

 
$
—

 
$
—

 
—
 %
Total Non-Controlled/Affiliated Investments
 
 
 
 
 
 
 
 
 
$
54,996

 
$
57,440

 
6.12
 %
Controlled Investments(23)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Funded Debt Investments - United States
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   UniTek Global Services, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Services
 
First lien (2)(10)
 
8.50% (L + 7.50%/Q)
 
1/13/2019
 
$
10,846

 
$
10,846

 
$
11,063

 
 
 
 
First lien (2)(10)
 
9.50% (L + 7.50% + 1.00% PIK/Q)*
 
1/13/2019
 
4,784

 
4,784

 
4,879

 
 
 
 
Subordinated (2)(10)
 
15.00% PIK/Q*
 
7/13/2019
 
1,726

 
1,726

 
1,760

 
 
 
 
Subordinated (3)(10)
 
15.00% PIK/Q*
 
7/13/2019
 
1,032

 
1,032

 
1,054

 
 
 
 
 
 
 
 
 
 
18,388

 
18,388

 
18,756

 
2.00
 %
Total Funded Debt Investments - United States
 
 
 
 
 
 
 
$
18,388

 
$
18,388

 
$
18,756

 
2.00
 %
Equity - United States
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   NMFC Senior Loan Program II LLC**
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Investment Fund
 
Membership interest (3)(10)
 
—
 
—
 
—

 
$
71,460

 
$
71,460

 
7.61
 %
   UniTek Global Services, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Services
 
Preferred shares (2)(10)(18)
 
—
 
—
 
19,048,426

 
16,668

 
17,207

 
 
 
 
Preferred shares (3)(10)(18)
 
—
 
—
 
5,264,079

 
4,606

 
4,755

 
 
 
 
Ordinary shares (2)(10)
 
—
 
—
 
2,096,477

 
1,925

 
12,256

 
 
 
 
Ordinary shares (3)(10)
 
—
 
—
 
579,366

 
532

 
3,387

 
 
 
 
 
 
 
 
 
 
 
 
23,731

 
37,605

 
4.01
 %
   New Mountain Net Lease Corporation
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Net Lease
 
Ordinary shares (3)(10)
 
—
 
—
 
270,000

 
27,000

 
27,000

 
2.88
 %
Total Shares - United States
 
 
 
 
 
 
 
 
 
$
122,191

 
$
136,065

 
14.50
 %
Total Funded Investments
 
 
 
 
 
 
 
 
 
$
140,579

 
$
154,821

 
16.50
 %
Unfunded Debt Investments - United States
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   UniTek Global Services, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Business Services
 
First lien (3)(10)(11) - Undrawn
 
—
 
1/13/2019
 
$
2,048

 
$
—

 
$
—

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

 
—

 
—

 
 
 
 
 
 
 
 
 
 
2,806

 
—

 
—

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

 
$
—

 
$
—

 
—
 %
Total Controlled Investments
 
 
 
 
 
 
 
 
 
$
140,579

 
$
154,821

 
16.50
 %
Total Investments
 
 
 
 
 
 
 
 
 
$
1,575,178

 
$
1,558,817

 
166.09
 %

The accompanying notes are an integral part of these consolidated financial statements.
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Table of Contents
New Mountain Finance Corporation
 
Consolidated Schedule of Investments (Continued)
 December 31, 2016
(in thousands, except shares)


_______________________________________________________________________________
(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 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 or a portion of the investment is on non-accrual status. See Note 3. Investments, for details.
(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, 2016.
(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 three related entities of YP Holdings LLC/Print Media Holdings LLC. The Company directly holds warrants to purchase a 4.96% membership interest of YP Equity Investors, LLC (which at closing represented an indirect 1.0% equity interest in YP Holdings LLC) and holds an investment in the Term Loan B loans issued by YP LLC and Print Media LLC, wholly-owned subsidiaries of YP Holdings LLC and Print Media Holdings LLC, respectively.
(13)
The Company holds investments in two 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) and holds 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 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.
(20)
The Company holds an equity investment 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 preferred and common equity in Permian Holdco 1, Inc., as well as subordinated notes in Permian Holdco 2, Inc., a wholly-owned subsidiary of Permian Holdco 1, Inc.

The accompanying notes are an integral part of these consolidated financial statements.
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New Mountain Finance Corporation
 
Consolidated Schedule of Investments (Continued)
 December 31, 2016
(in thousands, except shares)



(22)
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, 2015 and December 31, 2016, along with transactions during the year ended December 31, 2016 in which the issuer was a non-controlled/affiliated investment, is as follows:
Portfolio Company
 
Fair Value at December 31, 2015
 
Gross
Additions(A)
 
Gross
Redemptions
(B)
 
Net
Realized
Gains
(Losses)
 
Net Change In
Unrealized
Appreciation
(Depreciation)
 
Fair Value at December 31, 2016
 
Interest
Income
 
Dividend
Income
 
Other
Income
Edmentum Ultimate Holdings, LLC/Edmentum Inc.
 
$
22,782

 
$
6,147

 
$
(4,002
)
 
$
—

 
$
(1,680
)
 
$
23,247

 
$
2,254

 
$
—

 
$
—

NMFC Senior Loan Program I LLC
 
21,914

 
—

 
—

 
—

 
1,086

 
23,000

 
—

 
3,728

 
1,163

Permian Holdco 1, Inc. / Permian Holdco 2, Inc.
 
—

 
8,965

 
—

 
—

 
2,228

 
11,193

 
41

 
156

 
5

Tenawa Resource Holdings LLC
 
42,591

 
16

 
(42,288
)
 
—

 
(319
)
 
—

 
2,243

 
—

 
25

Total Non-Controlled/Affiliated Investments
 
$
87,287

 
$
15,128

 
$
(46,290
)
 
$
—

 
$
1,315

 
$
57,440

 
$
4,538

 
$
3,884

 
$
1,193

_______________________________________________________________________________
(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.
(23)
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, 2015 and December 31, 2016, along with transactions during the year ended December 31, 2016 in which the issuer was a controlled investment, is as follows:
Portfolio Company
 
Fair Value at
December 31, 2015
 
Gross
Additions
(A)
 
Gross
Redemptions
(B)
 
Net 
Realized
Gains
(Losses)
 
Net Change In
Unrealized
Appreciation
(Depreciation)
 
Fair Value at December 31, 2016
 
Interest
Income
 
Dividend
Income
 
Other
Income
New Mountain Net Lease Corporation
 
$
—

 
$
27,000

 
$
—

 
$
—

 
$
—

 
$
27,000

 
$
—

 
$
540

 
$
—

NMFC Senior Loan Program II LLC
 
—

 
71,460

 
—

 
—

 
—

 
71,460

 
—

 
3,533

 
—

UniTek Global Services, Inc.
 
47,422

 
3,464

 
(2,599
)
 
—

 
8,074

 
56,361

 
1,904

 
3,023

 
558

Total Controlled Investments
 
$
47,422

 
$
101,924

 
$
(2,599
)
 
$
—

 
$
8,074

 
$
154,821

 
$
1,904

 
$
7,096

 
$
558

_______________________________________________________________________________
(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, 2016, 9.9% of the Company’s total investments were non-qualifying assets.
.
 
 


The accompanying notes are an integral part of these consolidated financial statements.
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Table of Contents
New Mountain Finance Corporation
 
Consolidated Schedule of Investments (Continued)
 December 31, 2016



 
 
December 31, 2016
Investment Type
 
Percent of Total
Investments at Fair Value
First lien
 
44.94
%
Second lien
 
38.76
%
Subordinated
 
4.27
%
Equity and other
 
12.03
%
Total investments
 
100.00
%
 
 
 
December 31, 2016
Industry Type
 
Percent of Total
Investments at Fair Value
Business Services
 
29.64
%
Software
 
27.00
%
Consumer Services
 
6.82
%
Investment Fund
 
6.06
%
Education
 
6.04
%
Energy
 
4.82
%
Healthcare Services
 
4.61
%
Distribution & Logistics
 
3.96
%
Federal Services
 
3.86
%
Net Lease
 
1.73
%
Business Products
 
1.60
%
Media
 
1.55
%
Retail
 
1.35
%
Healthcare Information Technology
 
0.96
%
Total investments
 
100.00
%
 
 
 
December 31, 2016
Interest Rate Type
 
Percent of Total
Investments at Fair Value
Floating rates
 
93.16
%
Fixed rates
 
6.84
%
Total investments
 
100.00
%


The accompanying notes are an integral part of these consolidated financial statements.
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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation
 
September 30, 2017
(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 September 30, 2017, 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” or the "Predecessor Operating Company"), 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. During the nine months ended September 30, 2017, 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 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 received a license 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”). 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 intends 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 it 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 investments must be in SBA eligible companies. The Company’s portfolio may be concentrated in a limited number of industries. As of September 30, 2017, the Company’s top five industry concentrations were business services, software, healthcare services, consumer services and distribution & logistics.

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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, 2017.
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).
(3)
Investments for which quotations are not readily available through exchanges, pricing services, brokers, or dealers are valued through a multi-step valuation process:

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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 September 30, 2017.
Below is certain summarized property information for NMNLC as of September 30, 2017:
 
 
 
 
Lease
 
 
 
Total
 
Fair Value as of
Portfolio Company
 
Tenant
 
Expiration Date
 
Location
 
Square Feet
 
September 30, 2017
NM APP Canada Corp.
 
A.P. Plasman, Inc.
 
9/30/2031
 
Ontario, Canada
 
436
 
$
7,685

NM APP US LLC
 
Plasman Corp, LLC / A-Brite LP
 
9/30/2033
 
Fort Payne, AL
 
261
 
5,119

 
 
 
 
 
 
Cleveland, OH
 
 
 
 
NM DRVT LLC
 
FMH Conveyors, LLC
 
10/31/2031
 
Jonesboro, AR
 
195
 
5,152

NM JRA LLC
 
J.R. Automation Technologies, LLC
 
1/31/2031
 
Holland, MI
 
88
 
2,161

NM KRLN LLC
 
Kirlin Group, LLC
 
6/30/2029
 
Rockville, MD
 
95
 
7,510

 
 
 
 
 
 
 
 
 
 
$
27,627

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 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 September 30, 2017 and December 31, 2016, the Company held one collateralized agreement to resell with a cost basis of $30,000 and $30,000, respectively, and a carrying value of $26,836 and $29,218, 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.

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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 September 30, 2017 and December 31, 2016.
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.
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.
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.

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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 and nine months ended September 30, 2017, the Company recognized a total income tax (provision) benefit of approximately $(500) and $184, respectively, for the Company’s consolidated subsidiaries. For the three and nine months ended September 30, 2017, the Company recorded current income tax expense of approximately $106 and $341, respectively, and deferred income tax (provision) benefit of approximately $(394) and $525, respectively. For the three and nine months ended September 30, 2016, the Company recognized a total income tax (provision) benefit of approximately $(11) and $706, respectively, for the Company’s consolidated subsidiaries.  For the three and nine months ended September 30, 2016, the Company recorded current income tax expense of approximately $22 and $113, respectively, and deferred income tax benefit of approximately $11 and $819, respectively, which excluded a deferred tax (provision) benefit of $(818) and $34, respectively, attributable to one of the Company's consolidated subsidiaries.
As of September 30, 2017 and December 31, 2016, the Company had $509 and $1,034, 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, 2016. The 2013 through 2016 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 adjusted net investment income (see Note 5. Agreements) 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.

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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 23, 2016, 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, 2017 or until $50,000 of its outstanding shares of common stock have been repurchased. During the three and nine months ended September 30, 2017, the Company did not repurchase any shares of the Company's common stock. During the three and nine months ended September 30, 2016, the Company repurchased a total of 0 and 248,499 shares, respectively, of the Company's common stock in the open market for $0 and $2,948, respectively, including commissions paid.
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 September 30, 2017, the Company’s investments consisted of the following:
Investment Cost and Fair Value by Type
 
Cost
 
Fair Value
First lien
$
764,281

 
$
770,238

Second lien
673,074

 
679,893

Subordinated
69,460

 
69,202

Equity and other
306,889

 
326,710

Total investments
$
1,813,704

 
$
1,846,043


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Investment Cost and Fair Value by Industry
 
Cost
 
Fair Value
Business Services
$
598,620

 
$
616,763

Software
383,779

 
389,935

Healthcare Services
160,298

 
161,763

Consumer Services
144,007

 
144,922

Distribution & Logistics
109,787

 
113,148

Investment Fund
102,400

 
102,400

Education
104,810

 
101,494

Federal Services
76,587

 
77,239

Energy
67,771

 
71,786

Net Lease
27,130

 
27,627

Healthcare Information Technology
14,676

 
15,075

Packaging
14,304

 
14,391

Business Products
9,535

 
9,500

Total investments
$
1,813,704

 
$
1,846,043

At December 31, 2016, the Company’s investments consisted of the following:
Investment Cost and Fair Value by Type
 
Cost
 
Fair Value
First lien
$
706,140

 
$
700,580

Second lien
638,347

 
604,203

Subordinated
68,341

 
66,559

Equity and other
162,350

 
187,475

Total investments
$
1,575,178

 
$
1,558,817

Investment Cost and Fair Value by Industry
 
Cost
 
Fair Value
Business Services
$
446,008

 
$
461,997

Software
424,965

 
420,896

Consumer Services
105,868

 
106,392

Investment Fund
94,460

 
94,460

Education
93,651

 
94,168

Energy
81,390

 
75,168

Healthcare Services
70,731

 
71,844

Distribution & Logistics
88,768

 
61,696

Federal Services
59,881

 
60,116

Net Lease
27,000

 
27,000

Business Products
25,613

 
24,958

Media
21,189

 
24,162

Retail
21,006

 
21,016

Healthcare Information Technology
14,648

 
14,944

Total investments
$
1,575,178

 
$
1,558,817

    

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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 September 30, 2017, the Company’s investment has an aggregate cost basis of $12,782 and an aggregate fair value of $12,127.
During the third quarter of 2016, the Company placed its entire second lien position in Transtar Holding Company (“Transtar”) on non-accrual status due to its ongoing restructuring. As of March 31, 2017, the Company's investment in Transtar had an aggregate cost basis of $31,166, an aggregate fair value of $3,621 and total unearned interest income of approximately $1,809 for the three months then ended. In April 2017, Transtar completed a restructuring which resulted in a $3,606 million repayment of the Company's second lien position. The Company recognized a realized loss of $27,560 during the nine months ended September 30, 2017 related to Transtar.
During the second quarter of 2016, the Company placed a portion of its first lien position in Permian Tank & Manufacturing, Inc. (“Permian”) on non-accrual status due to its ongoing restructuring. As of September 30, 2016, the Company’s investment in Permian had an aggregate cost basis of $24,444, an aggregate fair value of $7,064 and total unearned interest income of $1,273 for the nine months then ended. In October 2016, Permian completed a restructuring which resulted in a material modification of the original terms and an extinguishment of the Company’s original investment in Permian. Prior to the extinguishment in October 2016, the Company’s original investment in Permian had an aggregate cost of $25,047, an aggregate fair value of $7,064 and total unearned interest income of $1,422 for the year ended December 31, 2016. The extinguishment resulted in a realized loss of $17,983.  Post restructuring, the Company’s investments in Permian have been restored to full accrual status. As of September 30, 2017, the Company’s investments in Permian have an aggregate cost basis of $9,867 and an aggregate fair value of $12,000.
During the third quarter of 2016, the Company received notice that there would be no recovery of the outstanding principal and interest owed on its two super priority first lien positions in ATI Acquisition Company ("ATI"). As of June 30, 2016, the Company’s first lien positions in ATI had an aggregate cost of $1,528 and an aggregate fair value of $0 and no unearned interest income for the period then ended. The Company wrote off its first lien positions in ATI and recognized an aggregate realized loss of $1,528 during the three months ended September 30, 2016. As of September 30, 2017, the Company's preferred shares and warrants in Ancora Acquisition LLC, which were received as a result of the Company's first lien positions in ATI, had an aggregate cost basis of $83 and an aggregate fair value of $393.
As of September 30, 2017, the Company had unfunded commitments on revolving credit facilities and bridge facilities of $38,645 and $0, respectively. As of September 30, 2017, the Company had unfunded commitments in the form of delayed draws or other future funding commitments of $36,830. The unfunded commitments on revolving credit facilities and delayed draws are disclosed on the Company’s Consolidated Schedule of Investments as of September 30, 2017.
As of December 31, 2016, the Company had unfunded commitments on revolving credit facilities and bridge facilities of $27,915 and $0, respectively. As of December 31, 2016, the Company had unfunded commitments in the form of delayed draws or other future funding commitments of $16,368. The unfunded commitments on revolving credit facilities and delayed draws are disclosed on the Company’s Consolidated Schedule of Investments as of December 31, 2016.
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.

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Table of Contents

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 September 30, 2017, SLP I had total investments with an aggregate fair value of approximately $336,725, debt outstanding of $244,167 and capital that had been called and funded of $93,000. As of December 31, 2016, SLP I had total investments with an aggregate fair value of approximately $348,672, debt outstanding of $256,517 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 Schedule of Investments as of September 30, 2017 and December 31, 2016.
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 and nine months ended September 30, 2017, the Company earned approximately $286 and $865, respectively, in management fees related to SLP I, which is included in other income. For the three and nine months ended September 30, 2016, the Company earned approximately $284 and $877, respectively, in management fees related to SLP I, which is included in other income. As of September 30, 2017 and December 31, 2016, approximately $286 and $286, respectively, of management fees related to SLP I was included in receivable from affiliates. For the three and nine months ended September 30, 2017, the Company earned approximately $816 and $2,662, respectively, of dividend income related to SLP I, which is included in dividend income. For the three and nine months ended September 30, 2016, the Company earned approximately $1,061 and $2,868, respectively, of dividend income related to SLP I, which is included in dividend income. As of September 30, 2017 and December 31, 2016, approximately $816 and $861, 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 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 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 September 30, 2017, 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 Schedule of Investments as of September 30, 2017 and December 31, 2016.
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. As of September 30, 2017 and December 31, 2016, SLP II had total investments with an aggregate fair value of approximately $359,265 and $361,719, respectively, and debt outstanding under its credit facility of $229,460 and $249,960, respectively.
    

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The following table is a listing of the individual loans in SLP II's portfolio as of September 30, 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
 
 6.00% (L + 4.75%)
 
9/28/2023
 
$
17,077

 
$
16,927

 
$
16,992

ASG Technologies Group, Inc.
 
Software
 
 6.06% (L + 4.75%)
 
7/31/2024
 
7,500

 
7,463

 
7,594

Beaver-Visitec International Holdings, Inc.
 
Healthcare Products
 
 6.33% (L + 5.00%)
 
8/21/2023
 
14,850

 
14,721

 
14,850

Cvent, Inc.
 
Software
 
 5.24% (L + 4.00%)
 
11/29/2023
 
9,950

 
9,860

 
10,037

DigiCert Holdings, Inc.
 
Business Services
 
 6.24% (L + 5.00%)
 
10/21/2021
 
14,739

 
14,666

 
14,831

DigiCert Holdings, Inc.
 
Business Services
 
 5.98% (L + 4.75%)
 
10/31/2024
 
10,000

 
9,950

 
10,109

Eiger Acquisition B.V. (Eiger Co-Borrower, LLC)
 
Software
 
 6.52% (L + 5.25%)
 
2/18/2022
 
14,886

 
14,753

 
14,988

Emerald 2 Limited
 
Business Services
 
 5.33% (L + 4.00%)
 
5/14/2021
 
1,266

 
1,207

 
1,241

Evo Payments International, LLC
 
Business Services
 
 6.24% (L + 5.00%)
 
12/22/2023
 
17,413

 
17,333

 
17,649

Explorer Holdings, Inc.
 
Healthcare Services
 
 5.06% (L + 3.75%)
 
5/2/2023
 
2,948

 
2,923

 
2,968

Globallogic Holdings Inc.
 
Business Services
 
 5.83% (L + 4.50%)
 
6/20/2022
 
9,701

 
9,632

 
9,780

Greenway Health, LLC
 
Software
 
 5.58% (L + 4.25%)
 
2/16/2024
 
14,963

 
14,893

 
15,025

Hyperion Insurance Group Limited
 
Business Services
 
 5.25% (L + 4.00%)
 
4/29/2022
 
10,694

 
10,550

 
10,834

Idera, Inc.
 
Software
 
 6.24% (L + 5.00%)
 
6/28/2024
 
12,650

 
12,526

 
12,655

J.D. Power and Associates
 
Business Services
 
 5.58% (L + 4.25%)
 
9/7/2023
 
13,391

 
13,340

 
13,466

Keystone Acquisition Corp.
 
Healthcare Services
 
 6.58% (L + 5.25%)
 
5/1/2024
 
5,400

 
5,348

 
5,404

Market Track, LLC
 
Business Services
 
 5.58% (L + 4.25%)
 
6/5/2024
 
11,970

 
11,912

 
11,970

McGraw-Hill Global Education Holdings, LLC
 
Education
 
 5.24% (L + 4.00%)
 
5/4/2022
 
9,875

 
9,836

 
9,716

Medical Solutions Holdings, Inc.
 
Healthcare Services
 
 5.58% (L + 4.25%)
 
6/14/2024
 
6,983

 
6,949

 
7,044

Ministry Brands, LLC
 
Software
 
 6.24% (L + 5.00%)
 
12/2/2022
 
2,143

 
2,133

 
2,163

Ministry Brands, LLC
 
Software
 
 6.24% (L + 5.00%)
 
12/2/2022
 
7,787

 
7,753

 
7,859

Navex Global, Inc.
 
Software
 
 5.49% (L + 4.25%)
 
11/19/2021
 
14,935

 
14,751

 
14,991

Peraton Corp. (fka MHVC Acquisition Corp.)
 
Federal Services
 
 6.49% (L + 5.25%)
 
4/29/2024
 
10,474

 
10,424

 
10,552

Poseidon Intermediate, LLC
 
Software
 
 5.49% (L + 4.25%)
 
8/15/2022
 
14,909

 
14,906

 
14,984

Quest Software US Holdings Inc.
 
Software
 
 7.24% (L + 6.00%)
 
10/31/2022
 
9,924

 
9,794

 
10,069

Salient CRGT Inc.
 
Federal Services
 
 6.99% (L + 5.75%)
 
2/28/2022
 
14,741

 
14,608

 
14,704

Severin Acquisition, LLC
 
Software
 
 5.99% (L + 4.75%)
 
7/30/2021
 
14,925

 
14,860

 
14,850

Shine Acquisitoin Co. S.à.r.l / Boing US Holdco Inc.
 
Consumer Services
 
 4.73% (L + 3.50%)
 
10/3/2024
 
15,000

 
14,963

 
15,061

TMK Hawk Parent, Corp.
 
Distribution & Logistics
 
 4.77% (L + 3.50%)
 
8/28/2024
 
1,675

 
1,671

 
1,689

University Support Services LLC (St. George's University Scholastic Services LLC)
 
Education
 
 5.49% (L + 4.25%)
 
7/6/2022
 
1,928

 
1,928

 
1,936

Vencore, Inc. (fka SI Organization, Inc., The)
 
Federal Services
 
 6.08% (L + 4.75%)
 
11/23/2019
 
10,715

 
10,700

 
10,877

WP CityMD Bidco LLC
 
Healthcare Services
 
 5.33% (L + 4.00%)
 
6/7/2024
 
15,000

 
14,964

 
15,094

Zywave, Inc.
 
Software
 
 6.32% (L + 5.00%)
 
11/17/2022
 
17,369

 
17,293

 
17,282

Total Funded Investments
 
 
 
 
 
 
 
$
357,781

 
$
355,537

 
$
359,264

Unfunded Investments - First lien:
 
 
 
 
 
 
 
 
 
 
 
 
TMK Hawk Parent, Corp.
 
Distribution & Logistics
 
—
 
3/28/2018
 
$
75

 
$
—

 
$
1

Total Unfunded Investments
 
 
 
 
 
 
 
$
75

 
$
—

 
$
1

Total Investments
 
 
 
 
 
 
 
$
357,856

 
$
355,537

 
$
359,265

 
(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 September 30, 2017.
(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.

    

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Table of Contents

The following table is a listing of the individual loans in SLP II's portfolio as of December 31, 2016:
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
 
 5.75% (L + 4.75%)
 
9/28/2023
 
$
17,207

 
$
17,040

 
$
17,121

AssuredPartners, Inc.
 
Business Services
 
 5.25% (L + 4.25%)
 
10/21/2022
 
11,862

 
11,847

 
12,058

Beaver-Visitec International Holdings, Inc.
 
Healthcare Products
 
 6.00% (L + 5.00%)
 
8/21/2023
 
14,962

 
14,819

 
14,963

Coinstar, LLC
 
Consumer Services
 
 5.25% (L + 4.25%)
 
9/27/2023
 
4,987

 
4,963

 
5,054

Cvent, Inc.
 
Software
 
 6.00% (L + 5.00%)
 
11/29/2023
 
10,000

 
9,901

 
10,125

DigiCert Holdings, Inc.
 
Software
 
 6.00% (L + 5.00%)
 
10/21/2021
 
14,900

 
14,814

 
14,881

Eiger Acquisition B.V. (Eiger Co-Borrower, LLC)
 
Software
 
 6.25% (L + 5.25%)
 
2/18/2022
 
10,507

 
10,350

 
10,402

Emerald 2 Limited
 
Business Services
 
 5.00% (L + 4.00%)
 
5/14/2021
 
1,277

 
1,206

 
1,174

Engility Corporation (fka TASC, Inc.)
 
Federal Services
 
 5.81% (Base + 4.72%)
 
8/14/2023
 
13,860

 
13,793

 
14,080

Evo Payments International, LLC
 
Business Services
 
 6.00% (L + 5.00%)
 
12/22/2023
 
17,500

 
17,413

 
17,602

Explorer Holdings, Inc.
 
Healthcare Services
 
 6.00% (L + 5.00%)
 
5/2/2023
 
4,975

 
4,929

 
5,028

Globallogic Holdings Inc.
 
Business Services
 
 5.50% (L + 4.50%)
 
6/20/2022
 
10,000

 
9,900

 
10,013

GOBP Holdings Inc.
 
Retail
 
 5.00% (L + 4.00%)
 
10/21/2021
 
14,955

 
14,816

 
14,985

Hyperion Insurance Group Limited
 
Business Services
 
 5.50% (L + 4.50%)
 
4/29/2022
 
14,401

 
14,179

 
14,476

J.D. Power and Associates
 
Business Services
 
 5.25% (L + 4.25%)
 
9/7/2023
 
9,975

 
9,927

 
10,075

Kronos Incorporated
 
Software
 
 5.00% (L + 4.00%)
 
11/1/2023
 
10,000

 
9,951

 
10,105

Masergy Holdings, Inc.
 
Business Services
 
 5.50% (L + 4.50%)
 
12/15/2023
 
7,500

 
7,463

 
7,563

McGraw-Hill Global Education Holdings, LLC
 
Education
 
 5.00% (L + 4.00%)
 
5/4/2022
 
9,950

 
9,905

 
9,971

Ministry Brands, LLC
 
Software
 
 6.00% (L + 5.00%)
 
12/2/2022
 
7,846

 
7,807

 
7,807

Mister Car Wash Holdings, Inc.
 
Consumer Services
 
 5.25% (L + 4.25%)
 
8/20/2021
 
8,312

 
8,250

 
8,354

Navex Global, Inc.
 
Software
 
 5.99% (L + 4.75%)
 
11/19/2021
 
14,933

 
14,718

 
14,858

nThrive, Inc. (fka Precyse Acquisition Corp.)
 
Healthcare Services
 
 6.50% (L + 5.50%)
 
10/20/2022
 
9,950

 
9,813

 
10,083

Poseidon Intermediate, LLC
 
Software
 
 5.25% (L + 4.25%)
 
8/15/2022
 
14,962

 
14,962

 
15,055

Quest Software US Holdings Inc.
 
Software
 
 7.00% (L + 6.00%)
 
10/31/2022
 
10,000

 
9,853

 
10,153

Rocket Software, Inc.
 
Software
 
 5.25% (L + 4.25%)
 
10/14/2023
 
14,962

 
14,817

 
15,129

SolarWinds Holdings, Inc.
 
Software
 
 5.50% (L + 4.50%)
 
2/3/2023
 
14,688

 
14,697

 
14,852

TTM Technologies, Inc.
 
Business Products
 
 5.25% (L + 4.25%)
 
5/31/2021
 
13,548

 
13,444

 
13,599

Vencore, Inc. (fka SI Organization, Inc., The)
 
Federal Services
 
 5.75% (L + 4.75%)
 
11/23/2019
 
10,801

 
10,780

 
10,942

Vision Solutions, Inc.
 
Software
 
 7.50% (Base + 6.50%)
 
6/16/2022
 
9,938

 
9,845

 
9,919

Vivid Seats LLC
 
Business Services
 
 6.75% (L + 5.75%)
 
10/12/2022
 
4,000

 
3,922

 
3,985

WD Wolverine Holdings, LLC
 
Healthcare Services
 
 6.50% (L + 5.50%)
 
10/17/2023
 
10,200

 
9,900

 
9,894

Zywave, Inc.
 
Software
 
 6.00% (L + 5.00%)
 
11/17/2022
 
17,500

 
17,414

 
17,413

Total Investments
 
 
 
 
 
 
 
$
360,458

 
$
357,438

 
$
361,719

 
(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, 2016.
(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.

    

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Table of Contents

Below is certain summarized financial information for SLP II as of September 30, 2017 and December 31, 2016 and for the three and nine months ended September 30, 2017 and September 30, 2016:
Selected Balance Sheet Information:
September 30, 2017
 
December 31, 2016
Investments at fair value (cost of $355,537 and $357,438, respectively)
$
359,265

 
$
361,719

Receivable from unsettled securities sold
—

 
1,007

Cash and other assets
6,838

 
10,138

Total assets
$
366,103

 
$
372,864

 
 
 
 
Credit facility
$
229,460

 
$
249,960

Deferred financing costs
(2,117
)
 
(2,565
)
Payable for unsettled securities purchased
28,080

 
24,862

Distribution payable
3,800

 
3,000

Other liabilities
2,792

 
3,350

Total liabilities
262,015

 
278,607

 
 
 
 
Members' capital
$
104,088

 
$
94,257

Total liabilities and members' capital
$
366,103

 
$
372,864

Selected Statement of
Three Months Ended
 
Nine Months Ended
Operations Information:
September 30, 2017
 
September 30, 2016
 
September 30, 2017
 
September 30, 2016(1)
Interest income
$
5,858

 
$
2,698

 
$
16,661

 
$
3,326

Other income
27

 
114

 
343

 
163

Total investment income
5,885

 
2,812

 
17,004

 
3,489

 
 
 
 
 
 
 
 
Interest and other financing expenses
2,185

 
1,398

 
6,108

 
1,931

Other expenses
159

 
134

 
533

 
463

Total expenses
2,344

 
1,532

 
6,641

 
2,394

Net investment income
3,541

 
1,280

 
10,363

 
1,095

 
 
 
 
 
 
 
 
Net realized gains on investments
223

 
229

 
2,145

 
263

Net change in unrealized appreciation (depreciation) of investments
88

 
1,863

 
(553
)
 
1,978

Net increase in members' capital
$
3,852

 
$
3,372

 
$
11,955

 
$
3,336

 
(1)
SLP II commenced operations on April 12, 2016.
For the three and nine months ended September 30, 2017, the Company earned approximately $3,017 and $9,627, respectively, of dividend income related to SLP II, which is included in dividend income. For the three and nine months ended September 30, 2016, the Company earned approximately $1,151 and $1,151, respectively, of dividend income related to SLP II, which is included in dividend income. As of September 30, 2017 and December 31, 2016, approximately $3,017 and $2,382, 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 September 30, 2017, the Company did not have any significant unconsolidated subsidiaries under Regulation S-X Rule 10-01(b)(1).

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Table of Contents

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 “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.

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Table of Contents

The following table summarizes the levels in the fair value hierarchy that the Company’s portfolio investments fall into as of September 30, 2017:
 
Total
 
Level I
 
Level II
 
Level III
First lien
$
770,238

 
$
—

 
$
235,351

 
$
534,887

Second lien
679,893

 
—

 
305,125

 
374,768

Subordinated
69,202

 
—

 
43,494

 
25,708

Equity and other
326,710

 
23

 
—

 
326,687

Total investments
$
1,846,043

 
$
23

 
$
583,970

 
$
1,262,050

The following table summarizes the levels in the fair value hierarchy that the Company’s portfolio investments fall into as of December 31, 2016:
 
Total
 
Level I
 
Level II
 
Level III
First lien
$
700,580

 
$
—

 
$
169,979

 
$
530,601

Second lien
604,203

 
—

 
280,026

 
324,177

Subordinated
66,559

 
—

 
41,906

 
24,653

Equity and other
187,475

 
28

 
—

 
187,447

Total investments
$
1,558,817

 
$
28

 
$
491,911

 
$
1,066,878

The following table summarizes the changes in fair value of Level III portfolio investments for the three months ended September 30, 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 September 30, 2017:
 
Total
 
First Lien
 
Second Lien
 
Subordinated
 
Equity and other
Fair value, June 30, 2017
$
1,240,023

 
$
502,263

 
$
402,565

 
$
26,677

 
$
308,518

Total gains or losses included in earnings:
 

 
 

 
 

 
 

 
 

Net realized (losses) gains on investments
(14,273
)
 
(14,433
)
 
160

 
—

 
—

Net change in unrealized appreciation
(depreciation)

17,054

 
15,910

 
4,825

 
(1,749
)
 
(1,932
)
Purchases, including capitalized PIK and revolver fundings (1)
114,959

 
94,085

 
—

 
780

 
20,094

Proceeds from sales and paydowns of investments (1)
(65,229
)
 
(26,505
)
 
(38,724
)
 
—

 
—

Transfers into Level III(2)
49,805

 
23,942

 
25,856

 
—

 
7

Transfers out of Level III(2)
(80,289
)
 
(60,375
)
 
(19,914
)
 
—

 
—

Fair Value, September 30, 2017
$
1,262,050

 
$
534,887

 
$
374,768

 
$
25,708

 
$
326,687

Unrealized appreciation (depreciation) for the period relating to those Level III assets that were still held by the Company at the end of the period:
$
2,394

 
$
1,370

 
$
4,705

 
$
(1,749
)
 
$
(1,932
)
 
(1)
Includes reorganizations and restructurings.
(2)
As of September 30, 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.

    

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Table of Contents

The following table summarizes the changes in fair value of Level III portfolio investments for the three months ended September 30, 2016, 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 September 30, 2016:
 
Total
 
First Lien
 
Second Lien
 
Subordinated
 
Equity and other
Fair value, June 30, 2016
$
820,742

 
$
331,531

 
$
288,137

 
$
41,734

 
$
159,340

Total gains or losses included in earnings:
 

 
 

 
 

 
 

 
 

Net realized gains (losses) on investments
888

 
(1,122
)
 
42

 
—

 
1,968

Net change in unrealized (depreciation)
appreciation

(7,697
)
 
(246
)
 
(5,245
)
 
171

 
(2,377
)
Purchases, including capitalized PIK and revolver fundings
124,859

 
73,280

 
13,556

 
643

 
37,380

Proceeds from sales and paydowns of investments
(45,409
)
 
(33,861
)
 
(9,002
)
 
—

 
(2,546
)
Transfers into Level III(1)
87,768

 
87,768

 
—

 
—

 
—

Fair Value, September 30, 2016
$
981,151

 
$
457,350

 
$
287,488

 
$
42,548

 
$
193,765

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:
$
(7,020
)
 
$
(1,562
)
 
$
(5,203
)
 
$
171

 
$
(426
)
 
(1)
As of September 30, 2016, portfolio investments were transferred into Level III from Level II at fair value as of the beginning of the period in which the reclassification occurred.
The following table summarizes the changes in fair value of Level III portfolio investments for the nine months ended September 30, 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 September 30, 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 (losses) gains on investments
(40,577
)
 
(13,877
)
 
(27,108
)
 
—

 
408

Net change in unrealized appreciation (depreciation)

42,375

 
12,352

 
36,523

 
(1,201
)
 
(5,299
)
Purchases, including capitalized PIK and revolver fundings(1)
484,630

 
217,592

 
118,614

 
2,756

 
145,668

Proceeds from sales and paydowns of investments(1)
(243,879
)
 
(147,376
)
 
(94,466
)
 
(500
)
 
(1,537
)
Transfers into Level III(2)
68,484

 
19,608

 
48,876

 
—

 
—

Transfers out of Level III(2)
(115,861
)
 
(84,013
)
 
(31,848
)
 
—

 
—

Fair Value, September 30, 2017
$
1,262,050

 
$
534,887

 
$
374,768

 
$
25,708

 
$
326,687

Unrealized appreciation (depreciation) for the period relating to those Level III assets that were still held by the Company at the end of the period:
$
5,019

 
$
2,847

 
$
8,939

 
$
(1,201
)
 
$
(5,566
)
 
(1)
Includes reorganizations and restructurings.
(2)
As of September 30, 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.

    

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Table of Contents

The following table summarizes the changes in fair value of Level III portfolio investments for the nine months ended September 30, 2016, 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 September 30, 2016:
 
Total
 
First Lien
 
Second Lien
 
Subordinated
 
Equity and other
Fair value, December 31, 2015
$
699,987

 
$
340,890

 
$
182,758

 
$
53,459

 
$
122,880

Total gains or losses included in earnings:
 

 
 

 
 

 
 

 
 

Net realized gains (losses) on investments
2,396

 
(582
)
 
891

 
119

 
1,968

Net change in unrealized appreciation (depreciation)

1,808

 
6,433

 
(10,813
)
 
2,104

 
4,084

Purchases, including capitalized PIK and revolver fundings
266,509

 
112,351

 
84,913

 
1,866

 
67,379

Proceeds from sales and paydowns of investments
(145,166
)
 
(84,451
)
 
(43,169
)
 
(15,000
)
 
(2,546
)
Transfers into Level III(1)
179,931

 
107,023

 
72,908

 
—

 
—

Transfers out of Level III(1)
(24,314
)
 
(24,314
)
 
—

 
—

 
—

Fair Value, September 30, 2016
$
981,151

 
$
457,350

 
$
287,488

 
$
42,548

 
$
193,765

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:
$
(1,923
)
 
$
3,621

 
$
(12,887
)
 
$
2,224

 
$
5,119

 
(1)
As of September 30, 2016, 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 and nine months ended September 30, 2017 and September 30, 2016. 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.

45
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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 September 30, 2017 and December 31, 2016, 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 September 30, 2017 and December 31, 2016, 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 September 30, 2017 were as follows:
 
 
 
 
 
 
 
Range
Type
Fair Value as of September 30, 2017
 
Approach
 
Unobservable Input
 
Low
 
High
 
Weighted
Average
First lien
$
467,260

 
Market & income approach
 
EBITDA multiple
 
2.0x

 
17.0x

 
10.8x

 
 
 
 
 
Revenue multiple
 
0.8x

 
8.0x

 
3.9x

 
 

 
 
 
Discount rate
 
6.0
%
 
11.9
%
 
8.7
%
 
24,264

 
Market quote
 
Broker quote
 
N/A

 
N/A

 
N/A

 
43,363

 
Other
 
N/A(1)
 
N/A

 
N/A

 
N/A

Second lien
249,219

 
Market & income approach
 
EBITDA multiple
 
8.5x

 
17.0x

 
11.6x

 
 
 
 
 
Revenue multiple
 
5.3x

 
6.2x

 
5.8x

 
 

 
 
 
Discount rate
 
9.4
%
 
12.5
%
 
10.4
%
 
125,549

 
Market quote
 
Broker quote
 
N/A

 
N/A

 
N/A

Subordinated
25,708

 
Market & income approach
 
EBITDA multiple
 
4.0x

 
10.5x

 
8.7x

 
 
 
 
 
Revenue multiple
 
0.5x

 
1.0x

 
0.8x

 
 

 
 
 
Discount rate
 
9.1
%
 
15.0
%
 
12.1
%
Equity and other
320,072

 
Market & income approach
 
EBITDA multiple
 
2.5x

 
15.0x

 
10.4x

 
 
 
 
 
Revenue multiple
 
0.5x

 
1.0x

 
0.7x

 
 

 
 
 
Discount rate
 
7.3
%
 
23.9
%
 
12.8
%
 
895

 
Black Scholes analysis
 
Expected life in years
 
8.5

 
8.5

 
8.5

 
 

 
 
 
Volatility
 
39.4
%
 
39.4
%
 
39.4
%
 
 

 
 
 
Discount rate
 
2.1
%
 
2.1
%
 
2.1
%
 
5,720

 
Other
 
N/A(1)
 
N/A

 
N/A

 
N/A

 
$
1,262,050

 
 
 
 
 
 

 
 

 
 

 
 
(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.

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Table of Contents

The unobservable inputs used in the fair value measurement of the Company's Level III investments as of December 31, 2016 were as follows:
 
 
 
 
 
 
 
Range
Type
Fair Value as of December 31, 2016
 
Approach
 
Unobservable Input
 
Low
 
High
 
Weighted
Average
First lien
$
417,464

 
Market & income approach
 
EBITDA multiple
 
2.0x

 
15.0x

 
10.2x

 
 

 
 
 
Revenue multiple
 
0.5x

 
8.0x

 
3.0x

 
 
 
 
 
Discount rate
 
7.2
%
 
12.3
%
 
9.7
%
 
86,801

 
Market quote
 
Broker quote
 
N/A

 
N/A

 
N/A

 
26,336

 
Other
 
N/A(1)
 
N/A

 
N/A

 
N/A

Second lien
191,419

 
Market & income approach
 
EBITDA multiple
 
5.3x

 
16.0x

 
11.7x

 
 

 
 
 
Discount rate
 
8.7
%
 
13.0
%
 
11.3
%
 
96,315

 
Market quote
 
Broker quote
 
N/A

 
N/A

 
N/A

 
36,443

 
Other
 
N/A(1)
 
N/A

 
N/A

 
N/A

Subordinated
24,653

 
Market & income approach
 
EBITDA multiple
 
4.5x

 
8.5x

 
7.1x

 
 

 
 
 
Revenue multiple
 
0.5x

 
1.0x

 
0.8x

 


 

 
Discount rate
 
8.7
%
 
15.8
%
 
13.6
%
Equity and other
158,947

 
Market & income approach
 
EBITDA multiple
 
2.5x

 
13.0x

 
5.9x

 
 

 
 
 
Revenue multiple
 
0.5x

 
1.0x

 
0.8x

 
 
 
 
 
Discount rate
 
8.0
%
 
18.9
%
 
14.5
%
 
1,498

 
Black Scholes analysis
 
Expected life in years
 
8.8

 
9.3

 
9.1

 
 

 
 
 
Volatility
 
32.2
%
 
43.8
%
 
36.4
%
 
 

 
 
 
Discount rate
 
2.5
%
 
2.5
%
 
2.5
%
 
2

 
Market quote
 
Broker quote
 
N/A

 
N/A

 
N/A

 
27,000

 
Other
 
N/A(1)
 
N/A

 
N/A

 
N/A

 
$
1,066,878

 
 
 
 
 
 

 
 

 
 

 
 
(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 September 30, 2017, 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 September 30, 2017 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 September 30, 2017 was $160,684, 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 September 30, 2017 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.

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Table of Contents

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 8, 2017. 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 September 30, 2017 and September 30, 2016 approximated $321,390 and $234,048, respectively. The Investment Adviser cannot recoup management fees that the Investment Adviser has previously waived. For the three and nine months ended September 30, 2017, management fees waived were approximately $1,483 and $4,324, respectively. For the three and nine months ended September 30, 2016, management fees waived were approximately $1,102 and $3,662, 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 Adjusted 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 September 30, 2017), 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.
Under GAAP, NMFC’s IPO did not step-up the cost basis of the Predecessor Operating Company’s existing investments to fair market value at the IPO date. Since the total value of the Predecessor Operating Company’s investments at the time of the IPO was greater than the investments’ cost basis, a larger amount of amortization of purchase or original issue discount, as well as different amounts in realized gain and unrealized appreciation, may be recognized under GAAP in each period than if the step-up had occurred. This will remain until such predecessor investments are sold, repaid or mature in the future. The Company tracks the transferred (or fair market) value of each of its investments as of the time of the IPO and, for purposes of the incentive fee calculation, adjusts Pre-Incentive Fee Net Investment Income to reflect the amortization of purchase or original issue discount on the Company’s investments as if each investment was purchased at the date of the IPO, or stepped up to fair market value. This is defined as “Pre-Incentive Fee Adjusted Net Investment Income”. The Company also uses the transferred (or fair market) value of each of its investments as of the time of the IPO to adjust capital gains (“Adjusted Realized Capital Gains”) or losses (“Adjusted Realized Capital Losses”) and unrealized capital appreciation (“Adjusted Unrealized Capital Appreciation”) and unrealized capital depreciation (“Adjusted Unrealized Capital Depreciation”).

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Table of Contents

Pre-Incentive Fee Adjusted 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 Adjusted 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 Adjusted 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 Adjusted Net Investment Income with respect to that portion of such Pre-Incentive Fee Adjusted 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 Adjusted 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 Adjusted Net Investment Income as if a hurdle rate did not apply when the Company’s Pre-Incentive Fee Adjusted Net Investment Income exceeds 2.5% in any calendar quarter.
•
20.0% of the amount of the Company’s Pre-Incentive Fee Adjusted 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 and nine months ended September 30, 2017, incentive fees waived were approximately $0 and $1,800, respectively. For the three and nine months ended September 30, 2016, no incentive fees were waived by the Investment Adviser. The Investment Adviser cannot recoup incentive fees that the Investment Adviser has previously waived.
The second part of the incentive fee is 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 Adjusted Realized Capital Gains, if any, on a cumulative basis from inception through the end of each calendar year, computed net of all Adjusted Realized Capital Losses and Adjusted 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 Adjusted Realized Capital Gains and Adjusted Realized Capital Losses and the cumulative net Adjusted Unrealized Capital Appreciation and Adjusted 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 Adjusted Realized Capital Gains computed net of all Adjusted Realized Capital Losses and Adjusted 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 and nine months ended September 30, 2017 and September 30, 2016.
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2017
 
September 30, 2016
 
September 30, 2017
 
September 30, 2016
Management fee
$
8,422

 
$
6,883

 
$
24,311

 
$
20,537

Less: management fee waiver
(1,483
)
 
(1,102
)
 
(4,324
)
 
(3,662
)
Total management fee
6,939

 
5,781

 
19,987

 
16,875

Incentive fee, excluding accrued capital gains incentive fees
$
6,573

 
$
5,432

 
$
18,430

 
$
16,266

Less: incentive fee waiver
—

 
—

 
(1,800
)
 
—

Total incentive fee
6,573

 
5,432

 
16,630

 
16,266

Accrued capital gains incentive fees(1)
$
—

 
$
—

 
$
—

 
$
—

 
(1)
As of September 30, 2017 and September 30, 2016, no actual capital gains incentive fee was owed under the Investment Management Agreement by the Company, as cumulative net Adjusted Realized Capital Gains did not exceed cumulative Adjusted Unrealized Capital Depreciation.
    

49
Table of Contents

The Company’s Consolidated Statements of Operations below are adjusted as if the step-up in cost basis to fair market value had occurred at the IPO date, May 19, 2011.
The following Consolidated Statement of Operations for the three and nine months ended September 30, 2017 is adjusted to reflect this step-up to fair market value.
 
Three Months
Ended
September 30, 2017
 
Stepped-up
Cost Basis
Adjustments
 
Adjusted Three Months Ended September 30, 2017
Investment income
 

 
 

 
 

Interest income(1)
$
39,638

 
$
—

 
$
39,638

Total dividend income(2)
9,870

 
—

 
9,870

Other income
1,728

 
—

 
1,728

Total investment income(3)
51,236

 
—

 
51,236

Total expenses pre-incentive fee(4)
18,371

 
—

 
18,371

Pre-Incentive Fee Net Investment Income
32,865

 
—

 
32,865

Incentive fee(5)
6,573

 
—

 
6,573

Post-Incentive Fee Net Investment Income
26,292

 
—

 
26,292

Net realized losses on investments(6)
(14,216
)
 
—

 
(14,216
)
Net change in unrealized appreciation (depreciation) of investments(6)
14,643

 
—

 
14,643

Net change in unrealized (depreciation) appreciation of securities purchased under collateralized agreements to resell
(1,549
)
 
—

 
(1,549
)
Provision for taxes
(394
)
 
—

 
(394
)
Net increase in net assets resulting from operations
$
24,776

 
 
 
$
24,776

 
(1)
Includes $1,552 in PIK and non-cash interest from investments.
(2)
Includes $5,395 in PIK and non-cash dividends from investments.
(3)
Includes income from non-controlled/non-affiliated investments, non-controlled/affiliated investments and controlled investments.
(4)
Includes management fee waivers of $1,483. There were no expense waivers and reimbursements for the three months ended September 30, 2017.
(5)
For the three months ended September 30, 2017, the Company incurred total incentive fees of $6,573, of which none was related to the capital gains incentive fee accrual on a hypothetical liquidation basis.
(6)
Includes net realized gains and losses on investments and net change in unrealized appreciation (depreciation) of investments from non-controlled/non-affiliated investments, non-controlled/affiliated investments and controlled investments.



50
Table of Contents

 
Nine Months Ended
September 30, 2017
 
Stepped-up
Cost Basis
Adjustments
 
Adjusted
Nine Months Ended
September 30, 2017
Investment income
 

 
 

 
 

Interest income(1)
$
111,275

 
$
—

(7)
$
111,275

Total dividend income(2)
26,273

 
—

 
26,273

Other income
7,014

 
—

 
7,014

Total investment income(3)
144,562

 
—

 
144,562

Total expenses pre-incentive fee(4)
52,411

 
—

 
52,411

Pre-Incentive Fee Net Investment Income
92,151

 
—

 
92,151

Incentive fee(5)
16,630

 
—

 
16,630

Post-Incentive Fee Net Investment Income
75,521

 
—

 
75,521

Net realized losses on investments(6)
(39,843
)
 
—

 
(39,843
)
Net change in unrealized appreciation (depreciation) of investments(6)
48,700

 
—

(7)
48,700

Net change in unrealized (depreciation) appreciation of securities purchased under collateralized agreements to resell
(2,382
)
 
—

 
(2,382
)
Benefit for taxes
525

 
—

 
525

Net increase in net assets resulting from operations
$
82,521

 
 
 
$
82,521

 
(1)
Includes $4,747 in PIK and non-cash interest from investments.
(2)
Includes $11,713 in PIK and non-cash dividends from investments.
(3)
Includes income from non-controlled/non-affiliated investments, non-controlled/affiliated investments and controlled investments.
(4)
Includes expense waivers and reimbursements of $474 and management fee waivers of $4,324.
(5)
For the nine months ended September 30, 2017, the Company incurred total incentive fees of $16,630, net of the incentive fee waiver of $1,800, of which none was related to the capital gains incentive fee accrual on a hypothetical liquidation basis.
(6)
Includes net realized gains and losses on investments and net change in unrealized appreciation (depreciation) of investments from non-controlled/non-affiliated investments, non-controlled/affiliated investments and controlled investments.
(7)
For the nine months ended September 30, 2017, the adjustment was less than $1.
    

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Table of Contents

The following Consolidated Statement of Operations for the three and nine months ended September 30, 2016 is adjusted to reflect this step-up to fair market value.
 
Three Months Ended
September 30, 2016
 
Stepped-up
Cost Basis
Adjustments
 
Adjusted Three Months Ended
September 30, 2016
Investment income
 

 
 

 
 

Interest income(1)
$
35,917

 
$
(1
)
 
$
35,916

Total dividend income(2)
3,063

 
—

 
3,063

Other income
2,854

 
—

 
2,854

Total investment income(3)
41,834

 
(1
)
 
41,833

Total expenses pre-incentive fee(4)
14,673

 
—

 
14,673

Pre-Incentive Fee Net Investment Income
27,161

 
(1
)
 
27,160

Incentive fee(5)
5,432

 
—

 
5,432

Post-Incentive Fee Net Investment Income
21,729

 
(1
)
 
21,728

Net realized gains (losses) on investments(6)
1,150

 
(27
)
 
1,123

Net change in unrealized appreciation (depreciation) of investments(6)
3,146

 
28

 
3,174

Net change in unrealized (depreciation) appreciation of securities purchased under collateralized agreements to resell
(957
)
 
—

 
(957
)
Benefit for taxes
11

 
—

 
11

Net increase in net assets resulting from operations
$
25,079

 
 
 
$
25,079

 
(1)
Includes $947 in PIK interest from investments.
(2)
Includes $768 in PIK dividends from investments.
(3)
Includes income from non-controlled/non-affiliated investments, non-controlled/affiliated investments and controlled investments.
(4)
Includes management fee waivers of $1,102. There were no expense waivers and reimbursements for the three months ended September 30, 2016.
(5)
For the three months ended September 30, 2016, the Company incurred total incentive fees of $5,432, of which none was related to the capital gains incentive fee accrual on a hypothetical liquidation basis.
(6)
Includes net realized gains and losses on investments and net change in unrealized appreciation (depreciation) of investments from non-controlled/non-affiliated investments, non-controlled/affiliated investments and controlled investments.

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Table of Contents

 
Nine Months Ended
September 30, 2016
 
Stepped-up
Cost Basis
Adjustments
 
Adjusted
Nine Months Ended
September 30, 2016
Investment income
 

 
 

 
 

Interest income(1)
$
112,119

 
$
(65
)
 
$
112,054

Total dividend income(2)
6,423

 
—

 
6,423

Other income
5,758

 
—

 
5,758

Total investment income(3)
124,300

 
(65
)
 
124,235

Total expenses pre-incentive fee(4)
42,906

 
—

 
42,906

Pre-Incentive Fee Net Investment Income
81,394

 
(65
)
 
81,329

Incentive fee(5)
16,266

 
—

 
16,266

Post-Incentive Fee Net Investment Income
65,128

 
(65
)
 
65,063

Net realized gains (losses) on investments(6)
2,191

 
(151
)
 
2,040

Net change in unrealized appreciation (depreciation) of investments(6)
10,716

 
216

 
10,932

Net change in unrealized (depreciation) appreciation of securities purchased under collateralized agreements to resell
(1,031
)
 
—

 
(1,031
)
Benefit for taxes
819

 
—

 
819

Net increase in net assets resulting from operations
$
77,823

 
 
 
$
77,823

 
(1)
Includes $2,850 in PIK interest from investments.
(2)
Includes $2,229 in PIK dividends from investments.
(3)
Includes income from non-controlled/non-affiliated investments, non-controlled/affiliated investments and controlled investments.
(4)
Includes expense waivers and reimbursements of $347 and management fee waivers of $3,662.
(5)
For the nine months ended September 30, 2016, the Company incurred total incentive fees of $16,266, of which none was related to the capital gains incentive fee accrual on a hypothetical liquidation basis.
(6)
Includes net realized gains and losses on investments and net change in unrealized appreciation (depreciation) of investments from non-controlled/non-affiliated investments, non-controlled/affiliated investments and controlled investments.
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 Securities and Exchange Commission (the "SEC"), generally monitors the payment of the Company’s expenses and watches 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 and nine months ended September 30, 2017, approximately $361 and $1,144, respectively, of indirect administrative expenses were included in administrative expenses of which $0 and $416, respectively, of indirect administrative expenses were waived by the Administrator. For the three and nine months ended September 30, 2016, approximately $332 and $1,263, respectively, of indirect administrative expenses were included in administrative expenses of which $0 and $347, respectively, of indirect administrative expenses were waived by the Administrator. As of September 30, 2017 and December 31, 2016, approximately $361 and $0, respectively, of indirect administrative expenses were included in payable to affiliates.

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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 June 5, 2017, the SEC issued an exemptive order (the “Exemptive Order”) 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 (the “Holdings Credit Facility”), 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.

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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 assets, subject to approval by Wells Fargo Securities, LLC. 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.
Effective January 1, 2016, 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. 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 and nine months ended September 30, 2017 and September 30, 2016.
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2017
 
September 30, 2016
 
September 30, 2017
 
September 30, 2016
Interest expense
$
3,081

 
$
2,243

 
$
8,684

 
$
7,237

Non-usage fee
$
179

 
$
223

 
$
536

 
$
531

Amortization of financing costs
$
406

 
$
406

 
$
1,204

 
$
1,209

Weighted average interest rate
3.4
%
 
2.8
%
 
3.3
%
 
2.7
%
Effective interest rate
4.1
%
 
3.6
%
 
4.0
%
 
3.4
%
Average debt outstanding
$
352,372

 
$
318,368

 
$
351,594

 
$
353,577

As of September 30, 2017 and December 31, 2016, the outstanding balance on the Holdings Credit Facility was $376,163 and $333,513, 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, dated June 4, 2014 (together with the related guarantee and security agreement, the “NMFC Credit Facility”), 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. 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 September 30, 2017, the maximum amount of revolving borrowings available under the NMFC Credit Facility was $122,500. 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).

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The following table summarizes the interest expense, non-usage fees and amortization of financing costs incurred on the NMFC Credit Facility for the three and nine months ended September 30, 2017 and September 30, 2016.
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2017
 
September 30, 2016
 
September 30, 2017
 
September 30, 2016
Interest expense
$
205

 
$
684

 
$
1,278

 
$
1,911

Non-usage fee
$
97

 
$
32

 
$
212

 
$
78

Amortization of financing costs
$
99

 
$
98

 
$
293

 
$
279

Weighted average interest rate
3.6
%
 
3.0
%
 
3.5
%
 
3.0
%
Effective interest rate
7.3
%
 
3.6
%
 
5.0
%
 
3.6
%
Average debt outstanding
$
21,670

 
$
89,375

 
$
48,030

 
$
84,996

As of September 30, 2017 and December 31, 2016, the outstanding balance on the NMFC Credit Facility was $19,000 and $10,000, 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 September 30, 2017.
 
September 30, 2017
Initial conversion premium
12.5
%
Initial conversion rate(1)
62.7746

Initial conversion price
$
15.93

Conversion premium at September 30, 2017
11.7
%
Conversion rate at September 30, 2017(1)(2)
63.2794

Conversion price at September 30, 2017(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 September 30, 2017 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 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.

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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 and nine months ended September 30, 2017 and September 30, 2016.
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2017
 
September 30, 2016
 
September 30, 2017
 
September 30, 2016
Interest expense
$
1,941

 
$
1,443

 
$
5,822

 
$
4,318

Amortization of financing costs
$
300

 
$
188

 
$
890

 
$
559

Amortization of premium
$
(28
)
 
$
—

 
$
(83
)
 
$
—

Effective interest rate
5.7
%
 
5.6
%
 
5.7
%
 
5.7
%
Average debt outstanding
$
155,250

 
$
155,438

 
$
155,250

 
$
115,147

As of September 30, 2017 and December 31, 2016, 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 $55.0 million in aggregate principal amount of five-year unsecured notes that mature on July 15, 2022 (the "2017A Unsecured Notes" and together with the 2016 Unsecured Notes, the "Unsecured Notes"), pursuant to the NPA and a 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 commences on January 15, 2018. These interest rates are subject to increase in the event that: (i) subject to certain exceptions, the Unsecured Notes or the Company cease 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 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.

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The following table summarizes the interest expense and amortization of financing costs incurred on the Unsecured Notes for the three and nine months ended September 30, 2017 and September 30, 2016.
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2017
 
September 30, 2016
 
September 30, 2017
 
September 30, 2016(1)
Interest expense
$
1,850

 
$
670

 
$
4,248

 
$
1,076

Amortization of financing costs
$
145

 
$
62

 
$
349

 
$
99

Effective interest rate
5.5
%
 
5.8
%
 
5.7
%
 
5.8
%
Average debt outstanding
$
145,000

 
$
50,435

 
$
108,736

 
$
50,270

 
(1)
For the nine months ended September 30, 2016, amounts reported relate to the period from May 6, 2016 (issuance of the Unsecured Notes) to September 30, 2016.
As of September 30, 2017 and December 31, 2016, the outstanding balance on the Unsecured Notes was $145,000 and $90,000, respectively, and the Company was in compliance with the terms of the NPA.
SBA-guaranteed debentures—On August 1, 2014, SBIC I received an SBIC license from the SBA.
The SBIC license allows SBIC I 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 over the Company’s stockholders in the event SBIC I is 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 September 30, 2017 and December 31, 2016, SBIC I had regulatory capital of approximately $75,000 and $75,000, respectively, and SBA-guaranteed debentures outstanding of $144,000 and $121,745, respectively. 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 SBIC I’s SBA-guaranteed debentures as of September 30, 2017.
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
%
Interim SBA-guaranteed debentures:
 
 
 
 
 
 
 
 
 
 
March 1, 2028(1)
 
9,255

 
1.769
%
 
0.742
%
Total SBA-guaranteed debentures
 
 
 
$
144,000

 
 

 
 

 
(1)
Estimated maturity date as interim SBA-guaranteed debentures are expected to pool in March 2018.
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 and nine months ended September 30, 2017 and September 30, 2016.
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2017
 
September 30, 2016
 
September 30, 2017
 
September 30, 2016
Interest expense
$
1,056

 
$
964

 
$
2,988

 
$
2,784

Amortization of financing costs
$
114

 
$
103

 
$
319

 
$
300

Weighted average interest rate
3.1
%
 
3.1
%
 
3.1
%
 
3.1
%
Effective interest rate
3.4
%
 
3.5
%
 
3.5
%
 
3.5
%
Average debt outstanding
$
134,890

 
$
121,745

 
$
127,028

 
$
119,172

The SBIC program is designed to stimulate the flow of private investor capital into eligible small businesses, as defined by the SBA. Under SBA regulations, SBIC I is subject to regulatory requirements, including making investments in SBA-eligible businesses, investing at least 25.0% of its investment capital in eligible smaller 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. SBIC I is subject to an annual periodic examination by an SBA examiner to determine SBIC I’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 September 30, 2017 and December 31, 2016, SBIC I was in compliance with SBA regulatory requirements.
Leverage risk factors—The Company utilizes and may utilize leverage to the maximum extent permitted by law for investment and other general business purposes. The Company’s lenders will have fixed dollar claims on certain assets that are superior to the claims of the Company’s common stockholders, and the Company would expect such lenders to seek recovery against these assets in the event of a default. The use of leverage also magnifies the potential for gain or loss on amounts invested. Leverage may magnify interest rate risk (particularly on the Company’s fixed-rate investments), which is the risk that the prices of portfolio investments will fall or rise if market interest rates for those types of securities rise or fall. As a result, leverage may cause greater changes in the Company’s net asset value. Similarly, leverage may cause a sharper decline in the Company’s income than if the Company had not borrowed. Such a decline could negatively affect the Company’s ability to make distributions to its stockholders. Leverage is generally considered a speculative investment technique. The Company’s ability to service any debt incurred will depend largely on financial performance and will be subject to prevailing economic conditions and competitive pressures.
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 September 30, 2017, the Company had unfunded commitments on revolving credit facilities of $38,645, no outstanding bridge financing commitments and other future funding commitments of $36,830. As of December 31, 2016, the Company had unfunded commitments on revolving credit facilities of $27,915, no outstanding bridge financing commitments and other future funding commitments of $16,368. The unfunded commitments on revolving credit facilities and delayed draws are disclosed on the Company’s respective Consolidated Schedule of Investments.
The Company also has revolving borrowings available under the Holdings Credit Facility and the NMFC Credit Facility as of September 30, 2017 and December 31, 2016. See Note 7. Borrowings, for details.

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The Company may from time to time enter into financing commitment letters. As of September 30, 2017 and December 31, 2016, the Company had commitment letters to purchase investments in the aggregate par amount of $57,200 and $14,818, respectively, which could require funding in the future.
As of September 30, 2017 and December 31, 2016, the Company had unfunded commitments related to an equity investment in SLP II of $0 and $7,940, respectively, which was funded at the Company's discretion.
Note 10. Net Assets
The table below illustrates the effect of certain transactions on the net asset accounts of the Company:
 
Common Stock
 
Treasury Stock
 
Paid in
Capital in
 
Accumulated Undistributed
Net Investment
 
Accumulated
Undistributed 
Net Realized 
 
Net 
Unrealized
(Depreciation)
 
Total
 
Shares
 
Par Amount
 
at Cost
 
Excess of Par
 
Income
 
(Losses) Gains
 
Appreciation
 
Net Assets
Balance at December 31, 2016
69,717,814

 
$
698

 
$
(460
)
 
$
1,001,862

 
$
2,073

 
$
(36,947
)
 
$
(28,664
)
 
$
938,562

Issuances of common stock
6,049,632

 
60

 
—

 
85,765

 
—

 
—

 
—

 
85,825

Reissuance of common stock
37,573

 
—

 
460

 
100

 
—

 
—

 
—

 
560

Deferred offering costs
—

 
—

 
—

 
(172
)
 
—

 
—

 
—

 
(172
)
Other
—

 
—

 
—

 
(81
)
 
—

 
—

 
—

 
(81
)
Distributions declared
—

 
—

 
—

 
—

 
(75,132
)
 
—

 
—

 
(75,132
)
Net increase (decrease) in net assets resulting from operations
—

 
—

 
—

 
—

 
75,521

 
(39,843
)
 
46,843

 
82,521

Balance at September 30, 2017
75,805,019

 
$
758

 
$
—

 
$
1,087,474

 
$
2,462

 
$
(76,790
)
 
$
18,179

 
$
1,032,083

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 and nine months ended September 30, 2017 and September 30, 2016:
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2017
 
September 30, 2016
 
September 30, 2017
 
September 30, 2016
Earnings per share—basic
 

 
 

 
 

 
 

Numerator for basic earnings per share:
$
24,776

 
$
25,079

 
$
82,521

 
$
77,823

Denominator for basic weighted average share:
75,688,429

 
63,758,062

 
73,618,794

 
63,843,730

Basic earnings per share:
$
0.33

 
$
0.39

 
$
1.12

 
$
1.22

Earnings per share—diluted(1)
 
 
 
 
 

 
 

Numerator for increase in net assets per share
$
24,776

 
$
25,079

 
$
82,521

 
$
77,823

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

 
1,154

 
4,658

 
3,454

Numerator for diluted earnings per share:
$
26,329

 
$
26,233

 
$
87,179

 
$
81,277

Denominator for basic weighted average share
75,688,429

 
63,758,062

 
73,618,794

 
63,843,730

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

 
7,387,870

 
9,824,127

 
7,314,314

Denominator for diluted weighted average share
85,512,556

 
71,145,932

 
83,442,921

 
71,158,044

Diluted earnings per share
$
0.31

 
$
0.37

 
$
1.04

 
$
1.14

 
(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.

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Note 12. Financial Highlights
The following information sets forth the Company's financial highlights for the nine months ended September 30, 2017 and September 30, 2016.
 
Nine Months Ended
 
September 30, 2017
 
September 30, 2016
Per share data(1):
 

 
 

Net asset value, January 1, 2017 and January 1, 2016, respectively
$
13.46

 
$
13.08

Net investment income
1.03

 
1.02

Net realized and unrealized gains (losses)(2)
0.14

 
0.20

Total net increase
1.17

 
1.22

Distributions declared to stockholders from net investment income
(1.02
)
 
(1.02
)
Net asset value, September 30, 2017 and September 30, 2016, respectively
$
13.61

 
$
13.28

Per share market value, September 30, 2017 and September 30, 2016, respectively
$
14.25

 
$
13.76

Total return based on market value(3)
8.31
%
 
14.07
%
Total return based on net asset value(4)
8.91
%
 
9.68
%
Shares outstanding at end of period
75,805,019

 
63,864,858

Average weighted shares outstanding for the period
73,618,794

 
63,843,730

Average net assets for the period
$
1,003,672

 
$
837,887

Ratio to average net assets:
 

 
 

Net investment income
10.06
%
 
10.38
%
Total expenses, before waivers/reimbursements
10.08
%
 
10.07
%
Total expenses, net of waivers/reimbursements
9.20
%
 
9.43
%
Average debt outstanding—Holdings Credit Facility
$
351,594

 
$
353,577

Average debt outstanding—Convertible Notes
155,250

 
115,147

Average debt outstanding—SBA-guaranteed debentures
127,028

 
119,172

Average debt outstanding—Unsecured Notes(5)
108,736

 
50,270

Average debt outstanding—NMFC Credit Facility
48,030

 
84,996

Asset coverage ratio(6)
248.37
%
 
242.09
%
Portfolio turnover
29.67
%
 
22.38
%
 
(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)
Includes the accretive effect of common stock issuances per share, which for the nine months ended September 30, 2017 and September 30, 2016 were $0.05 and $0.00, respectively.
(3)
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.
(4)
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.
(5)
For the nine months ended September 30, 2016, average debt outstanding represents the period from May 6, 2016 (issuance of the Unsecured Notes) to September 30, 2016.
(6)
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.

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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 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
On October 24, 2017, the Company entered into the Third Amended and Restated Loan and Security Agreement (together with the exhibits and schedules thereto, the “New Holdings Credit Facility”), by and among the Company, as the collateral manager, NMF Holdings, as the borrower, Wells Fargo Bank, National Association, as the administrative agent, the lenders party thereto, and Wells Fargo Bank, as collateral custodian. The New Holdings Credit Facility effectively amends and restates the Holdings Credit Facility. The New Holdings Credit Facility has a revolving period ending on October 24, 2020 and matures on October 24, 2022. With the closing of the New Holdings Credit Facility, the Company broadened its lender group, with Raymond James Bank, N.A., State Street Bank and Trust Company, NBH Bank, and State Bank and Trust Company joining the facility, making commitments and advances aggregating $85,000. The maximum amount of revolving borrowing available under the New Holdings Credit Facility remains $495,000.

On October 31, 2017, the Company announced that its wholly owned subsidiary, SBIC II, received approval for a license from the SBA to operate as an SBIC. This is the second SBIC license granted to the Company through its SBIC subsidiaries. As an SBIC, SBIC II will be subject to a variety of regulations and oversight by the SBA concerning, among other things, the size and nature of the companies in which it may invest as well as the structure of those investments.

On November 2, 2017, the Company’s board of directors declared a fourth quarter 2017 distribution of $0.34 per share payable on December 28, 2017 to holders of record as of December 15, 2017.


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deloittelogoa14.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 Board of Directors of
New Mountain Finance Corporation
New York, New York

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 September 30, 2017, and the related consolidated statements of operations for the three-month and nine-month periods ended September 30, 2017 and 2016, and changes in net assets, and cash flows for the nine-month periods ended September 30, 2017 and 2016. These interim financial statements are the responsibility of the Company's management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 Public Company Accounting Oversight Board (United States), 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.

Based on our reviews, we are not aware of any material modifications that should be made to such consolidated interim financial statements for them 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), the consolidated statement of assets and liabilities of New Mountain Finance Corporation and subsidiaries as of December 31, 2016, 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, 2017, 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, 2016 is fairly stated, in all material respects, in relation to the consolidated statement of assets and liabilities from which it has been derived.


/s/DELOITTE & TOUCHE LLP

November 7, 2017




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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, 2016.
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, 2016.
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 September 30, 2017, 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.

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Our wholly-owned subsidiary, New Mountain Finance Holdings, L.L.C. (“NMF Holdings” or the "Predecessor Operating Company"), 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. During the nine months ended September 30, 2017, 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 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 received a license 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. Our 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 we invest 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 and SBIC II's investment objective is to generate current income and capital appreciation under our investment criteria. However, SBIC I and SBIC II's investments must be in SBA eligible companies. Our portfolio may be concentrated in a limited number of industries. As of September 30, 2017, our top five industry concentrations were business services, software, healthcare services, consumer services and distribution & logistics.
As of September 30, 2017, our net asset value was $1,032.1 million and our portfolio had a fair value of approximately $1,846.0 million in 82 portfolio companies, with a weighted average yield to maturity at cost ("Yield to Maturity at Cost") of approximately 10.6%. This Yield to Maturity 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. This calculation excludes the impact of existing leverage. Yield to Maturity at Cost 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 October 24, 2017, we entered into the Third Amended and Restated Loan and Security Agreement (together with the exhibits and schedules thereto, the “New Holdings Credit Facility”), by and among us, as the collateral manager, NMF Holdings, as the borrower, Wells Fargo Bank, National Association, as the administrative agent, the lenders party thereto, and Wells Fargo Bank, as collateral custodian. The New Holdings Credit Facility effectively amends and restates the Holdings Credit Facility. The New Holdings Credit Facility has a revolving period ending on October 24, 2020 and matures on October 24, 2022. With the closing of the New Holdings Credit Facility, we broadened our lender group, with Raymond James Bank, N.A., State Street Bank and Trust Company, NBH Bank, and State Bank and Trust Company joining the facility, making commitments and advances aggregating $85.0 million. The maximum amount of revolving borrowing available under the New Holdings Credit Facility remains $495.0 million.

On October 31, 2017, we announced that our wholly owned subsidiary, SBIC II, received approval for a license from the SBA to operate as a SBIC. This is the second SBIC license granted to us through our SBIC subsidiaries. As an SBIC, SBIC II will be subject to a variety of regulations and oversight by the SBA concerning, among other things, the size and nature of the companies in which it may invest as well as the structure of those investments.
On November 2, 2017, our board of directors declared a fourth quarter 2017 distribution of $0.34 per share payable on December 28, 2017 to holders of record as of December 15, 2017.

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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).
(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

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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.
The following table summarizes the levels in the fair value hierarchy that our portfolio investments fall into as of September 30, 2017:
(in thousands)