EXHIBIT 99.1
 
TABLE OF CONTENTS
 
 
PAGE
SUPPLEMENTAL FINANCIAL INFORMATION
 
 
 
 
New Mountain Finance Holdings, L.L.C.
 
 
 
 
 
 
 
INTERIM FINANCIAL STATEMENTS FOR THE QUARTER ENDED SEPTEMBER 30, 2013
 
 
 
 
 
New Mountain Finance Holdings, L.L.C.
 
 
 
 
 
 
 
 
New Mountain Finance Corporation
 
 
 
 
 
 
New Mountain Finance AIV Holdings Corporation
 
 
 
 
 
 
 
 
 


1



New Mountain Finance Holdings, L.L.C

 Consolidated Statements of Operations
(in thousands)
(unaudited)
 
 
From April 1, 2014
 to May 7, 2014
 
Three months ended
 June 30, 2013
 
From January 1, 2014 to
 May 7, 2014
 
Six months ended
 June 30, 2013
Investment income
 

 
 

 
 

 
 

Interest income
$
12,847

 
$
27,321

 
$
40,986

 
$
52,364

Dividend income
279

 
6,436

 
2,374

 
6,433

Other income
113

 
1,399

 
797

 
1,677

Total investment income
13,239

 
35,156

 
44,157

 
60,474

Expenses
 

 
 

 
 

 
 

Incentive fee
1,882

 
5,407

 
6,325

 
8,865

Capital gains incentive fee
523

 
(1,701
)
 
2,050

 
981

Total incentive fees
2,405

 
3,706

 
8,375

 
9,846

Management fee
1,879

 
3,727

 
6,055

 
7,295

Interest and other financing expenses
1,408

 
3,118

 
4,821

 
6,189

Professional fees
393

 
563

 
1,255

 
1,135

Administrative expenses
176

 
939

 
772

 
1,698

Other general and administrative expenses
166

 
396

 
556

 
806

Total expenses
6,427

 
12,449

 
21,834

 
26,969

Less: expenses waived and reimbursed (see Note 5)

 
(836
)
 
(774
)
 
(1,665
)
Net expenses
6,427

 
11,613

 
21,060

 
25,304

Net investment income
6,812

 
23,543

 
23,097

 
35,170

Net realized gains on investments
5,860

 
3,312

 
8,640

 
4,356

Net change in unrealized (depreciation) appreciation of investments
(3,742
)
 
(12,031
)
 
1,072

 
(141
)
Net increase in members’ capital resulting from operations
$
8,930

 
$
14,824

 
$
32,809

 
$
39,385



2



New Mountain Finance Holdings, L.L.C
 
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
 
 
From January 1, 2014
 to May 7, 2014
 
Six months ended
 June 30, 2013
Cash flows from operating activities
 

 
 

Net increase in members’ capital resulting from operations
$
32,809

 
$
39,385

Adjustments to reconcile net (increase) decrease in members’ capital resulting from operations to net cash (used in) provided by operating activities:
 

 
 

Net realized gains on investments
(8,640
)
 
(4,356
)
Net change in unrealized (appreciation) depreciation of investments
(1,072
)
 
141

Amortization of purchase discount
(997
)
 
(1,923
)
Amortization of deferred financing costs
591

 
735

Non-cash investment income
(1,264
)
 
(2,177
)
(Increase) decrease in operating assets:
 

 
 

Purchase of investments
(188,042
)
 
(262,254
)
Proceeds from sales and paydowns of investments
122,821

 
201,388

Cash received for purchase of undrawn portion of revolving credit or delayed draw facilities
126

 

Cash paid for purchase of drawn portion of revolving credit or delayed draw facilities
(516
)
 

Cash paid on drawn revolvers
(380
)
 

Cash repayments on drawn revolvers
570

 

Interest and dividend receivable
(1,006
)
 
(4,862
)
Receivable from unsettled securities sold

 
9,962

Receivable from affiliate
75

 
(114
)
Other assets
(660
)
 
(715
)
Increase (decrease) in operating liabilities:
 

 
 

Capital gains incentive fee payable
937

 
981

Incentive fee payable
2,221

 
2,017

Management fee payable
2,199

 
505

Payable for unsettled securities purchased
5,716

 
9,900

Interest payable
(721
)
 
45

Payable to affiliate
153

 
46

Other liabilities
113

 
166

Net cash flows used in operating activities
(34,967
)
 
(11,130
)
Cash flows from financing activities
 

 
 

Net proceeds from shares sold
58,644

 
57,020

Dividends paid
(15,247
)
 
(36,992
)
Offering costs paid
(150
)
 
(542
)
Proceeds from Holdings Credit Facility
114,482

 
171,818

Repayment of Holdings Credit Facility
(137,100
)
 
(169,320
)
Proceeds from SLF Credit Facility
332

 
3,238

Repayment of SLF Credit Facility

 
(10,400
)
Deferred financing costs paid
(18
)
 
(498
)
Net cash flows provided by financing activities
20,943

 
14,324

Net (decrease) increase in cash and cash equivalents
(14,024
)
 
3,194

Cash and cash equivalents at the beginning of the period
14,981

 
12,752

Cash and cash equivalents at the end of the period
$
957

 
$
15,946

Supplemental disclosure of cash flow information
 

 
 

Cash interest paid
$
4,749

 
$
5,256

Non-cash financing activities:
 

 
 

Value of members’ capital issued in connection with dividend reinvestment plan
$
1,038

 
$
2,496

Accrual for offering costs
617

 
1,276

Accrual for deferred financing costs
125

 
25



3




New Mountain Finance Holdings, L.L.C.
 
Consolidated Statements of Assets, Liabilities and Members’ Capital
(in thousands, except units and per unit data)
 
 
September 30, 2013
 
December 31, 2012
 
(unaudited)
 
 
Assets
 

 
 

Investments at fair value (cost of $1,025,337 and $976,243, respectively)
$
1,041,432

 
$
989,820

Cash and cash equivalents
17,629

 
12,752

Interest and dividend receivable
11,097

 
6,340

Deferred credit facility costs (net of accumulated amortization of $3,147 and $2,016, respectively)
4,838

 
5,490

Receivable from affiliate
317

 
534

Receivable from unsettled securities sold

 
9,962

Other assets
1,981

 
666

Total assets
$
1,077,294

 
$
1,025,564

Liabilities
 

 
 

SLF Credit Facility
215,000

 
214,262

Holdings Credit Facility
159,091

 
206,938

Payable for unsettled securities purchased
43,400

 
9,700

Capital gains incentive fee payable
6,974

 
4,407

Incentive fee payable
3,534

 
3,390

Management fee payable
3,754

 
3,222

Interest payable
755

 
712

Payable to affiliate
3

 

Dividends payable

 
11,192

Other liabilities
2,978

 
1,802

Total liabilities
435,489

 
455,625

Members’ Capital
641,805

 
569,939

Total liabilities and members’ capital
$
1,077,294

 
$
1,025,564

Outstanding common membership units
44,831,859

 
40,548,189

Capital per unit
$
14.32

 
$
14.06


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


4



New Mountain Finance Holdings, L.L.C.
 
Consolidated Statements of Operations
(in thousands)
(unaudited)
 
 
Three months ended
 
Nine months ended
 
September 30, 2013
 
September 30, 2012
 
September 30, 2013
 
September 30, 2012
Investment income
 

 
 

 
 

 
 

Interest income
$
27,175

 
$
21,362

 
$
79,539

 
$
60,087

Dividend income
(1,631
)
 
215

 
4,802

 
215

Other income
249

 
175

 
1,926

 
771

Total investment income
25,793

 
21,752

 
86,267

 
61,073

Expenses
 

 
 

 
 

 
 

Incentive fee
3,533

 
2,978

 
12,398

 
8,147

Capital gains incentive fee
1,587

 
2,583

 
2,568

 
3,547

Total incentive fee
5,120

 
5,561

 
14,966

 
11,694

Management fee
3,754

 
2,768

 
11,049

 
7,887

Interest and other credit facility expenses
3,190

 
2,402

 
9,379

 
7,286

Administrative expenses
743

 
544

 
2,441

 
1,604

Professional fees
549

 
405

 
1,684

 
1,279

Other general and administrative expenses
378

 
375

 
1,184

 
1,015

Total expenses
13,734

 
12,055

 
40,703

 
30,765

Less: expenses waived and reimbursed (See Note 5)
(600
)
 
(439
)
 
(2,265
)
 
(1,387
)
Net expenses
13,134

 
11,616

 
38,438

 
29,378

Net investment income
12,659

 
10,136

 
47,829

 
31,695

Net realized gains on investments
5,160

 
1,615

 
9,516

 
14,591

Net change in unrealized appreciation (depreciation) of investments
2,659

 
10,494

 
2,518

 
10,710

Net increase in members’ capital resulting from operations
$
20,478

 
$
22,245

 
$
59,863

 
$
56,996

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


5



New Mountain Finance Holdings, L.L.C.
 
Consolidated Statements of Changes in Members’ Capital
(in thousands)
(unaudited)
 
 
Nine months ended
 
September 30, 2013
 
September 30, 2012
Increase in members’ capital resulting from operations:
 

 
 

Net investment income
$
47,829

 
$
31,695

Net realized gains on investments
9,516

 
14,591

Net change in unrealized appreciation (depreciation) of investments
2,518

 
10,710

Net increase in members’ capital resulting from operations
59,863

 
56,996

Net contributions
57,020

 
82,300

Dividends declared
(48,877
)
 
(40,046
)
Offering costs
(249
)
 
(377
)
Reinvestment of dividends
4,109

 
980

Net increase in members’ capital
71,866

 
99,853

Members’ capital at beginning of period
569,939

 
420,502

Members’ capital at end of period
$
641,805

 
$
520,355

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


6



New Mountain Finance Holdings, L.L.C. 
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
 
Nine months ended
 
September 30, 2013
 
September 30, 2012
Cash flows from operating activities
 

 
 

Net increase in members’ capital resulting from operations
$
59,863

 
$
56,996

Adjustments to reconcile net (increase) decrease in capital resulting from operations to net cash (used in) provided by operating activities:
 

 
 

Net realized gains on investments
(9,516
)
 
(14,591
)
Net change in unrealized (appreciation) depreciation of investments
(2,518
)
 
(10,710
)
Amortization of purchase discount
(2,671
)
 
(4,549
)
Amortization of deferred credit facility costs
1,131

 
825

Non-cash interest income
(2,697
)
 
(888
)
(Increase) decrease in operating assets:
 

 
 

Purchase of investments
(349,349
)
 
(392,162
)
Proceeds from sales and paydowns of investments
315,139

 
268,369

Cash paid for drawn revolvers

 
(10,710
)
Cash repayments on drawn revolvers

 
9,870

Interest and dividend receivable
(4,757
)
 
(1,272
)
Receivable from affiliate
217

 
198

Receivable from unsettled securities sold
9,962

 

Other assets
(302
)
 
(642
)
Increase (decrease) in operating liabilities:
 

 
 

Payable for unsettled securities purchased
33,700

 
12,195

Capital gains incentive fee payable
2,567

 
3,547

Incentive fee payable
144

 
661

Management fee payable
532

 
567

Interest payable
43

 
(1,166
)
Payable to affiliate
3

 
23

Other liabilities
590

 
(322
)
Net cash flows provided by (used in) operating activities
52,081

 
(83,761
)
Cash flows from financing activities
 

 
 

Net contributions
57,020

 
82,300

Dividends paid
(55,961
)
 
(39,066
)
Offering costs paid
(656
)
 
(259
)
Proceeds from Holdings Credit Facility
246,923

 
311,326

Repayment of Holdings Credit Facility
(294,770
)
 
(304,699
)
Proceeds from SLF Credit Facility
11,138

 
89,031

Repayment of SLF Credit Facility
(10,400
)
 
(54,959
)
Deferred credit facility costs paid
(498
)
 
(2,561
)
Net cash flows (used in) provided by financing activities
(47,204
)
 
81,113

Net increase (decrease) in cash and cash equivalents
4,877

 
(2,648
)
Cash and cash equivalents at the beginning of the period
12,752

 
15,319

Cash and cash equivalents at the end of the period
$
17,629

 
$
12,671

Supplemental disclosure of cash flow information
 

 
 

Interest paid
$
7,938

 
$
7,185

Non-cash operating activities:
 

 
 

Non-cash activity on investments
$
1,986

 
$

Non-cash financing activities:
 

 
 

Value of members’ capital issued in connection with dividend reinvestment plan
$
4,109

 
$
980

Accrual for offering costs
1,162

 
326

Accrual for deferred credit facility costs
25

 
59

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


7

New Mountain Finance Holdings, L.L.C. 
Consolidated Schedule of Investments
September 30, 2013
(in thousands, except shares)
(unaudited)

Portfolio Company, Location and Industry(1)
 
Type of
Investment
 
Interest Rate
 
Maturity
Date
 
Principal
Amount,
 Par Value
 or Shares
 
Cost
 
Fair Value
 
Percent of
Members’
Capital
Funded Debt Investments - Bermuda
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Stratus Technologies Bermuda Holdings Ltd.(4)**
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Stratus Technologies Bermuda Ltd. / Stratus Technologies, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Information Technology
 
First lien (2)(7)
 
12.00%
 
3/29/2015
 
$
6,497

 
$
6,305

 
$
6,513

 
1.01
%
Total Funded Debt Investments - Bermuda
 
 
 
 
 
 
 
$
6,497

 
$
6,305

 
$
6,513

 
1.01
%
Funded Debt Investments - Cayman Islands
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Pinnacle Holdco S.à r.l. / Pinnacle (US) Acquisition Co Limited**
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Software
 
Second lien (2)
 
10.50% (Base Rate + 9.25%)
 
7/30/2020
 
$
30,000

 
$
29,458

 
$
30,394

 
4.74
%
Total Funded Debt Investments - Cayman Islands
 
 
 
 
 
 
 
$
30,000

 
$
29,458

 
$
30,394

 
4.74
%
Funded Debt Investments - United States
 
 
 
 
 
 
 
 

 
 

 
 

 
 

McGraw-Hill Global Education Holdings, LLC
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Education
 
First lien (2)
 
9.75%
 
4/1/2021
 
$
24,500

 
$
24,345

 
$
26,093

 
 

 
 
First lien (3)
 
9.00% (Base Rate + 7.75%)
 
3/22/2019
 
19,900

 
19,342

 
20,174

 
 

 
 
 
 
 
 
 
 
44,400

 
43,687

 
46,267

 
7.21
%
UniTek Global Services, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Business Services
 
First lien (2)
 
15.00% (Base Rate + 9.50% + 4.00% PIK)*
 
4/15/2018
 
26,176

 
25,265

 
25,543

 
 

 
 
First lien (2)
 
15.00% (Base Rate + 9.50% + 4.00% PIK)*
 
4/15/2018
 
6,337

 
6,117

 
6,184

 
 

 
 
First lien (2)
 
15.00% (Base Rate + 9.50% + 4.00% PIK)*
 
4/15/2018
 
5,268

 
5,084

 
5,140

 
 

 
 
 
 
 
 
 
 
37,781

 
36,466

 
36,867

 
5.74
%
Edmentum, Inc.(fka Plato, Inc.)
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Education
 
First lien (3)
 
6.00% (Base Rate + 4.75%)
 
5/17/2018
 
6,449

 
6,291

 
6,486

 
 

 
 
Second lien (2)
 
11.25% (Base Rate + 9.75%)
 
5/17/2019
 
29,150

 
28,649

 
29,405

 
 

 
 
 
 
 
 
 
 
35,599

 
34,940

 
35,891

 
5.59
%
SRA International, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Federal Services
 
First lien (2)
 
6.50% (Base Rate + 5.25%)
 
7/20/2018
 
34,750

 
33,739

 
34,533

 
5.38
%
Rocket Software, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Software
 
Second lien (2)
 
10.25% (Base Rate + 8.75%)
 
2/8/2019
 
30,875

 
30,726

 
30,921

 
4.82
%
Global Knowledge Training LLC
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Education
 
First lien (3)
 
6.51% (Base Rate + 4.99%)
 
4/21/2017
 
4,624

 
4,575

 
4,624

 
 

 
 
First lien (3)
 
6.51% (Base Rate + 4.99%)
 
4/21/2017
 
1,159

 
1,147

 
1,159

 
 

 
 
Second lien (2)
 
11.50% (Base Rate + 9.75%)
 
10/21/2018
 
24,250

 
23,855

 
24,643

 
 

 
 
 
 
 
 
 
 
30,033

 
29,577

 
30,426

 
4.74
%

The accompanying notes are an integral part of these consolidated financial statements
8

New Mountain Finance Holdings, L.L.C. 
Consolidated Schedule of Investments (Continued)
September 30, 2013
(in thousands, except shares)
(unaudited)

Portfolio Company, Location and Industry(1)
 
Type of
Investment
 
Interest Rate
 
Maturity
Date
 
Principal
Amount,
 Par Value
 or Shares
 
Cost
 
Fair Value
 
Percent of
Members’
Capital
Novell, Inc. (fka Attachmate Corporation, NetIQ Corporation)
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Software
 
First lien (3)
 
7.25% (Base Rate + 5.75%)
 
11/22/2017
 
$
7,158

 
$
7,044

 
$
7,195

 
 

 
 
Second lien (2)
 
11.00% (Base Rate + 9.50%)
 
11/22/2018
 
23,353

 
22,758

 
23,090

 
 

 
 
 
 
 
 
 
 
30,511

 
29,802

 
30,285

 
4.72
%
Deltek, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Software
 
Second lien (2)
 
10.00% (Base Rate + 8.75%)
 
10/10/2019
 
30,000

 
29,709

 
30,275

 
4.72
%
JHCI Acquisition, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Distribution & Logistics
 
First lien (3)
 
7.00% (Base Rate + 5.75%)
 
7/11/2019
 
19,950

 
19,658

 
20,000

 
 

 
 
Second lien (2)
 
11.00% (Base Rate + 9.75%)
 
7/11/2020
 
10,000

 
9,707

 
9,700

 
 

 
 
 
 
 
 
 
 
29,950

 
29,365

 
29,700

 
4.63
%
Transtar Holding Company
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Distribution & Logistics
 
Second lien (2)
 
9.75% (Base Rate + 8.50%)
 
10/9/2019
 
28,300

 
27,828

 
28,866

 
4.50
%
KeyPoint Government Solutions, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Federal Services
 
First lien (3)
 
7.25% (Base Rate + 6.00%)
 
11/13/2017
 
17,392

 
17,023

 
17,218

 
 

 
 
First lien (2)
 
7.25% ( Base Rate + 6.00%)
 
11/13/2017
 
10,483

 
10,303

 
10,378

 
 

 
 
 
 
 
 
 
 
27,875

 
27,326

 
27,596

 
4.30
%
YP Holdings LLC (8)
 
 
 
 
 
 
 
 

 
 

 
 

 
 

YP LLC
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Media
 
First lien (2)
 
8.06% (Base Rate + 6.69%)
 
6/4/2018
 
27,120

 
26,476

 
26,984

 
4.20
%
Meritas Schools Holdings, LLC
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Education
 
First lien (3)
 
7.00% (Base Rate + 5.75%)
 
6/25/2019
 
18,953

 
18,769

 
18,988

 
 

 
 
First lien (2)
 
7.00% ( Base Rate + 5.75%)
 
6/25/2019
 
6,983

 
6,915

 
6,996

 
 

 
 
 
 
 
 
 
 
25,936

 
25,684

 
25,984

 
4.05
%
Kronos Incorporated
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Software
 
Second lien (2)
 
9.75% (Base Rate + 8.50%)
 
4/30/2020
 
25,000

 
24,771

 
25,953

 
4.04
%
Permian Tank & Manufacturing, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Energy
 
First lien (2)
 
10.50%
 
1/15/2018
 
24,500

 
24,770

 
24,010

 
3.74
%
Aderant North America, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Software
 
Second lien (2)
 
10.00% (Base Rate + 8.75%)
 
6/20/2019
 
22,500

 
22,191

 
23,119

 
3.60
%
LM U.S. Member LLC (and LM U.S. Corp Acquisition Inc.)
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Business Services
 
Second lien (3)
 
9.50% (Base Rate + 8.25%)
 
10/26/2020
 
20,000

 
19,724

 
20,333

 
3.17
%
Merrill Communications LLC
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Business Services
 
First lien (3)
 
7.31% (Base Rate + 6.20%)
 
3/8/2018
 
19,900

 
19,708

 
20,033

 
3.12
%
First American Payment Systems, L.P.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Business Services
 
Second lien (3)
 
10.75% (Base Rate + 9.50%)
 
4/12/2019
 
20,000

 
19,642

 
19,988

 
3.11
%
Six3 Systems, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Federal Services
 
First lien (3)
 
7.00% (Base Rate + 5.75%)
 
10/4/2019
 
19,850

 
19,674

 
19,974

 
3.11
%
eResearchTechnology, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Healthcare Services
 
First lien (3)
 
6.00% (Base Rate + 4.75%)
 
5/2/2018
 
19,800

 
19,061

 
19,899

 
3.10
%
Distribution International, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Distribution & Logistics
 
First lien (2)
 
7.50% (Base Rate + 6.50%)
 
7/16/2019
 
19,950

 
19,562

 
19,862

 
3.09
%
ARSloane Acquisition, LLC
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Business Services
 
First lien (2)
 
7.50% (Base Rate + 6.25%)
 
10/1/2019
 
20,000

 
19,800

 
19,800

 
3.09
%
Envision Acquisition Company, LLC
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Healthcare Services
 
Second lien (2)
 
9.75% (Base Rate + 8.75%)
 
11/4/2021
 
20,000

 
19,600

 
19,600

 
3.05
%




The accompanying notes are an integral part of these consolidated financial statements
9

New Mountain Finance Holdings, L.L.C. 
Consolidated Schedule of Investments (Continued)
September 30, 2013
(in thousands, except shares)
(unaudited)

Portfolio Company, Location and Industry(1)
 
Type of
Investment
 
Interest Rate
 
Maturity
Date
 
Principal
Amount,
 Par Value
 or Shares
 
Cost
 
Fair Value
 
Percent of
Members’
Capital
Insight Pharmaceuticals LLC
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Healthcare Products
 
Second lien (3)
 
13.25% (Base Rate + 11.75%)
 
8/25/2017
 
$
19,310

 
$
18,738

 
$
19,214

 
2.99
%
St. George’s University Scholastic Services LLC
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Education
 
First lien (3)
 
8.50% (Base Rate + 7.00%)
 
12/20/2017
 
11,947

 
11,733

 
12,052

 
 

 
 
First lien (2)
 
8.50% (Base Rate + 7.00%)
 
12/20/2017
 
6,391

 
6,280

 
6,447

 
 

 
 
 
 
 
 
 
 
18,338

 
18,013

 
18,499

 
2.88
%
PODS, Inc. (6)
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Consumer Services
 
 
 
 
 
 
 
 

 
 

 
 

 
 

PODS Funding Corp. II
 
First lien (3)
 
7.25% (Base Rate + 6.00%)
 
11/29/2016
 
12,575

 
12,323

 
12,606

 
 

Storapod Holding Company, Inc.
 
Subordinated (2)
 
21.00% PIK*
 
11/29/2017
 
5,460

 
5,334

 
5,460

 
 

 
 
 
 
 
 
 
 
18,035

 
17,657

 
18,066

 
2.82
%
Ascensus, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Business Services
 
First lien (3)
 
8.00% (Base Rate + 6.75%)
 
12/21/2018
 
16,873

 
16,568

 
17,125

 
2.67
%
Sotera Defense Solutions, Inc. (Global Defense Technology & Systems, Inc.)
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Federal Services
 
First lien (3)
 
7.50% (Base Rate + 6.00%)
 
4/21/2017
 
18,527

 
18,323

 
16,674

 
2.60
%
IG Investments Holdings, LLC
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Business Services
 
Second lien (3)
 
10.25% (Base Rate + 9.00%)
 
10/31/2020
 
15,000

 
14,861

 
15,075

 
2.35
%
Confie Seguros Holding II Co.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Consumer Services
 
Second lien (3)
 
10.25% (Base Rate + 9.00%)
 
5/8/2019
 
8,906

 
8,769

 
8,970

 
 

 
 
Second lien (2)
 
10.25% (Base Rate + 9.00%)
 
5/8/2019
 
5,979

 
5,988

 
6,021

 
 

 
 
 
 
 
 
 
 
14,885

 
14,757

 
14,991

 
2.34
%
OpenLink International, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Software
 
First lien (3)
 
7.75% (Base Rate + 6.25%)
 
10/30/2017
 
14,738

 
14,522

 
14,793

 
2.31
%
KPLT Holdings, Inc. (Centerplate, Inc., et al.)
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Consumer Services
 
Subordinated (2)
 
11.75% (10.25% + 1.50% PIK)*
 
4/16/2019
 
14,802

 
14,539

 
14,576

 
2.27
%
Smile Brands Group Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Healthcare Services
 
First lien (2)
 
7.50% (Base Rate + 6.25%)
 
8/16/2019
 
14,500

 
14,297

 
14,337

 
2.23
%
Aspen Dental Management, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Healthcare Services
 
First lien (3)
 
7.00% (Base Rate + 5.50%)
 
10/6/2016
 
14,757

 
14,500

 
14,241

 
2.22
%
Brock Holdings III, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Industrial Services
 
Second lien (2)
 
10.00% (Base Rate + 8.25%)
 
3/16/2018
 
14,000

 
13,850

 
14,222

 
2.22
%
Packaging Coordinators, Inc. (10)
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Healthcare Products
 
Second lien (2)
 
9.50% (Base Rate + 8.25%)
 
11/10/2020
 
14,000

 
13,865

 
14,000

 
2.18
%
Lonestar Intermediate Super Holdings, LLC
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Business Services
 
Subordinated (2)
 
11.00% (Base Rate + 9.50%)
 
9/2/2019
 
12,000

 
11,692

 
12,570

 
1.96
%
Van Wagner Communications, LLC
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Media
 
First lien (2)
 
6.25% (Base Rate + 5.00%)
 
8/3/2018
 
11,821

 
11,633

 
12,087

 
1.88
%
Vision Solutions, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Software
 
Second lien (2)
 
9.50% (Base Rate + 8.00%)
 
7/23/2017
 
12,000

 
11,927

 
11,850

 
1.85
%
Vertafore, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Software
 
Second lien (2)
 
9.75% (Base Rate + 8.25%)
 
10/29/2017
 
10,000

 
9,933

 
10,215

 
1.59
%
TransFirst Holdings, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Business Services
 
Second lien (3)
 
11.00% (Base Rate + 9.75%)
 
6/27/2018
 
10,000

 
9,731

 
10,163

 
1.58
%
Mailsouth, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Media
 
First lien (3)
 
6.75% (Base Rate + 5.00%)
 
12/14/2016
 
9,792

 
9,705

 
9,450

 
1.47
%
Virtual Radiologic Corporation
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Healthcare Information Technology
 
First lien (3)
 
7.25% (Base Rate + 5.50%)
 
12/22/2016
 
13,598

 
13,481

 
8,838

 
1.38
%

The accompanying notes are an integral part of these consolidated financial statements
10

New Mountain Finance Holdings, L.L.C. 
Consolidated Schedule of Investments (Continued)
September 30, 2013
(in thousands, except shares)
(unaudited)

Portfolio Company, Location and Industry(1)
 
Type of
Investment
 
Interest Rate
 
Maturity
Date
 
Principal
Amount,
 Par Value
 or Shares
 
Cost
 
Fair Value
 
Percent of
Members’
Capital
Consona Holdings, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Software
 
First lien (3)
 
7.25% (Base Rate + 6.00%)
 
8/6/2018
 
$
8,415

 
$
8,345

 
$
8,436

 
1.32
%
Physio-Control International, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Healthcare Products
 
First lien (2)
 
9.88%
 
1/15/2019
 
6,651

 
6,651

 
7,482

 
1.17
%
Alion Science and Technology Corporation
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Federal Services
 
First lien (2)(7)
 
12.00% (10.00% + 2.00% PIK)*
 
11/1/2014
 
6,383

 
6,271

 
6,426

 
1.00
%
Immucor, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Healthcare Services
 
Subordinated (2)(7)
 
11.13%
 
8/15/2019
 
5,000

 
4,948

 
5,525

 
0.86
%
GCA Services Group, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Business Services
 
Second lien (2)
 
9.25% (Base Rate + 8.00%)
 
11/1/2020
 
5,000

 
4,954

 
5,096

 
0.79
%
Education Management LLC**
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Education
 
First lien (3)
 
8.25% (Base Rate + 7.00%)
 
3/30/2018
 
5,017

 
4,896

 
4,930

 
0.77
%
Learning Care Group (US), Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Education
 
Subordinated (2)
 
15.00% PIK*
 
5/8/2020
 
4,066

 
3,944

 
4,066

 
 

 
 
Subordinated (2)
 
15.00% PIK*
 
5/8/2020
 
744

 
689

 
744

 
 

 
 
 
 
 
 
 
 
4,810

 
4,633

 
4,810

 
0.75
%
Brickman Group Holdings, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Business Services
 
Subordinated (2)
 
9.13%
 
11/1/2018
 
3,650

 
3,371

 
3,924

 
0.61
%
ATI Acquisition Company (fka Ability Acquisition, Inc.) (11)
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Education
 
First lien (2)
 
12.25% (Base Rate + 5.00% + 4.00% PIK) (5)*
 
12/30/2014
 
4,432

 
4,306

 

 
 

 
 
First lien (2)
 
17.25% (Base Rate + 10.00% + 4.00% PIK) (5)*
 
6/30/2012 - Past Due
 
1,665

 
1,434

 
233

 
 

 
 
First lien (2)
 
17.25% (Base Rate + 10.00% + 4.00% PIK) (5)*
 
6/30/2012 - Past Due
 
103

 
94

 
103

 
 

 
 
 
 
 
 
 
 
6,200

 
5,834

 
336

 
0.05
%
Total Funded Debt Investments - United States
 
 
 
 
 
 
 
$
982,732

 
$
966,323

 
$
975,117

 
151.93
%
Total Funded Debt Investments
 
 
 
 
 
 
 
$
1,019,229

 
$
1,002,086

 
$
1,012,024

 
157.68
%
Equity - Bermuda
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Stratus Technologies Bermuda Holdings Ltd.(4)**
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Information Technology
 
Ordinary shares (2)
 
 
 
156,247

 
$
65

 
$
25

 
 

 
 
Preferred shares (2)
 
 
 
35,558

 
15

 
6

 
 

 
 
 
 
 
 
 
 
 

 
80

 
31

 
0.01
%
Total Shares - Bermuda
 
 
 
 
 
 
 
 

 
$
80

 
$
31

 
0.01
%
Equity - United States
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Black Elk Energy Offshore Operations, LLC
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Energy
 
Preferred shares (2)
 
17.00%
 
 
20,000,000

 
$
20,000

 
$
20,000

 
3.11
%
Global Knowledge Training LLC
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Education
 
Ordinary shares (2)
 
 
 
2

 
2

 
3

 
 

 
 
Preferred shares (2)
 
 
 
2,423

 
1,193

 
3,039

 
 

 
 
 
 
 
 
 
 
 

 
1,195

 
3,042

 
0.48
%
Packaging Coordinators, Inc. (10)
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Packaging Coordinators Holdings, LLC
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Healthcare Products
 
Ordinary shares (2)
 
 
 
19,427

 
1,000

 
1,000

 
0.16
%
 

The accompanying notes are an integral part of these consolidated financial statements
11

New Mountain Finance Holdings, L.L.C. 
Consolidated Schedule of Investments (Continued)
September 30, 2013
(in thousands, except shares)
(unaudited)


Portfolio Company, Location and Industry(1)
 
Type of
Investment
 
Interest Rate
 
Maturity
Date
 
Principal
Amount,
 Par Value
 or Shares
 
Cost
 
Fair Value
 
Percent of
Members’
Capital
Ancora Acquisition LLC (11)
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Education
 
Preferred shares (2)
 
 
 
372

 
$
83

 
$
83

 
0.01
 %
Total Shares - United States
 
 
 
 
 
 
 
 

 
$
22,278

 
$
24,125

 
3.76
 %
Total Shares
 
 
 
 
 
 
 
 

 
$
22,358

 
$
24,156

 
3.77
 %
Warrants - United States
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Learning Care Group (US), Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Education
 
Warrants (2)
 
 
 
844

 
$
194

 
$
522

 
 

 
 
Warrants (2)
 
 
 
3,589

 
61

 
2,218

 
 

 
 
 
 
 
 
 
 
 

 
255

 
2,740

 
0.43
 %
YP Holdings LLC (8)
 
 
 
 
 
 
 
 

 
 

 
 

 
 

YP Equity Investors LLC
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Media
 
Warrants (2)
 
 
 
5

 

 
1,634

 
0.25
 %
Unitek Global Services, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Business Services
 
Warrants (2)
 
 
 
1,014,451

 
1,449

 
1,009

 
0.16
 %
PODS, Inc. (6)
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Storapod Holding Company, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Consumer Services
 
Warrants (2)
 
 
 
360,129

 
156

 
467

 
0.07
 %
Alion Science and Technology Corporation
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Federal Services
 
Warrants (2)
 
 
 
6,000

 
293

 
189

 
0.03
 %
Ancora Acquisition LLC (11)
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Education
 
Warrants (2)
 
 
 
20

 

 

 
 %
Total Warrants - United States
 
 
 
 
 
 
 
 

 
$
2,153

 
$
6,039

 
0.94
 %
Total Funded Investments
 
 
 
 
 
 
 
 

 
$
1,026,597

 
$
1,042,219

 
162.39
 %
Unfunded Debt Investments - United States
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Advantage Sales & Marketing Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Business Services
 
First lien (2)(9) - Undrawn
 
 
12/17/2015
 
$
10,500

 
$
(1,260
)
 
$
(787
)
 
(0.12
)%
Total Unfunded Debt Investments
 
 
 
 
 
 
 
$
10,500

 
$
(1,260
)
 
$
(787
)
 
(0.12
)%
Total Investments
 
 
 
 
 
 
 
 

 
$
1,025,337

 
$
1,041,432

 
162.27
 %
 
______________________________________________________
(1)                                     New Mountain Finance Holdings, L.L.C. (the “Operating 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 Operating Company as the Borrower and Collateral Administrator, Wells Fargo Securities, L.L.C. as the Administrative Agent, and Wells Fargo Bank, National Association, as the Collateral Custodian. See Note 7, Borrowing Facilities, for details.
 
(3)                                     Investment is pledged as collateral for the SLF Credit Facility, a revolving credit facility among New Mountain Finance SPV Funding, L.L.C. as the Borrower, the Operating Company as the Collateral Administrator, Wells Fargo Securities, L.L.C. as the Administrative Agent, and Wells Fargo Bank, National Association, as the Collateral Custodian. See Note 7, Borrowing Facilities, for details.
 
(4)                                     The Operating Company holds investments in two related entities of Stratus Technologies Bermuda Holdings, Ltd. (“Stratus Holdings”). The Operating Company directly holds ordinary and preferred equity in Stratus Holdings and has a credit investment in the joint issuers of Stratus Technologies Bermuda Ltd. (“Stratus Bermuda”) and Stratus Technologies, Inc. (“Stratus U.S.”), collectively, the “Stratus Notes”. Stratus U.S. is a wholly-owned subsidiary of Stratus Bermuda, which in turn is a wholly-owned subsidiary of Stratus Holdings. Stratus Holdings is the parent guarantor of the credit investment of the Stratus Notes.
 
(5)                                     Investment is on non-accrual status.
 
(6)                                     The Operating Company holds investments in two related entities of PODS, Inc. The Operating Company directly holds warrants in Storapod Holding Company, Inc. (“Storapod”) and has a credit investment in Storapod through Storapod WCF II Limited (“Storapod WCF II”). Storapod WCF II is a special purpose entity used to enter into a Shari’ah-compliant financing arrangement with Storapod. Additionally, the Operating Company has a credit investment in PODS Funding Corp. II (“PODS II”). PODS, Inc. is a wholly-owned subsidiary of PODS Holding, Inc., which in turn is a majority-owned subsidiary of Storapod. PODS II is a special purpose entity used to enter into a Shari’ah-compliant financing arrangement with PODS, Inc. and its subsidiary, PODS Enterprises, Inc.

The accompanying notes are an integral part of these consolidated financial statements
12

New Mountain Finance Holdings, L.L.C. 
Consolidated Schedule of Investments (Continued)
September 30, 2013
(in thousands, except shares)
(unaudited)

 
(7)                                     Securities are registered under the Securities Act.
 
(8)                                    The Operating Company holds investments in two related entities of YP Holdings LLC. The Operating 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, a subsidiary of YP Holdings LLC.
 
(9)                                     Par Value amounts represent the drawn or undrawn (as indicated in type of investment) portion of revolving credit facilities. Cost amounts represent the cash received at settlement date net the impact of paydowns and cash paid for drawn revolvers.
 
(10)                                The Operating Company holds investments in Packaging Coordinators, Inc. and one related entity of Packaging Coordinators, Inc. The Operating Company has a credit investment in Packaging Coordinators, Inc. and holds ordinary equity in Packaging Coordinators Holdings, LLC, a wholly-owned subsidiary of Packaging Coordinators, Inc.
 
(11)                                The Operating Company holds investments in ATI Acquisition Company and Ancora Acquisition LLC. The Operating Company has credit investments in ATI Acquisition Company and preferred equity and warrants to purchase units of common membership interests of Ancora Acquisition LLC. The Operating Company received its investments in Ancora Acquisition LLC as a result of its investments in ATI Acquisition Company.
 
*                                           All or a portion of interest contains payments-in-kind (“PIK”).
 
**                                      Indicates assets that the Operating Company deems to be “non-qualifying assets” under Section 55(a) of the Investment Company Act of 1940, as amended. Qualifying assets must represent at least 70.00% of the Operating Company’s total assets at the time of acquisition of any additional non-qualifying assets.
 



The accompanying notes are an integral part of these consolidated financial statements
13

New Mountain Finance Holdings, L.L.C. 
Consolidated Schedule of Investments (Continued)
September 30, 2013
(in thousands, except shares)
(unaudited)

 
 
September 30, 2013
Investment Type
 
Percent of Total
Investments at Fair Value
First lien
 
51.20
%
Second lien
 
41.40
%
Subordinated
 
4.50
%
Equity and other
 
2.90
%
Total investments
 
100.00
%
 
 
September 30, 2013
Industry Type
 
Percent of Total
Investments at Fair Value
Software
 
20.76
%
Business Services
 
17.40
%
Education
 
16.61
%
Federal Services
 
10.12
%
Distribution & Logistics
 
7.53
%
Healthcare Services
 
7.07
%
Media
 
4.82
%
Consumer Services
 
4.62
%
Energy
 
4.22
%
Healthcare Products
 
4.00
%
Industrial Services
 
1.37
%
Healthcare Information Technology
 
0.85
%
Information Technology
 
0.63
%
Total investments
 
100.00
%
 
 
September 30, 2013
Interest Rate Type
 
Percent of Total
Investments at Fair Value
Floating rates
 
88.01
%
Fixed rates
 
11.99
%
Total investments
 
100.00
%
 

The accompanying notes are an integral part of these consolidated financial statements
14

New Mountain Finance Holdings, L.L.C. 
Consolidated Schedule of Investments 
December 31, 2012
(in thousands, except shares)


Portfolio Company, Location and Industry(1)
 
Type of
Investment
 
Interest Rate
 
Maturity
Date
 
Principal
Amount,
 Par Value
 or Shares
 
Cost
 
Fair Value
 
Percent of
Members’
Capital
Funded Debt Investments—Bermuda
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Stratus Technologies Bermuda Holdings Ltd.(4)**
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Stratus Technologies Bermuda Ltd. / Stratus Technologies, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Information Technology
 
First lien(2)(7)
 
12.00%
 
3/29/2015
 
$
6,664

 
$
6,396

 
$
6,631

 
1.16
%
Total Funded Debt Investments—Bermuda
 
 
 
 
 
 
 
$
6,664

 
$
6,396

 
$
6,631

 
1.16
%
Funded Debt Investments—Cayman Islands
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Pinnacle Holdco S.à r.l. / Pinnacle (US) Acquisition Co Limited**
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Software
 
First lien(3)
 
6.50% (Base Rate + 5.25%)
 
7/30/2019
 
$
2,992

 
$
2,971

 
$
2,999

 
 

 
 
Second lien(2)
 
10.50% (Base Rate + 9.25%)
 
7/30/2020
 
30,000

 
29,420

 
30,488

 
 

 
 
 
 
 
 
 
 
32,992

 
32,391

 
33,487

 
5.88
%
Total Funded Debt Investments—Cayman Islands
 
 
 
 
 
 
 
$
32,992

 
$
32,391

 
$
33,487

 
5.88
%
Funded Debt Investments—United Kingdom
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Magic Newco, LLC**
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Software
 
First lien(3)
 
7.25% (Base Rate + 6.00%)
 
12/12/2018
 
$
14,963

 
$
14,543

 
$
15,105

 
2.65
%
Total Funded Debt Investments—United Kingdom
 
 
 
 
 
 
 
$
14,963

 
$
14,543

 
$
15,105

 
2.65
%
Funded Debt Investments—United States
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Edmentum, Inc.(fka Plato, Inc.)
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Education
 
First lien(3)
 
7.50% (Base Rate + 6.00%)
 
5/17/2018
 
$
11,700

 
$
11,378

 
$
11,744

 
 

 
 
Second lien(2)
 
11.25% (Base Rate + 9.75%)
 
5/17/2019
 
29,150

 
28,604

 
28,567

 
 

 
 
 
 
 
 
 
 
40,850

 
39,982

 
40,311

 
7.07
%
Novell, Inc. (fka Attachmate Corporation, NetIQ Corporation)
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Software
 
First lien(3)
 
7.25% (Base Rate + 5.75%)
 
11/22/2017
 
7,700

 
7,560

 
7,785

 
 

 
 
Second lien(2)
 
11.00% (Base Rate + 9.50%)
 
11/22/2018
 
24,000

 
23,326

 
23,560

 
 

 
 
 
 
 
 
 
 
31,700

 
30,886

 
31,345

 
5.50
%
Rocket Software, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Software
 
Second lien(2)
 
10.25% (Base Rate + 8.75%)
 
2/8/2019
 
30,875

 
30,711

 
30,933

 
5.43
%
Pharmaceutical Research Associates, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Healthcare Services
 
Second lien(2)
 
10.50% (Base Rate + 9.25%)
 
6/10/2019
 
30,000

 
29,402

 
30,319

 
5.32
%
UniTek Global Services, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Business Services
 
First lien(2)
 
9.00% (Base Rate + 7.50%)
 
4/16/2018
 
19,650

 
19,202

 
19,331

 
 

 
 
First lien(2)
 
9.00% (Base Rate + 7.50%)
 
4/16/2018
 
5,970

 
5,798

 
5,873

 
 

 
 
First lien(2)
 
9.00% (Base Rate + 7.50%)
 
4/16/2018
 
4,963

 
4,781

 
4,882

 
 

 
 
 
 
 
 
 
 
30,583

 
29,781

 
30,086

 
5.28
%
KeyPoint Government Solutions, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Federal Services
 
First lien(3)
 
7.25% (Base Rate + 6.00%)
 
11/13/2017
 
20,000

 
19,608

 
19,900

 
 

 
 
First lien(2)
 
7.25% (Base Rate + 6.00%)
 
11/13/2017
 
10,000

 
9,703

 
9,950

 
 

 
 
 
 
 
 
 
 
30,000

 
29,311

 
29,850

 
5.24
%
 

The accompanying notes are an integral part of these consolidated financial statements
15

New Mountain Finance Holdings, L.L.C. 
Consolidated Schedule of Investments (Continued) 
December 31, 2012
(in thousands, except shares)


Portfolio Company, Location and Industry(1)
 
Type of
Investment
 
Interest Rate
 
Maturity
Date
 
Principal
Amount,
 Par Value
 or Shares
 
Cost
 
Fair Value
 
Percent of
Members’
Capital
Global Knowledge Training LLC
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Education
 
First lien(3)
 
6.50% (Base Rate + 4.99%)
 
4/21/2017
 
$
4,776

 
$
4,718

 
$
4,705

 
 

 
 
First lien(3)
 
7.25% (Base Rate + 4.00%)
 
4/21/2017
 
1,174

 
1,159

 
1,156

 
 

 
 
Second lien(2)
 
11.50% (Base Rate + 9.75%)
 
10/21/2018
 
24,250

 
23,814

 
23,755

 
 

 
 
 
 
 
 
 
 
30,200

 
29,691

 
29,616

 
5.20
%
Managed Health Care Associates, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Healthcare Services
 
First lien(2)
 
3.47% (Base Rate + 3.25%)
 
8/1/2014
 
14,756

 
13,240

 
14,276

 
 

 
 
Second lien(2)
 
6.72% (Base Rate + 6.50%)
 
2/1/2015
 
15,000

 
12,790

 
14,475

 
 

 
 
 
 
 
 
 
 
29,756

 
26,030

 
28,751

 
5.05
%
Transtar Holding Company
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Distribution & Logistics (10)
 
Second lien(2)
 
9.75% (Base Rate + 8.50%)
 
10/9/2019
 
28,300

 
27,787

 
28,654

 
5.03
%
Meritas Schools Holdings, LLC
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Education
 
First lien(3)
 
7.50% (Base Rate + 6.00%)
 
7/29/2017
 
8,150

 
8,084

 
8,171

 
 

 
 
Second lien(2)
 
11.50% (Base Rate + 10.00%)
 
1/29/2018
 
20,000

 
19,747

 
20,000

 
 

 
 
 
 
 
 
 
 
28,150

 
27,831

 
28,171

 
4.94
%
Kronos Incorporated
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Software
 
Second lien(2)
 
9.75% (Base Rate + 8.50%)
 
4/30/2020
 
25,000

 
24,753

 
25,125

 
4.41
%
St. George’s University Scholastic Services LLC
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Education
 
First lien(2)
 
8.50% (Base Rate + 7.00%)
 
12/20/2017
 
25,000

 
24,501

 
24,500

 
4.30
%
SRA International, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Federal Services
 
First lien(3)
 
6.50% (Base Rate + 5.25%)
 
7/20/2018
 
20,436

 
19,741

 
19,542

 
 

 
 
First lien(2)
 
6.50% (Base Rate + 5.25%)
 
7/20/2018
 
4,315

 
4,225

 
4,126

 
 

 
 
 
 
 
 
 
 
24,751

 
23,966

 
23,668

 
4.15
%
Aderant North America, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Software
 
Second lien(2)
 
11.00% (Base Rate + 7.75%)
 
6/20/2019
 
22,500

 
22,163

 
23,062

 
4.05
%
LM U.S. Member LLC (and LM U.S. Corp Acquisition Inc.)
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Business Services
 
Second lien(2)
 
9.50% (Base Rate + 8.25%)
 
10/26/2020
 
20,000

 
19,704

 
20,150

 
3.54
%
Learning Care Group (US), Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Education
 
First lien(2)
 
12.00%
 
4/27/2016
 
17,369

 
17,174

 
16,696

 
 

 
 
Subordinated(2)
 
15.00% PIK*
 
6/30/2016
 
3,782

 
3,639

 
3,434

 
 

 
 
 
 
 
 
 
 
21,151

 
20,813

 
20,130

 
3.53
%
Six3 Systems, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Federal Services
 
First lien(2)
 
7.00% (Base Rate + 5.75%)
 
10/4/2019
 
20,000

 
19,805

 
20,025

 
3.51
%
First American Payment Systems, L.P.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Business Services
 
Second lien(2)
 
10.75% (Base Rate + 9.50%)
 
4/12/2019
 
20,000

 
19,609

 
19,900

 
3.49
%
eResearchTechnology, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Healthcare Services
 
First lien(3)
 
8.00% (Base Rate + 6.50%)
 
5/2/2018
 
19,950

 
19,202

 
19,850

 
3.48
%
Insight Pharmaceuticals LLC
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Healthcare Products
 
Second lien(2)
 
13.25% (Base Rate + 11.75%)
 
8/25/2017
 
19,310

 
18,659

 
19,503

 
3.42
%
Transplace Texas, L.P.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Distribution & Logistics (10)
 
Second lien(2)
 
11.00% (Base Rate + 9.00%)
 
4/12/2017
 
20,000

 
19,586

 
19,500

 
3.42
%
PODS, Inc.(6)
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Consumer Services
 
 
 
 
 
 
 
 

 
 

 
 

 
 

PODS Funding Corp. II
 
First lien(3)
 
7.25% (Base Rate + 6.00%)
 
11/29/2016
 
14,007

 
13,668

 
13,972

 
 

Storapod Holding Company, Inc.
 
Subordinated(2)
 
21.00% PIK*
 
11/29/2017
 
5,296

 
5,156

 
5,113

 
 

 
 
 
 
 
 
 
 
19,303

 
18,824

 
19,085

 
3.35
%
Smile Brands Group Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Healthcare Services
 
First lien(3)
 
7.00% (Base Rate + 5.25%)
 
12/21/2017
 
19,859

 
19,598

 
18,767

 
3.29
%


The accompanying notes are an integral part of these consolidated financial statements
16

New Mountain Finance Holdings, L.L.C. 
Consolidated Schedule of Investments (Continued) 
December 31, 2012
(in thousands, except shares)


Portfolio Company, Location and Industry(1)
 
Type of
Investment
 
Interest Rate
 
Maturity
Date
 
Principal
Amount,
 Par Value
 or Shares
 
Cost
 
Fair Value
 
Percent of
Members’
Capital
Ascensus, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Business Services
 
First lien(2)
 
8.00% (Base Rate + 6.75%)
 
12/21/2018
 
$
8,500

 
$
8,330

 
$
8,330

 
 

 
 
First lien(3)
 
8.00% (Base Rate + 6.75%)
 
12/21/2018
 
8,500

 
8,330

 
8,330

 
 

 
 
 
 
 
 
 
 
17,000

 
16,660

 
16,660

 
2.92
%
Sotera Defense Solutions, Inc. (Global Defense Technology & Systems, Inc.)
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Federal Services
 
First lien(3)
 
7.50% (Base Rate + 6.00%)
 
4/21/2017
 
15,758

 
15,644

 
15,600

 
2.74
%
IG Investments Holdings, LLC
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Business Services
 
Second lien(2)
 
10.25% (Base Rate + 9.00%)
 
10/31/2020
 
15,000

 
14,852

 
14,925

 
2.62
%
OpenLink International, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Software
 
First lien(3)
 
7.75% (Base Rate + 6.25%)
 
10/30/2017
 
14,850

 
14,600

 
14,850

 
2.61
%
Landslide Holdings, Inc. (Crimson Acquisition Corp.)
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Software
 
First lien(3)
 
7.00% (Base Rate + 5.75%)
 
6/19/2018
 
14,625

 
14,353

 
14,671

 
2.57
%
KPLT Holdings, Inc. (Centerplate, Inc., et al.)
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Consumer Services
 
Subordinated(2)
 
11.75% (10.25% + 1.50% PIK)*
 
4/16/2019
 
14,637

 
14,351

 
14,344

 
2.52
%
Sabre Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Software
 
First lien(3)
 
7.25% (Base Rate + 6.00%)
 
12/29/2017
 
13,965

 
13,918

 
14,186

 
2.49
%
Brock Holdings III, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Industrial Services
 
Second lien(2)
 
10.00% (Base Rate + 8.25%)
 
3/16/2018
 
14,000

 
13,825

 
14,105

 
2.48
%
Triple Point Technology, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Software
 
First lien(3)
 
6.25% (Base Rate + 5.00%)
 
10/27/2017
 
12,968

 
12,549

 
13,021

 
2.28
%
Lonestar Intermediate Super Holdings, LLC
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Business Services
 
Subordinated(2)
 
11.00% (Base Rate + 9.50%)
 
9/2/2019
 
12,000

 
11,666

 
12,765

 
2.24
%
Aspen Dental Management, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Healthcare Services
 
First lien(3)
 
7.00% (Base Rate + 5.50%)
 
10/6/2016
 
12,870

 
12,652

 
12,210

 
2.14
%
Van Wagner Communications, LLC
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Media
 
First lien(2)
 
8.25% (Base Rate + 7.00%)
 
8/3/2018
 
12,000

 
11,772

 
12,160

 
2.13
%
Supervalu Inc.**
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Retail
 
First lien(2)
 
8.00% (Base Rate + 6.75%)
 
8/30/2018
 
11,940

 
11,597

 
12,146

 
2.13
%
Vision Solutions, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Software
 
Second lien(2)
 
9.50% (Base Rate + 8.00%)
 
7/23/2017
 
12,000

 
11,913

 
11,700

 
2.05
%
Merrill Communications LLC
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Business Services
 
First lien(2)
 
10.75% (Base Rate + 7.50%)
 
3/10/2013
 
11,422

 
11,421

 
11,279

 
1.98
%
Mailsouth, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Media
 
First lien(3)
 
6.75% (Base Rate + 5.00%)
 
12/14/2016
 
11,136

 
11,018

 
11,025

 
1.94
%
Immucor, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Healthcare Services
 
First lien(3)
 
5.75% (Base Rate + 4.50%)
 
8/19/2018
 
4,938

 
4,772

 
5,006

 
 

 
 
Subordinated(2)(7)
 
11.13%
 
8/15/2019
 
5,000

 
4,943

 
5,650

 
 

 
 
 
 
 
 
 
 
9,938

 
9,715

 
10,656

 
1.87
%
Virtual Radiologic Corporation
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Healthcare Information Technology
 
First lien(3)
 
7.75% (Base Rate + 4.50%)
 
12/22/2016
 
14,702

 
14,550

 
10,291

 
1.81
%
Permian Tank & Manufacturing, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Energy
 
First lien(3)
 
9.00% (Base Rate + 7.25%)
 
3/15/2017
 
10,072

 
9,852

 
10,072

 
1.77
%

The accompanying notes are an integral part of these consolidated financial statements
17

New Mountain Finance Holdings, L.L.C. 
Consolidated Schedule of Investments (Continued) 
December 31, 2012
(in thousands, except shares)


Portfolio Company, Location and Industry(1)
 
Type of
Investment
 
Interest Rate
 
Maturity
Date
 
Principal
Amount,
 Par Value
 or Shares
 
Cost
 
Fair Value
 
Percent of
Members’
Capital
Vertafore, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Software
 
Second lien(2)
 
9.75% (Base Rate + 8.25%)
 
10/29/2017
 
$
10,000

 
$
9,924

 
$
10,050

 
1.76
%
Merge Healthcare Inc.**
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Healthcare Services
 
First lien(2)(7)
 
11.75%
 
5/1/2015
 
9,000

 
8,916

 
9,709

 
1.70
%
TransFirst Holdings, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Business Services
 
Second lien(2)
 
11.00% (Base Rate + 9.75%)
 
6/27/2018
 
10,000

 
9,700

 
9,700

 
1.70
%
Consona Holdings, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Software
 
First lien(3)
 
7.25% (Base Rate + 6.00%)
 
8/6/2018
 
8,479

 
8,398

 
8,511

 
1.49
%
Confie Seguros Holding II Co.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Consumer Services
 
Second lien(2)
 
10.25% (Base Rate + 9.00%)
 
5/8/2019
 
8,000

 
7,842

 
8,040

 
1.41
%
Physio-Control International, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Healthcare Products
 
First lien(2)
 
9.88%
 
1/15/2019
 
7,000

 
7,000

 
7,717

 
1.35
%
Surgery Center Holdings, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Healthcare Services
 
First lien(3)
 
6.50% (Base Rate + 5.00%)
 
2/6/2017
 
6,834

 
6,809

 
6,800

 
1.19
%
Research Pharmaceutical Services, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Healthcare Services
 
First lien(3)
 
6.75% (Base Rate + 5.25%)
 
2/18/2017
 
7,125

 
7,046

 
6,662

 
1.17
%
Alion Science and Technology Corporation
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Federal Services
 
First lien(2)(7)
 
12.00% (10.00% + 2.00% PIK)*
 
11/1/2014
 
6,320

 
6,131

 
6,093

 
1.07
%
GCA Services Group, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Business Services
 
Second lien(2)
 
9.25% (Base Rate + 8.00%)
 
11/1/2020
 
5,000

 
4,951

 
4,900

 
0.86
%
Education Management LLC**
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Education
 
First lien(3)
 
8.25% (Base Rate + 7.00%)
 
3/30/2018
 
5,058

 
4,921

 
4,232

 
0.74
%
Brickman Group Holdings, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Business Services
 
Subordinated(2)
 
9.13%
 
11/1/2018
 
3,650

 
3,342

 
3,842

 
0.68
%
Ozburn-Hessey Holding Company LLC
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Distribution & Logistics (10)
 
Second lien(2)
 
11.50% (Base Rate + 9.50%)
 
10/10/2016
 
4,000

 
3,947

 
3,680

 
0.65
%
YP Holdings LLC(8)
 
 
 
 
 
 
 
 

 
 

 
 

 
 

YP Intermediate Holdings Corp. / YP Intermediate Holdings II LLC
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Media
 
Second lien(2)
 
15.00% (12.00% + 3.00% PIK)*
 
5/18/2017
 
3,559

 
3,326

 
3,586

 
0.63
%
Mach Gen, LLC
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Power Generation
 
Second lien(2)
 
7.82% PIK (Base Rate + 7.50%)*
 
2/22/2015
 
3,676

 
3,474

 
2,396

 
0.42
%
ATI Acquisition Company (fka Ability Acquisition, Inc.)
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Education
 
First lien(2)
 
12.25% (Base Rate + 5.00% + 4.00% PIK)(5)*
 
12/30/2014
 
4,432

 
4,306

 

 
 

 
 
First lien(2)
 
17.25% (Base Rate + 10.00% + 4.00% PIK)(5)*
 
6/30/2012— Past Due
 
1,665

 
1,517

 
649

 
 

 
 
First lien(2)
 
17.25% (Base Rate + 10.00% + 4.00% PIK)(5)*
 
6/30/2012— Past Due
 
103

 
94

 
103

 
 

 
 
 
 
 
 
 
 
6,200

 
5,917

 
752

 
0.13
%
Airvana Network Solutions Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Software
 
First lien(2)
 
10.00% (Base Rate + 8.00%)
 
3/25/2015
 
648

 
640

 
650

 
0.11
%
Total Funded Debt Investments—United States
 
 
 
 
 
 
 
$
942,670

 
$
921,787

 
$
925,287

 
162.35
%
Total Funded Debt Investments
 
 
 
 
 
 
 
$
997,289

 
$
975,117

 
$
980,510

 
172.04
%
 

 

The accompanying notes are an integral part of these consolidated financial statements
18

New Mountain Finance Holdings, L.L.C. 
Consolidated Schedule of Investments (Continued) 
December 31, 2012
(in thousands, except shares)


Portfolio Company, Location and Industry(1)
 
Type of
Investment
 
Interest Rate
 
Maturity
Date
 
Principal
Amount,
 Par Value
 or Shares
 
Cost
 
Fair Value
 
Percent of
Members’
Capital
Equity—Bermuda
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Stratus Technologies Bermuda Holdings Ltd.(4)**
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Information Technology
 
Ordinary shares(2)
 
 
 
144,270

 
$
65

 
$
65

 
 

 
 
Preferred shares(2)
 
 
 
32,830

 
15

 
15

 
 

 
 
 
 
 
 
 
 
 

 
80

 
80

 
0.01
 %
Total Shares—Bermuda
 
 
 
 
 
 
 
 

 
$
80

 
$
80

 
0.01
 %
Equity—United States
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Global Knowledge Training LLC
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Education
 
Ordinary shares(2)
 
 
 
2

 
$
2

 
$
2

 
 

 
 
Preferred shares(2)
 
 
 
2,423

 
1,195

 
2,423

 
 

 
 
 
 
 
 
 
 
 

 
1,197

 
2,425

 
0.43
 %
Total Shares—United States
 
 
 
 
 
 
 
 

 
$
1,197

 
$
2,425

 
0.43
 %
Total Shares
 
 
 
 
 
 
 
 

 
$
1,277

 
$
2,505

 
0.44
 %
Warrants—United States
 
 
 
 
 
 
 
 

 
 

 
 

 
 

YP Holdings LLC(8)
 
 
 
 
 
 
 
 

 
 

 
 

 
 

YP Equity Investors LLC
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Media
 
Warrants(2)
 
 
 
5

 
$
466

 
$
7,230

 
1.27
 %
Alion Science and Technology Corporation
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Federal Services
 
Warrants(2)
 
 
 
6,000

 
293

 
192

 
0.03
 %
PODS, Inc.(6)
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Storapod Holding Company, Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Consumer Services
 
Warrants(2)
 
 
 
360,129

 
156

 
156

 
0.03
 %
Learning Care Group (US), Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Education
 
Warrants(2)
 
 
 
844

 
194

 
14

 
 %
Total Warrants—United States
 
 
 
 
 
 
 
 

 
$
1,109

 
$
7,592

 
1.33
 %
Total Funded Investments
 
 
 
 
 
 
 
 

 
$
977,503

 
$
990,607

 
173.81
 %
Unfunded Debt Investments—United States
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Advantage Sales & Marketing Inc.
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Business Services
 
First lien(2)(9)—Undrawn
 
 
12/17/2015
 
$
10,500

 
$
(1,260
)
 
$
(787
)
 
(0.14
)%
Total Unfunded Debt Investments
 
 
 
 
 
 
 
$
10,500

 
$
(1,260
)
 
$
(787
)
 
(0.14
)%
Total Investments
 
 
 
 
 
 
 
 

 
$
976,243

 
$
989,820

 
173.67
 %
______________________________________________________

(1)                                  New Mountain Finance Holdings, L.L.C. (the “Operating 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)                                  The Holdings Credit Facility is collateralized by the indicated investments.
 
(3)                                  The SLF Credit Facility is collateralized by the indicated investments.
 
(4)                                  The Operating Company holds investments in two related entities of Stratus Technologies Bermuda Holdings, Ltd. (“Stratus Holdings”). The Operating Company directly holds ordinary and preferred equity in Stratus Holdings and has a credit investment in the joint issuers of Stratus Technologies Bermuda Ltd. (“Stratus Bermuda”) and Stratus Technologies, Inc. (“Stratus U.S.”), collectively, the “Stratus Notes”. Stratus U.S. is a wholly-owned subsidiary of Stratus Bermuda, which in turn is a wholly-owned subsidiary of Stratus Holdings. Stratus Holdings is the parent guarantor of the credit investment of the Stratus Notes.
 
(5)                                  Investment is on non-accrual status.
 

The accompanying notes are an integral part of these consolidated financial statements
19

New Mountain Finance Holdings, L.L.C. 
Consolidated Schedule of Investments (Continued) 
December 31, 2012
(in thousands, except shares)


(6)                                  The Operating Company holds investments in two related entities of PODS, Inc. The Operating Company directly holds warrants in Storapod Holding Company, Inc. (“Storapod”) and has a credit investment in Storapod through Storapod WCF II Limited (“Storapod WCF II”). Storapod WCF II is a special purpose entity used to enter into a Shari’ah-compliant financing arrangement with Storapod. Additionally, the Operating Company has a credit investment in PODS Funding Corp. II (“PODS II”). PODS, Inc. is a wholly-owned subsidiary of PODS Holding, Inc., which in turn is a majority-owned subsidiary of Storapod. PODS II is a special purpose entity used to enter into a Shari’ah-compliant financing arrangement with PODS, Inc. and its subsidiary, PODS Enterprises, Inc.
 
(7)                                  Securities are registered under the Securities Act.
 
(8)                                  The Operating Company holds investments in two related entities of YP Holdings LLC. The Operating 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 Intermediate Holdings Corp. and YP Intermediate Holdings II LLC (together “YP Intermediate”), a subsidiary of YP Holdings LLC.
 
(9)                                  Par Value amounts represent the drawn or undrawn (as indicated in type of investment) portion of revolving credit facilities. Cost amounts represent the cash received at settlement date net the impact of paydowns and cash paid for drawn revolvers.
 
(10)                            Industries were disclosed separately in previously issued financial statements.
 
*                                          All or a portion of interest contains payments-in-kind (“PIK”).
 
**                                    Indicates assets that the Operating Company deems to be “non-qualifying assets” under Section 55(a) of the Investment Company Act of 1940, as amended. Qualifying assets must represent at least 70.00% of the Operating Company’s total assets at the time of acquisition of any additional non-qualifying assets.
 
 

The accompanying notes are an integral part of these consolidated financial statements
20

New Mountain Finance Holdings, L.L.C. 
Consolidated Schedule of Investments (Continued) 
December 31, 2012
(in thousands, except shares)



 
 
December 31, 2012
Investment Type
 
Percent of Total
Investments at Fair Value
First lien
 
49.86
%
Second lien
 
44.56
%
Subordinated
 
4.56
%
Equity and other
 
1.02
%
Total investments
 
100.00
%
 
 
 
December 31, 2012
Industry Type
 
Percent of Total
Investments at Fair Value
Software
 
24.92
%
Education
 
15.17
%
Healthcare Services
 
14.52
%
Business Services
 
14.49
%
Federal Services
 
9.64
%
Distribution & Logistics (1)
 
5.23
%
Consumer Services
 
4.21
%
Media
 
3.44
%
Healthcare Products
 
2.75
%
Industrial Services
 
1.42
%
Retail
 
1.23
%
Healthcare Information Technology
 
1.04
%
Energy
 
1.02
%
Information Technology
 
0.68
%
Power Generation
 
0.24
%
Total investments
 
100.00
%
 
______________________________________________________

(1)                                 Industries were disclosed separately in previously issued financial statements.
 

The accompanying notes are an integral part of these consolidated financial statements
21



New Mountain Finance Corporation

Statements of Assets and Liabilities
(in thousands, except shares and per share data)
 
 
September 30, 2013
 
December 31, 2012
 
(unaudited)
 
 
Assets
 

 
 

Investment in New Mountain Finance Holdings, L.L.C., at fair value (cost of $534,040 and $335,730, respectively)
$
547,722

 
$
341,926

Distribution receivable from New Mountain Finance Holdings, L.L.C.

 
3,405

Total assets
$
547,722

 
$
345,331

Liabilities
 

 
 

Dividends payable

 
3,405

Total liabilities

 
3,405

Net assets
 

 
 

Preferred stock, par value $0.01 per share, 2,000,000 authorized, none issued

 

Common stock, par value $0.01 per share, 100,000,000 shares authorized, and 38,259,921 and 24,326,251 shares issued and outstanding, respectively
383

 
243

Paid in capital in excess of par
533,657

 
335,487

Accumulated undistributed net realized gains
7,725

 
952

Net unrealized appreciation (depreciation)
5,957

 
5,244

Total net assets
$
547,722

 
$
341,926

Total liabilities and net assets
$
547,722

 
$
345,331

Number of shares outstanding
38,259,921

 
24,326,251

Net asset value per share
$
14.32

 
$
14.06

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

22



New Mountain Finance Corporation
 
Statements of Operations
(in thousands, except shares and per share data)
(unaudited)
 
 
Three months ended
 
Nine months ended
 
September 30, 2013
 
September 30, 2012
 
September 30, 2013
 
September 30, 2012
Net investment income allocated from New Mountain Finance Holdings, L.L.C.
 

 
 

 
 

 
 

Interest income
$
23,190

 
$
9,563

 
$
59,220

 
$
22,961

Dividend income
(1,391
)
 
96

 
3,334

 
96

Other income
213

 
83

 
1,539

 
289

Total expenses
(11,209
)
 
(5,169
)
 
(28,398
)
 
(11,314
)
Net investment income allocated from New Mountain Finance Holdings, L.L.C.
10,803

 
4,573

 
35,695

 
12,032

Net realized and unrealized gains allocated from New Mountain Finance Holdings, L.L.C.
 

 
 

 
 

 
 

Net realized gains on investments
4,403

 
700

 
7,567

 
5,189

Net change in unrealized appreciation (depreciation) of investments
2,269

 
4,725

 
753

 
4,800

Net realized and unrealized gains allocated from New Mountain Finance Holdings, L.L.C.
6,672

 
5,425

 
8,320

 
9,989

Total net increase in net assets resulting from operations allocated from New Mountain Finance Holdings, L.L.C.
17,475

 
9,998

 
44,015

 
22,021

Net change in unrealized (depreciation) appreciation of investment in New Mountain Finance Holdings, L.L.C.
(8
)
 
(43
)
 
(40
)
 
(43
)
Net increase in net assets resulting from operations
$
17,467

 
$
9,955

 
$
43,975

 
$
21,978

Basic earnings per share
$
0.46

 
$
0.62

 
$
1.38

 
$
1.75

Weighted average shares of common stock outstanding—basic (See Note 11)
38,159,320

 
16,177,442

 
31,952,623

 
12,537,607

Diluted earnings per share
$
0.46

 
$
0.62

 
$
1.40

 
$
1.74

Weighted average shares of common stock outstanding—diluted (See Note 11)
44,731,258

 
36,138,511

 
42,847,638

 
32,671,954

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

23



New Mountain Finance Corporation
 
Statements of Changes in Net Assets
(in thousands)
(unaudited)
 
 
Nine months ended
 
September 30, 2013
 
September 30, 2012
Increase (decrease) in net assets resulting from operations:
 

 
 

Net investment income allocated from New Mountain Finance Holdings, L.L.C.
$
35,695

 
$
12,032

Net realized gains on investments allocated from New Mountain Finance Holdings, L.L.C.
7,567

 
5,189

Net change in unrealized appreciation (depreciation) of investments allocated from New Mountain Finance Holdings, L.L.C.
753

 
4,800

Net change in unrealized (depreciation) appreciation of investment in New Mountain Finance Holdings, L.L.C.
(40
)
 
(43
)
Total net increase in net assets resulting from operations
43,975

 
21,978

Capital transactions
 

 
 

Net proceeds from shares sold
57,020

 
82,300

Deferred offering costs allocated from New Mountain Finance Holdings, L.L.C.
(203
)
 
(211
)
Value of shares issued for exchanged units
137,384

 
56,314

Dividends declared
(36,489
)
 
(15,173
)
Reinvestment of dividends
4,109

 
980

Total net increase in net assets resulting from capital transactions
161,821

 
124,210

Net increase in net assets
205,796

 
146,188

Net assets at beginning of period
341,926

 
145,487

Net assets at end of period
$
547,722

 
$
291,675

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

24



New Mountain Finance Corporation
 
Statements of Cash Flows
(in thousands)
(unaudited)
 
 
Nine months ended
 
September 30, 2013
 
September 30, 2012
Cash flows from operating activities
 

 
 

Net increase in net assets resulting from operations
$
43,975

 
$
21,978

Adjustments to reconcile net (increase) decrease in net assets resulting from operations to net cash (used in) provided by operating activities:
 

 
 

Net investment income allocated from New Mountain Finance Holdings, L.L.C.
(35,695
)
 
(12,032
)
Net realized and unrealized gains allocated from New Mountain Finance Holdings, L.L.C.
(8,320
)
 
(9,989
)
Net change in unrealized depreciation (appreciation) of investment in New Mountain Finance Holdings, L.L.C.
40

 
43

(Increase) decrease in operating assets:
 

 
 

Purchase of investment
(57,020
)
 
(82,300
)
Distributions from New Mountain Finance Holdings, L.L.C.
35,785

 
15,173

Net cash flows used in operating activities
(21,235
)
 
(67,127
)
Cash flows from financing activities
 

 
 

Net proceeds from shares sold
57,020

 
82,300

Dividends paid
(35,785
)
 
(15,173
)
Net cash flows provided by financing activities
21,235

 
67,127

Net increase (decrease) in cash and cash equivalents

 

Cash and cash equivalents at the beginning of the period

 

Cash and cash equivalents at the end of the period
$

 
$

Non-cash financing activities:
 

 
 

New Mountain Finance AIV Holdings Corporation exchange of New Mountain Finance Holdings, L.L.C. units for shares
$
137,384

 
$
56,314

Value of shares issued in connection with dividend reinvestment plan
4,109

 
980

Deferred offering costs allocated from New Mountain Finance Holdings, L.L.C.
(203
)
 
(211
)
 
The accompanying notes are an integral part of these financial statements.

25



New Mountain Finance AIV Holdings Corporation

Statements of Assets and Liabilities
(in thousands, except shares)
 
 
September 30, 2013
 
December 31, 2012
 
 
(unaudited)
 
 
 
Assets
 

 
 

 
Investment in New Mountain Finance Holdings, L.L.C., at fair value (cost of $98,820 and $244,015, respectively)
$
94,083

 
$
228,013

 
Distributions receivable from New Mountain Finance Holdings, L.L.C.

 
7,786

 
Total assets
$
94,083

 
$
235,799

 
Liabilities
 

 
 

 
Dividends payable

 
7,786

 
Total liabilities

 
7,786

 
Net assets
 

 
 

 
Common stock, par value $0.01 per share 100 shares issued and outstanding

(1)

(1)
Paid in capital in excess of par
98,820

 
244,015

 
Distributions in excess of net realized gains
(4,982
)
 
(6,676
)
 
Net unrealized appreciation (depreciation)
245

 
(9,326
)
 
Total net assets
94,083

 
228,013

 
Total liabilities and net assets
$
94,083

 
$
235,799

 
 

(1)         As of September 30, 2013 and December 31, 2012, the par value of the total common stock was $1.
 
The accompanying notes are an integral part of these financial statements.

26



New Mountain Finance AIV Holdings Corporation
 
Statements of Operations
(in thousands)
(unaudited)
 
 
Three months ended
 
Nine months ended
 
September 30, 2013
 
September 30, 2012
 
September 30, 2013
 
September 30, 2012
Net investment income allocated from New Mountain Finance Holdings, L.L.C.
 

 
 

 
 

 
 

Interest income
$
3,983

 
$
11,799

 
$
20,318

 
$
37,126

Dividend income
(239
)
 
119

 
1,468

 
119

Other income
36

 
91

 
387

 
480

Total expenses
(1,925
)
 
(6,448
)
 
(10,040
)
 
(18,064
)
Net investment income allocated from New Mountain Finance Holdings, L.L.C.
1,855

 
5,561

 
12,133

 
19,661

Net realized and unrealized gains allocated from New Mountain Finance Holdings, L.L.C.
 

 
 

 
 

 
 

Net realized gains on investments
757

 
916

 
1,949

 
9,402

Net change in unrealized appreciation (depreciation) of investments
390

 
5,769

 
1,765

 
5,911

Net realized and unrealized gains allocated from New Mountain Finance Holdings, L.L.C.
1,147

 
6,685

 
3,714

 
15,313

Total net increase in net assets resulting from operations allocated from New Mountain Finance Holdings, L.L.C.
3,002

 
12,246

 
15,847

 
34,974

Net realized gains (losses) on investment in New Mountain Finance Holdings, L.L.C.

 
382

 
(10,451
)
 
382

Net change in unrealized appreciation (depreciation) of investment in New Mountain Finance Holdings, L.L.C.
9

 
1,564

 
7,806

 
1,564

Net increase in net assets resulting from operations
$
3,011

 
$
14,192

 
$
13,202

 
$
36,920

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

27



New Mountain Finance AIV Holdings Corporation
 
Statements of Changes in Net Assets
(in thousands)
(unaudited)
 
 
Nine months ended
 
September 30, 2013
 
September 30, 2012
Increase (decrease) in net assets resulting from operations:
 

 
 

Net investment income allocated from New Mountain Finance Holdings, L.L.C.
$
12,133

 
$
19,661

Net realized gains on investments allocated from New Mountain Finance Holdings, L.L.C.
1,949

 
9,402

Net change in unrealized appreciation (depreciation) of investments allocated from New Mountain Finance Holdings, L.L.C.
1,765

 
5,911

Net realized (losses) gains on investment in New Mountain Finance Holdings, L.L.C.
(10,451
)
 
382

Net change in unrealized appreciation (depreciation) of investment in New Mountain Finance Holdings, L.L.C.
7,806

 
1,564

Total net increase in net assets resulting from operations
13,202

 
36,920

Capital transactions
 

 
 

Distribution to New Mountain Guardian AIV, L.P.
(134,699
)
 
(58,216
)
Deferred offering costs allocated from New Mountain Finance Holdings, L.L.C.
(45
)
 
(166
)
Dividends declared
(12,388
)
 
(24,873
)
Total net decrease in net assets resulting from capital transactions
(147,132
)
 
(83,255
)
Net decrease in net assets
(133,930
)
 
(46,335
)
Net assets at beginning of period
228,013

 
275,015

Net assets at end of period
$
94,083

 
$
228,680

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

28



New Mountain Finance AIV Holdings Corporation
 
Statements of Cash Flows
(in thousands)
(unaudited)
 
 
Nine months ended
 
September 30, 2013
 
September 30, 2012
Cash flows from operating activities
 

 
 

Net increase in net assets resulting from operations
$
13,202

 
$
36,920

Adjustments to reconcile net (increase) decrease in net assets resulting from operations to net cash (used in) provided by operating activities:
 

 
 

Net investment income allocated from New Mountain Finance Holdings, L.L.C.
(12,133
)
 
(19,661
)
Net realized and unrealized gains allocated from New Mountain Finance Holdings, L.L.C.
(3,714
)
 
(15,313
)
Net realized losses (gains) on investment in New Mountain Finance Holdings, L.L.C.
10,451

 
(382
)
Net change in unrealized (appreciation) depreciation in New Mountain Finance Holdings, L.L.C.
(7,806
)
 
(1,564
)
(Increase) decrease in operating activities
 

 
 

Distributions from New Mountain Finance Holdings, L.L.C.
20,174

 
24,873

Net cash flows provided by operating activities
20,174

 
24,873

Cash flows from financing activities
 

 
 

Proceeds from shares sold
134,699

 
58,216

Distribution to New Mountain Guardian AIV, L.P.
(134,699
)
 
(58,216
)
Dividends paid
(20,174
)
 
(24,873
)
Net cash flows used in financing activities
(20,174
)
 
(24,873
)
Net increase (decrease) in cash and cash equivalents

 

Cash and cash equivalents at the beginning of the period

 

Cash and cash equivalents at the end of the period
$

 
$

Non-cash financing activities:
 

 
 

Deferred offering costs allocated from New Mountain Finance Holdings, L.L.C.
$
(45
)
 
$
(166
)
 
The accompanying notes are an integral part of these financial statements.

29



Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,

the Financial Statements of New Mountain Finance Corporation and the Financial Statements

of New Mountain Finance AIV Holdings Corporation
 
September 30, 2013
(in thousands, except units/shares and per unit/share data)
(unaudited)
 
The information in these combined notes to the financial statements relates to each of the three separate registrants: New Mountain Finance Holdings, L.L.C., New Mountain Finance Corporation and New Mountain Finance AIV Holdings Corporation (collectively, the “Companies”). Information that relates to an individual registrant will be specifically referenced by the respective company. None of the Companies makes any representation as to the information related solely to the other registrants other than itself.
 
Note 1. Formation and Business Purpose
 
New Mountain Finance Holdings, L.L.C. (the “Operating Company” or the “Master Fund”) is a Delaware limited liability company. The Operating Company is externally managed and has elected to be treated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). As such, the Operating Company is obligated to comply with certain regulatory requirements. The Operating Company intends to be treated as a partnership for federal income tax purposes for so long as it has at least two members.
 
The Operating Company is externally managed by New Mountain Finance Advisers BDC, L.L.C. (the “Investment Adviser”). New Mountain Finance Administration, L.L.C. (the “Administrator”) provides the administrative services necessary for operations. The Investment Adviser and Administrator are wholly-owned subsidiaries of 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 and with assets under management (which includes amounts committed, not all of which have been drawn down and invested to date) totaling more than $9.0 billion as of September 30, 2013. New Mountain Capital focuses on investing in defensive growth companies across its private equity, public equity, and credit investment vehicles. The Operating Company, formerly known as New Mountain Guardian (Leveraged), L.L.C., was originally formed as a subsidiary of New Mountain Guardian AIV, L.P. (“Guardian AIV”) by New Mountain Capital in October 2008. Guardian AIV was formed through an allocation of approximately $300.0 million of the $5.1 billion of commitments supporting New Mountain Partners III, L.P., a private equity fund managed by New Mountain Capital. In February 2009, New Mountain Capital formed a co-investment vehicle, New Mountain Guardian Partners, L.P., comprising $20.4 million of commitments. New Mountain Guardian (Leveraged), L.L.C. and New Mountain Guardian Partners, L.P., together with their respective direct and indirect wholly-owned subsidiaries, are defined as the “Predecessor Entities”.
 
New Mountain Finance Corporation (“NMFC”) is a Delaware corporation that was originally incorporated on June 29, 2010. NMFC is a closed-end, non-diversified management investment company that has elected to be treated as a BDC under 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”).
 
New Mountain Finance AIV Holdings Corporation (“AIV Holdings”) is a Delaware corporation that was originally incorporated on March 11, 2011. Guardian AIV, a Delaware limited partnership, is AIV Holdings’ sole stockholder. AIV Holdings is a closed-end, non-diversified management investment company that has elected to be treated as a BDC under the 1940 Act. As such, AIV Holdings is obligated to comply with certain regulatory requirements. AIV Holdings has elected to be treated, and intends to comply with the requirements to continue to qualify annually, as a RIC under the Code.
 
On May 19, 2011, NMFC priced its initial public offering (the “IPO”) of 7,272,727 shares of common stock at a public offering price of $13.75 per share. Concurrently with the closing of the IPO and at the public offering price of $13.75 per share, NMFC sold an additional 2,172,000 shares of its common stock to certain executives and employees of, and other individuals affiliated with, New Mountain Capital in a concurrent private placement (the “Concurrent Private Placement”). Additionally, 1,252,964 shares were issued to the partners of New Mountain Guardian Partners, L.P. at that time for their ownership interest in the Predecessor Entities. In connection with NMFC’s IPO and through a series of transactions, the Operating Company owns all of the operations of the Predecessor Entities, including all of the assets and liabilities related to such operations.

30



 
NMFC and AIV Holdings are holding companies with no direct operations of their own, and their sole asset is their ownership in the Operating Company. NMFC and AIV Holdings each entered into a joinder agreement with respect to the Limited Liability Company Agreement, as amended and restated, of the Operating Company, pursuant to which NMFC and AIV Holdings were admitted as members of the Operating Company. NMFC acquired from the Operating Company, with the gross proceeds of the IPO and the Concurrent Private Placement, common membership units (“units”) of the Operating Company (the number of units are equal to the number of shares of NMFC’s common stock sold in the IPO and the Concurrent Private Placement). Additionally, NMFC received units of the Operating Company equal to the number of shares of common stock of NMFC issued to the partners of New Mountain Guardian Partners, L.P. Guardian AIV was the parent of the Operating Company prior to the IPO and, as a result of the transactions completed in connection with the IPO, obtained units in the Operating Company. Guardian AIV contributed its units in the Operating Company to its newly formed subsidiary, AIV Holdings, in exchange for common stock of AIV Holdings. AIV Holdings has the right to exchange all or any portion of its units in the Operating Company for shares of NMFC’s common stock on a one-for-one basis at any time.
 
During the quarter ended September 30, 2013, NMFC issued an additional 111,373 shares in conjunction with its dividend reinvestment plan at a weighted average price of $14.48. Since NMFC’s IPO, and through September 30, 2013, NMFC raised approximately $190,448 in net proceeds from additional offerings of common stock and issued shares of its common stock valued at approximately $193,698 on behalf of AIV Holdings for exchanged units. NMFC acquired from the Operating Company units of the Operating Company equal to the number of shares of NMFC’s common stock sold in the additional offerings. As of September 30, 2013, NMFC and AIV Holdings owned approximately 85.3% and 14.7%, respectively, of the units of the Operating Company.
 
The current structure was designed to generally prevent NMFC from being allocated taxable income with respect to unrecognized gains that existed at the time of the IPO in the Predecessor Entities’ assets, and rather such amounts would be allocated generally to AIV Holdings. The result is that any distributions made to NMFC’s stockholders that are attributable to such gains generally will not be treated as taxable dividends but rather as return of capital.
 
The diagram below depicts the Companies’ organizational structure as of September 30, 2013.

____________________________________________________

*                                         Includes partners of New Mountain Guardian Partners, L.P.
**                                  These common membership units are exchangeable into shares of NMFC common stock on a one-for-one basis.
***                           New Mountain Finance SPV Funding, L.L.C. (“NMF SLF”).
 

31



The Operating 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. In some cases, the Operating 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.

Note 2. Summary of Significant Accounting Policies
 
Basis of accounting—The Companies’ financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The Operating Company consolidates its wholly-owned subsidiary, NMF SLF. NMFC and AIV Holdings do not consolidate the Operating Company. NMFC and AIV Holdings apply investment company master-feeder financial statement presentation, as described in Accounting Standards Codification 946, Financial Services—Investment Companies, (“ASC 946”) to their interest in the Operating Company. NMFC and AIV Holdings observe that it is industry practice to follow the presentation prescribed for a master fund-feeder fund structure in ASC 946 in instances in which a master fund is owned by more than one feeder fund and that such presentation provides stockholders of NMFC and AIV Holdings with a clearer depiction of their investment in the master fund.
 
The Companies’ 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 Operating Company’s portfolio investments are not consolidated in the financial statements. Prior to the IPO, an affiliate of the Predecessor Entities paid a majority of the management and incentive fees. Historical operating expenses do not reflect the allocation of certain professional fees, administrative and other expenses that have been incurred following the completion of the IPO. Accordingly, the Operating Company’s historical operating expenses are not comparable to its operating expenses after the completion of the IPO.
 
The Companies’ interim financial statements are prepared in accordance with GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Articles 6 or 10 of Regulation S-X.  Accordingly, the Companies’ interim 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, 2013.
 
Investments—The Operating 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 Operating Company’s Consolidated Statements of Assets, Liabilities and Members’ Capital at fair value, with changes in unrealized gains and losses resulting from changes in fair value reflected in the Operating Company’s Consolidated Statements of Operations as “Net change in unrealized appreciation (depreciation) of investments” and realizations on portfolio investments reflected in the Operating Company’s Consolidated Statements of Operations as “Net realized gains (losses) on investments”.
 
The Operating Company values its assets on a quarterly basis, or more frequently if required under the 1940 Act. In all cases, the Operating 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 Operating 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.


32



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 Operating Company looks at the number of quotes readily available and performs the following:
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 the Operating 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 Operating Company does not have a readily available market quotation will be reviewed by an independent valuation firm engaged by the Companies’ board of directors; and
d.
When deemed appropriate by the Operating 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.
 
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 Operating Company’s investments may fluctuate from period to period and the fluctuations could be material.
 
NMFC and AIV Holdings are holding companies with no direct operations of their own, and their sole asset is their ownership in the Operating Company. NMFC’s and AIV Holdings’ investments in the Operating Company are carried at fair value and represent the respective pro-rata interest in the net assets of the Operating Company as of the applicable reporting date. NMFC and AIV Holdings value their ownership interest on a quarterly basis, or more frequently if required under the 1940 Act.
 
See Note 3, Investments, for further discussion relating to investments.
 
Cash and cash equivalents—Cash and cash equivalents include cash and short-term, highly liquid investments. The Companies define 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. Generally, these securities have original maturities of three months or less.
 

33



Revenue recognition
 
The Operating Company’s revenue recognition policies are as follows:
 
Sales and paydowns of investments:  Realized gains and losses on investments are determined on the specific identification method.
 
Interest 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 Operating Company has loans in the portfolio that contain a payment-in-kind (“PIK”) provision. PIK represents interest that is accrued and recorded as interest income at the contractual rates, added to the loan principal on the respective capitalization dates, and generally due at maturity.
 
Non-accrual income:  Loans are placed on non-accrual status when principal or interest payments are past due 30 days or more and when there is reasonable doubt that principal or interest will be collected. Accrued cash and un-capitalized PIK interest is generally reversed when a loan is placed on non-accrual status. Previously capitalized PIK interest is not reversed when an investment is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment of the ultimate outcome. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current.

Dividend income: Dividend income is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies.
 
Other income:  Other income represents delayed compensation, consent or amendment fees, revolver fees and other miscellaneous fees received. 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 Operating 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 Operating Company for providing such commitments.
 
NMFC’s and AIV Holdings’ revenue recognition policies are as follows:
 
Revenue, expenses, and capital gains (losses):  At each quarterly valuation date, the Operating Company’s investment income, expenses, net realized gains (losses), and net increase (decrease) in unrealized appreciation (depreciation) are allocated to NMFC and AIV Holdings based on their pro-rata interest in the net assets of the Operating Company. This is recorded on NMFC’s and AIV Holdings’ Statements of Operations. Realized gains and losses are recorded upon sales of NMFC’s and AIV Holdings’ investments in the Operating Company. Net change in unrealized appreciation (depreciation) of investment in New Mountain Finance Holdings, L.L.C. is the difference between the net asset value per share and the closing price per share for shares issued as part of the dividend reinvestment plan on the dividend payment date. This net change in unrealized appreciation (depreciation) of investment in New Mountain Finance Holdings, L.L.C. includes the unrealized appreciation (depreciation) from the IPO. NMFC used the proceeds from its IPO and Concurrent Private Placement to purchase units in the Operating Company at $13.75 per unit (its IPO price per share). At the IPO date, $13.75 per unit represented a discount to the actual net asset value per unit of the Operating Company. As a result, NMFC experienced immediate unrealized appreciation on its investment. Concurrently, AIV Holdings experienced immediate unrealized depreciation on its investment in the Operating Company equal to the difference between NMFC’s IPO price of $13.75 per unit and the actual net asset value per unit.
 
All expenses, including those of NMFC and AIV Holdings, are paid and recorded by the Operating Company. Expenses are allocated to NMFC and AIV Holdings based on pro-rata ownership interest. In addition, the Operating Company paid all of the offering costs related to the IPO and subsequent offerings. NMFC and AIV Holdings have recorded their portion of the offering costs as a direct reduction to net assets and the cost of their investment in the Operating Company.
 
With respect to the expenses incident to any registration of shares of NMFC’s common stock issued in exchange for AIV Holdings’ units of the Operating Company, AIV Holdings is directly responsible for the expenses of any demand registration (including underwriters’ discounts or commissions) and their pro-rata share of any “piggyback” registration expenses.
 

34



Interest and other credit facility expenses—Interest and other credit facility fees are recorded on an accrual basis by the Operating Company. See Note 7, Borrowing Facilities, for details.
 
Deferred credit facility costs—The deferred credit facility costs of the Operating Company consist of capitalized expenses related to the origination and amending of the Operating Company’s existing credit facilities. The Operating Company amortizes these costs into expense using the straight-line method over the stated life of the related credit facility. See Note 7, Borrowing Facilities, for details.
 
Income taxes—The Operating Company is treated as a partnership for federal income tax purposes and as such is generally not subject to federal or state and local income taxes except with respect to state source income received from underlying flow-through investments. The partners are individually responsible for reporting income or loss based on their respective share of the revenues and expenses. The Operating Company files United States (“U.S.”) federal, state, and local income tax returns.

NMFC and AIV Holdings have elected to be treated, and intend to comply with the requirements to qualify annually, as RICs under subchapter M of the Code. As RICs, NMFC and AIV Holdings are not subject to federal income tax on the portion of taxable income and gains timely distributed to stockholders; therefore, no provision for income taxes has been recorded.
 
To continue to qualify as RICs, NMFC and AIV Holdings are required to meet certain income and asset diversification tests in addition to distributing at least 90.0% of their respective investment company taxable income, as defined by the Code. Since federal income tax regulations differ from GAAP, distributions in accordance with tax regulations may differ from net investment income and realized gains recognized for financial reporting purposes.
 
Differences between taxable income and the results of operations for financial reporting purposes may be permanent or temporary in nature. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.
 
For federal income tax purposes, distributions paid to stockholders of NMFC and AIV Holdings are reported as ordinary income, return of capital, long term capital gains or a combination thereof.
 
NMFC and AIV Holdings will be subject to a 4.0% nondeductible federal excise tax on certain undistributed income unless NMFC and AIV Holdings distribute, in a timely manner as required by the Code, an amount at least equal to the sum of (1) 98.0% of their respective net ordinary income earned for the calendar year and (2) 98.2% of their respective capital gain net income for the one-year period ending October 31 in the calendar year.
 
The Companies have adopted the Income Taxes topic of the Codification (“ASC 740”). ASC 740 provides guidance for how uncertain income tax positions should be recognized, measured, and disclosed in the financial statements. Based on their analyses, the Companies have determined that there were no material uncertain income tax positions through December 31, 2012. The 2011 and 2012 tax years remain subject to examination by U.S. federal, state, and local tax authorities.
 
Dividends—Distributions to common unit holders of the Operating Company and common stockholders of NMFC and AIV Holdings are recorded on the record date as set by the respective board of directors. In order for NMFC and AIV Holdings to pay a dividend or other distribution to holders of their common stock, it must be accompanied by a prior distribution by the Operating Company to all of its unit holders. The Operating Company intends to make distributions to its unit holders that will be sufficient to enable NMFC and AIV Holdings to pay quarterly distributions to their stockholders and to maintain their status as RICs. NMFC and AIV Holdings intend to distribute approximately all of their portion of the Operating Company’s adjusted net investment income (see Note 5, Agreements) on a quarterly basis and substantially all of their portion of the Operating Company’s taxable income on an annual basis, except that NMFC may retain certain net capital gains for reinvestment.
 
Under certain circumstances, the distributions that the Operating Company makes to its members may not be sufficient for AIV Holdings to satisfy the annual distribution requirement necessary for AIV Holdings to continue to qualify as a RIC. In that case, it is expected that Guardian AIV would consent to be treated as if it received distributions from AIV Holdings sufficient to satisfy the annual distribution requirement. Guardian AIV would be required to include the consent dividend in its taxable income as a dividend from AIV Holdings, which would result in phantom (i.e., non-cash) taxable income to Guardian AIV. AIV Holdings intends to make quarterly distributions to Guardian AIV, its sole stockholder, out of assets legally available for distribution each quarter.

35



 
The Operating Company and NMFC are required to take certain actions in order to maintain, at all times, a one-to-one ratio between the number of units held by NMFC and the number of shares of NMFC’s common stock outstanding. NMFC has adopted a dividend reinvestment plan that provides on behalf of its stockholders for reinvestment of any distributions declared, unless a stockholder elects to receive cash. Cash distributions reinvested in additional shares of NMFC’s common stock will be automatically reinvested by NMFC into additional units of the Operating Company. In addition, AIV Holdings does not intend to reinvest any distributions received from the Operating Company in additional units of the Operating Company.
 
NMFC 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 greater than 110.0% of the last determined net asset value of the shares, NMFC 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 NMFC’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 asked prices. If NMFC uses newly issued shares to implement the plan, NMFC will receive, on a one-for-one basis, additional units of the Operating Company in exchange for cash distributions that are reinvested in shares of NMFC’s common stock under the dividend reinvestment plan.

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, NMFC 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 NMFC’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 NMFC’s stockholders have been tabulated.
 
Foreign securities—The accounting records of the Operating 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 Operating 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 Operating 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 Operating Company and cannot be predicted.
 
Use of estimates—The preparation of the Companies’ 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 Companies’ 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. During the three months ended September 30, 2013, the Operating Company changed an accounting estimate related to the classification of dividend income for a distribution recorded in the prior quarter from one of the Operating Company’s warrant investments. Based on tax projections received during the three months ended September 30, 2013, the Operating Company reduced the warrant cost basis by $466 and corresponding dividend income previously recorded by $1,799, and recorded a realized gain of $1,333 to agree to the tax treatment on the investment. This resulted in a reclass of $360 from incentive fee to capital gains incentive fee.
 


36



Note 3. Investments
 
At September 30, 2013 the Operating Company’s investments consisted of the following:
 
Investment Cost and Fair Value by Type
 
 
Cost
 
Fair Value
First lien
$
535,075

 
$
533,259

Second lien
421,234

 
431,113

Subordinated
44,517

 
46,865

Equity and other
24,511

 
30,195

Total investments
$
1,025,337

 
$
1,041,432

 
Investment Cost and Fair Value by Industry
 
 
Cost
 
Fair Value
Software
$
211,384

 
$
216,241

Business Services
176,706

 
181,196

Education
168,797

 
173,008

Federal Services
105,626

 
105,392

Distribution & Logistics
76,755

 
78,428

Healthcare Services
72,406

 
73,602

Media
47,814

 
50,155

Consumer Services
47,109

 
48,100

Energy
44,770

 
44,010

Healthcare Products
40,254

 
41,696

Industrial Services
13,850

 
14,222

Healthcare Information Technology
13,481

 
8,838

Information Technology
6,385

 
6,544

Total investments
$
1,025,337

 
$
1,041,432


At December 31, 2012 the Operating Company’s investments consisted of the following:
 
Investment Cost and Fair Value by Type
 
 
Cost
 
Fair Value
First lien
$
496,931

 
$
493,502

Second lien
433,829

 
441,073

Subordinated
43,097

 
45,148

Equity and other
2,386

 
10,097

Total investments
$
976,243

 
$
989,820

 

37



Investment Cost and Fair Value by Industry
 
 
Cost
 
Fair Value
Software
$
241,742

 
$
246,696

Education
155,047

 
150,151

Healthcare Services
139,370

 
143,724

Business Services
140,426

 
143,420

Federal Services
95,150

 
95,428

Distribution & Logistics (1)
51,320

 
51,834

Consumer Services
41,173

 
41,625

Media
26,582

 
34,001

Healthcare Products
25,659

 
27,220

Industrial Services
13,825

 
14,105

Retail
11,597

 
12,146

Healthcare Information Technology
14,550

 
10,291

Energy
9,852

 
10,072

Information Technology
6,476

 
6,711

Power Generation
3,474

 
2,396

Total investments
$
976,243

 
$
989,820

______________________________________________________

(1)                                 Industries were disclosed separately in previously issued financial statements.
 
As of September 30, 2013, the Operating Company’s first lien positions in ATI Acquisition Company remained on non-accrual status due to the inability of the portfolio company to service its interest payment for the quarter then ended and uncertainty about its ability to pay such amounts in the future. During the three months ended September 30, 2013, the Operating Company received preferred shares and warrants in Ancora Acquisition LLC, in relation to the two super priority first lien positions in ATI Acquisition Company. As of September 30, 2013, the Operating Company’s investment had an aggregate cost basis of $5,917, an aggregate fair value of $419 and total unearned interest income of $241 and $709, respectively, for the three and nine months then ended. As of December 31, 2012, the Operating Company’s original first lien position in ATI Acquisition Company was put on non-accrual status, with a cost basis of $4,306, a fair value of zero and total unearned interest income of $653 for the year then ended. The Operating Company’s two super priority first lien debt investments in ATI Acquisition Company had a combined cost basis of $1,611 and a combined fair value of $752 as of December 31, 2012. During the third quarter of 2012, the Operating Company placed the super priority first lien positions on non-accrual status as well, resulting in total unearned interest income of $310 for the year ended December 31, 2012. As of December 31, 2012, the Operating Company’s total investment in ATI Acquisition Company had an aggregate cost basis of $5,917 and an aggregate fair value of $752, putting the entire ATI Acquisition Company’s investment on non-accrual status. As of September 30, 2013 and December 31, 2012, unrealized gains include a fee that the Operating Company would receive upon maturity of the two super priority first lien debt investments.
 
As of September 30, 2013, the Operating Company had unfunded commitments on revolving credit facilities and bridge facilities of $10,500 and $52,500, respectively. The Operating Company did not have any unfunded commitments in the form of a delayed draw or other future funding commitments as of September 30, 2013. The unfunded commitments on revolving credit facilities are disclosed on the Operating Company’s Consolidated Schedule of Investments as of September 30, 2013.
 
As of December 31, 2012, the Operating Company had unfunded commitments on revolving credit facilities and bridge facilities of $10,500 and $0, respectively. The Operating Company did not have any unfunded commitments in the form of a delayed draw or other future funding commitments as of December 31, 2012. The unfunded commitments on revolving credit facilities are disclosed on the Operating Company’s Consolidated Schedule of Investments as of December 31, 2012.


38



Investment Risk Factors—First and second lien debt that the Operating Company invests in is entirely, or almost entirely, rated below investment grade or may be unrated. These loans 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 defaults could reduce the net asset value and income distributions of the Operating Company. 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 loans. 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.
 
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. Accounting Standards Codification 820, Fair Value Measurements and Disclosures (“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 Operating 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 Operating Company, to the extent that it holds such investments, does not adjust the quoted price for these investments, even in situations where the Operating 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 (Levels I and II) and unobservable (Level III). 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 (Levels II and III) and unobservable inputs (Level III).
 
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 quarter in which the reclassifications occur.


39



The following table summarizes the levels in the fair value hierarchy that the Operating Company’s portfolio investments fall into as of September 30, 2013:
 
 
Total
 
Level I
 
Level II
 
Level III
First lien
$
533,259

 
$

 
$
519,089

 
$
14,170

Second lien
431,113

 

 
392,470

 
38,643

Subordinated
46,865

 

 
22,019

 
24,846

Equity and other
30,195

 

 

 
30,195

Total investments
$
1,041,432

 
$

 
$
933,578

 
$
107,854

 
The following table summarizes the levels in the fair value hierarchy that the Operating Company’s portfolio investments fall into as of December 31, 2012:
 
 
Total
 
Level I
 
Level II
 
Level III
First lien
$
493,502

 
$

 
$
450,617

 
$
42,885

Second lien
441,073

 

 
397,818

 
43,255

Subordinated
45,148

 

 
22,257

 
22,891

Equity and other
10,097

 

 

 
10,097

Total investments
$
989,820

 
$

 
$
870,692

 
$
119,128

 
The following table summarizes the changes in fair value of Level III portfolio investments for the three months ended September 30, 2013, 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 Operating Company at September 30, 2013:
 
 
Total
 
First Lien
 
Second Lien
 
Subordinated
 
Equity and
other
Fair value, June 30, 2013
$
113,201

 
$
21,312

 
$
38,527

 
$
24,681

 
$
28,681

Total gains or losses included in earnings:
 

 
 

 
 

 
 

 
 

Net realized gains (losses) on investments
1,398

 
66

 

 

 
1,332

Net change in unrealized appreciation (depreciation)
633

 
(41
)
 
116

 
110

 
448

Purchases, including capitalized PIK and revolver fundings
1,503

 
(84
)
 

 
55

 
1,532

Proceeds from sales and paydowns of investments
(8,881
)
 
(7,083
)
 

 

 
(1,798
)
Fair value, September 30, 2013
$
107,854

 
$
14,170

 
$
38,643

 
$
24,846

 
$
30,195

Unrealized appreciation (depreciation) for the period relating to those Level III assets that were still held by the Operating Company at the end of the period:
$
697

 
$
23

 
$
116

 
$
110

 
$
448

 

40



The following table summarizes the changes in fair value of Level III portfolio investments for the three months ended September 30, 2012, 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 Operating Company at September 30, 2012:
 
 
Total
 
First Lien
 
Second Lien
 
Subordinated
 
Equity and
other
 
Fair value, June 30, 2012
$
106,374

 
$
42,748

 
$
53,275

 
$
7,539

 
$
2,812

 
Total gains or losses included in earnings:
 

 
 

 
 

 
 

 
 

 
Net realized gains (losses) on investments
106

 
106

 

 

 

 
Net change in unrealized appreciation (depreciation)
3,161

 
51

 

 

 
3,110

 
Purchases, including capitalized PIK and revolver fundings
11,460

 
11,460

 

 

 

 
Proceeds from sales and paydowns of investments
(10,385
)
 
(10,385
)
 

 

 

 
Transfers into Level III (1)
7,047

 
6,581

 

 

 
466

(2)
Transfers out of Level III (1)
(10,020
)
 

 
(10,020
)
 

 

 
Fair value, September 30, 2012
$
107,743

 
$
50,561

 
$
43,255

 
$
7,539

 
$
6,388

 
Unrealized appreciation (depreciation) for the period relating to those Level III assets that were still held by the Operating Company at the end of the period:
$
3,161

 
$
51

 
$

 
$

 
$
3,110

 
______________________________________________________

(1)                                 As of September 30, 2012, the 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 quarter in which the reclassifications occurred.
 
(2)                                 This Level III transfer relates to the Operating Company’s investment in warrants of YP Equity Investors LLC, which was valued with YP Holdings LLC’s second lien debt as of June 30, 2012.
 
The following table summarizes the changes in fair value of Level III portfolio investments for the nine months ended September 30, 2013, 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 Operating Company at September 30, 2013:
 
 
Total
 
First Lien
 
Second Lien
 
Subordinated
 
Equity and
other (2)
Fair value, December 31, 2012
$
119,128

 
$
42,885

 
$
43,255

 
$
22,891

 
$
10,097

Total gains or losses included in earnings:
 

 
 

 
 

 
 

 
 

Net realized gains (losses) on investments
1,975

 
263

 
380

 

 
1,332

Net change in unrealized (depreciation) appreciation
(150
)
 
70

 
1,148

 
658

 
(2,026
)
Purchases, including capitalized PIK and revolver fundings
37,761

 
11

 
13,860

 
1,297

 
22,593

Proceeds from sales and paydowns of investments
(57,434
)
 
(35,633
)
 
(20,000
)
 

 
(1,801
)
Transfers into Level III (1)
6,574

 
6,574

 

 

 

Fair value, September 30, 2013
$
107,854

 
$
14,170

 
$
38,643

 
$
24,846

 
$
30,195

Unrealized (depreciation) appreciation for the period relating to those Level III assets that were still held by the Operating Company at the end of the period:
$
(945
)
 
$
(605
)
 
$
1,027

 
$
658

 
$
(2,025
)
 
______________________________________________________


41



(1)                                 As of September 30, 2013, the portfolio investments were transferred into Level III from Level II at fair value as of the beginning of the quarter in which the reclassifications occurred.
 
(2)                                 During the nine months ended September 30, 2013, the Operating Company received dividends of $4,802 from its equity and other investments, which were recorded as dividend income.  An estimate related to the tax characterization of this distribution was provided as of September 30, 2013.
 
The following table summarizes the changes in fair value of Level III portfolio investments for the nine months ended September 30, 2012, 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 Operating Company at September 30, 2012:
 
 
Total
 
First Lien
 
Second Lien
 
Subordinated
 
Equity and
other
 
Fair value, December 31, 2011
$
90,967

 
$
33,141

 
$
48,405

 
$
6,571

 
$
2,850

 
Total gains or losses included in earnings:
 

 
 

 
 

 
 

 
 

 
Net realized gains (losses) on investments
4,275

 
4,252

 
23

 

 

 
Net change in unrealized (depreciation) appreciation
(1,001
)
 
(3,851
)
 
(173
)
 
(22
)
 
3,045

 
Purchases, including capitalized PIK and revolver fundings
57,089

 
46,052

 
10,020

 
990

 
27

 
Proceeds from sales and paydowns of investments
(29,502
)
 
(24,502
)
 
(5,000
)
 

 

 
Transfers into Level III (1)
7,047

 
6,581

 

 

 
466

(2)
Transfers out of Level III(1)
(21,132
)
 
(11,112
)
 
(10,020
)
 

 

 
Fair value, September 30, 2012
$
107,743

 
$
50,561

 
$
43,255

 
$
7,539

 
$
6,388

 
Unrealized appreciation (depreciation) for the period relating to those Level III assets that were still held by the Operating Company at the end of the period:
$
2,612

 
$
(410
)
 
$
(1
)
 
$
(22
)
 
$
3,045

 
______________________________________________________

(1)                                 As of September 30, 2012, the 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 quarter in which the reclassifications occurred.
 
(2)                                 This Level III transfer relates to the Operating Company’s investment in warrants of YP Equity Investors LLC, which was valued with YP Holdings LLC’s second lien debt as of June 30, 2012.
 
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, 2013 and September 30, 2012. Transfers into Level III occurred as quotations obtained through pricing services were not deemed representative of fair value as of the balance sheet date and such assets were internally valued. As quotations obtained through pricing services were substantiated through additional market sources, investments were transferred out of Level III. The Operating 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 Operating 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.
 
Company Performance, Financial Review, and Analysis:  Prior to investment, as part of its due diligence process, the Operating Company evaluates the overall performance and financial stability of the portfolio company.  Post investment, the Operating 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 Operating 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 Operating

42



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 Operating Company will consider the pricing indicated by the external event to corroborate the private valuation.
 
Market Based Approach: The Operating Company typically estimates the total enterprise value of each portfolio company by utilizing market value cash flow (EBITDA) multiples of publicly traded comparable companies.  The Operating 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, relevant risk factors, as well as size, profitability and growth expectations.  The Operating Company generally applies an average of various relevant comparable company EBITDA multiples to the portfolio company’s latest twelve month (“LTM”) EBITDA or projected EBITDA to calculate portfolio company enterprise value. In applying the market based approach as of September 30, 2013, the Operating Company used the relevant EBITDA ranges set forth in the table below to determine the enterprise value of investments in six of its portfolio companies.  The Operating Company believes this was a reasonable range in light of current comparable company trading levels and the specific companies involved.
 
Income Based Approach:  The Operating Company also typically uses 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.  In applying the income based approach as of September 30, 2013, the Operating Company used the discount ranges set forth in the table below to value investments in eight of its portfolio companies.

 
 
 
 
 
 
EBITDA Range
 
Discount Range
Type
 
Fair Value
 
Approach
 
Low
 
High
 
Weighted
Average
 
Low
 
High
 
Weighted
Average
First lien
 
$
14,170

 
Market and Income
 
4.0

x
6.5

x
5.3

x
5.5
%
 
22.8
%
 
16.0
%
Second lien
 
38,643

 
Market and Income
 
4.0

x
7.5

x
5.8

x
10.1
%
 
11.7
%
 
11.0
%
Subordinated
 
24,846

 
Market and Income
 
6.0

x
9.5

x
7.9

x
12.2
%
 
21.8
%
 
15.1
%
Equity
 
24,156

 
Market and Income
 
4.0

x
8.0

x
5.6

x
8.0
%
 
20.0
%
 
16.3
%
 
The Operating Company typically uses a Black Scholes analysis to fair value warrant investments. Input variables used in these analyses include, but are not limited to, stock price, exercise price, expiration date, valuation date, volatility, and discount rate. As of September 30, 2013, warrants had a fair value of $6,039, which have been excluded from the table above.
 
Based on a comparison to similar BDC credit facilities, the terms and conditions of the Holdings Credit Facility and the SLF Credit Facility (as defined in Note 7, Borrowing Facilities) are representative of market. The carrying values of the Holdings Credit Facility and SLF Credit Facility approximate fair value as of September 30, 2013, as both facilities are continually monitored and examined by both the borrower and the lender. Both facilities were amended and restated during the year ended December 31, 2012 to lower the applicable interest rate spread by 0.25% and to increase the maximum amount of revolving borrowings available under the respective facilities. Additionally for the nine months ended September 30, 2013, the Holdings Credit Facility was amended and restated to further increase the maximum amount of revolving borrowings available. See Note 7, Borrowing Facilities, for details. The fair value of other financial assets and liabilities approximates their carrying value based on the short term nature of these items. The fair value disclosures discussed in this paragraph are considered Level III.
 
Fair value risk factors—The Operating Company seeks investment opportunities that offer the possibility of attaining substantial capital appreciation. Certain events particular to each industry in which the Operating 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 Operating Company’s investments and/or on the fair value of the Operating Company’s investments. The Operating Company’s investments are subject to the risk of non-payment of scheduled interest or principal, resulting in a reduction in income to the Operating Company and thus the income of NMFC and AIV Holdings, 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 Operating Company and cannot be predicted. Furthermore, the ability to liquidate investments and realize value is subject to uncertainties.

43



 
Note 5. Agreements
 
On May 19, 2011, NMFC entered into a joinder agreement with respect to the Limited Liability Company Agreement, as amended and restated, of the Operating Company pursuant to which NMFC was admitted as a member of the Operating Company and agreed to acquire from the Operating Company a number of units of the Operating Company equal to the number of shares of common stock outstanding of NMFC. Additionally on May 19, 2011, in connection with the contribution by Guardian AIV of its units to AIV Holdings, AIV Holdings entered into a joinder agreement with respect to the Limited Liability Company Agreement, as amended and restated, of the Operating Company pursuant to which AIV Holdings was also admitted as a member of the Operating Company.
 
The Operating Company entered into an investment advisory and management agreement, as amended and restated (the “Investment Management Agreement”) with the Investment Adviser. Under the Investment Management Agreement, the Investment Adviser manages the day-to-day operations of, and provides investment advisory services to, the Operating Company. For providing these services, the Investment Adviser receives a fee from the Operating Company, consisting of two components—a base management fee and an incentive fee.
 
The base management fee is calculated at an annual rate of 1.75% of the Operating Company’s gross assets less (i) the borrowings under the SLF Credit Facility (as defined in Note 7, Borrowing Facilities) 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 Operating Company’s gross assets, 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 incentive fee consists of two parts. The first part is calculated and payable quarterly in arrears and equals 20.0% of the Operating 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, diligence and consulting fees or other fees that the Operating Company receives from portfolio companies) accrued during the calendar quarter, minus the Operating Company’s operating expenses for the quarter (including the base management fee, expenses payable under the Administration Agreement, as amended and restated, with the Administrator, and any interest expense and distributions paid on any issued and outstanding preferred membership units (of which there are none as of September 30, 2013), 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 Operating 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 Operating Company’s existing investments to fair market value at the IPO date. Since the total value of the 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 or mature in the future. The Operating 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 Operating 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 Operating 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”).
 
Pre-Incentive Fee Adjusted Net Investment Income, expressed as a rate of return on the value of the Operating 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 Operating Company’s incentive fee with respect to the Pre-Incentive Fee Adjusted Net Investment Income for each quarter is as follows:
 

44



No incentive fee is payable to the Investment Adviser in any calendar quarter in which the Operating 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 Operating 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 Operating 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 Operating Company’s Pre-Incentive Fee Adjusted Net Investment Income as if a hurdle rate did not apply when the Operating Company’s Pre-Incentive Fee Adjusted Net Investment Income exceeds 2.5% in any calendar quarter.
 
20.0% of the amount of the Operating 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.
 
The second part will be determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Management Agreement) and will equal 20.0% of the Operating 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 Operating 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 Operating Company has revised its presentation of incentive fees on the Consolidated Statements of Assets, Liabilities and Members’ Capital and the Consolidated Statements of Operations to disclose the two parts of the incentive fee incurred by the Operating Company for net investment income related incentive fees and capital gains related incentive fees.

The following table summarizes the management fees and incentive fees incurred by the Operating Company for the three and nine months ended September 30, 2013 and September 30, 2012.
 
 
Three months ended
 
Nine months ended
 
September 30, 2013
 
September 30, 2012
 
September 30, 2013
 
September 30, 2012
Management fee
$
3,754

 
$
2,768

 
$
11,049

 
$
7,887

Incentive fee, excluding accrued capital gains incentive fees
3,533

 
2,978

 
12,398

 
8,147

Accrued capital gains incentive fees(1)
1,587

 
2,583

 
2,568

 
3,547

 

(1)                             The accrued capital gains incentive fees would be paid by the Operating Company if the Operating Company ceased operations on September 30, 2013 and September 30, 2012, respectively, and liquidated its investments at the valuations as of the respective quarter ends. Approximately $939 of capital gains incentive fees would be owed under the Investment Management Agreement if the Operating Company had ceased operations as of September 30, 2013, as cumulative net Adjusted Realized Capital Gains exceeded cumulative Adjusted Unrealized Capital Depreciation.  As of September 30, 2012, no actual capital gains incentive fee was owed under the Investment Management Agreement, as cumulative net Adjusted Realized Capital Gains did not exceed cumulative Adjusted Unrealized Capital Depreciation.
 
The Operating 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.

45



 
The following Statement of Operations for the three and nine months ended September 30, 2013 is adjusted to reflect this step-up to fair market value.
 
 
Three months ended
September 30, 2013
 
Adjustments
 
Adjusted
three months ended
September 30, 2013
Investment income
 

 
 

 
 

Interest income (1)
$
27,175

 
$
(111
)
 
$
27,064

Dividend income
(1,631
)
 

 
(1,631
)
Other income
249

 

 
249

Total investment income
25,793

 
(111
)
 
25,682

Total net expenses pre-incentive fee (2)
8,014

 

 
8,014

Pre-Incentive Fee Net Investment Income
17,779

 
(111
)
 
17,668

Incentive fee (3)
5,120

 

 
5,120

Post-Incentive Fee Net Investment Income
12,659

 
(111
)
 
12,548

Net realized gains on investments (4)
5,160

 
(121
)
 
5,039

Net change in unrealized appreciation (depreciation) of investments
2,659

 
232

 
2,891

Net increase in members’ capital resulting from operations
$
20,478

 
 

 
$
20,478

 
______________________________________________________

(1)                                 Includes $841 in payment-in-kind interest from investments.
(2)                                 Includes expense waivers and reimbursements of $600.
(3)                                 For the three months ended September 30, 2013, the Operating Company incurred total incentive fees of $5,120, of which $1,587 related to capital gains incentive fees on a hypothetical liquidation basis.
(4)                                 Includes $1,722 of realized gains on investments resulting from the modification of terms on one debt investment that was accounted for as an extinguishment.
 
 
Nine months ended
September 30, 2013
 
Adjustments
 
Adjusted
nine months ended
September 30, 2013
Investment income
 

 
 

 
 

Interest income (1)
$
79,539

 
$
(804
)
 
$
78,735

Dividend income
4,802

 

 
4,802

Other income
1,926

 

 
1,926

Total investment income
86,267

 
(804
)
 
85,463

Total net expenses pre-incentive fee (2)
23,472

 

 
23,472

Pre-Incentive Fee Net Investment Income
62,795

 
(804
)
 
61,991

Incentive fee (3)
14,966

 

 
14,966

Post-Incentive Fee Net Investment Income
47,829

 
(804
)
 
47,025

Net realized gains on investments (4)
9,516

 
(3,270
)
 
6,246

Net change in unrealized appreciation (depreciation) of investments
2,518

 
4,074

 
6,592

Net increase in members’ capital resulting from operations
$
59,863

 
 

 
$
59,863

______________________________________________________

(1)                                 Includes $2,387 in payment-in-kind interest from investments.
(2)                                 Includes expense waivers and reimbursements of $2,265.
(3)                                 For the nine months ended September 30, 2013, the Operating Company incurred total incentive fees of $14,966, of which $2,568 related to capital gains incentive fees on a hypothetical liquidation basis.
(4)                                 Includes $1,722 of realized gains on investments resulting from the modification of terms on one debt investment that was accounted for as an extinguishment.

46



 
The following Statement of Operations for the three and nine months ended September 30, 2012 is adjusted to reflect the step-up to fair market value.
 
 
Three months ended
September 30, 2012
 
Adjustments
 
Adjusted
three months ended
September 30, 2012
Investment income
 

 
 

 
 

Interest income
$
21,362

 
$
(806
)
 
$
20,556

Dividend income
215

 

 
215

Other income
175

 

 
175

Total investment income
21,752

 
(806
)
 
20,946

Total net expenses pre-incentive fee (1)
6,055

 

 
6,055

Pre-Incentive Fee Net Investment Income
15,697

 
(806
)
 
14,891

Incentive fee (2)
5,561

 

 
5,561

Post-Incentive Fee Net Investment Income
10,136

 
(806
)
 
9,330

Net realized gains on investments
1,615

 
(168
)
 
1,447

Net change in unrealized appreciation (depreciation) of investments
10,494

 
974

 
11,468

Net increase in members’ capital resulting from operations
$
22,245

 
 

 
$
22,245

______________________________________________________ 

(1)                                 Includes expense waivers and reimbursements of $439.
(2)                                 For the three months ended September 30, 2012, the Operating Company incurred total incentive fees of $5,561, of which $2,583 related to capital gains incentive fees on a hypothetical liquidation basis.
 
 
Nine months ended
September 30, 2012
 
Adjustments
 
Adjusted
nine months ended
September 30, 2012
Investment income
 

 
 

 
 

Interest income
$
60,087

 
$
(2,654
)
 
$
57,433

Dividend income
215

 

 
215

Other income
771

 

 
771

Total investment income
61,073

 
(2,654
)
 
58,419

Total net expenses pre-incentive fee (1)
17,684

 

 
17,684

Pre-Incentive Fee Net Investment Income
43,389

 
(2,654
)
 
40,735

Incentive fee (2)
11,694

 

 
11,694

Post-Incentive Fee Net Investment Income
31,695

 
(2,654
)
 
29,041

Net realized gains on investments
14,591

 
(5,386
)
 
9,205

Net change in unrealized appreciation (depreciation) of investments
10,710

 
8,040

 
18,750

Net increase in members’ capital resulting from operations
$
56,996

 
 

 
$
56,996

 
______________________________________________________

(1)                                 Includes expense waivers and reimbursements of $1,387.
(2)                                 For the nine months ended September 30, 2012, the Operating Company incurred total incentive fees of $11,694, of which $3,547 related to capital gains incentive fees on a hypothetical liquidation basis.

The Companies have entered into an Administration Agreement, as amended and restated, with the Administrator under which the Administrator provides administrative services. The Administrator performs, or oversees the performance of, the Companies’ financial records, prepares reports filed with the Securities and Exchange Commission, generally monitors the payment of the Companies’ expenses, and watches the performance of administrative and professional services rendered by others. The Operating Company will reimburse the Administrator for the Companies’ allocable portion of overhead and other

47



expenses incurred by the Administrator in performing its obligations to the Companies under the Administration Agreement, as amended and restated. Pursuant to the Administration Agreement, as amended and restated, and further restricted by the Operating Company, expenses payable to the Administrator by the Operating Company as well as other direct and indirect expenses (excluding interest, other credit facility expenses, trading expenses and management and incentive fees) have been capped at $3,500 for the time period from April 1, 2012 to March 31, 2013 and capped at $4,250 for the time period from April 1, 2013 to March 31, 2014.
 
The Operating Company has revised its presentation of expenses and expense waivers and reimbursements for the three and nine months ended September 30, 2012. Expenses were previously presented net of waivers and reimbursements, which had been included parenthetically. The revised presentation shows total gross expenses with a separate reduction for expense waivers and reimbursements.
 
The Operating Company incurred the following expenses in excess of the expense cap for the three and nine months ended September 30, 2013 and September 30, 2012:
 
 
Three months ended
 
Nine months ended
 
September 30, 2013
 
September 30, 2012
 
September 30, 2013
 
September 30, 2012
Professional fees
$
317

 
$
171

 
$
1,345

 
$
536

Administrative expenses
283

 
268

 
920

 
851

Other general and administrative expenses

 

 

 

Total expense waivers and reimbursements
$
600

 
$
439

 
$
2,265

 
$
1,387

 
As of September 30, 2013, $317 of the expense waivers and reimbursements was receivable from an affiliate.
 
The Companies, the Investment Adviser and the Administrator have also entered into a Trademark License Agreement, as amended, with New Mountain Capital, L.L.C., pursuant to which New Mountain Capital, L.L.C. has agreed to grant the Companies, 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 Companies, 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 Operating Company. Other than with respect to this limited license, the Companies, the Investment Adviser and the Administrator will have no legal right to the “New Mountain” or the “New Mountain Finance” names.
 
NMFC entered into a Registration Rights Agreement with AIV Holdings, Steven B. Klinsky (the Chairman of the Companies’ board of directors), an entity related to Steven B. Klinsky and the Investment Adviser. Subject to several exceptions, AIV Holdings and the Investment Adviser have the right to require NMFC to register for public resale under the Securities Act of 1933, as amended (the “Securities Act of 1933”), all registerable securities that are held by any of them and that they request to be registered. Registerable securities subject to the Registration Rights Agreement are shares of NMFC’s common stock issued or issuable in exchange for units and any other shares of NMFC’s common stock held by AIV Holdings, the Investment Adviser and any of their transferees. The rights under the Registration Rights Agreement can be conditionally exercised by AIV Holdings or the Investment Adviser, meaning that prior to the effectiveness of the registration statement related to the shares, AIV Holdings or the Investment Adviser can withdraw their request to have the shares registered. AIV Holdings and the Investment Adviser may each assign their rights to any person that acquires registerable securities subject to the Registration Rights Agreement and who agrees to be bound by the terms of the Registration Rights Agreement. Steven B. Klinsky and a related entity will have the right to “piggyback”, or include their own registerable securities in such a registration. Shares held by AIV Holdings and Steven B. Klinsky were registered on a shelf registration statement on Form N-2.
 
AIV Holdings and the Investment Adviser may require NMFC to use its reasonable best efforts to register under the Securities Act of 1933 all or any portion of these registerable securities upon a “demand request”. The demand registration rights are subject to certain limitations.

The Registration Rights Agreement includes limited blackout and suspension periods. In addition, AIV Holdings and the Investment Adviser may also require NMFC to file a shelf registration statement on Form N-2 for the resale of their registerable securities if NMFC is eligible to use Form N-2 at that time.
 
Holders of registerable securities have “piggyback” registration rights, including AIV Holdings, which means that these holders may include their respective shares in any future registrations of NMFC’s equity securities, whether or not that

48



registration relates to a primary offering by NMFC or a secondary offering by or on behalf of any of NMFC’s stockholders. AIV Holdings, the Investment Adviser and Steven B. Klinsky (and a related entity) have priority over NMFC in any registration that is an underwritten offering.
 
AIV Holdings, the Investment Adviser and Steven B. Klinsky (and a related entity) will be responsible for the expenses of any demand registration (including underwriters’ discounts or commissions) and their pro-rata share of any “piggyback” registration. NMFC has agreed to indemnify AIV Holdings, the Investment Adviser and Steven B. Klinsky (and a related entity) with respect to liabilities resulting from untrue statements or omissions in any registration statement filed pursuant to the Registration Rights Agreement, other than untrue statements or omissions resulting from information furnished to NMFC by such parties. AIV Holdings, the Investment Adviser and Steven B. Klinsky (and a related entity) have also agreed to indemnify NMFC with respect to liabilities resulting from untrue statements or omissions furnished by them to NMFC relating to them in any registration statement.
 
Note 6. Related Parties
 
The Companies have entered into a number of business relationships with affiliated or related parties. NMFC and AIV Holdings own all the outstanding units of the Operating Company. As of September 30, 2013, NMFC and AIV Holdings owned approximately 85.3% and 14.7%, respectively, of the units of the Operating Company.
 
The Operating 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 Companies have entered into an Administration Agreement, as amended and restated, with the Administrator, a wholly-owned subsidiary of New Mountain Capital. The Administrator arranges office space for the Companies and provides office equipment and administrative services necessary to conduct their respective day-to-day operations pursuant to the Administration Agreement, as amended and restated. The Operating Company reimburses the Administrator for the allocable portion of overhead and other expenses incurred by it in performing its obligations to the Companies under the Administration Agreement, as amended and restated, including rent, the fees and expenses associated with performing administrative, finance and compliance functions, and the compensation of the Companies’ chief financial officer and chief compliance officer and their respective staffs. Pursuant to the Administration Agreement, as amended and restated, and further restricted by the Operating Company, expenses payable to the Administrator by the Operating Company as well as other direct and indirect expenses (excluding interest, other credit facility expenses, trading expenses and management and incentive fees) have been capped at $3,500 for the time period from April 1, 2012 to March 31, 2013 and capped at $4,250 for the time period from April 1, 2013 to March 31, 2014.
 
The Companies, the Investment Adviser and the Administrator have entered into a royalty-free Trademark License Agreement, as amended, with New Mountain Capital, L.L.C., pursuant to which New Mountain Capital, L.L.C. has agreed to grant the Companies, the Investment Adviser and the Administrator, a non-exclusive, royalty-free license to use the name “New Mountain” and “New Mountain Finance”.
 
The Companies have adopted a formal code of ethics that governs the conduct of their respective 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 and in part, with the Operating Company’ investment mandates. The Investment Adviser and its affiliates may determine that an investment is appropriate for the Operating Company and for one or more of those other funds. In such event, depending on the availability of such investment and other appropriate factors, the Investment Adviser or its affiliates may determine that the Operating 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 Securities and Exchange Commission and its staff, and consistent with the Investment Adviser’s allocation procedures.

Concurrently with the IPO, NMFC sold an additional 2,172,000 shares of its common stock to certain executives and employees of, and other individuals affiliated with, New Mountain Capital in the Concurrent Private Placement.
 


49



Note 7. Borrowing Facilities
 
Holdings Credit Facility—The Loan and Security Agreement, as amended and restated, dated May 19, 2011 (the “Holdings Credit Facility”) among the Operating Company as the Borrower and Collateral Administrator, Wells Fargo Securities, L.L.C. as the Administrative Agent, and Wells Fargo Bank, National Association, as the Collateral Custodian, is structured as a revolving credit facility and matures on October 27, 2016, as amended on May 8, 2012. The Operating Company became a party to the Holdings Credit Facility upon the IPO of NMFC. The Holdings Credit Facility amends and restates the credit facility of the Predecessor Entities (the “Predecessor Credit Facility”).
 
The maximum amount of revolving borrowings available under the Holdings Credit Facility is $250,000, as amended on June 24, 2013. As of September 30, 2013, the Operating Company was permitted to borrow up to 45.0% or 25.0% of the purchase price of pledged first lien or non-first lien debt securities, and up to 70.0% and 45.0% of the purchase price of specified first lien debt securities and specified non-first lien debt securities, respectively, subject to approval by Wells Fargo Bank, National Association. The Holdings Credit Facility is collateralized by all of the investments of the Operating Company on an investment by investment basis. All fees associated with the origination or upsizing of the Holdings Credit Facility are capitalized on the Operating Company’s Consolidated Statement of Assets, Liabilities, and Members’ Capital and charged against income as other credit facility expenses over the life of the Holdings Credit Facility. The Holdings Credit Facility contains certain customary affirmative and negative covenants and events of default, including the occurrence of a change in control. In addition, the Holdings Credit Facility requires the Operating Company to maintain a minimum asset coverage ratio. However, the covenants are generally not tied to mark to market fluctuations in the prices of the Operating Company’s investments, but rather to the performance of the underlying portfolio companies.
 
The Holdings Credit Facility bears interest at a rate of the London Interbank Offered Rate (“LIBOR”) plus 2.75% per annum, as amended on May 8, 2012, and charges a non-usage fee, based on the unused facility amount multiplied by the Non-Usage Fee Rate (as defined in the credit agreement).
 
The following table summarizes the interest expense and non-usage fees incurred by the Operating Company on the Holdings Credit Facility for the three and nine months ended September 30, 2013 and September 30, 2012.
 
 
Three months ended
 
Nine months ended
 
September 30, 2013
 
September 30, 2012
 
September 30, 2013
 
September 30, 2012
Interest expense
$
1,430

 
$
807

 
$
4,307

 
$
2,920

Non-usage fee
75

 
178

 
144

 
251

Weighted average interest rate
2.9
%
 
3.0
%
 
2.9
%
 
3.1
%
Average debt outstanding
$
190,692

 
$
105,795

 
$
192,843

 
$
122,887

 
As of September 30, 2013 and December 31, 2012, the outstanding balance on the Holdings Credit Facility was $159,091 and $206,938, respectively, and the Operating Company was not aware of any instances of non-compliance related to the Holdings Credit Facility on such dates.
 
SLF Credit Facility—NMF SLF’s Loan and Security Agreement, as amended and restated, dated October 27, 2010 (the “SLF Credit Facility”) among NMF SLF as the Borrower, the Operating Company as the Collateral Administrator, Wells Fargo Securities, L.L.C. as the Administrative Agent, and Wells Fargo Bank, National Association, as the Collateral Custodian, is structured as a revolving credit facility and matures on October 27, 2016, as amended on May 8, 2012. The maximum amount of revolving borrowings available under the SLF Credit Facility is $215,000, as amended on December 18, 2012. The loan is non-recourse to the Operating Company and secured by all assets owned by the borrower on an investment by investment basis. All fees associated with the origination or upsizing of the SLF Credit Facility are capitalized on the Consolidated Statement of Assets, Liabilities, and Members’ Capital and charged against income as other credit facility expenses over the life of the SLF Credit Facility. The SLF Credit Facility contains certain customary affirmative and negative covenants and events of default, including the occurrence of a change in control. The covenants are generally not tied to mark to market fluctuations in the prices of our investments, but rather to the performance of the underlying portfolio companies. Due to an amendment to the SLF Credit Facility on October 27, 2011, NMF SLF is no longer restricted from the purchase or sale of loans with an affiliate. Therefore, specified loans can be moved as collateral between the Holdings Credit Facility and the SLF Credit Facility.

As of September 30, 2013, the SLF Credit Facility permits borrowings of up to 70.0% of the purchase price of pledged first lien debt securities and up to 25.0% of the purchase price of specified second lien loans, of which, up to 25.0% of the

50



aggregate outstanding loan balance of all pledged debt securities in the SLF Credit Facility is allowed to be derived from second lien loans, subject to approval by Wells Fargo Bank, National Association, as amended on March 11, 2013.
 
The SLF Credit Facility bears interest at a rate of LIBOR plus 2.00% per annum for first lien loans and 2.75% for second lien loans, respectively, as amended on March 11, 2013. A non-usage fee is paid, based on the unused facility amount multiplied by the Non-Usage Fee Rate (as defined in the credit agreement).
 
The following table summarizes the interest expense and non-usage fees incurred by the Operating Company on the SLF Credit Facility for the three and nine months ended September 30, 2013 and September 30, 2012.
 
 
Three months ended
 
Nine months ended
 
September 30, 2013
 
September 30, 2012
 
September 30, 2013
 
September 30, 2012
Interest expense
$
1,243

 
$
1,051

 
$
3,663

 
$
3,138

Non-usage fee

(1)
8

 
2

 
20

Weighted average interest rate
2.3
%
 
2.2
%
 
2.3
%
 
2.4
%
Average debt outstanding
$
214,828

 
$
184,109

 
$
214,547

 
$
174,808

______________________________________________________ 

(1)                                 For the three months ended September 30, 2013, the total non-usage fee was less than $1 thousand.
 
As of September 30, 2013 and December 31, 2012, the outstanding balance on the SLF Credit Facility was $215,000 and $214,262, respectively, and NMF SLF was not aware of any instances of non-compliance related to the SLF Credit Facility on such dates.
 
Leverage risk factors—The Operating Company utilizes and may utilize leverage to the maximum extent permitted by the law for investment and other general business purposes. The Operating Company’s lenders will have fixed dollar claims on certain assets that are superior to the claims of the Operating Company’s unit holders, and therefore NMFC’s common stockholders, and the Operating 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 Operating 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 Operating Company’s net asset value. Similarly, leverage may cause a sharper decline in the Operating Company’s income than if the Operating Company had not borrowed. Such a decline could negatively affect the Operating Company’s ability to make dividend payments to its unit holders. Leverage is generally considered a speculative investment technique. The Operating 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
 
NMFC and AIV Holdings have elected to be treated, and intend to comply with the requirements to continue to qualify annually, as RICs under Subchapter M of the Code. In order to continue to qualify as RICs, among other things, NMFC and AIV Holdings are required to timely distribute to their stockholders at least 90.0% of investment company taxable income, as defined by the Code, for each year. NMFC and AIV Holdings, among other things, intend to make and continue to make the requisite distributions to their stockholders, which will generally relieve NMFC and AIV Holdings from U.S. federal, state, and local income taxes (excluding excise taxes which may be imposed under the Code). However, under certain circumstances, the distributions that the Operating Company makes to its members may not be sufficient for AIV Holdings to satisfy the annual distribution requirement necessary for AIV Holdings to continue to qualify as a RIC. In that case, it is expected that Guardian AIV would consent to be treated as if it received distributions from AIV Holdings sufficient to satisfy the annual distribution requirement. Guardian AIV would be required to include the consent dividend in its taxable income as dividend from AIV Holdings, which would result in phantom (i.e., non-cash) taxable income to Guardian AIV.
 
Additionally as BDCs, the Companies 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).



51



Note 9. Commitments and Contingencies
 
In the normal course of business, the Companies may enter into contracts that contain a variety of representations and warranties and which provide general indemnifications. The Operating Company may also enter into future funding commitments such as revolving credit facilities, bridge financing commitments, or delayed draw commitments. As of September 30, 2013, the Operating Company had unfunded commitments on revolving credit facilities of $10,500, outstanding bridge financing commitments of $52,500 and no other future funding commitments. The unfunded commitments on revolving credit facilities are disclosed on the Operating Company’s Consolidated Schedule of Investments. As of December 31, 2012, the Operating Company had unfunded commitments on revolving credit facilities of $10,500 and no outstanding bridge financing commitments or other future funding commitments, all of which are disclosed on the Operating Company’s Consolidated Schedule of Investments.
 
The Operating Company also has revolving borrowings available under the Holdings Credit Facility and the SLF Credit Facility as of September 30, 2013. See Note 7, Borrowing Facilities, for details.
 
The Operating Company may from time to time enter into financing commitment letters. As of September 30, 2013 and December 31, 2012, the Operating Company did not enter into any commitment letters to purchase debt investments, which could require funding in the future.
 
Note 10. Stockholders’ Equity
 
The table below illustrates the effect of certain transactions on the capital accounts of NMFC:
 
 
 
 
 
 
Paid in Capital
 
Undistributed
 
Accumulated
Undistributed Net
 
Net Unrealized
 
Total
 
Common Stock
 
in Excess
 
Net Investment
 
Realized Gains
 
Appreciation
 
Stockholders'
 
Shares
 
Par Amount
 
of Par
 
Income
 
(Losses)
 
(Depreciation)
 
Equity
Balance at December 31, 2012
24,326,251

 
$
243

 
$
335,487

 
$

 
$
952

 
$
5,244

 
$
341,926

Issuances of common stock
13,933,670

 
140

 
198,373

 

 

 

 
198,513

Deferred offering costs allocated from New Mountain Finance Holdings,  L.L.C.

 

 
(203
)
 

 

 

 
(203
)
Dividends declared

 

 

 
(35,695
)
 
(794
)
 

 
(36,489
)
Net increase (decrease) in stockholders’ equity resulting from operations

 

 

 
35,695

 
7,567

 
713

 
43,975

Balance at September 30, 2013
38,259,921

 
$
383

 
$
533,657

 
$

 
$
7,725

 
$
5,957

 
$
547,722


The table below illustrates the effect of certain transactions on the capital accounts of AIV Holdings:
 
 
 
 
 
 
Paid in Capital
 
Undistributed
 
Distributions
 
Net Unrealized
 
Total
 
Common Stock
 
in Excess
 
Net Investment
 
In Excess of Net
 
(Depreciation)
 
Stockholders'
 
Shares
 
Par Amount
 
of Par
 
Income
 
Realized (Losses) Gains
 
Appreciation
 
Equity
Balance at December 31, 2012
100

 
$

(1)
$
244,015

 
$

 
$
(6,676
)
 
$
(9,326
)
 
$
228,013

Deferred offering costs allocated from New Mountain Finance Holdings, L.L.C.

 

 
(45
)
 

 

 

 
(45
)
Dividends declared

 

 

 
(12,133
)
 
(255
)
 

 
(12,388
)
Distribution to New Mountain Guardian AIV, L.P.

 

 
(134,699
)
 

 

 

 
(134,699
)
Net increase (decrease) in stockholders’ equity resulting from operations

 

 
(10,451
)
 
12,133

 
1,949

 
9,571

 
13,202

Balance at September 30, 2013
100

 
$

(1)
$
98,820

 
$

 
$
(4,982
)
 
$
245

 
$
94,083

______________________________________________________

(1)                   As of September 30, 2013 and December 31, 2012, the par amount of the total common stock was $1.
 


52



Note 11. Earnings Per Share
 
The following information sets forth the computation of basic and diluted net increase in NMFC’s net assets per share resulting from operations for the three and nine months ended September 30, 2013 and September 30, 2012:
 
 
 
Three months ended
 
Nine months ended
 
 
September 30, 2013
 
September 30, 2012
 
September 30, 2013
 
September 30, 2012
Numerator for basic earnings per share:
 
$
17,467

 
$
9,955

 
$
43,975

 
$
21,978

Denominator for basic weighted average share:
 
38,159,320

 
16,177,442

 
31,952,623

 
12,537,607

Basic earnings per share:
 
$
0.46

 
$
0.62

 
$
1.38

 
$
1.75

Numerator for diluted earnings per share(a):
 
$
20,478

 
$
22,245

 
$
59,863

 
$
56,996

Denominator for diluted weighted average share(b):
 
44,731,258

 
36,138,511

 
42,847,638

 
32,671,954

Diluted earnings per share:
 
$
0.46

 
$
0.62

 
$
1.40

 
$
1.74

______________________________________________________

(a)                                 Includes the full income at the Operating Company for the period.
(b)                                 Assumes AIV Holdings exchanges its units in the Operating Company for public shares of NMFC as of September 30, 2013 and September 30, 2012, respectively (see Note 1, Formation and Business Purpose).

Note 12. Financial Highlights
 
The following information sets forth the financial highlights for the Operating Company for the respective nine months ended September 30, 2013 and September 30, 2012.
 
 
Nine months ended
 
September 30, 2013
 
September 30, 2012
Total return based on net asset value (a)
10.20
%
 
13.06
%
Average net assets for the period
$
612,181

 
$
450,716

Ratio to average net assets (b):
 

 
 

Net investment income
10.45
%
 
9.39
%
Total expenses, before waivers/reimbursements
8.89
%
 
9.12
%
Total expenses, net of waivers/reimbursements
8.39
%
 
8.71
%
Net assets, end of period
$
641,805

 
$
520,355

Average debt outstanding—SLF Credit Facility
$
214,547

 
$
174,808

Average debt outstanding—Holdings Credit Facility
$
192,843

 
$
122,887

Weighted average common membership units outstanding
42,847,638

 
32,671,954

Asset coverage ratio
271.56
%
 
255.02
%
Portfolio turnover
30.46
%
 
34.77
%
______________________________________________________

(a)                                 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.
(b)                                 Ratio to average net assets has been annualized.
 

53



 
Nine months ended
 
September 30, 2013
 
September 30, 2012
Per unit data for the Operating Company (a):
 

 
 

Net asset value, January 1, 2013 and January 1, 2012, respectively
$
14.06

 
$
13.60

Net investment income
1.12

 
0.97

Net realized and unrealized gains (losses)
0.28

 
0.76

Dividends from net investment income
(1.14
)
 
(1.23
)
Net increase in net assets resulting from operations
0.26

 
0.50

Net asset value, September 30, 2013 and September 30, 2012, respectively
$
14.32

 
$
14.10

______________________________________________________

(a)                                 Per unit data is based on weighted average common membership units outstanding.
 
The following information sets forth the financial highlights for NMFC for the nine months ended September 30, 2013 and September 30, 2012. The ratios to average net assets have been annualized.
 
 
Nine months ended
 
September 30, 2013
 
September 30, 2012
Per share data (a):
 

 
 

Net asset value, January 1, 2013 and January 1, 2012, respectively
$
14.06

 
$
13.60

Net increase (decrease) in net assets resulting from operations allocated from New Mountain Finance Holdings, L.L.C.:
 

 
 

Net investment income
1.12

 
0.97

Net realized and unrealized gains (losses)
0.28

 
0.76

Total net increase
1.40

 
1.73

Dividends declared
(1.14
)
 
(1.23
)
Net asset value, September 30, 2013 and September 30, 2012, respectively
$
14.32

 
$
14.10

Per share market value, September 30, 2013 and September 30, 2012, respectively
$
14.41

 
$
14.82

Total return based on market value (b)
4.58
%
 
20.27
%
Total return based on net asset value (c)
10.20
%
 
13.06
%
Shares outstanding at end of period
38,259,921

 
20,690,635

Average weighted shares outstanding for the period
31,952,623

 
12,537,607

Average net assets for the period
$
456,922

 
$
167,815

Ratio to average net assets (d):
 

 
 

Total expenses allocated from New Mountain Finance Holdings, L.L.C.
8.39
%
 
8.71
%
Net investment income allocated from New Mountain Finance Holdings, L.L.C.
10.45
%
 
9.39
%
____________________________________________________

(a)                                 Per share data is based on the summation of the per share results of operations items over the outstanding shares for the period in which the respective line items were realized or earned.
 
(b)                                 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 NMFC’s dividend reinvestment plan.
 
(c)                                  Total return is calculated assuming a purchase at net asset value on the opening of the first day of the period 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.
 
(d)                                 Ratio to average net assets for the nine months ended September 30, 2013 is based on the summation of the results of operations items over the net assets for the period in which the respective line items were realized or earned.

54



 
The following information sets forth the financial highlights for AIV Holdings for the nine months ended September 30, 2013 and September 30, 2012. The ratios to average net assets have been annualized.
 
 
Nine months ended
 
September 30, 2013
 
September 30, 2012
Total return based on net asset value (a)
8.38
%
 
14.45
%
Average net assets for the period
$
155,259

 
$
279,835

Ratio to average net assets (b):
 

 
 

Total expenses allocated from New Mountain Finance Holdings, L.L.C.
8.39
%
 
8.71
%
Net investment income allocated from New Mountain Finance Holdings, L.L.C.
10.45
%
 
9.39
%
 ______________________________________________________

(a)                                 Total return is calculated assuming a purchase at net asset value on the opening of the first day of the period 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 net asset value on the last day of the respective quarter.
(b)                                 Ratio to average net assets for the nine months ended September 30, 2013 is based on the summation of the results of operations items over the net assets for the period in which the respective line items were realized or earned.
 
Note 13. Subsequent Events
 
On November 8, 2013, the Operating Company’s board of directors, and subsequently NMFC’s board of directors, declared a fourth quarter 2013 distribution of $0.34 per unit/share payable on December 31, 2013 to holders of record as of December 17, 2013.  Subsequently, AIV Holdings’ board of directors declared a dividend payable on December 31, 2013 to holders of record as of December 17, 2013 in an amount equal to $0.34 per unit multiplied by the total number of units owned by AIV Holdings of the Operating Company as of the record date.
 
On October 17, 2013, NMFC completed a public offering of 3,000,000 shares of its common stock and an underwritten secondary public offering of 3,000,000 shares of its common stock on behalf of a selling stockholder, AIV Holdings, at a public offering price of $14.34 per share. In connection with the underwritten secondary public offering, the underwriters purchased an additional 900,000 shares of NMFC’s common stock from AIV Holdings with the exercise of the overallotment option to purchase up to an additional 900,000 shares of common stock. The Operating Company received net proceeds of $43,020 in connection with the sale of 3,000,000 shares by NMFC of its common stock. NMFC did not receive any proceeds from the sale of shares of NMFC’s common stock by AIV Holdings. The Operating Company and NMFC bore only their allocable portion of offering expenses related to the public offering of 3,000,000 shares, and did not bear any expenses in connection with the secondary public offering of the 3,900,000 shares of NMFC’s common stock on behalf of AIV Holdings, which were borne by AIV Holdings.
 
On October 28, 2013, the Operating Company amended its Holdings Credit Facility to increase the maximum amount of revolving borrowings available under the Holdings Credit Facility from $250,000 to $280,000.


55