NEW YORK--(BUSINESS WIRE)--February 26, 2020--New Mountain Finance Corporation (NYSE:NMFC) (the "Company", "we", "us" or "our") today announced its financial results for the quarter and year ended December 31, 2019 and reported fourth quarter net investment income of $0.32 per weighted average share and adjusted net investment income1 of $0.36 per weighted average share. At December 31, 2019, net asset value (“NAV”) per share was $13.26, compared to $13.35 at September 30, 2019, and $13.22 at December 31, 2018. The Company also announced that its board of directors declared a first quarter distribution of $0.34 per share, which will be payable on March 27, 2020 to holders of record as of March 13, 2020.
Selected Financial Highlights
| (in thousands, except per share data) | December 31, 2019 | |||||
| Investment Portfolio(1) |
$ |
3,181,702 |
||||
| Total Assets |
$ |
3,266,055 |
||||
| Total Statutory Debt(2) |
$ |
1,734,936 |
||||
| NAV |
$ |
1,283,468 |
||||
| NAV per Share |
$ |
13.26 |
||||
| Statutory Debt/Equity |
1.35x |
|||||
| Investment Portfolio Composition | December 31, 2019 | Percent of Total | ||||
| First Lien |
$ |
1,801,615 |
56.6 |
% |
||
| Second Lien(1) |
810,290 |
25.5 |
% |
|||
| Subordinated |
66,774 |
2.1 |
% |
|||
| Preferred Equity |
135,694 |
4.3 |
% |
|||
| Investment Fund |
202,400 |
6.3 |
% |
|||
| Common Equity and Other(3) |
164,929 |
5.2 |
% |
|||
| Total |
$ |
3,181,702 |
100.0 |
% |
||
Supplemental Information Regarding Adjusted Net Investment Income
| Three Months Ended December 31, 2019 | |||||
| (in millions, except per share data) | GAAP(4) | Non-recurring Adjustments(5) |
Adjusted(5) | ||
| Net investment income ("NII") |
$30.6 |
$3.8 |
$34.4 |
||
| Net investment income per weighted average share |
$0.32 |
$0.04 |
$0.36 |
||
|
(1) Includes collateral for securities purchased under collateralized agreements to resell. |
|
(2) Excludes the Company’s United States (“U.S.”) Small Business Administration (“SBA”)-guaranteed debentures. Includes premium received on additional convertible notes issued in June 2019. |
|
(3) Includes investments held in New Mountain Net Lease Corporation (“NMNLC”). |
|
(4) Accounting principles generally accepted in the United States of America (“GAAP”). |
|
(5) Adjusted net investment income includes $3.8 million non-recurring interest and incentive fee adjustment related to PPVA Fund, L.P. |
We believe that the strength of the Company’s unique investment strategy – which focuses on middle market defensive growth companies that are well researched by New Mountain Capital, L.L.C. (“New Mountain”), a leading alternative investment firm, is underscored by continued stable credit performance. The Company has had only nine portfolio companies, representing approximately $165 million of the cost of all investments made since inception in October 2008, or approximately 2.2% of $7.7 billion, go on non-accrual.
Robert A. Hamwee, CEO, commented: “The fourth quarter represented another strong quarter of performance for NMFC. We originated $286 million of investments, which fully deployed the proceeds from our October equity raise. Additionally, we have maintained a fully invested and levered portfolio throughout the quarter.”
“We are very pleased with the completion of another successful quarter,” added Steven B. Klinsky, NMFC Chairman. “We believe New Mountain’s strategy of focusing on 'defensive growth' industries and on companies that we know well continues to prove to be a successful strategy. We believe one of our keys to success is the strength of the team and we continue to build the team over time, now at approximately 160 employees.”
Portfolio and Investment Activity2
As of December 31, 2019, the Company’s NAV was approximately $1,283.5 million and its portfolio had a fair value of approximately $3,181.7 million in 115 portfolio companies, with a weighted average YTM at Cost3 of approximately 9.5%. For the three months ended December 31, 2019, the Company made approximately $286.2 million of originations and commitments4. The $286.2 million includes approximately $147.5 million of investments in five new portfolio companies and approximately $138.7 million of follow-on investments in seventeen portfolio companies held as of September 30, 2019. For the three months ended December 31, 2019, the Company had $43.9 million of sales and cash repayments4 of approximately $73.5 million.
Consolidated Results of Operations
Quarterly Results
The Company’s total investment income for the three months ended December 31, 2019 and 2018 was approximately $73.2 million and $63.5 million, respectively.
The Company’s total net expenses, after income tax expense, for the three months ended December 31, 2019 and 2018 were approximately $42.6 million and $36.0 million, respectively. Total net expenses, after income tax expense, for the three months ended December 31, 2019 and 2018 consisted of approximately $22.6 million and $18.2 million, respectively, of costs associated with the Company’s borrowings and approximately $18.0 million and $15.3 million, respectively, in net management and incentive fees. Since the Company’s initial public offering (“IPO”), the base management fee calculation has deducted the borrowings under the New Mountain Finance SPV Funding, L.L.C. credit facility (the “SLF Credit Facility”). The SLF Credit Facility had historically consisted of primarily lower yielding assets at higher advance rates. As part of an amendment to the Company’s existing credit facilities with Wells Fargo Bank, National Association, the SLF Credit Facility merged with and into the New Mountain Finance Holdings, L.L.C. credit facility (the “Holdings Credit Facility”) on December 18, 2014. Post credit facility merger and to be consistent with the methodology since the IPO, New Mountain Finance Advisers BDC, L.L.C. (the “Investment Adviser”) will continue to waive management fees on the leverage associated with those assets held under revolving credit facilities that share the same underlying yield characteristics with investments that were leveraged under the legacy SLF Credit Facility, which as of December 31, 2019 and 2018 totaled approximately $829.0 million and $525.7 million, respectively. For the three months ended December 31, 2019 and 2018 management fees waived were approximately $3.5 million and $2.1 million, respectively. The Investment Adviser cannot recoup management fees that the Investment Adviser has previously waived. The Company’s net direct and indirect professional, administrative, other general and administrative and income tax expenses for the three months ended December 31, 2019 and 2018 were approximately $2.0 million and $2.5 million, respectively.
For the three months ended December 31, 2019 and 2018, the Company recorded approximately $9.1 million and $28.8 million, respectively, of net realized and unrealized losses.
Annual Results
The Company’s total investment income for the years ended December 31, 2019 and 2018 was approximately $276.5 million and $231.5 million, respectively.
The Company’s total net expenses after income tax expense for the years ended December 31, 2019 and 2018 were approximately $159.3 million and $125.4 million, respectively. Total net expenses after income tax expense for the years ended December 31, 2019 and 2018 consisted of approximately $84.3 million and $57.1 million, respectively, of costs associated with the Company’s borrowings and approximately $66.4 million and $58.3 million, respectively, in net management and incentive fees. For the years ended December 31, 2019 and 2018, management fees waived were approximately $12.0 million and $6.7 million, respectively. The Company’s net direct and indirect professional, administrative, other general and administrative and income tax expenses for the years ended December 31, 2019 and 2018 were approximately $8.6 million and $10.0 million, respectively.
For the years ended December 31, 2019 and 2018, the Company recorded approximately $4.6 million and $33.7 million in net realized and unrealized losses, respectively.
Liquidity and Capital Resources
As of December 31, 2019, the Company had cash and cash equivalents of approximately $48.6 million and total statutory debt outstanding of approximately $1,734.9 million5, which consisted of approximately $661.6 million of the $800.0 million of total availability on the Holdings Credit Facility, $188.5 million of the $188.5 million of total availability on the Company’s senior secured revolving credit facility (the “NMFC Credit Facility”), $230.0 million of the $280.0 million of total availability on the Company’s secured revolving credit facility (the “DB Credit Facility”), $0 of the $30.0 million of total availability on the senior secured revolving credit facility (the “NMNLC Credit Facility”), $201.5 million6 of convertible notes outstanding and $453.3 million of unsecured notes outstanding. Additionally, the Company had $225.0 million of SBA-guaranteed debentures outstanding as of December 31, 2019.
Portfolio and Asset Quality2
The Company puts its largest emphasis on risk control and credit performance. On a quarterly basis, or more frequently if deemed necessary, the Company formally rates each portfolio investment on a scale of one to four. Each investment is assigned an initial rating of a “2” under the assumption that the investment is performing materially in-line with expectations. Any investment performing materially below our expectations, where the risk of loss has materially increased since the original investment, would be downgraded from the “2” rating to a “3” or a “4” rating, based on the deterioration of the investment. An investment rating of a “4” could be moved to non-accrual status and the final development could be an actual realization of a loss through a restructuring or impaired sale.
As of December 31, 2019, one portfolio company had an investment rating of “3” and four portfolio companies had an investment rating of “4”. The Company’s investment in the portfolio company with an investment rating of “3” had an aggregate cost basis of approximately $7.5 million and an aggregate fair value of approximately $2.4 million. The Company’s investment in portfolio companies with an investment rating of “4” had an aggregate cost basis of approximately $55.1 million and an aggregate fair value of approximately $37.8 million.
Recent Developments
On February 19, 2020, the Company’s board of directors declared a first quarter 2020 distribution of $0.34 per share payable on March 27, 2020 to holders of record as of March 13, 2020.
|
1 Adjusted net investment income includes $3.8 million non-recurring interest and incentive fee adjustment related to PPVA Fund, L.P. |
|
2 Includes collateral for securities purchased under collateralized agreements to resell. |
|
3 References to “YTM at Cost” assume the accruing investments, including secured collateralized agreements, in our portfolio as of a certain date, the "Portfolio Date", are purchased at cost on that date and held until their respective maturities with no prepayments or losses and are exited at par at maturity. This calculation excludes the impact of existing leverage. YTM at Cost uses the LIBOR curves at each quarter’s respective end date. The actual yield to maturity may be higher or lower due to the future selection of LIBOR contracts by the individual companies in the Company’s portfolio or other factors. |
|
4 Excludes revolving credit facilities, netbacks, payment-in-kind (“PIK”) interest, bridge loans, return of capital and realized gains / losses. |
|
5 Excludes the Company’s United States (“U.S.”) Small Business Administration (“SBA”)-guaranteed debentures. |
|
6 Includes premium received on additional convertible notes issued in June 2019. |
Conference Call
New Mountain Finance Corporation will host a conference call at 10 a.m. Eastern Time on Thursday, February 27, 2020, to discuss its fourth quarter 2019 financial results. All interested parties may participate in the conference call by dialing +1 (877) 443-9109 approximately 15 minutes prior to the call. International callers should dial +1 (412) 317-1082. This conference call will also be broadcast live over the Internet and can be accessed by all interested parties through the Company's website, http://ir.newmountainfinance.com. To listen to the live call, please go to the Company's website at least 15 minutes prior to the start of the call to register and download any necessary audio software. Following the call, you may access a replay of the event via audio webcast on our website. We will be utilizing a presentation during the conference call and we have posted the presentation to the investor relations section of our website.
| New Mountain Finance Corporation | ||||||
| Consolidated Statements of Assets and Liabilities | ||||||
| (in thousands, except shares and per share data) | ||||||
| December 31, 2019 | December 31, 2018 | |||||
| Assets | ||||||
| Investments at fair value | ||||||
| Non-controlled/non-affiliated investments (cost of $2,619,408 and $1,868,785, respectively) |
$ |
2,613,801 |
$ |
1,861,323 |
||
| Non-controlled/affiliated investments (cost of $82,825 and $78,438, respectively) |
73,527 |
77,493 |
||||
| Controlled investments (cost of $449,308 and $382,503, respectively) |
472,952 |
403,137 |
||||
| Total investments at fair value (cost of $3,151,541 and $2,329,726, respectively) |
3,160,280 |
2,341,953 |
||||
| Securities purchased under collateralized agreements to resell (cost of $30,000 and $30,000, respectively) |
21,422 |
23,508 |
||||
| Cash and cash equivalents |
48,574 |
49,664 |
||||
| Interest and dividend receivable |
31,800 |
30,081 |
||||
| Receivable from affiliates |
277 |
288 |
||||
| Other assets |
3,702 |
3,172 |
||||
| Total assets |
$ |
3,266,055 |
$ |
2,448,666 |
||
| Liabilities | ||||||
| Borrowings | ||||||
| Holdings Credit Facility |
$ |
661,563 |
$ |
512,563 |
||
| Unsecured Notes |
453,250 |
336,750 |
||||
| DB Credit Facility |
230,000 |
57,000 |
||||
| SBA-guaranteed debentures |
225,000 |
165,000 |
||||
| Convertible Notes |
201,623 |
270,301 |
||||
| NMFC Credit Facility |
188,500 |
60,000 |
||||
| Deferred financing costs (net of accumulated amortization of $28,390 and $22,234, respectively) |
(17,640) |
(17,515) |
||||
| Net borrowings |
1,942,296 |
1,384,099 |
||||
| Interest payable |
16,484 |
12,397 |
||||
| Management fee payable |
10,298 |
8,392 |
||||
| Incentive fee payable |
7,646 |
6,864 |
||||
| Payable for unsettled securities purchased |
1,780 |
20,147 |
||||
| Deferred tax liability |
912 |
1,006 |
||||
| Payable to affiliates |
673 |
1,021 |
||||
| Other liabilities |
2,498 |
8,471 |
||||
| Total liabilities |
1,982,587 |
1,442,397 |
||||
| Commitments and contingencies | ||||||
| Net Assets | ||||||
| Preferred stock, par value $0.01 per share, 2,000,000 shares authorized, none issued | – | – | ||||
| Common stock, par value $0.01 per share, 200,000,000 and 100,000,000 shares authorized, respectively, and 96,827,342 and 76,106,372 shares issued and outstanding, respectively |
968 |
761 |
||||
| Paid in capital in excess of par |
1,287,853 |
1,035,629 |
||||
| Accumulated overdistributed earnings |
(5,353) |
(30,121) |
||||
| Total net assets |
$ |
1,283,468 |
$ |
1,006,269 |
||
| Total liabilities and net assets |
$ |
3,266,055 |
$ |
2,448,666 |
||
| Number of shares outstanding |
96,827,342 |
76,106,372 |
||||
| Net asset value per share |
$ |
13.26 |
$ |
13.22 |
||
| New Mountain Finance Corporation | ||||||||
| Consolidated Statements of Operations | ||||||||
| (in thousands, except shares and per share data) | ||||||||
| Year Ended December 31, | ||||||||
|
2019 |
|
2018 |
|
2017 |
||||
| Investment income | ||||||||
| From non-controlled/non-affiliated investments: | ||||||||
| Interest income |
$ |
194,028 |
$ |
153,645 |
$ |
145,283 |
||
| Dividend income | – |
486 |
159 |
|||||
| Non-cash dividend income |
8,561 |
5,912 |
811 |
|||||
| Other income |
12,150 |
12,174 |
8,751 |
|||||
| From non-controlled/affiliated investments: | ||||||||
| Interest income |
4,166 |
2,028 |
2,808 |
|||||
| Dividend income |
3,073 |
6,714 |
3,498 |
|||||
| Non-cash dividend income |
1,219 |
12,333 |
12,627 |
|||||
| Other income |
1,236 |
1,832 |
1,186 |
|||||
| From controlled investments: | ||||||||
| Interest income |
10,528 |
6,226 |
1,709 |
|||||
| Dividend income |
32,011 |
21,731 |
15,740 |
|||||
| Non-cash dividend income |
8,918 |
6,648 |
4,415 |
|||||
| Other income |
617 |
1,736 |
819 |
|||||
| Total investment income |
276,507 |
231,465 |
197,806 |
|||||
| Expenses | ||||||||
| Interest and other financing expenses |
84,297 |
57,050 |
37,094 |
|||||
| Management fee |
49,115 |
38,530 |
32,694 |
|||||
| Incentive fee |
29,288 |
26,508 |
25,101 |
|||||
| Administrative expenses |
4,046 |
3,629 |
2,779 |
|||||
| Professional fees |
3,065 |
4,497 |
3,658 |
|||||
| Other general and administrative expenses |
1,796 |
1,913 |
1,636 |
|||||
| Total expenses |
171,607 |
132,127 |
102,962 |
|||||
| Less: management and incentive fees waived |
(12,012) |
(6,709) |
(7,442) |
|||||
| Less: expenses waived and reimbursed |
(335) |
(276) |
(474) |
|||||
| Net expenses |
159,260 |
125,142 |
95,046 |
|||||
| Net investment income before income taxes |
117,247 |
106,323 |
102,760 |
|||||
| Income tax expense |
94 |
291 |
556 |
|||||
| Net investment income |
117,153 |
106,032 |
102,204 |
|||||
| Net realized gains (losses): | ||||||||
| Non-controlled/non-affiliated investments |
872 |
(18,047) |
(39,734) |
|||||
| Non-controlled/affiliated investments | – |
8,387 |
– | |||||
| Controlled investments |
18 |
3 |
– | |||||
| Net change in unrealized appreciation (depreciation): | ||||||||
| Non-controlled/non-affiliated investments |
1,855 |
(30,758) |
56,340 |
|||||
| Non-controlled/affiliated investments |
(8,353) |
(2,344) |
(4,748) |
|||||
| Controlled investments |
3,010 |
10,896 |
(798) |
|||||
| Securities purchased under collateralized agreements to resell |
(2,086) |
(1,704) |
(4,006) |
|||||
| Benefit (provision) for taxes |
94 |
(112) |
140 |
|||||
| Net realized and unrealized (losses) gains |
(4,590) |
(33,679) |
7,194 |
|||||
| Net increase in net assets resulting from operations |
$ |
112,563 |
$ |
72,353 |
$ |
109,398 |
||
| Basic earnings per share |
$ |
1.32 |
$ |
0.95 |
$ |
1.47 |
||
| Weighted average shares of common stock outstanding-basic |
85,209,378 |
76,022,375 |
74,171,268 |
|||||
| Diluted earnings per share |
$ |
1.22 |
$ |
0.91 |
$ |
1.38 |
||
| Weighted average shares of common stock outstanding-diluted |
100,464,045 |
88,627,741 |
83,995,395 |
|||||
| Distributions declared and paid per share |
$ |
1.36 |
$ |
1.36 |
$ |
1.36 |
||
ABOUT NEW MOUNTAIN FINANCE CORPORATION
New Mountain Finance Corporation is a closed-end, non-diversified and externally managed investment company that has elected to be regulated as a business development company under the Investment Company Act of 1940, as amended. The Company’s investment objective is to generate current income and capital appreciation through the sourcing and origination of debt securities at all levels of the capital structure, including first and second lien debt, notes, bonds and mezzanine securities. The Company’s first lien debt may include traditional first lien senior secured loans or unitranche loans. Unitranche loans combine characteristics of traditional first lien senior secured loans as well as second lien and subordinated loans. Unitranche loans will expose the Company to the risks associated with second lien and subordinated loans to the extent it invests in the “last out” tranche. In some cases, the investments may also include small equity interests. The Company’s investment activities are managed by its Investment Adviser, New Mountain Finance Advisers BDC, L.L.C., which is an investment adviser registered under the Investment Advisers Act of 1940, as amended. More information about New Mountain Finance Corporation can be found on the Company’s website at http://www.newmountainfinance.com.
ABOUT NEW MOUNTAIN CAPITAL
New Mountain Capital is a New York based investment firm focused on long-term business-building and growth investments. The firm currently manages private equity, public equity, and credit funds with over $20 billion in assets under management. New Mountain seeks out what it believes to be the highest quality growth leaders in carefully selected industry sectors and then works intensively with management to build the value of these companies. For more information on New Mountain Capital, please visit http://www.newmountaincapital.com.
FORWARD-LOOKING STATEMENTS
Statements included herein may contain “forward-looking statements”, which relate to our future operations, future performance or our financial condition. Forward-looking statements are not guarantees of future performance, condition or results and involve a number of risks and uncertainties. Actual results and outcomes may differ materially from those anticipated in the forward-looking statements as a result of a variety of factors, including those described from time to time in our filings with the Securities and Exchange Commission or factors that are beyond our control. New Mountain Finance Corporation undertakes no obligation to publicly update or revise any forward-looking statements made herein, except as may be required by law. All forward-looking statements speak only as of the time of this press release.
New Mountain Finance Corporation
Investor Relations
Shiraz Y. Kajee, Authorized Representative
NMFCIR@newmountaincapital.com
(212) 220-3505