New Mountain Finance Corporation Annual Report 2014

FY2014 Annual Report · New Mountain Finance Corporation
Loading PDF…
Section 1: 10-K (10-K)

Use these links to rapidly review the document
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2014 TABLE OF CONTENTS
TABLE OF CONTENTS
PART IV

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(cid:2) Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:5)(cid:9)(cid:10)(cid:11)(cid:12)(cid:13)(cid:5)(cid:14)(cid:8)(cid:12)(cid:4)(cid:5)(cid:8)(cid:15)(cid:16)(cid:8)(cid:16)(cid:5)(cid:17)(cid:8)(cid:11)(cid:8)(cid:18)(cid:19)(cid:8)(cid:4)(cid:5)(cid:20)(cid:21)(cid:22)(cid:5)(cid:23)(cid:24)(cid:21)(cid:25)

(cid:3) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number
814-00832

(cid:26)(cid:27)(cid:12)(cid:11)(cid:6)(cid:5)(cid:15)(cid:12)(cid:18)(cid:8)(cid:5)(cid:3)(cid:28)(cid:5)(cid:4)(cid:8)(cid:29)(cid:30)(cid:10)(cid:6)(cid:4)(cid:12)(cid:15)(cid:6)(cid:5)(cid:12)(cid:10)(cid:5)(cid:10)(cid:31)(cid:8)(cid:11)(cid:30)(cid:9)(cid:8)(cid:16)(cid:5)(cid:30)(cid:15)(cid:5)(cid:30)(cid:6)(cid:10)(cid:5)(cid:11)(cid:7)(cid:12)(cid:4)(cid:6)(cid:8)(cid:4)(cid:22)
(cid:12)(cid:16)(cid:16)(cid:4)(cid:8)(cid:10)(cid:10)(cid:8)(cid:10)(cid:5)(cid:3)(cid:28)(cid:5)(cid:31)(cid:4)(cid:30)(cid:15)(cid:11)(cid:30)(cid:31)(cid:12)(cid:13)(cid:5)(cid:8)(cid:27)(cid:8)(cid:11) (cid:6)(cid:30)!(cid:8)(cid:5)(cid:3)(cid:28)(cid:9)(cid:11)(cid:8)(cid:10)(cid:22)(cid:5)(cid:6)(cid:8)(cid:13)(cid:8)(cid:31)(cid:7)(cid:3)(cid:15)(cid:8)(cid:5)(cid:15) (cid:18)(cid:19)(cid:8)(cid:4)(cid:10)
and states or other jurisdictions of incorporation or organization
New Mountain Finance Corporation
787 Seventh Avenue, 48 th Floor
New York, New York 10019
Telephone: (212) 720-0300
State of Incorporation: Delaware

I.R.S. Employer
"(cid:16)(cid:8)(cid:15)(cid:6)(cid:30)(cid:9)(cid:11)(cid:12)(cid:6)(cid:30)(cid:3)(cid:15)(cid:5)# (cid:18)(cid:19)(cid:8)(cid:4)
27-2978010

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Common stock, $0.01 par value

Name of each exchange on which registered
The New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

Title of each class

 
 
 
 
None

(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:10)(cid:2)(cid:11)(cid:12)(cid:2)(cid:7)(cid:13)(cid:10)(cid:7)(cid:14)(cid:2)(cid:15)(cid:8)(cid:16)(cid:14)(cid:2)(cid:6)(cid:17)(cid:2)(cid:9)(cid:13)(cid:10)(cid:2)(cid:16)(cid:10)(cid:18)(cid:6)(cid:19)(cid:9)(cid:16)(cid:8)(cid:4)(cid:9)(cid:2)(cid:6)(cid:19)(cid:2)(cid:8)(cid:2)(cid:20)(cid:10)(cid:21)(cid:21)(cid:22)(cid:14)(cid:4)(cid:23)(cid:20)(cid:4)(cid:2)(cid:19)(cid:10)(cid:8)(cid:19)(cid:23)(cid:4)(cid:10)(cid:5)(cid:2)(cid:6)(cid:19)(cid:19)(cid:24)(cid:10)(cid:16)(cid:25)(cid:2)(cid:8)(cid:19)(cid:2)(cid:5)(cid:10)(cid:26)(cid:4)(cid:10)(cid:5)(cid:2)(cid:6)(cid:4)(cid:2)(cid:27)(cid:24)(cid:21)(cid:10)(cid:2)(cid:28)(cid:29)(cid:30)(cid:2)(cid:23)(cid:17)(cid:2)(cid:9)(cid:13)(cid:10)(cid:2)(cid:31)(cid:10)(cid:7)(cid:24)(cid:16)(cid:6)(cid:9)(cid:6)(cid:10)(cid:19)(cid:2) (cid:7)(cid:9)!(cid:2)"(cid:10)(cid:19)(cid:2)(cid:3)    No (cid:2)

(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:10)(cid:2)(cid:11)(cid:12)(cid:2)(cid:7)(cid:13)(cid:10)(cid:7)(cid:14)(cid:2)(cid:15)(cid:8)(cid:16)(cid:14)(cid:2)(cid:6)(cid:17)(cid:2)(cid:9)(cid:13)(cid:10)(cid:2)(cid:16)(cid:10)(cid:18)(cid:6)(cid:19)(cid:9)(cid:16)(cid:8)(cid:4)(cid:9)(cid:2)(cid:6)(cid:19)(cid:2)(cid:4)(cid:23)(cid:9)(cid:2)(cid:16)(cid:10)#(cid:24)(cid:6)(cid:16)(cid:10)(cid:5)(cid:2)(cid:9)(cid:23)(cid:2)(cid:26)(cid:21)(cid:10)(cid:2)(cid:16)(cid:10)$(cid:23)(cid:16)(cid:9)(cid:19)(cid:2)$(cid:24)(cid:16)(cid:19)(cid:24)(cid:8)(cid:4)(cid:9)(cid:2)(cid:9)(cid:23)(cid:2)(cid:31)(cid:10)(cid:7)(cid:9)(cid:6)(cid:23)(cid:4)(cid:2)%&(cid:2)(cid:23)(cid:16)(cid:2)(cid:31)(cid:10)(cid:7)(cid:9)(cid:6)(cid:23)(cid:4)(cid:2)%(cid:30)’(cid:5)((cid:2)(cid:23)(cid:17)(cid:2)(cid:9)(cid:13)(cid:10)(cid:2) (cid:7)(cid:9)!(cid:2)"(cid:10)(cid:19)(cid:2)(cid:3)    No (cid:2)

(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:10)(cid:2)(cid:11)(cid:12)(cid:2)(cid:7)(cid:13)(cid:10)(cid:7)(cid:14)(cid:2)(cid:15)(cid:8)(cid:16)(cid:14)(cid:2)(cid:20)(cid:13)(cid:10)(cid:9)(cid:13)(cid:10)(cid:16)(cid:2)(cid:9)(cid:13)(cid:10)(cid:2)(cid:16)(cid:10)(cid:18)(cid:6)(cid:19)(cid:9)(cid:16)(cid:8)(cid:4)(cid:9)(cid:2)’%((cid:2)(cid:13)(cid:8)(cid:19)(cid:2)(cid:26)(cid:21)(cid:10)(cid:5)(cid:2)(cid:8)(cid:21)(cid:21)(cid:2)(cid:16)(cid:10)$(cid:23)(cid:16)(cid:9)(cid:19)(cid:2)(cid:16)(cid:10)#(cid:24)(cid:6)(cid:16)(cid:10)(cid:5)(cid:2)(cid:9)(cid:23)(cid:2)(cid:11)(cid:10)(cid:2)(cid:26)(cid:21)(cid:10)(cid:5)(cid:2)(cid:11)(cid:12)(cid:2)(cid:31)(cid:10)(cid:7)(cid:9)(cid:6)(cid:23)(cid:4)(cid:2)%&(cid:2)(cid:23)(cid:16)(cid:2)%(cid:30)’(cid:5)((cid:2)(cid:23)(cid:17)(cid:2)(cid:9)(cid:13)(cid:10)(cid:2)(cid:31)(cid:10)(cid:7)(cid:24)(cid:16)(cid:6)(cid:9)(cid:6)(cid:10)(cid:19)(cid:2))*(cid:7)(cid:13)(cid:8)(cid:4)(cid:18)(cid:10)(cid:2) (cid:7)(cid:9)
(cid:23)(cid:17)(cid:2)%+&(cid:28)(cid:2)(cid:5)(cid:24)(cid:16)(cid:6)(cid:4)(cid:18)(cid:2)(cid:9)(cid:13)(cid:10)(cid:2)$(cid:16)(cid:10)(cid:7)(cid:10)(cid:5)(cid:6)(cid:4)(cid:18)(cid:2)%,(cid:2)(cid:15)(cid:23)(cid:4)(cid:9)(cid:13)(cid:19)(cid:2)’(cid:23)(cid:16)(cid:2)(cid:17)(cid:23)(cid:16)(cid:2)(cid:19)(cid:24)(cid:7)(cid:13)(cid:2)(cid:19)(cid:13)(cid:23)(cid:16)(cid:9)(cid:10)(cid:16)(cid:2)$(cid:10)(cid:16)(cid:6)(cid:23)(cid:5)(cid:2)(cid:9)(cid:13)(cid:8)(cid:9)(cid:2)(cid:9)(cid:13)(cid:10)(cid:2)(cid:16)(cid:10)(cid:18)(cid:6)(cid:19)(cid:9)(cid:16)(cid:8)(cid:4)(cid:9)(cid:2)(cid:20)(cid:8)(cid:19)(cid:2)(cid:16)(cid:10)#(cid:24)(cid:6)(cid:16)(cid:10)(cid:5)(cid:2)(cid:9)(cid:23)(cid:2)(cid:26)(cid:21)(cid:10)(cid:2)(cid:19)(cid:24)(cid:7)(cid:13)(cid:2)(cid:16)(cid:10)$(cid:23)(cid:16)(cid:9)(cid:19)((cid:25)(cid:2)(cid:8)(cid:4)(cid:5)(cid:2)’,((cid:2)(cid:13)(cid:8)(cid:19)(cid:2)(cid:11)(cid:10)(cid:10)(cid:4)(cid:2)(cid:19)(cid:24)(cid:11)-(cid:10)(cid:7)(cid:9)(cid:2)(cid:9)(cid:23)
(cid:19)(cid:24)(cid:7)(cid:13)(cid:2)(cid:26)(cid:21)(cid:6)(cid:4)(cid:18)(cid:2)(cid:16)(cid:10)#(cid:24)(cid:6)(cid:16)(cid:10)(cid:15)(cid:10)(cid:4)(cid:9)(cid:19)(cid:2)(cid:17)(cid:23)(cid:16)(cid:2)(cid:9)(cid:13)(cid:10)(cid:2)$(cid:8)(cid:19)(cid:9)(cid:2)+(cid:29)(cid:2)(cid:5)(cid:8)(cid:12)(cid:19)!(cid:2)"(cid:10)(cid:19)(cid:2) (cid:2)    No (cid:3)

         Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for
(cid:19)(cid:24)(cid:7)(cid:13)(cid:2)(cid:19)(cid:13)(cid:23)(cid:16)(cid:9)(cid:10)(cid:16)(cid:2)$(cid:10)(cid:16)(cid:6)(cid:23)(cid:5)(cid:2)(cid:9)(cid:13)(cid:8)(cid:9)(cid:2)(cid:9)(cid:13)(cid:10)(cid:2)(cid:16)(cid:10)(cid:18)(cid:6)(cid:19)(cid:9)(cid:16)(cid:8)(cid:4)(cid:9)(cid:2)(cid:20)(cid:8)(cid:19)(cid:2)(cid:16)(cid:10)#(cid:24)(cid:6)(cid:16)(cid:10)(cid:5)(cid:2)(cid:9)(cid:23)(cid:2)(cid:19)(cid:24)(cid:11)(cid:15)(cid:6)(cid:9)(cid:2)(cid:8)(cid:4)(cid:5)(cid:2)$(cid:23)(cid:19)(cid:9)(cid:2)(cid:19)(cid:24)(cid:7)(cid:13)(cid:2)(cid:26)(cid:21)(cid:10)(cid:19)(!(cid:2)"(cid:10)(cid:19)(cid:2) (cid:3)    No (cid:3)

(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:10)(cid:2)(cid:11)(cid:12)(cid:2)(cid:7)(cid:13)(cid:10)(cid:7)(cid:14)(cid:2)(cid:15)(cid:8)(cid:16)(cid:14)(cid:2)(cid:6)(cid:17)(cid:2)(cid:5)(cid:6)(cid:19)(cid:7)(cid:21)(cid:23)(cid:19)(cid:24)(cid:16)(cid:10)(cid:2)(cid:23)(cid:17)(cid:2)(cid:5)(cid:10)(cid:21)(cid:6)(cid:4)#(cid:24)(cid:10)(cid:4)(cid:9)(cid:2)(cid:26)(cid:21)(cid:10)(cid:16)(cid:19)(cid:2)$(cid:24)(cid:16)(cid:19)(cid:24)(cid:8)(cid:4)(cid:9)(cid:2)(cid:9)(cid:23)(cid:2)(cid:3)(cid:9)(cid:10)(cid:15)(cid:2)(cid:28)(cid:29)(cid:30)(cid:2)(cid:23)(cid:17)(cid:2)(cid:27)(cid:10)(cid:18)(cid:24)(cid:21)(cid:8)(cid:9)(cid:6)(cid:23)(cid:4)(cid:2)(cid:31)(cid:22).(cid:2)’/(cid:2),,+!(cid:28)(cid:29)(cid:30)(cid:2)(cid:23)(cid:17)(cid:2)(cid:9)(cid:13)(cid:6)(cid:19)(cid:2)(cid:7)(cid:13)(cid:8)$(cid:9)(cid:10)(cid:16)((cid:2)(cid:6)(cid:19)(cid:2)(cid:4)(cid:23)(cid:9)(cid:2)(cid:7)(cid:23)(cid:4)(cid:9)(cid:8)(cid:6)(cid:4)(cid:10)(cid:5)
(cid:13)(cid:10)(cid:16)(cid:10)(cid:6)(cid:4)(cid:25)(cid:2)(cid:8)(cid:4)(cid:5)(cid:2)(cid:20)(cid:6)(cid:21)(cid:21)(cid:2)(cid:4)(cid:23)(cid:9)(cid:2)(cid:11)(cid:10)(cid:2)(cid:7)(cid:23)(cid:4)(cid:9)(cid:8)(cid:6)(cid:4)(cid:10)(cid:5)(cid:25)(cid:2)(cid:9)(cid:23)(cid:2)(cid:9)(cid:13)(cid:10)(cid:2)(cid:11)(cid:10)(cid:19)(cid:9)(cid:2)(cid:23)(cid:17)(cid:2)(cid:16)(cid:10)(cid:18)(cid:6)(cid:19)(cid:9)(cid:16)(cid:8)(cid:4)(cid:9)0(cid:19)(cid:2)(cid:14)(cid:4)(cid:23)(cid:20)(cid:21)(cid:10)(cid:5)(cid:18)(cid:10)(cid:25)(cid:2)(cid:6)(cid:4)(cid:2)(cid:5)(cid:10)(cid:26)(cid:4)(cid:6)(cid:9)(cid:6)1(cid:10)(cid:2)$(cid:16)(cid:23)*(cid:12)(cid:2)(cid:23)(cid:16)(cid:2)(cid:6)(cid:4)(cid:17)(cid:23)(cid:16)(cid:15)(cid:8)(cid:9)(cid:6)(cid:23)(cid:4)(cid:2)(cid:19)(cid:9)(cid:8)(cid:9)(cid:10)(cid:15)(cid:10)(cid:4)(cid:9)(cid:19)(cid:2)(cid:6)(cid:4)(cid:7)(cid:23)(cid:16)$(cid:23)(cid:16)(cid:8)(cid:9)(cid:10)(cid:5)(cid:2)(cid:11)(cid:12)(cid:2)(cid:16)(cid:10)(cid:17)(cid:10)(cid:16)(cid:10)(cid:4)(cid:7)(cid:10)(cid:2)(cid:6)(cid:4)
Part III of this Form 10-K or any amendment to this Form 10-K. (cid:2)

(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:10)(cid:2)(cid:11)(cid:12)(cid:2)(cid:7)(cid:13)(cid:10)(cid:7)(cid:14)(cid:2)(cid:15)(cid:8)(cid:16)(cid:14)(cid:2)(cid:20)(cid:13)(cid:10)(cid:9)(cid:13)(cid:10)(cid:16)(cid:2)(cid:9)(cid:13)(cid:10)(cid:2)(cid:16)(cid:10)(cid:18)(cid:6)(cid:19)(cid:9)(cid:16)(cid:8)(cid:4)(cid:9)(cid:2)(cid:6)(cid:19)(cid:2)(cid:8)(cid:2)(cid:21)(cid:8)(cid:16)(cid:18)(cid:10)(cid:2)(cid:8)(cid:7)(cid:7)(cid:10)(cid:21)(cid:10)(cid:16)(cid:8)(cid:9)(cid:10)(cid:5)(cid:2)(cid:26)(cid:21)(cid:10)(cid:16)(cid:25)(cid:2)(cid:8)(cid:4)(cid:2)(cid:8)(cid:7)(cid:7)(cid:10)(cid:21)(cid:10)(cid:16)(cid:8)(cid:9)(cid:10)(cid:5)(cid:2)(cid:26)(cid:21)(cid:10)(cid:16)(cid:25)(cid:2)(cid:8)(cid:2)(cid:4)(cid:23)(cid:4)(cid:22)(cid:8)(cid:7)(cid:7)(cid:10)(cid:21)(cid:10)(cid:16)(cid:8)(cid:9)(cid:10)(cid:5)(cid:2)(cid:26)(cid:21)(cid:10)(cid:16)(cid:25)(cid:2)(cid:23)(cid:16)(cid:2)(cid:8)(cid:2)(cid:19)(cid:15)(cid:8)(cid:21)(cid:21)(cid:10)(cid:16)(cid:2)(cid:16)(cid:10)$(cid:23)(cid:16)(cid:9)(cid:6)(cid:4)(cid:18)
(cid:7)(cid:23)(cid:15)$(cid:8)(cid:4)(cid:12)!(cid:2)(cid:31)(cid:10)(cid:10)(cid:2)(cid:9)(cid:13)(cid:10)(cid:2)(cid:5)(cid:10)(cid:26)(cid:4)(cid:6)(cid:9)(cid:6)(cid:23)(cid:4)(cid:19)(cid:2)(cid:23)(cid:17)(cid:2)2(cid:21)(cid:8)(cid:16)(cid:18)(cid:10)(cid:2)(cid:8)(cid:7)(cid:7)(cid:10)(cid:21)(cid:10)(cid:16)(cid:8)(cid:9)(cid:10)(cid:5)(cid:2)(cid:26)(cid:21)(cid:10)(cid:16)2(cid:25)(cid:2)2(cid:8)(cid:7)(cid:7)(cid:10)(cid:21)(cid:10)(cid:16)(cid:8)(cid:9)(cid:10)(cid:5)(cid:2)(cid:26)(cid:21)(cid:10)(cid:16)2(cid:2)(cid:8)(cid:4)(cid:5)(cid:2)2(cid:19)(cid:15)(cid:8)(cid:21)(cid:21)(cid:10)(cid:16)(cid:2)(cid:16)(cid:10)$(cid:23)(cid:16)(cid:9)(cid:6)(cid:4)(cid:18)(cid:2)(cid:7)(cid:23)(cid:15)$(cid:8)(cid:4)(cid:12)2(cid:2)(cid:6)(cid:4)(cid:2)(cid:27)(cid:24)(cid:21)(cid:10)(cid:2)%,(cid:11)(cid:22),(cid:2)(cid:23)(cid:17)(cid:2)(cid:9)(cid:13)(cid:10)(cid:2))*(cid:7)(cid:13)(cid:8)(cid:4)(cid:18)(cid:10)(cid:2) (cid:7)(cid:9)3

;(cid:8)(cid:16)(cid:18)(cid:10)(cid:2)(cid:8)(cid:7)(cid:7)(cid:10)(cid:21)(cid:10)(cid:16)(cid:8)(cid:9)(cid:10)(cid:5)(cid:2)(cid:26)(cid:21)(cid:10)(cid:16)(cid:2)(cid:2)
5(cid:23)(cid:4)(cid:22)(cid:8)(cid:7)(cid:7)(cid:10)(cid:21)(cid:10)(cid:16)(cid:8)(cid:9)(cid:10)(cid:5)(cid:2)(cid:26)(cid:21)(cid:10)(cid:16)(cid:2)(cid:3)
(Do not check if a
smaller reporting company)

 (cid:7)(cid:7)(cid:10)(cid:21)(cid:10)(cid:16)(cid:8)(cid:9)(cid:10)(cid:5)(cid:2)(cid:26)(cid:21)(cid:10)(cid:16)(cid:2)(cid:3)

  Smaller reporting company (cid:3)

(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:10)(cid:2)(cid:11)(cid:12)(cid:2)(cid:7)(cid:13)(cid:10)(cid:7)(cid:14)(cid:2)(cid:15)(cid:8)(cid:16)(cid:14)(cid:2)(cid:20)(cid:13)(cid:10)(cid:9)(cid:13)(cid:10)(cid:16)(cid:2)(cid:9)(cid:13)(cid:10)(cid:2)(cid:16)(cid:10)(cid:18)(cid:6)(cid:19)(cid:9)(cid:16)(cid:8)(cid:4)(cid:9)(cid:2)(cid:6)(cid:19)(cid:2)(cid:8)(cid:2)(cid:19)(cid:13)(cid:10)(cid:21)(cid:21)(cid:2)(cid:7)(cid:23)(cid:15)$(cid:8)(cid:4)(cid:12)(cid:2)’(cid:8)(cid:19)(cid:2)(cid:5)(cid:10)(cid:26)(cid:4)(cid:10)(cid:5)(cid:2)(cid:6)(cid:4)(cid:2)(cid:27)(cid:24)(cid:21)(cid:10)(cid:2)%,(cid:11)(cid:22),(cid:2)(cid:23)(cid:17)(cid:2)(cid:9)(cid:13)(cid:10)(cid:2))*(cid:7)(cid:13)(cid:8)(cid:4)(cid:18)(cid:10)(cid:2) (cid:7)(cid:9)(!(cid:2)"(cid:10)(cid:19)(cid:2)(cid:3)    No (cid:2)

(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)4(cid:13)(cid:10)(cid:2)(cid:8)(cid:18)(cid:18)(cid:16)(cid:10)(cid:18)(cid:8)(cid:9)(cid:10)(cid:2)(cid:15)(cid:8)(cid:16)(cid:14)(cid:10)(cid:9)(cid:2)1(cid:8)(cid:21)(cid:24)(cid:10)(cid:2)(cid:23)(cid:17)(cid:2)(cid:7)(cid:23)(cid:15)(cid:15)(cid:23)(cid:4)(cid:2)(cid:19)(cid:9)(cid:23)(cid:7)(cid:14)(cid:2)(cid:13)(cid:10)(cid:21)(cid:5)(cid:2)(cid:11)(cid:12)(cid:2)(cid:4)(cid:23)(cid:4)(cid:22)(cid:8)(cid:17)(cid:26)(cid:21)(cid:6)(cid:8)(cid:9)(cid:10)(cid:19)(cid:2)(cid:23)(cid:17)(cid:2)5(cid:10)(cid:20)(cid:2)6(cid:23)(cid:24)(cid:4)(cid:9)(cid:8)(cid:6)(cid:4)(cid:2)7(cid:6)(cid:4)(cid:8)(cid:4)(cid:7)(cid:10)(cid:2)8(cid:23)(cid:16)$(cid:23)(cid:16)(cid:8)(cid:9)(cid:6)(cid:23)(cid:4)(cid:2)(cid:23)(cid:4)(cid:2)9(cid:24)(cid:4)(cid:10)(cid:2)&(cid:29)(cid:25)(cid:2),(cid:29)%(cid:28)(cid:25)(cid:2)(cid:11)(cid:8)(cid:19)(cid:10)(cid:5)(cid:2)(cid:23)(cid:4)(cid:2)(cid:9)(cid:13)(cid:10)
closing price on that date of $14.86, on the New York Stock Exchange was $728.3 million. For the purposes of calculating this amount only, all
(cid:5)(cid:6)(cid:16)(cid:10)(cid:7)(cid:9)(cid:23)(cid:16)(cid:19)(cid:2)(cid:8)(cid:4)(cid:5)(cid:2)(cid:10)*(cid:10)(cid:7)(cid:24)(cid:9)(cid:6)1(cid:10)(cid:2)(cid:23)(cid:17)(cid:26)(cid:7)(cid:10)(cid:16)(cid:19)(cid:2)(cid:23)(cid:17)(cid:2)(cid:9)(cid:13)(cid:10)(cid:2)(cid:16)(cid:10)(cid:18)(cid:6)(cid:19)(cid:9)(cid:16)(cid:8)(cid:4)(cid:9)(cid:2)(cid:13)(cid:8)1(cid:10)(cid:2)(cid:11)(cid:10)(cid:10)(cid:4)(cid:2)(cid:9)(cid:16)(cid:10)(cid:8)(cid:9)(cid:10)(cid:5)(cid:2)(cid:8)(cid:19)(cid:2)(cid:8)(cid:17)(cid:26)(cid:21)(cid:6)(cid:8)(cid:9)(cid:10)(cid:19)!

Description
Common stock, $0.01 par value

Shares as of March 2, 2015
57,997,890

(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2):(cid:23)(cid:16)(cid:9)(cid:6)(cid:23)(cid:4)(cid:19)(cid:2)(cid:23)(cid:17)(cid:2)(cid:9)(cid:13)(cid:10)(cid:2)(cid:27)(cid:10)(cid:18)(cid:6)(cid:19)(cid:9)(cid:16)(cid:8)(cid:4)(cid:9)(cid:19)0(cid:2):(cid:16)(cid:23)*(cid:12)(cid:2)(cid:31)(cid:9)(cid:8)(cid:9)(cid:10)(cid:15)(cid:10)(cid:4)(cid:9)(cid:2)(cid:17)(cid:23)(cid:16)(cid:2)(cid:6)(cid:9)(cid:19)(cid:2),(cid:29)%(cid:30)(cid:2) (cid:4)(cid:4)(cid:24)(cid:8)(cid:21)(cid:2)6(cid:10)(cid:10)(cid:9)(cid:6)(cid:4)(cid:18)(cid:2)(cid:23)(cid:17)(cid:2)(cid:31)(cid:9)(cid:23)(cid:7)(cid:14)(cid:13)(cid:23)(cid:21)(cid:5)(cid:10)(cid:16)(cid:19)(cid:2)(cid:9)(cid:23)(cid:2)(cid:11)(cid:10)(cid:2)(cid:26)(cid:21)(cid:10)(cid:5)(cid:2)(cid:4)(cid:23)(cid:9)(cid:2)(cid:21)(cid:8)(cid:9)(cid:10)(cid:16)(cid:2)(cid:9)(cid:13)(cid:8)(cid:4)(cid:2)%,(cid:29)(cid:2)(cid:5)(cid:8)(cid:12)(cid:19)(cid:2)(cid:8)(cid:17)(cid:9)(cid:10)(cid:16)(cid:2)(cid:9)(cid:13)(cid:10)(cid:2)(cid:10)(cid:4)(cid:5)(cid:2)(cid:23)(cid:17)
(cid:9)(cid:13)(cid:10)(cid:2)(cid:26)(cid:19)(cid:7)(cid:8)(cid:21)(cid:2)(cid:12)(cid:10)(cid:8)(cid:16)(cid:2)(cid:7)(cid:23)1(cid:10)(cid:16)(cid:10)(cid:5)(cid:2)(cid:11)(cid:12)(cid:2)(cid:9)(cid:13)(cid:6)(cid:19)(cid:2) (cid:4)(cid:4)(cid:24)(cid:8)(cid:21)(cid:2)(cid:27)(cid:10)$(cid:23)(cid:16)(cid:9)(cid:2)(cid:23)(cid:4)(cid:2)(cid:9)(cid:13)(cid:6)(cid:19)(cid:2)7(cid:23)(cid:16)(cid:15)(cid:2)%(cid:29)(cid:22).(cid:2)(cid:8)(cid:16)(cid:10)(cid:2)(cid:6)(cid:4)(cid:7)(cid:23)(cid:16)$(cid:23)(cid:16)(cid:8)(cid:9)(cid:10)(cid:5)(cid:2)(cid:11)(cid:12)(cid:2)(cid:16)(cid:10)(cid:17)(cid:10)(cid:16)(cid:10)(cid:4)(cid:7)(cid:10)(cid:2)(cid:6)(cid:4)(cid:9)(cid:23)(cid:2):(cid:8)(cid:16)(cid:9)(cid:2)(cid:3)(cid:3)(cid:3)(cid:2)(cid:23)(cid:4)(cid:2)(cid:9)(cid:13)(cid:6)(cid:19)(cid:2)7(cid:23)(cid:16)(cid:15)(cid:2)%(cid:29)(cid:22).!

Table of Contents

FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2014
TABLE OF CONTENTS 

Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.

Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures

PART I

PART II

Item 5.

Market for Registrants' Common Equity, Related Stockholder Matters and Issuer Purchases of

PAGE

1
29
61
61
61
61

 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.

Item 10.
Item 11.
Item 12.

Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information

@(cid:6)(cid:16)(cid:10)(cid:7)(cid:9)(cid:23)(cid:16)(cid:19)(cid:25)(cid:2))*(cid:10)(cid:7)(cid:24)(cid:9)(cid:6)1(cid:10)(cid:2)>(cid:17)(cid:26)(cid:7)(cid:10)(cid:16)(cid:19)(cid:2)(cid:8)(cid:4)(cid:5)(cid:2)8(cid:23)(cid:16)$(cid:23)(cid:16)(cid:8)(cid:9)(cid:10)(cid:2)<(cid:23)1(cid:10)(cid:16)(cid:4)(cid:8)(cid:4)(cid:7)(cid:10)
Executive Compensation
(cid:31)(cid:10)(cid:7)(cid:24)(cid:16)(cid:6)(cid:9)(cid:12)(cid:2)>(cid:20)(cid:4)(cid:10)(cid:16)(cid:19)(cid:13)(cid:6)$(cid:2)(cid:23)(cid:17)(cid:2)8(cid:10)(cid:16)(cid:9)(cid:8)(cid:6)(cid:4)(cid:2)A(cid:10)(cid:4)(cid:10)(cid:26)(cid:7)(cid:6)(cid:8)(cid:21)(cid:2)>(cid:20)(cid:4)(cid:10)(cid:16)(cid:19)(cid:2)(cid:8)(cid:4)(cid:5)(cid:2)6(cid:8)(cid:4)(cid:8)(cid:18)(cid:10)(cid:15)(cid:10)(cid:4)(cid:9)(cid:2)(cid:8)(cid:4)(cid:5)(cid:2)(cid:27)(cid:10)(cid:21)(cid:8)(cid:9)(cid:10)(cid:5)(cid:2)(cid:31)(cid:9)(cid:23)(cid:7)(cid:14)(cid:13)(cid:23)(cid:21)(cid:5)(cid:10)(cid:16)

PART III

Matters

Item 13.
Item 14.

Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services

Item 15.

Exhibits and Financial Statement Schedules

PART IV

62
66
70
103
105
170
170
173

174
174

174
174
174

175

Table of Contents

Item 1.    Business 

New Mountain Finance Corporation

PART I 

        New Mountain Finance Corporation ("NMFC", the "Company", "we", "us" or "our") is a Delaware corporation that was originally incorporated
(cid:23)(cid:4)(cid:2)9(cid:24)(cid:4)(cid:10)(cid:2),+(cid:25)(cid:2),(cid:29)%(cid:29)!(cid:2)5678(cid:2)(cid:6)(cid:19)(cid:2)(cid:8)(cid:2)(cid:7)(cid:21)(cid:23)(cid:19)(cid:10)(cid:5)(cid:22)(cid:10)(cid:4)(cid:5)(cid:25)(cid:2)(cid:4)(cid:23)(cid:4)(cid:22)(cid:5)(cid:6)1(cid:10)(cid:16)(cid:19)(cid:6)(cid:26)(cid:10)(cid:5)(cid:2)(cid:15)(cid:8)(cid:4)(cid:8)(cid:18)(cid:10)(cid:15)(cid:10)(cid:4)(cid:9)(cid:2)(cid:6)(cid:4)1(cid:10)(cid:19)(cid:9)(cid:15)(cid:10)(cid:4)(cid:9)(cid:2)(cid:7)(cid:23)(cid:15)$(cid:8)(cid:4)(cid:12)(cid:2)(cid:9)(cid:13)(cid:8)(cid:9)(cid:2)(cid:13)(cid:8)(cid:19)(cid:2)(cid:10)(cid:21)(cid:10)(cid:7)(cid:9)(cid:10)(cid:5)(cid:2)(cid:9)(cid:23)(cid:2)(cid:11)(cid:10)(cid:2)(cid:16)(cid:10)(cid:18)(cid:24)(cid:21)(cid:8)(cid:9)(cid:10)(cid:5)(cid:2)(cid:8)(cid:19)(cid:2)(cid:8)(cid:2)(cid:11)(cid:24)(cid:19)(cid:6)(cid:4)(cid:10)(cid:19)(cid:19)
development company ("BDC") under the Investment Company Act of 1940, as amended (the "1940 Act"). As such, NMFC is obligated to comply
with certain regulatory requirements. NMFC has elected to be treated, and intends to comply with the requirements to continue to qualify annually,
as a regulated investment company ("RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended, (the "Code"). NMFC is also
registered as an investment adviser under the Investment Advisers Act of 1940, as amended (the "Advisers Act").

        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 $13.75 per share, NMFC sold an additional 2,172,000
(cid:19)(cid:13)(cid:8)(cid:16)(cid:10)(cid:19)(cid:2)(cid:23)(cid:17)(cid:2)(cid:6)(cid:9)(cid:19)(cid:2)(cid:7)(cid:23)(cid:15)(cid:15)(cid:23)(cid:4)(cid:2)(cid:19)(cid:9)(cid:23)(cid:7)(cid:14)(cid:2)(cid:9)(cid:23)(cid:2)(cid:7)(cid:10)(cid:16)(cid:9)(cid:8)(cid:6)(cid:4)(cid:2)(cid:10)*(cid:10)(cid:7)(cid:24)(cid:9)(cid:6)1(cid:10)(cid:19)(cid:2)(cid:8)(cid:4)(cid:5)(cid:2)(cid:10)(cid:15)$(cid:21)(cid:23)(cid:12)(cid:10)(cid:10)(cid:19)(cid:2)(cid:23)(cid:17)(cid:25)(cid:2)(cid:8)(cid:4)(cid:5)(cid:2)(cid:23)(cid:9)(cid:13)(cid:10)(cid:16)(cid:2)(cid:6)(cid:4)(cid:5)(cid:6)1(cid:6)(cid:5)(cid:24)(cid:8)(cid:21)(cid:19)(cid:2)(cid:8)(cid:17)(cid:26)(cid:21)(cid:6)(cid:8)(cid:9)(cid:10)(cid:5)(cid:2)(cid:20)(cid:6)(cid:9)(cid:13)(cid:25)(cid:2)5(cid:10)(cid:20)(cid:2)6(cid:23)(cid:24)(cid:4)(cid:9)(cid:8)(cid:6)(cid:4)(cid:2)8(cid:8)$(cid:6)(cid:9)(cid:8)(cid:21)(cid:2)’(cid:5)(cid:10)(cid:26)(cid:4)(cid:10)(cid:5)(cid:2)(cid:8)(cid:19)(cid:2)5(cid:10)(cid:20)
6(cid:23)(cid:24)(cid:4)(cid:9)(cid:8)(cid:6)(cid:4)(cid:2)8(cid:8)$(cid:6)(cid:9)(cid:8)(cid:21)(cid:2)<(cid:16)(cid:23)(cid:24)$(cid:25)(cid:2);!;!8!(cid:2)(cid:8)(cid:4)(cid:5)(cid:2)(cid:6)(cid:9)(cid:19)(cid:2)(cid:8)(cid:17)(cid:26)(cid:21)(cid:6)(cid:8)(cid:9)(cid:10)(cid:19)((cid:2)(cid:6)(cid:4)(cid:2)(cid:8)(cid:2)(cid:7)(cid:23)(cid:4)(cid:7)(cid:24)(cid:16)(cid:16)(cid:10)(cid:4)(cid:9)(cid:2)$(cid:16)(cid:6)1(cid:8)(cid:9)(cid:10)(cid:2)$(cid:21)(cid:8)(cid:7)(cid:10)(cid:15)(cid:10)(cid:4)(cid:9)(cid:2)’(cid:9)(cid:13)(cid:10)(cid:2)28(cid:23)(cid:4)(cid:7)(cid:24)(cid:16)(cid:16)(cid:10)(cid:4)(cid:9)(cid:2):(cid:16)(cid:6)1(cid:8)(cid:9)(cid:10)(cid:2):(cid:21)(cid:8)(cid:7)(cid:10)(cid:15)(cid:10)(cid:4)(cid:9)2(!(cid:2) (cid:5)(cid:5)(cid:6)(cid:9)(cid:6)(cid:23)(cid:4)(cid:8)(cid:21)(cid:21)(cid:12)(cid:25)(cid:2)%(cid:25),(cid:30),(cid:25)+=(cid:28)
shares were issued to the partners of New Mountain Guardian Partners, L.P. at that time for their ownership interest in the Predecessor Entities (as
(cid:5)(cid:10)(cid:26)(cid:4)(cid:10)(cid:5)(cid:2)(cid:11)(cid:10)(cid:21)(cid:23)(cid:20)(!(cid:2)(cid:3)(cid:4)(cid:2)(cid:7)(cid:23)(cid:4)(cid:4)(cid:10)(cid:7)(cid:9)(cid:6)(cid:23)(cid:4)(cid:2)(cid:20)(cid:6)(cid:9)(cid:13)(cid:2)56780(cid:19)(cid:2)(cid:3):>(cid:2)(cid:8)(cid:4)(cid:5)(cid:2)(cid:9)(cid:13)(cid:16)(cid:23)(cid:24)(cid:18)(cid:13)(cid:2)(cid:8)(cid:2)(cid:19)(cid:10)(cid:16)(cid:6)(cid:10)(cid:19)(cid:2)(cid:23)(cid:17)(cid:2)(cid:9)(cid:16)(cid:8)(cid:4)(cid:19)(cid:8)(cid:7)(cid:9)(cid:6)(cid:23)(cid:4)(cid:19)(cid:25)(cid:2)5(cid:10)(cid:20)(cid:2)6(cid:23)(cid:24)(cid:4)(cid:9)(cid:8)(cid:6)(cid:4)(cid:2)7(cid:6)(cid:4)(cid:8)(cid:4)(cid:7)(cid:10)(cid:2)?(cid:23)(cid:21)(cid:5)(cid:6)(cid:4)(cid:18)(cid:19)(cid:25)(cid:2);!;!8!(cid:2)’2567(cid:2)?(cid:23)(cid:21)(cid:5)(cid:6)(cid:4)(cid:18)(cid:19)2(cid:2)(cid:23)(cid:16)
the "Predecessor Operating Company") acquired all of the operations of the Predecessor Entities, including all of the assets and liabilities related to
such operations.

New Mountain Finance Holdings, L.L.C.

        NMF Holdings is a Delaware limited liability company. Until May 8, 2014, NMF Holdings was externally managed and was regulated as a
BDC under the 1940 Act. As such, NMF Holdings was obligated to comply with certain regulatory requirements. NMF Holdings was treated as a
partnership for United States ("U.S.") federal income tax purposes for so long as it had at least two members. With the completion of the
underwritten secondary offering on February 3, 2014, NMF Holdings' existence as a partnership for U.S. federal income tax purposes terminated
and NMF Holdings became an entity that is disregarded as a separate entity from its owner for U.S. federal tax purposes. For additional information
on the Company's organizational structure prior to May 8, 2014, see "—Restructuring".

        Until May 8, 2014, NMF Holdings was externally managed by New Mountain Finance Advisers BDC, L.L.C. (the "Investment Adviser"). As
of May 8, 2014, the Investment Adviser serves as the external investment adviser to NMFC. New Mountain Finance Administration, L.L.C. (the
"Administrator") provides the administrative services necessary for operations. The Investment Adviser and Administrator are wholly-owned
(cid:19)(cid:24)(cid:11)(cid:19)(cid:6)(cid:5)(cid:6)(cid:8)(cid:16)(cid:6)(cid:10)(cid:19)(cid:2)(cid:23)(cid:17)(cid:2)5(cid:10)(cid:20)(cid:2)6(cid:23)(cid:24)(cid:4)(cid:9)(cid:8)(cid:6)(cid:4)(cid:2)8(cid:8)$(cid:6)(cid:9)(cid:8)(cid:21)!(cid:2)5(cid:10)(cid:20)(cid:2)6(cid:23)(cid:24)(cid:4)(cid:9)(cid:8)(cid:6)(cid:4)(cid:2)8(cid:8)$(cid:6)(cid:9)(cid:8)(cid:21)(cid:2)(cid:6)(cid:19)(cid:2)(cid:8)(cid:2)(cid:26)(cid:16)(cid:15)(cid:2)(cid:20)(cid:6)(cid:9)(cid:13)(cid:2)(cid:8)(cid:2)(cid:9)(cid:16)(cid:8)(cid:7)(cid:14)(cid:2)(cid:16)(cid:10)(cid:7)(cid:23)(cid:16)(cid:5)(cid:2)(cid:23)(cid:17)(cid:2)(cid:6)(cid:4)1(cid:10)(cid:19)(cid:9)(cid:6)(cid:4)(cid:18)(cid:2)(cid:6)(cid:4)(cid:2)(cid:9)(cid:13)(cid:10)(cid:2)(cid:15)(cid:6)(cid:5)(cid:5)(cid:21)(cid:10)(cid:2)(cid:15)(cid:8)(cid:16)(cid:14)(cid:10)(cid:9)(cid:2)(cid:8)(cid:4)(cid:5)(cid:2)(cid:20)(cid:6)(cid:9)(cid:13)(cid:2)(cid:8)(cid:19)(cid:19)(cid:10)(cid:9)(cid:19)(cid:2)(cid:24)(cid:4)(cid:5)(cid:10)(cid:16)
management totaling more than $15.0 billion(1), which includes total assets held by the Company. New Mountain Capital focuses on investing in
defensive growth companies across its private equity, public equity and credit investment vehicles. NMF Holdings, 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

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)

Includes amounts committed, not all of which have been drawn down and invested to date, as of December 31, 2014.

1

Table of Contents

$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".

        Prior to December 18, 2014, New Mountain Finance SPV Funding, L.L.C. ("NMF SLF") was a Delaware limited liability company. NMF SLF
was a wholly-owned subsidiary of NMF Holdings and thus a wholly-owned indirect subsidiary of the Company. NMF SLF was bankruptcy-remote
and non-recourse to NMFC. As part of an amendment to the Company's existing credit facilities with Wells Fargo Bank, National Association,
NMF SLF merged with and into NMF Holdings on December 18, 2014. See Item 8.—Financial Statements and Supplementary Data—Note 7,
Borrowings for additional information on the Company's credit facilities.

New Mountain Finance AIV Holdings Corporation

        Until April 25, 2014, New Mountain Finance AIV Holdings Corporation ("AIV Holdings") was a Delaware corporation that was originally
incorporated on March 11, 2011. AIV Holdings was dissolved on April 25, 2014. Guardian AIV, a Delaware limited partnership, was AIV
Holdings' sole stockholder. AIV Holdings was a closed-end, non-diversiﬁed management investment company that was regulated as a BDC under
the 1940 Act. As such, AIV Holdings was obligated to comply with certain regulatory requirements. AIV Holdings was treated, and complied with
the requirements to qualify annually, as a RIC under the Code.

Structure

        Prior to the Restructuring (as deﬁned below) on May 8, 2014, NMFC and AIV Holdings were holding companies with no direct operations of
their own, and their sole asset was their ownership in NMF Holdings. In connection with the IPO, NMFC and AIV Holdings each entered into a
joinder agreement with respect to the Limited Liability Company Agreement, as amended and restated (the "Operating Agreement"), of NMF
Holdings, pursuant to which NMFC and AIV Holdings were admitted as members of NMF Holdings. NMFC acquired from NMF Holdings, with
the gross proceeds of the IPO and the Concurrent Private Placement, common membership units ("units") of NMF Holdings (the number of units
were 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 NMF Holdings 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 NMF Holdings prior to the IPO and, as a result of the transactions completed in connection with the IPO, obtained
units in NMF Holdings. Guardian AIV contributed its units in NMF Holdings to its newly formed subsidiary, AIV Holdings, in exchange for
common stock of AIV Holdings. AIV Holdings had the right to exchange all or any portion of its units in NMF Holdings for shares of NMFC's
common stock on a one-for-one basis at any time.

        The original 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
was that any distributions made to NMFC's stockholders that were attributable to such gains generally were not treated as taxable dividends but
rather as return of capital.

        Since NMFC's IPO, and through December 31, 2014, NMFC raised approximately $374.6 million in net proceeds from additional offerings of
common stock and issued shares of its common stock valued at approximately $288.4 million on behalf of AIV Holdings for exchanged units.
NMFC

2

Table of Contents

acquired from NMF Holdings units of NMF Holdings equal to the number of shares of NMFC's common stock sold in additional offerings. With the

   
completion of the ﬁnal secondary offering on February 3, 2014, NMFC owned 100.0% of the units of NMF Holdings, which became a wholly-
owned subsidiary of NMFC.

Restructuring

        As a BDC, AIV Holdings had been subject to the 1940 Act, including certain provisions applicable only to BDCs. Accordingly, and after
careful consideration of the 1940 Act requirements applicable to BDCs, the cost of 1940 Act compliance and a thorough assessment of AIV
Holdings' business model, AIV Holdings' board of directors determined that continuation as a BDC was not in the best interests of AIV Holdings
and Guardian AIV. Speciﬁcally, given that AIV Holdings was formed for the sole purpose of holding units of NMF Holdings and AIV Holdings had
disposed of all of the units of NMF Holdings that it was holding as of February 3, 2014, the board of directors of AIV Holdings approved and
declared advisable at an in-person meeting held on March 25, 2014 the withdrawal of AIV Holdings' election to be regulated as a BDC under the
1940 Act. In addition, the board of directors of AIV Holdings approved and declared advisable for AIV Holdings to terminate its registration under
Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and to dissolve AIV Holdings under the laws of the State
of Delaware.

        Upon receipt of the necessary stockholder consent to authorize the board of directors of AIV Holdings to withdraw AIV Holdings' election to
be regulated as a BDC, the withdrawal was ﬁled and became effective upon receipt by the U.S. Securities and Exchange Commission ("SEC") of
AIV Holdings' notiﬁcation of withdrawal on Form N-54C on April 15, 2014. The board of directors of AIV Holdings believed that AIV Holdings
met the requirements for ﬁling the notiﬁcation to withdraw its election to be regulated as a BDC, upon the receipt of the necessary stockholder
consent. After the notiﬁcation of withdrawal of AIV Holdings' BDC election was ﬁled with the SEC, AIV Holdings was no longer subject to the
regulatory provisions of the 1940 Act applicable to BDCs generally, including regulations related to insurance, custody, composition of its board of
directors, afﬁliated transactions and any compensation arrangements.

        In addition, on April 15, 2014, AIV Holdings ﬁled a Form 15 with the SEC to terminate AIV Holdings' registration under Section 12(g) of the
Exchange Act. After these SEC ﬁlings and any other federal or state regulatory or tax ﬁlings were made, AIV Holdings proceeded to dissolve under
Delaware law by ﬁling a certiﬁcate of dissolution in Delaware on April 25, 2014.

        Until May 8, 2014, as a BDC, NMF Holdings had been subject to the 1940 Act, including certain provisions applicable only to BDCs.
Accordingly, and after careful consideration of the 1940 Act requirements applicable to BDCs, the cost of 1940 Act compliance and a thorough
assessment of NMF Holdings' current business model, NMF Holdings' board of directors determined at an in-person meeting held on March 25,
2014 that continuation as a BDC was not in the best interests of NMF Holdings.

        At the 2014 joint annual meeting of the stockholders of NMFC and the sole unit holder of NMF Holdings held on May 6, 2014, the
stockholders of NMFC and the sole unit holder of NMF Holdings approved a proposal which authorized the board of directors of NMF Holdings to
withdraw NMF Holdings' election to be regulated as a BDC. Additionally, the stockholders of NMFC approved a new investment advisory and
management agreement between NMFC and the Investment Adviser. Upon receipt of the necessary stockholder/unit holder approval to authorize
the board of directors of NMF Holdings to withdraw NMF Holdings' election to be regulated as a BDC, the withdrawal was ﬁled and became
effective upon receipt by the SEC of NMF Holdings' notiﬁcation of withdrawal on Form N-54C on May 8, 2014.

3

Table of Contents

        Effective May 8, 2014, NMF Holdings amended and restated its Operating Agreement such that the board of directors of NMF Holdings was
dissolved and NMF Holdings remained a wholly-owned subsidiary of NMFC with the sole purpose of serving as a special purpose vehicle for NMF
Holdings' credit facility, and NMFC assumed all other operating activities previously undertaken by NMF Holdings under the management of the
Investment Adviser (collectively, the "Restructuring"). After the Restructuring, all wholly-owned direct and indirect subsidiaries of NMFC are
consolidated with NMFC for both 1940 Act and ﬁnancial statement reporting purposes, subject to any ﬁnancial statement adjustments required in
accordance with accounting principles generally accepted in the United States of America ("GAAP"). NMFC continues to remain a BDC under the
1940 Act.

        Also, on May 8, 2014, NMF Holdings ﬁled Form 15 with the SEC to terminate NMF Holdings' registration under Section 12(g) of the
Exchange Act. As a special purpose entity, NMF Holdings is bankruptcy-remote and non-recourse to NMFC. In addition, the assets held at NMF
Holdings will continue to be used to secure NMF Holdings' credit facility.

Current Organization

        During the year ended December 31, 2014, the Company established wholly-owned subsidiaries, NMF Ancora Holdings Inc. ("NMF Ancora")

and NMF YP Holdings Inc. ("NMF YP"), which are structured as Delaware entities that serve as tax blocker corporations which hold equity or
equity-like investments in portfolio companies organized as limited liability companies (or other forms of pass-through entities). Tax blocker
corporations are not consolidated for income tax purposes and may incur income tax expense as a result of their ownership of portfolio companies.
Additionally, the Company has a wholly-owned subsidiary, New Mountain Finance Servicing, L.L.C. ("NMF Servicing") that serves as the
administrative agent on certain investment transactions. New Mountain Finance SBIC, L.P. ("SBIC LP"), and its general partner, New Mountain
Finance SBIC G.P., L.L.C. ("SBIC GP"), were organized in Delaware as a limited partnership and limited liability company, respectively. SBIC LP
and SBIC GP are consolidated wholly-owned direct and indirect subsidiaries of the Company. SBIC LP received a license from the U.S. Small
Business Association (the "SBA") to operate as a small business investment company ("SBIC") under Section 301(c) of the Small Business
Investment Act of 1958, as amended (the "1958 Act").

4

Table of Contents

        The diagram below depicts the Company's organizational structure as of December 31, 2014.

*

**

Includes partners of New Mountain Guardian Partners, L.P. 

NMFC is the sole limited partner of SBIC LP. NMFC, directly or indirectly through SBIC GP, wholly-owns SBIC LP. NMFC owns 100.0%
of SBIC GP which owns 1.0% of SBIC LP. NMFC owns 99.0% of SBIC LP.

New Mountain Finance Advisers BDC, L.L.C.

        The Investment Adviser manages the Company's day-to-day operations and provides it with investment advisory and management services. In
particular, the Investment Adviser is responsible for identifying attractive investment opportunities, conducting research and due diligence on
prospective investments, structuring the Company's investments and monitoring and servicing the Company's investments. The Investment Adviser
is managed by a ﬁve member investment committee, which is responsible for approving purchases and sales of the Company's investments above
$10.0 million in aggregate by issuer. For additional information on the investment committee, see "Investment Committee" section.

New Mountain Finance Administration, L.L.C.

        The Administrator provides the administrative services necessary to conduct our day-to-day operations. The Administrator also performs, or
oversees the performance of, our ﬁnancial records, our reports to stockholders and reports ﬁled with the SEC. The Administrator performs the
calculation and publication of our net asset values, the payment of our expenses and oversees the performance of various third-party service

providers and the preparation and ﬁling of our tax returns. The Administrator may also provide, on the Company's behalf, managerial assistance to
its portfolio companies.

Competition

        The Company competes for investments with a number of BDCs and investment funds (including private equity and hedge funds), as well as
traditional ﬁnancial services companies such as commercial

5

Table of Contents

banks and other sources of ﬁnancing. Many of these entities have greater ﬁnancial and managerial resources than we do. We believe the Company is
able to be competitive with these entities primarily on the basis of the experience and contacts of its management team, the Company's responsive
and efﬁcient investment analysis and decision-making processes, the investment terms the Company offers, the leveraged model that the Company
employs to perform its due diligence with the broader New Mountain Capital team and the Company's model of investing in companies and
industries it knows well.

        We believe that some of the Company's competitors may make investments with interest rates and returns that are comparable to or lower than
the rates and returns that the Company targets. Therefore, the Company does not seek to compete solely on the interest rates and returns that it offers
to potential portfolio companies. For additional information concerning the competitive risks we face, see Item 1A.—Risk Factors.

Investment Objectives and Portfolio

        The Company's investment objective is to generate current income and capital appreciation through the sourcing and origination of debt
securities at all levels of the capital structure, including ﬁrst and second lien debt, notes, bonds and mezzanine securities. In some cases, the
Company's investments may also include equity interests such as preferred stock, common stock, warrants or options received in connection with
the Company's debt investments or may include a direct investment in the equity of private companies.

        The Company makes investments through both primary originations and open-market secondary purchases. The Company primarily targets
loans to, and invests in, U.S. middle market businesses, a market segment we believe continues to be underserved by other lenders. We deﬁne
middle market businesses as those businesses with annual earnings before interest, taxes, depreciation, and amortization ("EBITDA") between
$20.0 million and $200.0 million. The primary focus is in the debt of defensive growth companies, which are deﬁned as generally exhibiting the
following characteristics: (i) sustainable secular growth drivers, (ii) high barriers to competitive entry, (iii) high free cash ﬂow after capital
expenditure and working capital needs, (iv) high returns on assets and (v) niche market dominance. Similar to the Company, SBIC LP's investment
objective is to generate current income and capital appreciation under the investment criteria used by the Company, however, SBIC LP's
investments must be SBA eligible companies. The Company's portfolio may be concentrated in a limited number of industries. As of December 31,
2014, the Company's top ﬁve industry concentrations were software, business services, education, federal services and healthcare services. The
Company's targeted investments typically have maturities of between ﬁve and ten years and generally range in size between $10.0 million and
$50.0 million. This investment size may vary proportionately as the size of the Company's capital base changes. At December 31, 2014, the
Company's portfolio consisted of 71 portfolio companies and was invested 47.6% in ﬁrst lien loans, 42.4% in second lien loans, 4.3% in
subordinated debt and 5.7% in equity and other, as measured at fair value versus the Predecessor Operating Company's portfolio which consisted of
59 portfolio companies invested 49.6% in ﬁrst lien loans, 42.0% in second lien loans, 2.4% in subordinated debt and 6.0% in equity and other at
December 31, 2013.

        The fair value of the Company's investments was approximately $1,424.7 million in 71 portfolio companies at December 31, 2014. At
December 31, 2013 and December 31, 2012, the Company's only investment was its investment in the Predecessor Operating Company. The fair
value of the Predecessor Operating Company's investments was approximately $1,115.7 million in 59 portfolio companies at December 31, 2013
and $989.8 million in 63 portfolio companies at December 31, 2012.

6

Table of Contents

        The following table shows the Company's portfolio and investment activity for the year ended December 31, 2014 and the Predecessor
Operating Company's portfolio and investment activity for the years ended December 31, 2013 and December 31, 2012:

(in millions)
New investments in 43, 34 and 45 portfolio companies, respectively
Debt repayments in existing portfolio companies
Sales of securities in 14, 12 and 22 portfolio companies, respectively
Change in unrealized appreciation on 20, 45 and 48 portfolio companies,

respectively

Change in unrealized depreciation on 60, 29 and 30 portfolio companies,

respectively

2014(1)

Years ended December 31,
2013
  $ 720.9  $ 529.3  $ 673.2 
299.2 
124.7 

267.5 
117.0 

395.4 
31.2 

2012

21.2 

27.9 

27.0 

(63.9)  

(19.9)  

(17.1)

(1)

For the year ended December 31, 2014, amounts represent the investment activity of the Predecessor Operating Company
through and including May 7, 2014 and the investment activity of the Company from May 8, 2014 through December 31,
2014.

        At December 31, 2014, the Company's weighted average Yield to Maturity at Cost was approximately 10.7%. At December 31, 2013, the
Predecessor Operating Company's weighted average Yield to Maturity at Cost and weighted average Yield to Maturity was approximately 11.0%
and 10.6%, respectively. The Yield to Maturity at Cost ("Yield to Maturity at Cost") calculation assumes that all investments, including secured
collateralized agreements, not on non-accrual are purchased at the adjusted cost on the quarter end date and held until their respective maturities
with no prepayments or losses and exited at par at maturity. Adjusted cost reﬂects the GAAP cost for post-IPO investments and a stepped up cost
basis of pre-IPO investments (assuming a step-up to fair market value occurred on the IPO date). This calculation excludes the impact of existing
leverage. Yield to Maturity at Cost uses the London Interbank Offered Rate ("LIBOR") curves at each quarter's end date. The actual yield to
maturity may be higher or lower due to the future selection of the LIBOR contracts by the individual companies in the Company's portfolio or other
factors. The Yield to Maturity calculation used in prior years for the Predecessor Operating Company assumed that all investments not on non-
accrual were purchased at fair value on December 31, 2013 and held until their respective maturities with no prepayments or losses and exited at par
at maturity.

        The following summarizes the Company's ten largest portfolio company investments and top ten industries in which the Company was invested
as of December 31, 2014, calculated as a percentage of total assets as of December 31, 2014.

Portfolio Company
Global Knowledge Training LLC
Ascend Learning, LLC
TIBCO Software Inc. 
Tenawa Resource Holdings LLC
Deltek, Inc. 
Kronos Incorporated
McGraw-Hill Global Education Holdings, LLC
Tolt Solutions, Inc. 
Crowley Holdings Preferred, LLC
Acrisure, LLC

7

Table of Contents

Industry
Software
Business Services
Education
Federal Services
Healthcare Services
Distribution & Logistics
Energy
Media
Consumer Services
Business Products

Percent of Total Assets

3.4%
2.9%
2.9%
2.8%
2.7%
2.5%
2.4%
2.4%
2.4%
2.3%

Percent of Total Assets

19.0%
17.2%
16.6%
8.2%
7.6%
6.4%
5.5%
4.0%
3.5%
1.7%

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investment Criteria

        The Investment Adviser has identiﬁed the following investment criteria and guidelines for use in evaluating prospective portfolio companies.
However, not all of these criteria and guidelines were, or will be, met in connection with each of the Company's investments.

•

•

•

•

•

•

•

•

•

Defensive growth industries.  The Company seeks to invest in industries that can succeed in both robust and weak economic
environments but which are also sufﬁciently large and growing to achieve high valuations providing enterprise value cushion for the
Company's targeted debt securities. 

High barriers to competitive entry.  The Company targets industries and companies that have well deﬁned industries and well
established, understandable barriers to competitive entry. 

Recurring revenue.  Where possible, the Company focuses on companies that have a high degree of predictability in future revenue. 

Flexible cost structure.  The Company seeks to invest in businesses that have limited ﬁxed costs and therefore modest operating
leverage. 

Strong free cash ﬂow and high return on assets.  The Company focuses on businesses with a demonstrated ability to produce
meaningful free cash ﬂow from operations. The Company typically targets companies that are not asset intensive and that have
minimal capital expenditure and minimal working capital growth needs. 

Sustainable business and niche market dominance.  The Company seeks to invest in businesses that exert niche market dominance in
their industry and that have a demonstrated history of sustaining market leadership over time. 

Established companies.  The Company seeks to invest in established companies with sound historical ﬁnancial performance. The
Company does not intend to invest in start-up companies or companies with speculative business plans. 

Private equity sponsorship.  The Company generally seeks to invest in companies in conjunction with private equity sponsors who it
knows and trusts and who have proven capabilities in building value. 

Seasoned management team.  The Company generally requires that its portfolio companies have a seasoned management team with
strong corporate governance. Oftentimes the Company has a historical relationship with or direct knowledge of key managers from
previous investment experience.

8

Table of Contents

Investment Selection and Process

        The Investment Adviser believes it has developed a proven, consistent and replicable investment process to execute the Company's investment
strategy. The Investment Adviser seeks to identify the most attractive investment sectors from the top down and then works to become the most
advantaged investor in these sectors. The steps in the Investment Adviser's process include:

•

•

•

Identifying attractive investment sectors top down; 

Creating competitive advantages in the selected industry sectors; and 

Targeting companies with leading market share and attractive business models in its chosen sectors.

Investment Committee

        The Investment Adviser's investment committee (the "Investment Committee") currently consists of Steven B. Klinsky, Robert A. Hamwee,
Adam B. Weinstein, Michael B. Ajouz and John R. Kline. In addition, the executive ofﬁcers and certain investment professionals are invited to all
Investment Committee meetings. The Investment Committee is responsible for approving all of the Company's investment purchases above
$10.0 million. The Investment Committee also approves all asset dispositions above $10.0 million. Purchases and dispositions below $10.0 million
may be approved by the Company's Chief Executive Ofﬁcer. These approval thresholds are subject to change over time. We expect to beneﬁt from

the extensive and varied relevant experience of the investment professionals serving on the Investment Committee, which includes expertise in
private equity, primary and secondary leveraged credit, private mezzanine ﬁnance and distressed debt.

        The purpose of the Investment Committee is to evaluate and approve, as deemed appropriate, all investments by the Investment Adviser,
subject to certain thresholds. The Investment Committee process is intended to bring the diverse experience and perspectives of the Investment
Committee's members to the analysis and consideration of every investment. The Investment Committee also serves to provide investment
consistency and adherence to the Investment Adviser's investment philosophies and policies. The Investment Committee also determines appropriate
investment sizing.

        In addition to reviewing investments, the Investment Committee meetings serve as a forum to discuss credit views and outlooks. Potential
transactions and investment opportunities are also reviewed on a regular basis. Members of the Company's investment team are encouraged to share
information and views on credits with the committee early in their analysis. This process improves the quality of the analysis and enables the deal
team members to work more efﬁciently.

Investment Structure

        The Company targets debt investments that will yield meaningful current income and occasionally provide the opportunity for capital
appreciation through equity securities. The Company's debt investments are typically structured with the maximum seniority and collateral that the
Company can reasonably obtain while seeking to achieve its total return target.

Debt Investments

        The terms of the Company's debt investments are tailored to the facts and circumstances of the transaction and prospective portfolio company
and structured to protect its rights and manage its risk while creating incentives for the portfolio company to achieve its business plan. A substantial
source of return is the cash interest that the Company collects on its debt investments.

•

First Lien Loans and Bonds.  First lien loans and bonds generally have terms of four to seven years, provide for a variable or ﬁxed
interest rate, may contain prepayment penalties and are

9

Table of Contents

secured by a ﬁrst priority security interest in all existing and future assets of the borrower. These ﬁrst lien loans and bonds may
include payment-in-kind ("PIK") interest, which represents contractual interest accrued and added to the principal that generally
becomes due at maturity.

•

•

Second Lien Loans and Bonds.  Second lien loans and bonds generally have terms of ﬁve to eight years, provide for a variable or
ﬁxed interest rate, may contain prepayment penalties and are secured by a second priority security interest in all existing and future
assets of the borrower. These second lien loans and bonds may include PIK interest. 

Unsecured Senior, Subordinated and "Mezzanine" Loans and Bonds.  Any unsecured investments are generally expected to
have terms of ﬁve to ten years and provide for a ﬁxed interest rate. Unsecured investments may include PIK interest and may have
an equity component, such as warrants to purchase common stock in the portfolio company.

        In addition, from time to time the Company may also enter into revolving credit facilities, bridge ﬁnancing commitments, delayed draw
commitments or other commitments which can result in providing future ﬁnancing to a portfolio company.

Equity Investments

        When the Company makes a debt investment, it may be granted equity in the portfolio company in the same class of security as the sponsor
receives upon funding. In addition, the Company may from time to time make non-control, equity co-investments in conjunction with private equity
sponsors. The Company generally seeks to structure its equity investments, such as direct equity co-investments, to provide it with minority rights
provisions and event-driven put rights. The Company also seeks to obtain limited registration rights in connection with these investments, which
may include "piggyback" registration rights.

Portfolio Company Monitoring

        The Company monitors the performance and ﬁnancial trends of its portfolio companies on at least a quarterly basis. The Company attempts to
identify any developments within the portfolio company, the industry or the macroeconomic environment that may alter any material element of its
original investment strategy. The Company uses several methods of evaluating and monitoring the performance of its investments, including but not
limited to, the following:

•

•

•

•

review of monthly and/or quarterly ﬁnancial statements and ﬁnancial projections for portfolio companies provided by its
management; 

ongoing dialogue with and review of original diligence sources; 

periodic contact with portfolio company management (and, if appropriate, the private equity sponsor) to discuss ﬁnancial position,
requirements and accomplishments; and 

assessment of business development success, including product development, proﬁtability and the portfolio company's overall
adherence to its business plan.

        The Company uses an investment rating system to characterize and monitor the credit proﬁle and expected level of returns on each investment
in the portfolio. The Company uses a four-level numeric rating scale as follows:

•

•

Investment Rating 1—Investment is performing materially above expectations; 

Investment Rating 2—Investment is performing materially in-line with expectations. All new loans are rated 2 at initial purchase;

10

Table of Contents

•

•

Investment Rating 3—Investment is performing materially below expectations and risk has increased materially since the original
investment; and 

Investment Rating 4—Investment is performing substantially below expectations and risks have increased substantially since the
original investment. Payments may be delinquent. There is meaningful possibility that the Company will not recoup its original cost
basis in the investment and may realize a substantial loss upon exit.

        The following table shows the distribution of the Company's investments on the 1 to 4 investment rating scale at fair value as of December 31,
2014:

(in millions)
Investment Rating
Investment Rating 1
Investment Rating 2
Investment Rating 3
Investment Rating 4

  Par Value(1)
  $

As of December 31, 2014

  Percent

Fair Value

  Percent

18.1% $
75.0%  
5.9%  
1.0%  

277.4 
1,089.7 
48.3 
9.3 
  100.0% $ 1,424.7 

19.5%
76.5%
3.4%
0.6%
  100.0%

255.7 
1,061.6 
82.9 
14.2 
1,414.4 

(1)

Excludes shares and warrants.

Exit Strategies/Reﬁnancing

  $

        The Company exits its investments typically through one of four scenarios: (i) the sale of the portfolio company itself resulting in repayment of
all outstanding debt, (ii) the recapitalization of the portfolio company in which the Company's loan is replaced with debt or equity from a third party
or parties (in some cases, the Company may choose to participate in the newly issued loan(s)), (iii) the repayment of the initial or remaining
principal amount of the Company's loan then outstanding at maturity or (iv) the sale of the debt investment by the Company. In some investments,
there may be scheduled amortization of some portion of the Company's loan which would result in a partial exit of its investment prior to the
maturity of the loan.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Valuation

        At all times consistent with GAAP and the 1940 Act, the Company conducts a valuation of assets, which impacts its net asset value.

        The Company values its assets on a quarterly basis, or more frequently if required under the 1940 Act. In all cases, the Company's board of
directors is ultimately and solely responsible for determining the fair value of its portfolio investments on a quarterly basis in good faith, including
investments that are not publicly traded, those whose market prices are not readily available and any other situation where its portfolio investments
require a fair value determination. Security transactions are accounted for on a trade date basis. The Company's quarterly valuation procedures are
set forth in more detail below:

(1)

(2)

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. 

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.

11

Table of Contents

a.

b.

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 

For investments other than bonds, the Company looks at the number of quotes readily available and performs the following: 

i.

ii.

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; 

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.

b.

c.

d.

Each portfolio company or investment is initially valued by the investment professionals of the Investment Adviser
responsible for the credit monitoring; 

Preliminary valuation conclusions will then be documented and discussed with the Company's senior management; 

If an investment falls into (3) above for four consecutive quarters and if the investment's par value or its fair value exceeds
the materiality threshold, then at least once each ﬁscal year, the valuation for each portfolio investment for which the
Company does not have a readily available market quotation will be reviewed by an independent valuation ﬁrm engaged by
the Company's board of directors; and 

When deemed appropriate by the Company's management, an independent valuation ﬁrm may be engaged to review and
value investment(s) of a portfolio company, without any preliminary valuation being performed by the Investment Adviser.
The investment professionals of the Investment Adviser will review and validate the value provided.

        For investments in revolving credit facilities and delayed draw commitments, the cost basis of the funded investments purchased is offset by
any costs/netbacks received for any unfunded portion on the total balance committed. The fair value is also adjusted for the price appreciation or
depreciation on the unfunded portion. As a result, the purchase of commitments not completely funded may result in a negative fair value until it is
called and funded.

        The values assigned to investments are based upon available information and do not necessarily represent amounts which might ultimately be
realized, since such amounts depend on future circumstances and cannot be reasonably determined until the individual positions are liquidated. Due
to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the
Company's investments may ﬂuctuate from period to period and the ﬂuctuations could be material.

12

Table of Contents

Operating and Regulatory Environment

        As with other companies regulated by the 1940 Act, a BDC must adhere to certain regulatory requirements. The 1940 Act contains prohibitions
and restrictions relating to investments by a BDC in another investment company as well as transactions between BDCs and their afﬁliates, principal
underwriters and afﬁliates of those afﬁliates or underwriters. A BDC must be organized in the U.S. for the purpose of investing in or lending to
primarily private companies and making signiﬁcant managerial assistance available to them. A BDC may use capital provided by public
stockholders and from other sources to make long-term, private investments in businesses. A BDC provides stockholders the ability to retain the
liquidity of a publicly traded stock while sharing in the possible beneﬁts, if any, of investing in primarily privately owned companies.

        The Company has a board of directors. A majority of the Company's board of directors must be persons who are not interested persons, as that
term is deﬁned in the 1940 Act. As a BDC, we are prohibited from protecting any director or ofﬁcer against any liability to us or the Company's
stockholders arising from willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such
person's ofﬁce. Additionally, we are required to provide and maintain a bond issued by a reputable ﬁdelity insurance company to protect the BDC.

        As a BDC, the Company is required to meet a coverage ratio of the value of total assets to total senior securities, which include all of its
borrowings, excluding SBA-guaranteed debentures, and any preferred stock we may issue in the future, of at least 200.0% (i.e., the amount of debt
may not exceed 50.0% of the value of the Company's total assets or the Company may borrow an amount equal to 100.0% of net assets). The
Company monitors its compliance with this coverage ratio on a regular basis.

        The Company may, to the extent permitted under the 1940 Act, issue additional equity capital. The Company is generally not able to issue and
sell its common stock at a price below net asset value per share. The Company may, however, sell its common stock, or warrants, options or rights
to acquire its common stock, at a price below the then-current net asset value of its common stock if its board of directors determines that such sale
is in the best interests of the Company and the best interests of its stockholders, and its stockholders approve such sale. In addition, the Company
may generally issue new shares of its common stock at a price below net asset value in rights offerings to existing stockholders and in certain other
limited circumstances.

        As a BDC, the Company is generally not permitted to invest in any portfolio company in which the Investment Adviser or any of its afﬁliates
currently have an investment or to make any co-investments with the Investment Adviser or its afﬁliates without an exemptive order from the SEC.

        We may not change the nature of our business so as to cease to be, or withdraw our election as, a BDC unless authorized by vote of a majority
of the outstanding voting securities, as required by the 1940 Act. A majority of the outstanding voting securities of a company is deﬁned under the
1940 Act as the lesser of: (a) 67.0% or more of such company's voting securities present at a meeting if more than 50.0% of the outstanding voting
securities of such company are present or represented by proxy, or (b) more than 50.0% of the outstanding voting securities of such company. We do
not anticipate any substantial change in the nature of our business.

        In addition, as a BDC, the Company is not permitted to issue stock in consideration for services.

13

Table of Contents

Taxation as a Regulated Investment Company

        The Company has elected to be treated, and intends to comply with the requirements to continue to qualify annually, as a RIC under
Subchapter M of the Code. As a RIC, the Company generally will not pay corporate-level U.S. federal income taxes on any net ordinary income or
capital gains that it timely distributes to its stockholders as dividends. Rather, dividends distributed by the Company generally will be taxable to its
stockholders, and any net operating losses, foreign tax credits and other tax attributes of the Company generally will not pass through to its
stockholders, subject to special rules for certain items such as net capital gains and qualiﬁed dividend income recognized by the Company.

        To qualify as a RIC, the Company must, among other things, meet certain source-of-income and asset diversiﬁcation requirements. In addition,
to qualify as a RIC, the Company must distribute to its stockholders, for each taxable year, at least 90.0% of its "investment company taxable
income", which is generally its net ordinary income plus the excess of realized net short-term capital gains over realized net long-term capital losses
(the "Annual Distribution Requirement").

        The Company will be subject to a 4.0% nondeductible federal excise tax on certain undistributed income unless it distributes in a timely
manner an amount at least equal to the sum of (1) 98.0% of its respective net ordinary income for each calendar year, (2) 98.2% of its respective
capital gain net income for the one-year period ending October 31 in that calendar year and (3) any income recognized, but not distributed, in
preceding years (the "Excise Tax Avoidance Requirement"). While the Company intends to make distributions to its stockholders in each taxable
year that will be sufﬁcient to avoid any federal excise tax on its earnings, there can be no assurance that the Company will be successful in entirely
avoiding this tax.

        In order to qualify as RICs for U.S. federal income tax purposes, the Company must, among other things:

•

•

•

continue to qualify as a BDC under the 1940 Act at all times during each taxable year; 

derive in each taxable year at least 90.0% of its respective gross income from dividends, interest, payments with respect to loans of
certain securities, gains from the sale of stock or other securities, net income from certain "qualiﬁed publicly traded partnerships", or
other income derived with respect to the Company's business of investing in such stock or securities (the "90.0% Income Test"); and 

diversify its holdings so that at the end of each quarter of the taxable year: 

•

•

at least 50.0% of the value of the Company's assets consists of cash, cash equivalents, U.S. government securities, securities
of other RICs, and other securities if such other securities of any one issuer do not represent more than 5.0% of the value of
the Company's assets or more than 10.0% of the outstanding voting securities of the issuer; and 

no more than 25.0% of the value of the Company's assets is invested in the securities, other than U.S. government securities
or securities of other RICs, of one issuer, of two or more issuers that are controlled, as determined under applicable Code
rules, by the Company and that are engaged in the same or similar or related trades or businesses or of certain "qualiﬁed
publicly traded partnerships" (the "Diversiﬁcation Tests").

        A RIC is limited in its ability to deduct expenses in excess of its "investment company taxable income" (which is, generally, net ordinary
income plus the excess of realized net short-term capital gains over realized net long-term capital losses). If the Company's expenses in a given year
exceed its investment company taxable income, the Company would experience a net operating loss for that year. However, a RIC is not permitted
to carry forward net operating losses to subsequent years and such net operating losses do not pass through to its stockholders. In addition, expenses
can be used only to

14

Table of Contents

offset investment company taxable income, not net capital gain. A RIC may not use any net capital losses (that is, realized capital losses in excess of
realized capital gains) to offset the RIC's investment company taxable income, but may carry forward such losses, and use them to offset capital
gains, indeﬁnitely. Due to these limits on the deductibility of expenses and net capital losses, the Company may for tax purposes have aggregate
taxable income for several years that it is required to distribute and that is taxable to its stockholders even if such income is greater than the
aggregate net income the Company actually earned during those years.

Failure to Qualify as a Regulated Investment Company

        If the Company fails to satisfy the 90.0% Income Test or the Diversiﬁcation Tests for any taxable year or quarter of such taxable year, it may
nevertheless continue to qualify as a RIC for such year if certain relief provisions of the Code apply (which may, among other things, require it to

pay certain corporate-level U.S. federal income taxes or to dispose of certain assets). If the Company fails to qualify for treatment as a RIC and such
relief provisions do not apply, the Company will be subject to U.S. federal income tax on all of its taxable income at regular corporate rates (and
also will be subject to any applicable state and local taxes), regardless of whether the Company makes any distributions to its stockholders.
Distributions would not be required. However, if distributions were made, any such distributions would be taxable to its stockholders as ordinary
dividend income and, subject to certain limitations under the Code, any such distributions would be eligible for the 20.0% maximum rate applicable
to non-corporate taxpayers to the extent of the Company's current or accumulated earnings and proﬁts. Subject to certain limitations under the Code,
corporate distributees would be eligible for the dividends-received deduction. Distributions in excess of the Company's current and accumulated
earnings and proﬁts would be treated ﬁrst as a return of capital to the extent of the stockholder's tax basis, and any remaining distributions would be
treated as a capital gain.

        Subject to a limited exception applicable to RICs that qualiﬁed as such under Subchapter M of the Code for at least one year prior to
disqualiﬁcation and that requalify as a RIC no later than the second year following the non-qualifying year, the Company could be subject to tax on
any unrealized net built-in gains in the assets held by the Company during the period in which it failed to qualify as a RIC that are recognized during
the ten-year period (or ﬁve-year period for taxable years beginning during 2013) after its requaliﬁcation as a RIC, unless the Company made a
special election to pay corporate-level U.S. federal income tax on such built-in gain at the time of the Company's requaliﬁcation as a RIC. The
Company may decide to be taxed as a regular corporation even if it would otherwise qualify as a RIC if the Company determines that treatment as a
corporation for a particular year would be in its best interests.

SBA Regulation

        On August 1, 2014, the Company's wholly-owned direct and indirect subsidiary, SBIC LP received a license from the SBA to operate as a
SBIC under Section 301(c) of the 1958 Act. SBIC LP has an investment strategy and philosophy substantially similar to the Company and makes
similar types of investments in accordance with SBA regulations.

        A license allows SBIC LP to incur leverage by issuing SBA-guaranteed debentures, subject to the issuance of a capital commitment and certain
approvals by the SBA and customary procedures. SBA-guaranteed debentures carry long-term ﬁxed rates that are generally lower than rates on
comparable bank and other debt. Under the regulations applicable to SBICs, a standard debenture licensed SBIC is eligible for two tiers of leverage
capped at $150.0 million, where each tier is equivalent to the SBIC's regulatory capital, which generally equates to the amount of equity capital in
the SBIC. Debentures guaranteed by the SBA have a maturity of ten years, require semi-annual payments of interest and do not require any principal
payments prior to maturity. As of December 31, 2014, SBIC LP had $37.5 million of outstanding SBA-guaranteed debentures. SBIC LP is subject
to

15

Table of Contents

regulation and oversight by the SBA, including requirements with respect to reporting ﬁnancial information, such as the extent of capital impairment
if applicable, on a regular basis and annual examinations conducted by the SBIC. The SBA, as a creditor, will have a superior claim to SBIC LP's
assets over the Company's stockholders in the event SBIC LP is liquidated or the SBA exercises its remedies under the SBA-guaranteed debentures
issued by SBIC LP upon an event of default.

        On November 5, 2014, the Company received exemptive relief from the SEC to permit the Company to exclude the SBA-guaranteed
debentures of SBIC LP from the Company's 200.0% asset coverage test under the 1940 Act. As such, the Company's ratio of total consolidated
assets to outstanding indebtedness may be less than 200.0%. This provides the Company with increased investment ﬂexibility but also increases the
Company's risks related to leverage.

        SBICs are designed to stimulate the ﬂow of private investor capital to eligible small businesses as deﬁned by the SBA. Under SBA regulations,
SBICs may make loans to eligible small businesses, invest in the equity securities of such businesses and provide them with consulting and advisory
services. Under present SBA regulations, eligible small businesses generally include businesses that (together with their afﬁliates) have a tangible
net worth not exceeding $19.5 million for the most recent ﬁscal year and have average annual net income after U.S. federal income taxes not
exceeding $6.5 million (average net income to be computed without beneﬁt of any carryover loss) for the two most recent ﬁscal years. In addition,
an SBIC must invest 25.0% of its investment capital to "smaller business", as deﬁned by the SBA. The deﬁnition of a smaller business generally
includes businesses that have a tangible net worth not exceeding $6.0 million for the most recent ﬁscal year and have average annual net income
after U.S. federal income taxes not exceeding $2.0 million (average net income to be computed without beneﬁt of any net carryover loss) for the
two most recent ﬁscal years. SBA regulations also provide alternative size standard criteria to determine eligibility for designation as an eligible
small business or smaller concern, which criteria depend on the primary industry in which the business is engaged and is based on such factors as
the number of employees and gross revenue. However, once an SBIC has invested in an eligible small business, it may continue to make follow on
investments in the company, regardless of the size of the company at the time of the follow on investment.

        The SBA prohibits an SBIC from providing funds to small businesses with certain characteristics, such as businesses with the majority of their
employees located outside the U.S., or from investing in project ﬁnance, real estate, farmland, ﬁnancial intermediaries or "passive" (i.e. non-
operating) businesses. Without prior SBA approval, an SBIC may not invest an amount equal to more than approximately 30.0% of the SBIC's
regulatory capital in any one company and its afﬁliates.

        The SBA places certain limitations on the ﬁnancing terms of investments by SBICs in portfolio companies (such as limiting the permissible
interest rate on debt securities held by an SBIC in a portfolio company). An SBIC may exercise control over a small business for a period of up to
seven years from the date on which the SBIC initially acquires its control position. This control period may be extended for an additional period of
time with the SBA's prior written approval.

        The SBA restricts the ability of an SBIC to lend money to any of its ofﬁcers, directors and employees or to invest in associates thereof. The
SBA also prohibits, without prior SBA approval, a "change of control" of an SBIC or transfers that would result in any person (or a group of
persons acting in concert) owning 10.0% or more of a class of capital stock of a licensed SBIC. A "change of control" is any event which would
result in the transfer of the power, direct or indirect, to direct the management and policies of a SBIC, whether through ownership, contractual
arrangements or otherwise.

        The SBA regulations require, among other things, an annual periodic examination of a licensed SBIC by an SBA examiner to determine the
SBIC's compliance with the relevant SBA regulations, and the performance of a ﬁnancial audit by an independent auditor.

16

Table of Contents

Investment Management Agreement

        The Company is a closed-end, non-diversiﬁed management investment company that has elected to be regulated as a BDC under the 1940 Act.
The Company is externally managed by the Investment Adviser and pays the Investment Adviser a fee for its services. The following summarizes
the arrangements between the Company and the Investment Adviser pursuant to an investment advisory and management agreement (the
"Investment Management Agreement").

Management Services

        The Investment Adviser is registered as an Investment Adviser under the Advisers Act. The Investment Adviser serves pursuant to the
Investment Management Agreement in accordance with the 1940 Act. Subject to the overall supervision of the Company's board of directors, the
Investment Adviser manages the Company's day-to-day operations and provides it with investment advisory and management services. Under the
terms of the Investment Management Agreement, the Investment Adviser:

•

•

•

•

•

•

•

determines the composition of the Company's portfolio, the nature and timing of the changes to its portfolio and the manner of
implementing such changes; 

determines the securities and other assets that the Company will purchase, retain or sell; 

identiﬁes, evaluates and negotiates the structure of the Company's investments that the Company makes; 

executes, monitors and services the investments the Company makes; 

performs due diligence on prospective portfolio companies; 

votes, exercises consents and exercises all other rights appertaining to such securities and other assets on behalf of the Company; and

provides the Company with such other investment advisory, research and related services as the Company may, from time to time,
reasonably require.

        The Investment Adviser's services under the Investment Management Agreement are not exclusive, and the Investment Adviser (so long as its
services to the Company are not impaired) and/or other entities afﬁliated with New Mountain Capital are permitted to furnish similar services to
other entities.

Management Fees

        Pursuant to the Investment Management Agreement, the Company has agreed to pay the Investment Adviser a fee for investment advisory and
management services consisting of two components—a base management fee and an incentive fee. The cost of both the base management fee
payable to the Investment Adviser and any incentive fees paid in cash to the Investment Adviser are borne by the Company and, as a result, are
indirectly borne by NMFC's common stockholders.

Base Management Fees

        The base management fee is calculated at an annual rate of 1.75% of the Company's gross assets less (i) the borrowings under the Company's
senior loan fund's Loan and Security Agreement with Wells Fargo Bank, National Association, dated October 27, 2010, as amended, (the "SLF
Credit Facility") and (ii) cash and cash equivalents. The base management fee is payable quarterly in arrears, and is calculated based on the average
value of the Company's gross assets, borrowings under the SLF Credit Facility, and cash and cash equivalents at the end of each of the two most
recently completed calendar quarters, and appropriately adjusted on a pro rata basis for any equity capital raises or repurchases during the current
calendar quarter. The Company has not invested, and currently is not

17

Table of Contents

invested, in derivatives. To the extent the Company invests in derivatives in the future, the Company will use the actual value of the derivatives, as
reported on its Consolidated Statements of Assets and Liabilities, for purposes of calculating its base management fee.

        Since IPO, the base management fee calculation has deducted the borrowings under the SLF Credit Facility. The SLF Credit Facility has
historically consisted of primarily lower yielding assets at higher advance rates. As part of an amendment to the Company's existing credit facilities
with Wells Fargo Bank, National Association, the SLF Credit Facility merged with NMF Holdings' Loan and Security Agreement with Wells Fargo
Bank, National Association, dated May 19, 2011, as amended and restated, (the "Predecessor Holdings Credit Facility") and into the Second
Amended and Restated Loan and Security Agreement with Wells Fargo Bank, National Association (the "Holdings Credit Facility") on
December 18, 2014. See Item 8.—Financial Statements and Supplementary Data—Note 7, Borrowings for additional information on the Company's
credit facilities. Post credit facility merger and to be consistent with the methodology since IPO, the Investment Advisor will waive management
fees on the leverage associated with those assets that share the same underlying yield characteristics with investments leveraged under the legacy
SLF Credit Facility. The Investment Advisor cannot recoup management fees that the Investment Advisor has previously waived. For the year
ended December 31, 2014, total management fees waived were approximately $0.7 million.

Incentive Fees

        The incentive fee consists of two parts. The ﬁrst part is calculated and payable quarterly in arrears and equals 20.0% of the Company's "Pre-
Incentive Fee Adjusted Net Investment Income" for the immediately preceding quarter, subject to a "preferred return", or "hurdle", and a "catch-up"
feature. "Pre-Incentive Fee Net Investment Income" means interest income, dividend income and any other income (including any other fees (other
than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees that the
Company receives from portfolio companies) accrued during the calendar quarter, minus the Company's operating expenses for the quarter
(including the base management fee, expenses payable under an administration agreement, as amended and restated (the "Administration
Agreement"), with the Administrator, and any interest expense and distributions paid on any issued and outstanding preferred stock (of which there
are none as of December 31, 2014), but excluding the incentive fee). Pre-Incentive Fee Net Investment Income includes, in the case of investments
with a deferred interest feature (such as original issue discount, debt instruments with PIK interest and zero coupon securities), accrued income that
the Company has not yet received in cash. Pre-Incentive Fee Net Investment Income does not include any realized capital gains, realized capital
losses or unrealized capital appreciation or depreciation.

        Under GAAP, NMFC's IPO did not step-up the cost basis of the Predecessor Operating Company's existing investments to fair market value at
the IPO date. Since the total value of the Predecessor Operating Company's investments at the time of the IPO was greater than the investments' cost
basis, a larger amount of amortization of purchase or original issue discount, as well as different amounts in realized gain and unrealized
appreciation, may be recognized under GAAP in each period than if the step-up had occurred. This will remain until such predecessor investments
are sold, repaid or mature in the future. The Company tracks the transferred (or fair market) value of each of its investments as of the time of the IPO
and, for purposes of the incentive fee calculation, adjusts Pre-Incentive Fee Net Investment Income to reﬂect the amortization of purchase or original
issue discount on the Company's investments as if each investment was purchased at the date of the IPO, or stepped up to fair market value. This is
deﬁned as "Pre-Incentive Fee Adjusted Net Investment Income". The Company also uses the transferred (or fair market) value of each of its
investments as of the time of the IPO to adjust capital gains ("Adjusted Realized Capital Gains") or losses ("Adjusted

18

Table of Contents

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 Company's net assets at the end of the
immediately preceding calendar quarter, will be compared to a "hurdle rate" of 2.0% per quarter (8.0% annualized), subject to a "catch-up"
provision measured as of the end of each calendar quarter. The hurdle rate is appropriately pro-rated for any partial periods. The calculation of the
Company's incentive fee with respect to the Pre-Incentive Fee Adjusted Net Investment Income for each quarter is as follows:

•

•

•

No incentive fee is payable to the Investment Adviser in any calendar quarter in which the Company's Pre-Incentive Fee Adjusted
Net Investment Income does not exceed the hurdle rate of 2.0% (the "preferred return" or "hurdle"). 

100.0% of the Company's Pre-Incentive Fee Adjusted Net Investment Income with respect to that portion of such Pre-Incentive Fee
Adjusted Net Investment Income, if any, that exceeds the hurdle rate but is less than or equal to 2.5% in any calendar quarter (10.0%
annualized) is payable to the Investment Adviser. This portion of the Company's Pre-Incentive Fee Adjusted Net Investment Income
(which exceeds the hurdle rate but is less than or equal to 2.5%) is referred to as the "catch-up". The catch-up provision is intended to
provide the Investment Adviser with an incentive fee of 20.0% on all of the Company's Pre-Incentive Fee Adjusted Net Investment
Income as if a hurdle rate did not apply when the Company's Pre-Incentive Fee Adjusted Net Investment Income exceeds 2.5% in
any calendar quarter. 

20.0% of the amount of the Company's Pre-Incentive Fee Adjusted Net Investment Income, if any, that exceeds 2.5% in any calendar
quarter (10.0% annualized) is payable to the Investment Adviser once the hurdle is reached and the catch-up is achieved.

        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 Company's Adjusted Realized Capital Gains, if any, on a cumulative basis from inception
through the end of each calendar year, computed net of all Adjusted Realized Capital Losses and Adjusted Unrealized Capital Depreciation on a
cumulative basis, less the aggregate amount of any previously paid capital gain incentive fee.

        In accordance with GAAP, the Company accrues a hypothetical capital gains incentive fee based upon the cumulative net Adjusted Realized
Capital Gains and Adjusted Realized Capital Losses and the cumulative net Adjusted Unrealized Capital Appreciation and Adjusted Unrealized
Capital Depreciation on investments held at the end of each period. Actual amounts paid to the Investment Adviser are consistent with the
Investment Management Agreement and are based only on actual Adjusted Realized Capital Gains computed net of all Adjusted Realized Capital
Losses and Adjusted Unrealized Capital Depreciation on a cumulative basis from inception through the end of each calendar year as if the entire
portfolio was sold at fair value.

Example 1: Income Related Portion of Incentive Fee for Each Calendar Quarter*:

Alternative 1

Assumptions

Investment income (including interest, dividends, fees, etc.) = 1.25%
Hurdle rate(1) = 2.00%
Management fee(2) = 0.44%
Other expenses (legal, accounting, safekeeping agent, transfer agent, etc.)(3) = 0.20%

19

Table of Contents

Pre-Incentive Fee Adjusted Net Investment Income
(investment income – (management fee + other expenses)) = 0.61%

        Pre-Incentive Fee Adjusted Net Investment Income does not exceed the hurdle rate, therefore there is no income related incentive fee.

Alternative 2

Assumptions

Investment income (including interest, dividends, fees, etc.) = 2.90%
Hurdle rate(1) = 2.00%
Management fee(2) = 0.44%
Other expenses (legal, accounting, safekeeping agent, transfer agent, etc.)(3) = 0.20%

Pre-Incentive Fee Adjusted Net Investment Income
(investment income – (management fee + other expenses)) = 2.26%

Incentive fee = 100.00% × Pre-Incentive Fee Adjusted Net Investment Income (subject to "catch-up")(4)

= 100.00% × (2.26% – 2.00%)
= 0.26%

        Pre-Incentive Fee Adjusted Net Investment Income exceeds the hurdle rate, but does not fully satisfy the "catch-up" provision, therefore the
income related portion of the incentive fee is 0.26%.

Alternative 3

Assumptions

Investment income (including interest, dividends, fees, etc.) = 3.50%
Hurdle rate(1) = 2.00%
Management fee(2) = 0.44%
Other expenses (legal, accounting, safekeeping agent, transfer agent, etc.)(3) = 0.20%

Pre-Incentive Fee Adjusted Net Investment Income
(investment income – (management fee + other expenses)) = 2.86%

Incentive fee = 100.00% × Pre-Incentive Fee Adjusted Net Investment Income (subject to "catch-up")(4)

Incentive fee = 100.00% × "catch-up" + (20.00% × (Pre-Incentive Fee Adjusted Net Investment Income – 2.50%))

Catch-up = 2.50% – 2.00%
                = 0.50%

Incentive fee = (100.00% × 0.50%) + (20.00% × (2.86% – 2.50%))
                      = 0.50% + (20.00% × 0.36%)
                      = 0.50% + 0.07%
                      = 0.57%

        Pre-Incentive Fee Adjusted Net Investment Income exceeds the hurdle rate, and fully satisﬁes the "catch-up" provision, therefore the income
related portion of the incentive fee is 0.57%.

*

The hypothetical amount of pre-incentive fee net investment income shown is based on a percentage of total net assets and assumes, for the
Company's investments held prior to the IPO,

20

Table of Contents

interest income has been adjusted to reﬂect the amortization of purchase or original issue discount as if each investment was purchased at the

date of the IPO, or stepped up to fair market value.

Represents 8.00% annualized hurdle rate. 

Assumes 1.75% annualized base management fee. 

Excludes organizational and offering expenses. 

The "catch-up" provision is intended to provide the Investment Adviser with an incentive fee of 20.00% on all Pre-Incentive Fee Adjusted
Net Investment Income as if a hurdle rate did not apply when the Company's net investment income exceeds 2.50% in any calendar quarter.

(1)

(2)

(3)

(4)

Example 2: Capital Gains Portion of Incentive Fee*:

Alternative 1:

Assumptions

Year 1: $20.0 million investment made in Company A ("Investment A"), and $30.0 million investment made in Company B
("Investment B")

Year 2: Investment A sold for $50.0 million and fair market value ("FMV") of Investment B determined to be $32.0 million

Year 3: FMV of Investment B determined to be $25.0 million

Year 4: Investment B sold for $31.0 million

        The capital gains portion of the incentive fee would be:

Year 1: None

Year 2: Capital gains incentive fee of $6.0 million—($30.0 million realized capital gains on sale of Investment A multiplied by
20.0%)

Year 3: None—$5.0 million (20.0% multiplied by ($30.0 million cumulative capital gains less $5.0 million cumulative capital
depreciation)) less $6.0 million (previous capital gains fee paid in Year 2)

Year 4: Capital gains incentive fee of $0.2 million—$6.2 million ($31.0 million cumulative realized capital gains multiplied by
20.0%) less $6.0 million (capital gains incentive fee taken in Year 2)

Alternative 2

Assumptions

Year 1: $20.0 million investment made in Company A ("Investment A"), $30.0 million investment made in Company B ("Investment
B") and $25.0 million investment made in Company C ("Investment C")

Year 2: Investment A sold for $50.0 million, FMV of Investment B determined to be $25.0 million and FMV of Investment C
determined to be $25.0 million

Year 3: FMV of Investment B determined to be $27.0 million and Investment C sold for $30.0 million

Year 4: FMV of Investment B determined to be $35.0 million

Year 5: Investment B sold for $20.0 million

21

Table of Contents

        The capital gains incentive fee, if any, would be:

Year 1: None

Year 2: $5.0 million capital gains incentive fee—20.0% multiplied by $25.0 million ($30.0 million realized capital gains on
Investment A less $5.0 million unrealized capital depreciation on Investment B)

Year 3: $1.4 million capital gains incentive fee—$6.4 million (20.0% multiplied by $32.0 million ($35.0 million cumulative realized
capital gains less $3.0 million unrealized capital depreciation)) less $5.0 million capital gains incentive fee received in Year 2

Year 4: $0.6 million capital gains incentive fee—$7.0 million (20.0% multiplied by $35.0 million cumulative realized capital gains)
less cumulative $6.4 million capital gains incentive fee received in Year 2 and Year 3

Year 5: None—$5.0 million (20.0% multiplied by $25.0 million (cumulative realized capital gains of $35.0 million less realized
capital losses of $10.0 million)) less $7.0 million cumulative capital gains incentive fee paid in Year 2, Year 3 and Year 4(1)

*

(1)

The hypothetical amounts of returns shown are based on a percentage of the Company's total net assets and assume no leverage. There is no
guarantee that positive returns will be realized and actual returns may vary from those shown in this example. The capital gains incentive
fees are calculated on an "adjusted" basis for the Company's investments held prior to the IPO and assumes those investments have been
adjusted to reﬂect the amortization of purchase or original issue discount as if each investment was purchased at the date of the IPO, or
stepped up to fair market value. 

As noted above, it is possible that the cumulative aggregate capital gains fee received by the Investment Adviser ($7.0 million) is effectively
greater than $5.0 million (20.0% of cumulative aggregate realized capital gains less net realized capital losses or net unrealized depreciation
($25.0 million)).

Payment of Expenses

        The Company's primary operating expenses are the payment of a base management fee and any incentive fees under the Investment
Management Agreement and the allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations to the
Company under the Administration Agreement. The Company bears all other expenses of its operations and transactions, including (without
limitation) fees and expenses relating to:

•

•

•

•

•

•

•

•

organizational and offering expenses; 

the investigation and monitoring of the Company's investments; 

the cost of calculating net asset value; 

interest payable on debt, if any, to ﬁnance its investments; 

the cost of effecting sales and repurchases of shares of NMFC's common stock and other securities; 

management and incentive fees payable pursuant to the Investment Management Agreement; 

fees payable to third parties relating to, or associated with, making investments and valuing investments (including third-party
valuation ﬁrms); 

transfer agent and custodial fees;

22

Table of Contents

•

fees and expenses associated with marketing efforts (including attendance at investment conferences and similar events); 

•

•

•

•

•

•

•

•

•

•

•

federal and state registration fees; 

any exchange listing fees; 

federal, state, local and foreign taxes; 

independent directors' fees and expenses; 

brokerage commissions; 

costs of proxy statements, stockholders' reports and notices; 

costs of preparing government ﬁlings, including periodic and current reports with the SEC; 

fees and expenses associated with independent audits and outside legal costs; 

costs associated with reporting and compliance obligations under the 1940 Act and applicable federal and state securities laws; 

ﬁdelity bond, liability insurance and other insurance premiums; and 

printing, mailing and all other direct expenses incurred by either the Investment Adviser or the Company in connection with
administering our business, including payments under the Administration Agreement that is based upon the Company's allocable
portion of overhead and other expenses incurred by the Administrator in performing its obligations to the Company under the
Administration Agreement, including the allocable portion of the compensation of the Company's chief ﬁnancial ofﬁcer and chief
compliance ofﬁcer and their respective staffs.

Qualifying Assets

        Under the 1940 Act, a BDC may not acquire any asset other than assets of the type listed in Section 55(a) of the 1940 Act, which are referred to
as qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70.0% of the BDC's total assets. The principal
categories of qualifying assets relevant to our business are any of the following:

1)

Securities purchased in transactions not involving any public offering from the issuer of such securities, which issuer (subject to
certain limited exceptions) is an eligible portfolio company, or from any person who is, or has been during the preceding 13 months,
an afﬁliated person of an eligible portfolio company, or from any other person, subject to such rules as may be prescribed by the
SEC. An eligible portfolio company is deﬁned in the 1940 Act as any issuer which: 

(a)

(b)

(c)

is organized under the laws of, and has its principal place of business in, the U.S.; 

is not an investment company (other than a small business investment company wholly-owned by the BDC) or a company
that would be an investment company but for certain exclusions under the 1940 Act; and 

satisﬁes any of the following: 

(i)

(ii)

does not have any class of securities that is traded on a national securities exchange; 

has a class of securities listed on a national securities exchange, but has an aggregate market value of outstanding
voting and non-voting common equity of less than $250.0 million;

23

Table of Contents

(iii)

(iv)

is controlled by a BDC or a group of companies including a BDC and the BDC has an afﬁliated person who is a
director of the eligible portfolio company; or 

is a small and solvent company having total assets of not more than $4.0 million and capital and surplus of not less
than $2.0 million. 

2)

3)

4)

5)

6)

Securities of any eligible portfolio company that the Company controls. 

Securities purchased in a private transaction from a U.S. issuer that is not an investment company or from an afﬁliated person of the
issuer, or in transactions incident thereto, if the issuer is in bankruptcy and subject to reorganization or if the issuer, immediately
prior to the purchase of its securities was unable to meet its obligations as they came prior to the purchase of its securities was unable
to meet its obligations as they came due without material assistance other than conventional lending or ﬁnancing arrangements. 

Securities of an eligible portfolio company purchased from any person in a private transaction if there is no ready market for such
securities and the Company already owns 60.0% of the outstanding equity of the eligible portfolio company. 

Securities received in exchange for or distributed on or with respect to securities described in (1) through (4) above, or pursuant to the
exercise of warrants or rights relating to such securities. 

Cash, cash equivalents, U.S. government securities or high-quality debt securities maturing in one year or less from the time of
investment.

        In addition, a BDC must have been organized and have its principal place of business in the U.S. and must be operated for the purpose of
making investments in the types of securities described in (1), (2) or (3) above.

        As of December 31, 2014, 9.4% of the Company's total assets were not qualifying assets.

Managerial Assistance to Portfolio Companies

        BDCs generally must offer to make available to the issuer of the securities signiﬁcant managerial assistance, except in circumstances where
either (i) the BDC controls such issuer of securities or (ii) the BDC purchases such securities in conjunction with one or more other persons acting
together and one of the other persons in the group makes available such managerial assistance. Making available managerial assistance means,
among other things, any arrangement whereby the BDC offers to provide, and, if accepted, does so provide, signiﬁcant guidance and counsel
concerning the management, operations or business objectives and policies of a portfolio company. The Administrator or its afﬁliate provides such
managerial assistance on the Company's behalf to portfolio companies that request this assistance.

Temporary Investments

        Pending investments in other types of qualifying assets, the Company's investments may consist of cash, cash equivalents, U.S. government
securities or high-quality debt securities maturing in one year or less from the time of investment (collectively, as "temporary investments"), so that
70.0% of the Company's assets are qualifying assets. Typically, the Company will invest in U.S. Treasury bills or in repurchase agreements,
provided that such agreements are fully collateralized by cash or securities issued by the U.S. government or its agencies. A repurchase agreement
involves the purchase by an investor, such as the Company, of a speciﬁed security and the simultaneous agreement by the seller to repurchase it at an
agreed-upon future date and at a price that is greater than the purchase price by an amount that reﬂects an agreed-upon interest rate. There is no
percentage restriction on the proportion of the Company's assets that may be invested in such repurchase agreements. However, if more than

24

Table of Contents

25.0% of the Company's total assets constitute repurchase agreements from a single counterparty, the Company would not meet the Diversiﬁcation
Tests in order to qualify as a RIC for U.S. federal income tax purposes. Thus, the Company does not intend to enter into repurchase agreements with
a single counterparty in excess of this limit. The Investment Adviser will monitor the creditworthiness of the counterparties with which the Company
enters into repurchase agreement transactions.

Senior Securities

        The Company is permitted, under speciﬁed conditions, to issue multiple classes of debt if the Company's asset coverage, as deﬁned in the 1940
Act, is at least equal to 200.0% immediately after each such issuance. In addition, while any senior securities remain outstanding (other than any
indebtedness issued in consideration of a privately arranged loan, such as any indebtedness outstanding under the Holdings Credit Facility, or the
Senior Secured Revolving Credit Agreement with Goldman Sachs Bank USA and Morgan Stanley, N.A., dated June 4, 2014, as amended (together
with the related guarantee and security agreement) (the "NMFC Credit Facility") or the convertible notes issued on June 3, 2014 under an indenture
between the Company and U.S. Bank National Association (the "Convertible Notes")), the Company must make provisions to prohibit any
distribution to its stockholders or the repurchase of its equity securities unless the Company meets the applicable asset coverage ratios at the time of
the distribution or repurchase. The Company may also borrow amounts up to 5.0% of the value of its total assets for temporary or emergency
purposes without regard to its asset coverage. The Company will include the assets and liabilities of NMFC and all of its wholly-owned direct and
indirect subsidiaries for purposes of calculating the asset coverage ratio. The Company received exemptive relief from the SEC on November 5,
2014, allowing the Company to modify the asset coverage requirement to exclude SBA-guaranteed debentures from this calculation. For a
discussion of the risks associated with leverage, see Item 1A.—Risk Factors.

Code of Ethics

        The Company has adopted a code of ethics pursuant to Rule 17j-1 under the 1940 Act that establishes procedures for personal investments and
restricts certain personal securities transactions. Personnel subject to the code may invest in securities for their personal investment accounts,
including securities that may be purchased or held by the Company so long as such investments are made in accordance with the code's
requirements. You may read and copy the code of ethics at the SEC's Public Reference Room located at 100 F Street, N.E., Washington, D.C.
20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330, and copies of the code
of ethics may be obtained, after paying a duplication fee, by electronic request at the following e-mail address: publicinfo@sec.gov. In addition, the
code of ethics is available on the SEC's Internet site at http://www.sec.gov.

Compliance Policies and Procedures

        The Company and the Investment Adviser have adopted and implemented written policies and procedures reasonably designed to prevent
violation of the federal securities laws and the Company is required to review these compliance policies and procedures annually for their adequacy
and the effectiveness of their implementation. The Company's chief compliance ofﬁcer is responsible for administering these policies and
procedures.

Proxy Voting Policies and Procedures

        The Company has delegated its proxy voting responsibility to the Investment Adviser. The proxy voting policies and procedures of the
Investment Adviser are set forth below. The guidelines will be reviewed periodically by the Investment Adviser and the Company's non-interested
directors, and, accordingly, are subject to change.

25

Table of Contents

Introduction

        As an investment adviser registered under the Advisers Act, the Investment Adviser has a ﬁduciary duty to act solely in the best interests of its
clients. As part of this duty, it recognizes that it must vote the Company's securities in a timely manner free of conﬂicts of interest and in the best
interests of the Company.

        The policies and procedures for voting proxies for the investment advisory clients of the Investment Adviser are intended to comply with
Section 206 of, and Rule 206(4)-6 under, the Advisers Act.

Proxy policies

        The Investment Adviser will vote proxies relating to the Company's securities in the best interest of the Company. It will review on a case-by-
case basis each proposal submitted for a stockholder vote to determine its impact on the portfolio securities held by the Company. Although the
Investment Adviser will generally vote against proposals that may have a negative impact on its clients' portfolio securities, it may vote for such a
proposal if there exists compelling long-term reasons to do so.

        The proxy voting decisions of the Investment Adviser are made by the senior ofﬁcers who are responsible for monitoring each of its clients'
investments. To ensure that its vote is not the product of a conﬂict of interest, it will require that: (a) anyone involved in the decision making process

disclose to its chief compliance ofﬁcer any potential conﬂict that he or she is aware of and any contact that he or she has had with any interested
party regarding a proxy vote; and (b) employees involved in the decision making process or vote administration are prohibited from revealing how
the Investment Adviser intends to vote on a proposal in order to reduce any attempted inﬂuence from interested parties.

Proxy voting records

        You may obtain, without charge, information regarding how the Company voted proxies with respect to the Company's portfolio securities by
making a written request for proxy voting information to: Chief Compliance Ofﬁcer, 787 Seventh Avenue, 48th Floor, New York, New
York 10019.

Stafﬁng

        The Company does not have any employees. Day-to-day investment operations that are conducted by the Company are managed by the
Investment Adviser. See "Investment Management Agreement". The Company reimburses the Administrator for the allocable portion of overhead
and other expenses incurred by it in performing its obligations to the Company under the Administration Agreement, including the compensation of
the Company's chief ﬁnancial ofﬁcer and chief compliance ofﬁcer, and their respective staffs. For a more detailed discussion of the Administration
Agreement, see Item 8.—Financial Statements and Supplementary Data—Note 5, Agreements.

Sarbanes-Oxley Act of 2002

        The Sarbanes-Oxley Act of 2002 imposes a variety of regulatory requirements on publicly-held companies and their insiders. Many of these
requirements affect the Company. For example:

•

•

pursuant to Rule 13a-14 of the Exchange Act, the chief executive ofﬁcer and chief ﬁnancial ofﬁcer of the Company are required to
certify the accuracy of the ﬁnancial statements contained in the Company's periodic reports; 

pursuant to Item 307 of Regulation S-K, the Company's periodic reports are required to disclose its respective conclusions about the
effectiveness of its disclosure controls and procedures;

26

Table of Contents

•

•

pursuant to Rule 13a-15 of the Exchange Act, the Company's management is required to prepare a report regarding their assessment
of their respective internal control over ﬁnancial reporting and is required to obtain an audit of the effectiveness of internal control
over ﬁnancial reporting performed by the Company's independent registered public accounting ﬁrm; and 

pursuant to Item 308 of Regulation S-K and Rule 13a-15 of the Exchange Act, the Company's periodic reports are required to
disclose whether there were signiﬁcant changes in its respective internal controls over ﬁnancial reporting or in other factors that
could signiﬁcantly affect these controls subsequent to the date of its evaluation, including any corrective actions with regard to
signiﬁcant deﬁciencies and material weaknesses.

        The Sarbanes-Oxley Act of 2002 requires the Company to review its current policies and procedures to determine whether they comply with
the Sarbanes-Oxley Act of 2002 and the regulations promulgated thereunder. The Company intends to monitor its compliance with all regulations
that are adopted under the Sarbanes-Oxley Act of 2002 and will take actions necessary to ensure that it is in compliance therewith.

Available Information

        We ﬁle with or submit to the SEC annual, quarterly and current periodic reports, proxy statements and other information as required by the
1940 Act. You may inspect and copy any materials we ﬁle with the SEC at the Public Reference Room of the SEC at 100 F Street, N.E.,
Washington, D.C. 20549 or by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet site that contains reports, proxy and information
statements and other information ﬁled electronically by us with the SEC at http://www.sec.gov.

        We make available free of charge on our website, http://www.newmountainﬁnance.com , our reports, proxies and information statements and
other information as soon as reasonably practicable after we electronically ﬁle such materials with, or furnish to, the SEC. Information contained on
our website or on the SEC's website about us is not incorporated into this annual report and should not be considered to be a part of this annual
report.

Privacy Notice

        Your privacy is very important to us. This Privacy Notice sets forth our policies with respect to non-public personal information about our
stockholders and prospective and former stockholders. These policies apply to stockholders of the Company and may be changed at any time,
provided a notice of such change is given to you. This notice supersedes any other privacy notice you may have received from us.

        We will safeguard, according to strict standards of security and conﬁdentiality, all information we receive about you. The only information we
collect from you is your name, address, number of shares you hold and your social security number. This information is used only so that we can
send you annual reports and other information about us, and send you proxy statements or other information required by law.

        We do not share this information with any non-afﬁliated third party except as described below.

•

•

Authorized Employees of the Investment Adviser.  It is our policy that only authorized employees of our investment adviser who
need to know your personal information will have access to it. 

Service Providers.  We may disclose your personal information to companies that provide services on our behalf, such as
recordkeeping, processing your trades, and mailing you information. These companies are required to protect your information and
use it solely for the purpose for which they received it.

27

Table of Contents

•

Courts and Government Ofﬁcials.  If required by law, we may disclose your personal information in accordance with a court order or
at the request of government regulators. Only that information required by law, subpoena, or court order will be disclosed.

        We seek to carefully safeguard your private information and, to that end, restrict access to non-public personal information about you to those
employees and other persons who need to know the information to enable us to provide services to you. We maintain physical, electronic and
procedural safeguards to protect your non-public personal information.

        If you have any questions regarding this policy or the treatment of your non-public personal information, please contact our Chief Compliance
Ofﬁcer at (212) 655-0024.

28

Table of Contents

Item 1A.    Risk Factors 

        You should carefully consider the signiﬁcant risks described below, together with all of the other information included in this Form 10-K,
including our consolidated ﬁnancial statements and the related notes, before making an investment decision in the Company. The risks set forth
below are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial
may materially affect our business, our structure, our ﬁnancial condition, our investments and/or operating results. If any of the following events
occur, our business, ﬁnancial condition and results of operations could be materially and adversely affected. In such case, our net asset value and
the trading price of NMFC's common stock could decline. There can be no assurance that we will achieve our investment objective and you may
lose all or part of your investment.

RISKS RELATED TO OUR BUSINESS AND STRUCTURE

Uncertainty about the ﬁnancial stability of the United States (U.S.) and of several countries in the European Union (EU) could have a
signiﬁcant adverse effect on the Company's business, results of operations and ﬁnancial condition, thus affecting the Company's ﬁnancial
condition and earnings.

        Due to federal budget deﬁcit concerns, S&P downgraded the federal government's credit rating from AAA to AA+ for the ﬁrst time in history
on August 5, 2011. Further, Moody's and Fitch have warned that they may downgrade the federal government's credit rating. Further downgrades
or warnings by S&P or other rating agencies, and the government's credit and deﬁcit concerns in general, could cause interest rates and borrowing

costs to rise, which may negatively impact both the perception of credit risk associated with the Company's debt portfolio and the Company's ability
to access the debt markets on favorable terms. In addition, a decreased credit rating could create broader ﬁnancial turmoil and uncertainty, which
may weigh heavily on the Company's ﬁnancial performance and the value of NMFC's common stock.

        In 2010, a ﬁnancial crisis emerged in Europe, triggered by high budget deﬁcits and rising direct and contingent sovereign debt in Greece,
Ireland, Italy, Portugal and Spain, which created concerns about the ability of these nations to continue to service their sovereign debt obligations.
Risks and ongoing concerns resulting from the debt crisis in Europe could have a detrimental impact on the global economic recovery, sovereign
and non-sovereign debt in these countries and the ﬁnancial condition of European ﬁnancial institutions. Market and economic disruptions have
affected, and may continue to affect, consumer conﬁdence levels and spending, personal bankruptcy rates, levels of incurrence and default on
consumer debt and home prices, among other factors. We cannot assure you that the market disruptions in Europe, including the increased cost of
funding for certain governments and ﬁnancial institutions, will not spread, and we cannot assure you that future assistance packages will be
available, or if available, sufﬁcient to stabilize the affected countries and markets in Europe or elsewhere. To the extent uncertainty regarding any
economic recovery in Europe continues to negatively impact consumer conﬁdence and consumer credit factors, the Company's business and results
of operations could be signiﬁcantly and adversely affected.

        In October 2014, the U.S. Federal Reserve announced that it has terminated its bond-buying program, or quantitative easing, which was
designed to stimulate the economy and expand the Federal Reserve's holdings of long-term securities until key economic indicators, such as the
unemployment rate, showed signs of improvement. It is unclear what effect, if any, the Federal Reserve's termination of quantitative easing will
have on the value of the Company's investments. However, it is possible that without quantitative easing by the Federal Reserve, these
developments, along with the European sovereign debt crisis, could cause interest rates and borrowing costs to rise, which may negatively impact
the Company's ability to access the debt markets on favorable terms.

29

Table of Contents

The Company may suffer credit losses.

        Investments in small and middle market businesses are highly speculative and involve a high degree of risk of credit loss. These risks are likely
to increase during volatile economic periods, such as the U.S. and many other economies have recently been experiencing.

The Company does not expect to replicate the Predecessor Entities' historical performance or the historical performance of other entities
managed or supported by New Mountain Capital.

        The Company does not expect to replicate the Predecessor Entities' historical performance or the historical performance of New Mountain
Capital's investments. The Company's investment returns may be substantially lower than the returns achieved by the Predecessor Entities. Although
the Predecessor Entities commenced operations during otherwise unfavorable economic conditions, this was a favorable environment in which the
Predecessor Operating Company could conduct its business in light of its investment objectives and strategy. In addition, the Company's investment
strategies may differ from those of New Mountain Capital or its afﬁliates. The Company, as a BDC and as a RIC, is subject to certain regulatory
restrictions that do not apply to New Mountain Capital or its afﬁliates.

        The Company is generally not permitted to invest in any portfolio company in which New Mountain Capital or any of its afﬁliates currently
have an investment or to make any co-investments with New Mountain Capital or its afﬁliates, except to the extent permitted by the 1940 Act. This
may adversely affect the pace at which the Company makes investments. Moreover, the Company may operate with a different leverage proﬁle than
the Predecessor Entities. Furthermore, none of the prior results from the Predecessor Entities were from public reporting companies, and all or a
portion of these results were achieved in particularly favorable market conditions for the Predecessor Operating Company's investment strategy
which may never be repeated. Finally, we can offer no assurance that the Company's investment team will be able to continue to implement its
investment objective with the same degree of success as it has had in the past.

There is uncertainty as to the value of the Company's portfolio investments because most of its investments are, and may continue to be in
private companies and recorded at fair value. In addition, the fair values of the Company's investments are determined by the Company's board
of directors in accordance with the Company's valuation policy.

        Some of the Company's investments are and may be in the form of securities or loans that are not publicly traded. The fair value of these
investments may not be readily determinable. Under the 1940 Act, the Company is required to carry its portfolio investments at market value or, if
there is no readily available market value, at fair value as determined in good faith by its board of directors, including to reﬂect signiﬁcant events
affecting the value of its securities. The Company values its investments for which it does not have readily available market quotations quarterly, or
more frequently as circumstances require, at fair value as determined in good faith by its board of directors in accordance with its valuation policy,

which is at all times consistent with GAAP. See  Item 8.—Financial Statements and Supplementary Data—Note 2, Summary of Signiﬁcant
Accounting Policies or Note 4, Fair Value for additional information on around valuations.

        The Company's board of directors utilizes the services of one or more independent third-party valuation ﬁrms to aid it in determining the fair
value with respect to its material unquoted assets in accordance with its valuation policy. The inputs into the determination of fair value of these
investments may require signiﬁcant management judgment or estimation. Even if observable market data is available, such information may be the
result of consensus pricing information or broker quotes, which include a disclaimer that the broker would not be held to such a price in an actual
transaction. The non-binding nature of consensus pricing and/or quotes accompanied by disclaimers materially reduces the reliability of such
information.

30

Table of Contents

        The types of factors that the board of directors takes into account in determining the fair value of its investments generally include, as
appropriate: available market data, including relevant and applicable market trading and transaction comparables, applicable market yields and
multiples, security covenants, call protection provisions, information rights, the nature and realizable value of any collateral, the portfolio company's
ability to make payments, its earnings and discounted cash ﬂows and the markets in which it does business, comparisons of ﬁnancial ratios of peer
companies that are public, comparable merger and acquisition transactions and the principal market and enterprise values. Since these valuations,
and particularly valuations of private securities and private companies, are inherently uncertain, may ﬂuctuate over short periods of time and may be
based on estimates, the Company's determinations of fair value may differ materially from the values that would have been used if a ready market
for these securities existed.

        Due to this uncertainty, the Company's fair value determinations may cause its net asset value, on any given date, to be materially understated
or overstated. In addition, investors purchasing NMFC's common stock based on an overstated net asset value would pay a higher price than the
realizable value that the Company's investments might warrant.

        The Company may adjust quarterly the valuation of its portfolio to reﬂect its board of directors' determination of the fair value of each
investment in its portfolio. Any changes in fair value are recorded in the Company's statement of operations as net change in unrealized appreciation
or depreciation.

The Company's ability to achieve its investment objective depends on key investment personnel of the Investment Adviser. If the Investment
Adviser were to lose any of its key investment personnel, the Company's ability to achieve its investment objective could be signiﬁcantly harmed.

        The Company depends on the investment judgment, skill and relationships of the investment professionals of the Investment Adviser,
particularly Steven B. Klinsky and Robert A. Hamwee, as well as other key personnel to identify, evaluate, negotiate, structure, execute, monitor
and service its investments. The Investment Adviser, as an afﬁliate of New Mountain Capital, is supported by New Mountain Capital's team, which
as of December 31, 2014 consisted of approximately 100 staff members of New Mountain Capital and its afﬁliates to fulﬁll its obligations to the
Company under the Investment Management Agreement. The Investment Adviser may also depend upon New Mountain Capital to obtain access to
investment opportunities originated by the professionals of New Mountain Capital and its afﬁliates. The Company's future success depends to a
signiﬁcant extent on the continued service and coordination of the key investment personnel of the Investment Adviser. The departure of any of
these individuals could have a material adverse effect on the Company's ability to achieve its investment objective.

        The Investment Committee, which provides oversight over the Company's investment activities, is provided by the Investment Adviser. The
Investment Committee currently consists of ﬁve members. The loss of any member of the Investment Committee or of other senior professionals of
the Investment Adviser and its afﬁliates without suitable replacement could limit the Company's ability to achieve its investment objective and
operate as we anticipate. This could have a material adverse effect on our ﬁnancial condition, results of operation and cash ﬂows. To achieve the
Company's investment objective, the Investment Adviser may hire, train, supervise and manage new investment professionals to participate in its
investment selection and monitoring process. If the Investment Adviser is unable to ﬁnd investment professionals or do so in a timely manner, our
business, ﬁnancial condition and results of operations could be adversely affected.

31

Table of Contents

The Investment Adviser has limited experience managing a BDC or a RIC, which could adversely affect our business.

        Other than the Company, the Investment Adviser has not previously managed a BDC or a RIC. The 1940 Act and the Code impose numerous
constraints on the operations of BDCs and RICs that do not apply to the other investment vehicles previously managed by the investment
professionals of the Investment Adviser. For example, under the 1940 Act, BDCs are required to invest at least 70.0% of their total assets primarily
in securities of qualifying U.S. private or thinly traded companies, cash, cash equivalents, U.S. government securities and other high quality debt
investments that mature in one year or less. Moreover, qualiﬁcation for taxation as a RIC under subchapter M of the Code requires satisfaction of
source-of-income, asset diversiﬁcation and annual distribution requirements. The failure to comply with these provisions in a timely manner could
prevent the Company from qualifying as a BDC or as a RIC and could force us to pay unexpected taxes and penalties, which would have a material
adverse effect on our performance. The Investment Adviser's lack of experience in managing a portfolio of assets under the constraints applicable to
BDCs and RICs may hinder its ability to take advantage of attractive investment opportunities and, as a result, achieve the Company's investment
objective. If the Company fails to maintain its status as a BDC or as a RIC, its operating ﬂexibility could be signiﬁcantly reduced.

The Company operates in a highly competitive market for investment opportunities and may not be able to compete effectively.

        The Company competes for investments with other BDCs and investment funds (including private equity and hedge funds), as well as
traditional ﬁnancial services companies such as commercial banks and other sources of funding. Many of its competitors are substantially larger and
have considerably greater ﬁnancial, technical and marketing resources than it does. For example, some competitors may have a lower cost of capital
and access to funding sources that are not available to the Company. In addition, some of the Company's competitors may have higher risk
tolerances or different risk assessments than the Company has. Furthermore, many of the Company's competitors have greater experience operating
under, or are not subject to, the regulatory restrictions that the 1940 Act imposes on the Company as a BDC or the source-of-income, asset
diversiﬁcation and distribution requirements that it must satisfy to maintain its RIC status. These characteristics could allow the Company's
competitors to consider a wider variety of investments, establish more relationships and offer better pricing and more ﬂexible structuring than the
Company is able to do. There are a number of new BDCs that have recently completed their IPO or that have ﬁled registration statements with the
SEC, which could create increased competition for investment opportunities.

        The Company may lose investment opportunities if it does not match its competitors' pricing, terms and structure. With respect to the
investments the Company makes, it does not seek to compete based primarily on the interest rates it may offer, and we believe that some of the
Company's competitors may make loans with interest rates that may be lower than the rates it offers. In the secondary market for acquiring existing
loans, we expect the Company to compete generally on the basis of pricing terms. If the Company matches its competitors' pricing, terms and
structure, it may experience decreased net interest income, lower yields and increased risk of credit loss. If the Company is forced to match its
competitors' pricing, terms and structure, it may not be able to achieve acceptable returns on its investments or may bear substantial risk of capital
loss. Part of the Company's competitive advantage stems from the fact that we believe the market for middle-market lending is underserved by
traditional bank lenders and other ﬁnancial sources. A signiﬁcant increase in the number and/or the size of the Company's competitors in this target
market could force it to accept less attractive investment terms. The Company may also compete for investment opportunities with accounts
managed by the Investment Adviser or its afﬁliates. Although the Investment Adviser allocates opportunities in accordance with its policies and
procedures, allocations to such other accounts reduces the amount and frequency of opportunities available to the Company and may not be in the
best

32

Table of Contents

interests of the Company and, consequently, NMFC's stockholders. Moreover, the performance of investment opportunities is not known at the time
of allocation. If the Company is not able to compete effectively, its business, ﬁnancial condition and results of operations may be adversely affected,
thus affecting the business, ﬁnancial condition and results of operations. Because of this competition, there can be no assurance that the Company
will be able to identify and take advantage of attractive investment opportunities that it identiﬁes or that it will be able to fully invest its available
capital.

Our business, results of operations and ﬁnancial condition depends on the Company's ability to manage future growth effectively.

        The Company's ability to achieve its investment objective and to grow depends on the Investment Adviser's ability to identify, invest in and
monitor companies that meet the Company's investment criteria. Accomplishing this result on a cost-effective basis is largely a function of the
Investment Adviser's structuring of the investment process, its ability to provide competent, attentive and efﬁcient services to the Company and its
ability to access ﬁnancing on acceptable terms. The Investment Adviser has substantial responsibilities under the Investment Management
Agreement and may also be called upon to provide managerial assistance to the Company's portfolio companies. These demands on the time of the
Investment Adviser and its investment professionals may distract them or slow the Company's rate of investment. In order to grow, the Company
and the Investment Adviser may need to retain, train, supervise and manage new investment professionals. However, these investment professionals
may not be able to contribute effectively to the work of the Investment Adviser. If the Company is unable to manage its future growth effectively,
our business, results of operations and ﬁnancial condition could be materially adversely affected.

The incentive fee may induce the Investment Adviser to make speculative investments.

        The incentive fee payable to the Investment Adviser may create an incentive for the Investment Adviser to pursue investments that are risky or
more speculative than would be the case in the absence of such compensation arrangement, which could result in higher investment losses,
particularly during cyclical economic downturns. The incentive fee payable to the Investment Adviser is calculated based on a percentage of the
Company's return on investment capital. This may encourage the Investment Adviser to use leverage to increase the return on the Company's
investments. In addition, because the base management fee is payable based upon the Company's gross assets, which includes any borrowings for
investment purposes, but excludes borrowings under the SLF Credit Facility and cash and cash equivalents for investment purposes, the Investment
Adviser may be further encouraged to use leverage to make additional investments. Under certain circumstances, the use of leverage may increase
the likelihood of default, which would impair the value of NMFC's common stock.

        The incentive fee payable to the Investment Adviser also may create an incentive for the Investment Adviser to invest in instruments that have
a deferred interest feature, even if such deferred payments would not provide the cash necessary to pay current distributions to NMFC's
stockholders. Under these investments, the Company would accrue the interest over the life of the investment but would not receive the cash
income from the investment until the end of the investment's term, if at all. The Company's net investment income used to calculate the income
portion of the incentive fee, however, includes accrued interest. Thus, a portion of the incentive fee would be based on income that the Company
has not yet received in cash and may never receive in cash if the portfolio company is unable to satisfy such interest payment obligations. In
addition, the "catch-up" portion of the incentive fee may encourage the Investment Adviser to accelerate or defer interest payable by portfolio
companies from one calendar quarter to another, potentially resulting in ﬂuctuations in timing and dividend amounts.

33

Table of Contents

The Company may be obligated to pay the Investment Adviser incentive compensation even if the Company incurs a loss.

        The Investment Adviser is entitled to incentive compensation for each ﬁscal quarter in an amount equal to a percentage of the excess of the
Company's Pre-Incentive Fee Adjusted Net Investment Income for that quarter (before deducting incentive compensation) above a performance
threshold for that quarter. Accordingly, since the performance threshold is based on a percentage of the Company's net asset value, decreases in the
Company's net asset value makes it easier to achieve the performance threshold. The Company's Pre-Incentive Fee Adjusted Net Investment Income
for incentive compensation purposes excludes realized and unrealized capital losses or depreciation that it may incur in the ﬁscal quarter, even if
such capital losses or depreciation result in a net loss on the Company's statement of operations for that quarter. Thus, the Company may be required
to pay the Investment Adviser incentive compensation for a ﬁscal quarter even if there is a decline in the value of its portfolio or the Company
incurs a net loss for that quarter.

The Company borrows money, which could magnify the potential for gain or loss on amounts invested in us and increase the risk of investing in
us.

        The Company borrows money as part of its business plan. Borrowings, also known as leverage, magnify the potential for gain or loss on
invested equity capital and may, consequently, increase the risk of investing in us. We expect the Company to continue to use leverage to ﬁnance its
investments through senior securities issued by banks and other lenders. Lenders of these senior securities have ﬁxed dollar claims on the
Company's assets that are superior to claims of NMFC's common stockholders. If the value of the Company's assets decreases, leveraging would
cause its net asset value to decline more sharply than it otherwise would have had it not leveraged. Similarly, any decrease in the Company's income
would cause its net income to decline more sharply than they would have had it not borrowed. Such a decline could adversely affect the Company's
ability to make common stock dividend payments. In addition, because the Company's investments may be illiquid, the Company may be unable to
dispose of them or to do so at a favorable price in the event it needs to do so if it is unable to reﬁnance any indebtedness upon maturity and, as a
result, we may suffer losses. Leverage is generally considered a speculative investment technique.

        The Company's ability to service any debt that it incurs depends largely on its ﬁnancial performance and is subject to prevailing economic
conditions and competitive pressures. Moreover, as the Investment Adviser's management fee is payable to the Investment Adviser based on gross
assets, including those assets acquired through the use of leverage, the Investment Adviser may have a ﬁnancial incentive to incur leverage which
may not be consistent with the Company's interests and the interests of its common stockholders. In addition, holders of NMFC's common stock
will, indirectly, bear the burden of any increase in the Company's expenses as a result of leverage, including any increase in the management fee
payable to the Investment Adviser.

        At December 31, 2014, the Company had $468.1 million, $50.0 million, $115.0 million and $37.5 million of indebtedness outstanding under
the Holdings Credit Facility, the NMFC Credit Facility, the Convertible Notes and the SBA-guaranteed debentures, respectively. The Holdings
Credit Facility had a weighted average interest rate of 2.9% for the year ended December 31, 2014 and the NMFC Credit Facility had a weighted

average interest rate of 2.7% for the year ended December 31, 2014. The interest rate on the Convertible Notes is 5.0% per year.

We may need to raise additional capital to grow the Company.

        The Company may need additional capital to fund new investments and grow. The Company may access the capital markets periodically to
issue equity securities. In addition, the Company may also issue debt securities or borrow from ﬁnancial institutions in order to obtain such
additional capital. Unfavorable economic conditions could increase the Company's funding costs and limit its access to the

34

Table of Contents

capital markets or result in a decision by lenders not to extend credit to the Company. A reduction in the availability of new capital could limit the
Company's ability to grow. In addition, the Company is required to distribute at least 90.0% of its net ordinary income and net short-term capital
gains in excess of net long-term capital losses, if any, to its stockholders to maintain its RIC status. As a result, these earnings will not be available
to fund new investments. If the Company is unable to access the capital markets or if the Company is unable to borrow from ﬁnancial institutions,
the Company may be unable to grow its business and execute its business strategy fully, and earnings, if any, could decrease, which could have an
adverse effect on the value of the Company's securities.

If the Company is unable to comply with the covenants or restrictions in its borrowings, our business could be materially adversely affected.

        The Holdings Credit Facility include covenants that, subject to exceptions, restrict the Company's ability to pay distributions, create liens on
assets, make investments, make acquisitions and engage in mergers or consolidations. The Holdings Credit Facility also includes a change of control
provision that accelerates the indebtedness under the facility in the event of certain change of control events. Complying with these restrictions may
prevent the Company from taking actions that we believe would help it to grow its business or are otherwise consistent with its investment
objective. These restrictions could also limit the Company's ability to plan for or react to market conditions or meet extraordinary capital needs or
otherwise restrict corporate activities. In addition, the restrictions contained in the Holdings Credit Facility could limit the Company's ability to
make distributions to its stockholders in certain circumstances, which could result in the Company failing to qualify as a RIC and thus becoming
subject to corporate-level U.S. federal income tax (and any applicable state and local taxes).

        The NMFC Credit Facility includes customary covenants, including certain ﬁnancial covenants related to asset coverage and liquidity and other
maintenance covenants, as well as customary events of default.

        The Company's Convertible Notes are subject to certain covenants, including covenants requiring the Company to provide ﬁnancial
information to the holders of the Convertible Notes and the trustee if the Company ceases to be subject to the reporting requirements of the
Exchange Act. These covenants are subject to limitations and exceptions.

        The breach of any of the covenants or restrictions, unless cured within the applicable grace period, would result in a default under the
applicable credit facility that would permit the lenders thereunder to declare all amounts outstanding to be due and payable. In such an event, the
Company may not have sufﬁcient assets to repay such indebtedness. As a result, any default could have serious consequences to our ﬁnancial
condition. An event of default or an acceleration under the credit facilities could also cause a cross-default or cross-acceleration of another debt
instrument or contractual obligation, which would adversely impact the Company's liquidity. The Company may not be granted waivers or
amendments to the credit facilities if for any reason it is unable to comply with it, and the Company may not be able to reﬁnance the credit facilities
on terms acceptable to it, or at all.

The Company may enter into reverse repurchase agreements, which are another form of leverage.

        The Company may enter into reverse repurchase agreements as part of its management of its investment portfolio. Under a reverse repurchase
agreement, the Company will effectively pledge its assets as collateral to secure a short-term loan. Generally, the other party to the agreement makes
the loan in an amount equal to a percentage of the fair value of the pledged collateral. At the maturity of the reverse repurchase agreement, the payor
will be required to repay the loan and correspondingly receive back its collateral. While used as collateral, the assets continue to pay principal and
interest which are for the beneﬁt of the Company.

        The Company's use of reverse repurchase agreements, if any, involves many of the same risks involved in its use of leverage, as the proceeds
from reverse repurchase agreements generally will be

35

Table of Contents

invested in additional securities. There is a risk that the market value of the securities acquired with the proceeds of a reverse repurchase agreement
may decline below the price of the securities that it has sold but remains obligated to repurchase under the reverse repurchase agreement. In
addition, there is a risk that the market value of the securities effectively pledged by the Company may decline. If a buyer of securities under a
reverse repurchase agreement were to ﬁle for bankruptcy or experience insolvency, the Company may be adversely affected. Also, in entering into
reverse repurchase agreements, the Company would bear the risk of loss to the extent that the proceeds of such agreements at settlement are more
than the fair value of the underlying securities being pledged. In addition, due to the interest costs associated with reverse repurchase agreements
transactions, the Company's net asset value would decline, and, in some cases, we may be worse off than if such instruments had not been used.

If the Company is unable to obtain additional debt ﬁnancing, or if its borrowing capacity is materially reduced, our business could be materially
adversely affected.

        The Company may want to obtain additional debt ﬁnancing, or need to do so upon maturity of its credit facilities, in order to obtain funds
which may be made available for investments. The revolving period under the Holdings Credit Facility ends on December 18, 2017, and the
Holdings Credit Facility matures on December 18, 2019. The NMFC Credit Facility, the Convertible Notes and the SBA-guaranteed debentures
mature on June 4, 2019, June 15, 2019 and March 1, 2025, respectively. If the Company is unable to increase, renew or replace any such facilities
and enter into new debt ﬁnancing facilities or other debt ﬁnancing on commercially reasonable terms, its liquidity may be reduced signiﬁcantly. In
addition, if the Company is unable to repay amounts outstanding under any such facilities and is declared in default or is unable to renew or
reﬁnance these facilities, it may not be able to make new investments or operate our business in the normal course. These situations may arise due to
circumstances that the Company may be unable to control, such as lack of access to the credit markets, a severe decline in the value of the U.S.
dollar, a further economic downturn or an operational problem that affects third parties or the Company, and could materially damage the
Company's business operations, results of operations and ﬁnancial condition.

A renewed disruption in the capital markets and the credit markets could adversely affect our business.

        As a BDC, the Company must maintain its ability to raise additional capital for investment purposes. If the Company is unable to access the
capital markets or credit markets, the Company may be forced to curtail its business operations and may be unable to pursue new investment
opportunities. The capital markets and the credit markets have experienced extreme volatility in recent periods, and, as a result, there has been and
will likely continue to be uncertainty in the ﬁnancial markets in general. Disruptions in the capital markets in recent years increased the spread
between the yields realized on risk-free and higher risk securities, resulting in illiquidity in parts of the capital markets. In addition, a prolonged
period of market illiquidity may cause the Company to reduce the volume of loans it originates and/or funds and adversely affect the value of our
portfolio investments. Unfavorable economic conditions could also increase the Company's funding costs, limit its access to the capital markets or
result in a decision by lenders not to extend credit to the Company. These events could limit the Company's investment originations, limit its ability
to grow and negatively impact our operating results. Ongoing disruptive conditions in the ﬁnancial industry and the impact of new legislation in
response to those conditions could restrict the Company's business operations and, consequently, could adversely impact the Company's business,
results of operations and ﬁnancial condition.

        If the fair value of the Company's assets declines substantially, it may fail to maintain the asset coverage ratios imposed upon it by the 1940 Act
and contained in its Holding Credit Facility and NMFC Credit Facility. Any such failure would affect the Company's ability to issue senior
securities, including borrowings, draw on its Holdings Credit Facility and NMFC Credit Facility and pay

36

Table of Contents

distributions, which could materially impair its business operations. The Company's liquidity could be impaired further by the Company's inability
to access the capital or credit markets. For example, we cannot be certain that the Company will be able to renew its credit facilities as they mature,
to consummate new borrowing facilities to provide capital for normal operations, including new originations, or reapply for SBIC licenses. In recent
years, reﬂecting concern about the stability of the ﬁnancial markets, many lenders and institutional investors have reduced or ceased providing
funding to borrowers. This market turmoil and tightening of credit have led to increased market volatility and widespread reduction of business
activity generally in recent years. In addition, adverse economic conditions due to these disruptive conditions could materially impact the
Company's ability to comply with the ﬁnancial and other covenants in any existing or future credit facilities. If the Company is unable to comply
with these covenants, this could materially adversely affect the Company's business, results of operations and ﬁnancial condition.

Changes in interest rates may affect the Company's cost of capital and net investment income.

        To the extent the Company borrows money to make investments, the Company's net investment income depends, in part, upon the difference
between the rate at which it borrows funds and the rate at which it invests those funds. As a result, a signiﬁcant change in market interest rates may
have a material adverse effect on the Company's net investment income in the event it uses debt to ﬁnance its investments. In periods of rising
interest rates, the Company's cost of funds would increase, which could reduce its net investment income. The Company may use interest rate risk
management techniques in an effort to limit its exposure to interest rate ﬂuctuations. These techniques may include various interest rate hedging
activities to the extent permitted by the 1940 Act.

The incentive fee the Company pays to the Investment Adviser with respect to capital gains may be effectively greater than 20.0%.

        As a result of the operation of the cumulative method of calculating the capital gains portion of the incentive fee the Company pays to the
Investment Adviser, the cumulative aggregate capital gains fee received by the Investment Adviser could be effectively greater than 20.0%,
depending on the timing and extent of subsequent net realized capital losses or net unrealized depreciation. We cannot predict whether, or to what
extent, this payment calculation would affect your investment in NMFC's common stock.

SBIC LP is licensed by the SBA and is subject to SBA regulations.

        On August 1, 2014, the Company's wholly-owned direct and indirect subsidiary, SBIC LP, received its license to operate as an SBIC under the
1958 Act and is regulated by the SBA. The SBA places certain limitations on the ﬁnancing terms of investments by SBICs in portfolio companies,
regulates the types of ﬁnancings, prohibits investing in small businesses with certain characteristics or in certain industries and requires
capitalization thresholds that limit distributions to the Company. Compliance with SBIC requirements may cause SBIC LP to invest at less
competitive rates in order to ﬁnd investments that qualify under the SBA regulations.

        The SBA regulations require, among other things, an annual periodic examination of a licensed SBIC by an SBA examiner to determine the
SBIC's compliance with the relevant SBA regulations, and the performance of a ﬁnancial audit by an independent auditor. If SBIC LP fails to
comply with applicable regulations, the SBA could, depending on the severity of the violation, limit or prohibit SBIC LP's use of the debentures,
declare outstanding debentures immediately due and payable, and/or limit SBIC LP from making new investments. In addition, the SBA could
revoke or suspend SBIC LP's license for willful or repeated violation of, or willful or repeated failure to observe, any provision of the 1958 Act or
any rule or regulation promulgated thereunder. These actions by the SBA would, in turn, negatively affect the Company because SBIC LP is a
wholly-owned direct and indirect subsidiary of the Company.

37

Table of Contents

        SBA-guaranteed debentures are non-recourse to the Company, have a ten year maturity, and may be prepaid at any time without penalty.
Pooling of issued SBA-guaranteed debentures occurs in March and September of each year. The interest rate of SBA-guaranteed debentures is ﬁxed
at the time of pooling at a market-driven spread over ten year U.S. Treasury Notes. The interest rate on debentures issued prior to the next pooling
date is LIBOR plus 30 basis points. Leverage through SBA-guaranteed debentures is subject to required capitalization thresholds. Current SBA
regulations limit the amount that any SBIC may borrow to two tiers of leverage capped at $150.0 million, where each tier is equivalent to the
SBIC's regulatory capital, which generally equates to the amount of equity capital in the SBIC.

RISKS RELATED TO OUR OPERATIONS

Because the Company intends to distribute substantially all of its income to its stockholders to maintain its status as a RIC, the Company will
continue to need additional capital to ﬁnance its growth. If additional funds are unavailable or not available on favorable terms, the Company's
ability to grow may be impaired.

        In order for the Company to qualify for the tax beneﬁts available to RICs and to avoid payment of excise taxes, the Company intends to
distribute to its stockholders substantially all of its annual taxable income. As a result of these requirements, the Company may need to raise capital
from other sources to grow its business.

        As a BDC, the Company is required to meet a coverage ratio of total assets, less liabilities and indebtedness not represented by senior securities
and excluding SBA-guaranteed debentures as permitted by exemptive relief obtained from the SEC, to total senior securities, which includes all of
the Company's borrowings with the exception of SBA-guaranteed debentures, of at least 200.0%. This requirement limits the amount that the
Company may borrow. Since the Company continues to need capital to grow its investment portfolio, these limitations may prevent the Company
from incurring debt and require the Company to raise additional equity at a time when it may be disadvantageous to do so. While we expect the
Company will be able to borrow and to issue additional debt securities and expect that the Company will be able to issue additional equity
securities, which would in turn increase the equity capital available to the Company, we cannot assure you that debt and equity ﬁnancing will be

available to the Company on favorable terms, or at all. In addition, as a BDC, the Company generally is not permitted to issue equity securities
priced below net asset value without stockholder approval. If additional funds are not available to the Company, the Company may be forced to
curtail or cease new investment activities, and the Company's net asset value could decline.

SBIC LP may be unable to make distributions to the Company that will enable the Company to meet or maintain RIC status.

        In order for the Company to continue to qualify for tax beneﬁts available to RICs and to minimize corporate-level U.S. federal income tax, the
Company must distribute to its stockholders, for each taxable year, at least 90.0% of its "investment company taxable income", which is generally
its net ordinary income plus the excess of realized net short-term capital gains over realized net long-term capital losses, including investment
company taxable income from SBIC LP. The Company will be partially dependent on SBIC LP for cash distributions to enable the Company to
meet the RIC distribution requirements. SBIC LP may be limited by SBA regulations governing SBICs from making certain distributions to the
Company that may be necessary to maintain the Company's status as a RIC. The Company may have to request a waiver of the SBA's restrictions
for SBIC LP to make certain distributions to maintain the Company's RIC status. The Company cannot assure you that the SBA will grant such
waiver and if SBIC LP is unable to obtain a waiver, compliance with the SBA regulations may result in corporate-level U.S. federal income tax on
the Company.

38

Table of Contents

Our ability to enter into transactions with our afﬁliates is restricted.

        As a BDC, the Company is prohibited under the 1940 Act from participating in certain transactions with its respective afﬁliates without the
prior approval of its respective independent directors and, in some cases, the SEC. Any person that owns, directly or indirectly, 5.0% or more of the
Company's outstanding voting securities is an afﬁliate of the Company for purposes of the 1940 Act. The Company is generally prohibited from
buying or selling any securities (other than its respective securities) from or to an afﬁliate. The 1940 Act also prohibits certain "joint" transactions
with an afﬁliate, which could include investments in the same portfolio company (whether at the same or different times), without prior approval of
independent directors and, in some cases, the SEC. If a person acquires more than 25.0% of the Company's voting securities, the Company is
prohibited from buying or selling any security (other than its respective securities) from or to such person or certain of that person's afﬁliates, or
entering into prohibited joint transactions with such persons, absent the prior approval of the SEC. Similar restrictions limit the Company's ability to
transact business with its respective ofﬁcers or directors or its afﬁliates. As a result of these restrictions, the Company may be prohibited from
buying or selling any security from or to any portfolio company of a private equity fund managed by any afﬁliate of the Investment Adviser without
the prior approval of the SEC, which may limit the scope of investment opportunities that would otherwise be available to the Company.

The Investment Adviser has signiﬁcant potential conﬂicts of interest with the Company and, consequently, your interests as stockholders which
could adversely impact our investment returns.

        The Company's executive ofﬁcers and directors, as well as the current or future investment professionals of the Investment Adviser, serve or
may serve as ofﬁcers, directors or principals of entities that operate in the same or a related line of business as we do or of investment funds
managed by the Company's afﬁliates. Accordingly, they may have obligations to investors in those entities, the fulﬁllment of which might not be in
your interests as stockholders. Although we are currently New Mountain Capital's only vehicle focused primarily on investing in the investments
that we target, in the future, the investment professionals of the Investment Adviser and/or New Mountain Capital employees that provide services
pursuant to the Investment Management Agreement may manage other funds which may from time to time have overlapping investment objectives
with our own and, accordingly, may invest in, whether principally or secondarily, asset classes similar to those targeted by us. If this occurs, the
Investment Adviser may face conﬂicts of interest in allocating investment opportunities to the Company and such other funds. Although the
investment professionals endeavor to allocate investment opportunities in a fair and equitable manner, it is possible that the Company may not be
given the opportunity to participate in certain investments made by the Investment Adviser or persons afﬁliated with the Investment Adviser or that
certain of these investment funds may be favored over the Company. When these investment professionals identify an investment, they may be
forced to choose which investment fund should make the investment.

        If the Investment Adviser forms other afﬁliates in the future, the Company may co-invest on a concurrent basis with such other afﬁliate, subject
to compliance with applicable regulations and regulatory guidance or an exemptive order from the SEC and the Company's allocation procedures.
In addition, the Company pays management and incentive fees to the Investment Adviser and reimburses the Investment Adviser for certain
expenses it incurs. As a result, investors in the Company's common stock invest in the Company on a "gross" basis and receive distributions on a
"net" basis after the Company's expenses. Also, the incentive fee payable to the Investment Adviser may create an incentive for the Investment
Adviser to pursue investments that are riskier or more speculative than would be the case in the absence of such compensation arrangements. Any
potential conﬂict of interest arising as a result of the arrangements with the Investment Adviser could have a material adverse effect on our business,
results of operations and ﬁnancial condition.

39

Table of Contents

The Investment Committee, the Investment Adviser or its afﬁliates may, from time to time, possess material non-public information, limiting the
Company's investment discretion.

        The Investment Adviser's investment professionals, Investment Committee or their respective afﬁliates may serve as directors of, or in a similar
capacity with, companies in which we invest. In the event that material non-public information is obtained with respect to such companies, or we
become subject to trading restrictions under the internal trading policies of those companies or as a result of applicable law or regulations, the
Company could be prohibited for a period of time from purchasing or selling the securities of such companies, and this prohibition may have an
adverse effect on the Company and your interests as stockholders.

The valuation process for certain of the Company's portfolio holdings creates a conﬂict of interest.

        Some of the Company's portfolio investments are made in the form of securities that are not publicly traded. As a result, the Company's board
of directors determines the fair value of these securities in good faith. In connection with this determination, investment professionals from the
Investment Adviser may provide the Company's board of directors with portfolio company valuations based upon the most recent portfolio
company ﬁnancial statements available and projected ﬁnancial results of each portfolio company. In addition, Steven B. Klinsky, a member of the
Company's board of directors, has an indirect pecuniary interest in the Investment Adviser. The participation of the Investment Adviser's investment
professionals in the Company's valuation process, and the indirect pecuniary interest in the Investment Adviser by a member of the Company's
board of directors, could result in a conﬂict of interest as the Investment Adviser's management fee is based, in part, on the Company's gross assets
and incentive fees are based, in part, on unrealized gains and losses.

Conﬂicts of interest may exist related to other arrangements with the Investment Adviser or its afﬁliates.

        The Company has entered into a royalty-free license agreement with New Mountain Capital under which New Mountain Capital has agreed to
grant the Company a non-exclusive, royalty-free license to use the name "New Mountain". In addition, the Company reimburses the Administrator
for the allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations to the Company under the
Administration Agreement, such as the allocable portion of the cost of the Company's chief ﬁnancial ofﬁcer and chief compliance ofﬁcer and their
respective staffs. This could create conﬂicts of interest that the Company's board of directors must monitor.

The Investment Management Agreement with the Investment Adviser and the Administration Agreement with the Administrator were not
negotiated on an arm's length basis.

        The Investment Management Agreement and the Administration Agreement were negotiated between related parties. In addition, the Company
may choose not to enforce, or to enforce less vigorously, its respective rights and remedies under these agreements because of its desire to maintain
its ongoing relationship with the Investment Adviser, the Administrator and its respective afﬁliates. Any such decision, however, could cause the
Company to breach its ﬁduciary obligations to its stockholders.

The Investment Adviser's liability is limited under the Investment Management Agreement, and the Company has agreed to indemnify the
Investment Adviser against certain liabilities, which may lead the Investment Adviser to act in a riskier manner than it would when acting for its
own account.

        Under the Investment Management Agreement, the Investment Adviser does not assume any responsibility other than to render the services
called for under that agreement, and it is not responsible for any action of the Company's board of directors in following or declining to follow the
Investment Adviser's advice or recommendations. Under the terms of the Investment Management Agreement, the Investment Adviser, its ofﬁcers,
members, personnel, any person controlling or

40

Table of Contents

controlled by the Investment Adviser are not liable for acts or omissions performed in accordance with and pursuant to the Investment Management
Agreement, except those resulting from acts constituting gross negligence, willful misconduct, bad faith or reckless disregard of the Investment
Adviser's duties under the Investment Management Agreement. In addition, the Company has agreed to indemnify the Investment Adviser and each

of its ofﬁcers, directors, members, managers and employees from and against any claims or liabilities, including reasonable legal fees and other
expenses reasonably incurred, arising out of or in connection with our business and operations or any action taken or omitted pursuant to authority
granted by the Investment Management Agreement, except where attributable to gross negligence, willful misconduct, bad faith or reckless
disregard of such person's duties under the Investment Management Agreement. These protections may lead the Investment Adviser to act in a
riskier manner than it would when acting for its own account.

The Investment Adviser can resign upon 60 days' notice, and a suitable replacement may not be found within that time, resulting in disruptions
in the Company's operations that could adversely affect our business, results of operations and ﬁnancial condition.

        Under the Investment Management Agreement, the Investment Adviser has the right to resign at any time upon 60 days' written notice, whether
a replacement has been found or not. If the Investment Adviser resigns, the Company may not be able to ﬁnd a new investment adviser or hire
internal management with similar expertise and ability to provide the same or equivalent services on acceptable terms within 60 days, or at all. If a
replacement is not able to be found on a timely basis, our business, results of operations and ﬁnancial condition and the Company's ability to pay
distributions are likely to be materially adversely affected and the market price of its common stock may decline. In addition, if the Company is
unable to identify and reach an agreement with a single institution or group of executives having the expertise possessed by the Investment Adviser
and its afﬁliates, the coordination of its internal management and investment activities is likely to suffer. Even if the Company is able to retain
comparable management, whether internal or external, their integration into the Company's business and lack of familiarity with the Company's
investment objective may result in additional costs and time delays that may materially adversely affect our business, results of operations and
ﬁnancial condition.

The Administrator can resign upon 60 days' notice from its role as Administrator under the Administration Agreement, and a suitable
replacement may not be found, resulting in disruptions that could adversely affect our business, results of operations and ﬁnancial condition.

        The Administrator has the right to resign under the Administration Agreement upon 60 days' written notice, whether a replacement has been
found or not. If the Administrator resigns, it may be difﬁcult to ﬁnd a new administrator or hire internal management with similar expertise and
ability to provide the same or equivalent services on acceptable terms, or at all. If a replacement is not found quickly, our business, results of
operations and ﬁnancial condition, as well as the Company's ability to pay distributions, are likely to be adversely affected, and the market price of
its common stock may decline. In addition, the coordination of the Company's internal management and administrative activities is likely to suffer if
they are unable to identify and reach an agreement with a service provider or individuals with the expertise possessed by the Administrator. Even if a
comparable service provider or individuals to perform such services are retained, whether internal or external, their integration into the Company's
business and lack of familiarity with the Company's investment objective may result in additional costs and time delays that may materially
adversely affect our business, results of operations and ﬁnancial condition.

41

Table of Contents

If the Company fails to maintain its status as a BDC, our business and operating ﬂexibility could be signiﬁcantly reduced.

        The Company qualifys as a BDC under the 1940 Act. The 1940 Act imposes numerous constraints on the operations of BDCs. For example,
BDCs are required to invest at least 70.0% of their total assets in speciﬁed types of securities, primarily in private companies or thinly-traded U.S.
public companies, cash, cash equivalents, U.S. government securities and other high quality debt investments that mature in one year or less. Failure
to comply with the requirements imposed on BDCs by the 1940 Act could cause the SEC to bring an enforcement action against the Company
and/or expose the Company to claims of private litigants. In addition, upon approval of a majority of the Company's stockholders, the Company may
elect to withdraw its respective election as a BDC. If the Company decides to withdraw its election, or if the Company otherwise fails to qualify, or
maintain its qualiﬁcation, as a BDC, the Company may be subject to the substantially greater regulation under the 1940 Act as a closed-end
investment company. Compliance with these regulations would signiﬁcantly decrease our operating ﬂexibility and could signiﬁcantly increase our
cost of doing business.

If the Company does not invest a sufﬁcient portion of its assets in qualifying assets, it could be precluded from investing in certain assets or
could be required to dispose of certain assets, which could have a material adverse effect on our business, ﬁnancial condition and results of
operations.

        As a BDC, the Company is prohibited from acquiring any assets other than "qualifying assets" unless, at the time of and after giving effect to
such acquisition, at least 70.0% of our total assets are qualifying assets. We may acquire in the future other investments that are not "qualifying
assets" to the extent permitted by the 1940 Act. If the Company does not invest a sufﬁcient portion of its assets in qualifying assets, it would be
prohibited from investing in additional assets, which could have a material adverse effect on our business, ﬁnancial condition and results of
operations. Similarly, these rules could prevent the Company from making follow-on investments in existing portfolio companies (which could

result in the dilution of its position) or could require the Company to dispose of investments at inopportune times in order to come into compliance
with the 1940 Act. If the Company needs to dispose of these investments quickly, it may be difﬁcult to dispose of such investments on favorable
terms. For example, the Company may have difﬁculty in ﬁnding a buyer and, even if a buyer is found, it may have to sell the investments at a
substantial loss.

The Company's ability to invest in public companies may be limited in certain circumstances.

        To maintain the Company's status as a BDC, the Company is not permitted to 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). Subject
to certain exceptions for follow-on investments and distressed companies, an investment in an issuer that has outstanding securities listed on a
national securities exchange may be treated as qualifying assets only if such issuer has a common equity market capitalization that is less than
$250.0 million at the time of such investment.

Regulations governing the operations of BDCs will affect the Company's ability to raise additional equity capital as well as the Company's
ability to issue senior securities or borrow for investment purposes, any or all of which could have a negative effect on our investment objectives
and strategies.

        The Company's business requires a substantial amount of capital. The Company may acquire additional capital from the issuance of senior
securities, including borrowing under a credit facility or other indebtedness. In addition, the Company may also issue additional equity capital,
which would in turn increase the equity capital available to the Company. However, the Company may not be able to raise additional capital in the
future on favorable terms or at all.

42

Table of Contents

        The Company may issue debt securities, preferred stock, and it may borrow money from banks or other ﬁnancial institutions, which we refer to
collectively as "senior securities", up to the maximum amount permitted by the 1940 Act. The 1940 Act permits the Company to issue senior
securities in amounts such that its asset coverage, as deﬁned in the 1940 Act, equals at least 200.0% after each issuance of senior securities. If the
Company's asset coverage ratio is not at least 200.0%, it would be unable to issue senior securities, and if it had senior securities outstanding (other
than any indebtedness issued in consideration of a privately arranged loan, such as any indebtedness outstanding under the Holdings Credit Facility
and NMFC Credit Facility), it would be unable to make distributions to its stockholders. However, at December 31, 2014, the only senior securities
outstanding were indebtedness under the Holdings Credit Facility, NMFC Credit Facility and Convertible Notes and therefore at December 31,
2014, the Company would not have been precluded from paying distributions. If the value of the Company's assets declines, the Company may be
unable to satisfy this test. If that happens, the Company may be required to liquidate a portion of its investments and repay a portion of its
indebtedness at a time when such sales may be disadvantageous.

        The Holdings Credit Facility matures on December 18, 2019 and permits borrowings of $495.0 million as of December 31, 2014. The Holdings
Credit Facility had $468.1 million in debt outstanding as of December 31, 2014. The NMFC Credit Facility matures on June 4, 2019 and permits
borrowings of $80.0 million as of December 31, 2014. The NMFC Credit Facility had $50.0 million in debt outstanding as of December 31, 2014.
The Convertible Notes mature on June 15, 2019. The Convertible Notes had $115.0 million in debt outstanding as of December 31, 2014.

        In addition, the Company may in the future seek to securitize other portfolio securities to generate cash for funding new investments. To
securitize loans, the Company would likely create a wholly-owned subsidiary and contribute a pool of loans to the subsidiary. The Company would
then sell interests in the subsidiary on a non-recourse basis to purchasers and it would retain all or a portion of the equity in the subsidiary. If the
Company is unable to successfully securitize its loan portfolio, which must be done in compliance with the relevant restrictions in the Holdings
Credit Facility, its ability to grow its business or fully execute its business strategy could be impaired and our earnings, if any, could decrease. The
securitization market is subject to changing market conditions and the Company may not be able to access this market when it would otherwise
deem appropriate. Moreover, the successful securitization of the Company's portfolio might expose the Company to losses as the residual
investments in which it does not sell interests will tend to be those that are riskier and more apt to generate losses. The 1940 Act also may impose
restrictions on the structure of any securitization.

        The Company may also obtain capital through the issuance of additional equity capital. As a BDC, the Company generally is not able to issue
or sell its common stock at a price below net asset value per share. If the Company's common stock trades at a discount to its net asset value per
share, this restriction could adversely affect its ability to raise equity capital. The Company may, however, sell its common stock, or warrants,
options or rights to acquire its common stock, at a price below its net asset value per share of the common stock if its board of directors and
independent directors determine that such sale is in its best interests and the best interests of its stockholders, and its stockholders approve such sale.
In any such case, the price at which the Company's securities are to be issued and sold may not be less than a price that, in the determination of the

Company's board of directors, closely approximates the market value of such securities (less any underwriting commission or discount). If the
Company raises additional funds by issuing more shares of its common stock or if the Company issues senior securities convertible into, or
exchangeable for, the Company's common stock, the percentage ownership of the stockholders may decline and you may experience dilution.

43

Table of Contents

The Company's business model in the future may depend to an extent upon our referral relationships with private equity sponsors, and the
inability of the investment professionals of the Investment Adviser to maintain or develop these relationships, or the failure of these
relationships to generate investment opportunities, could adversely affect its business strategy.

        If the investment professionals of the Investment Adviser fail to maintain existing relationships or develop new relationships with other
sponsors or sources of investment opportunities, the Company may not be able to grow its investment portfolio. In addition, individuals with whom
the investment professionals of the Investment Adviser have relationships are not obligated to provide the Company with investment opportunities,
and, therefore, there is no assurance that any relationships they currently or may in the future have will generate investment opportunities for the
Company.

We may experience ﬂuctuations in our annual and quarterly results due to the nature of our business.

        We could experience ﬂuctuations in our annual and quarterly operating results due to a number of factors, some of which are beyond our
control, including the ability or inability of the Company to make investments in companies that meet its investment criteria, the interest rate
payable on the debt securities acquired and the default rate on such securities, the level of the Company's expenses, variations in and the timing of
the recognition of realized and unrealized gains or losses, the degree to which the Company encounters competition in the markets in which it
operates and general economic conditions. As a result of these factors, results for any period should not be relied upon as being indicative of
performance in future periods.

The Company's board of directors may change its investment objective, operating policies and strategies without prior notice or stockholder
approval, the effects of which may be adverse to your interest as a stockholder.

        The Company's board of directors has the authority, except as otherwise provided in the 1940 Act, to modify or waive certain of its operating
policies and strategies without prior notice and without stockholder approval. As a result, the Company's board of directors may be able to change
its investment policies and objectives without any input from its stockholders. However, absent stockholder approval, the Company may not change
the nature of its business so as to cease to be, or withdraw its election as, a BDC. Under Delaware law, the Company also cannot be dissolved
without prior stockholder approval. We cannot predict the effect any changes to the Company's current operating policies and strategies would have
on our business, operating results and the market price of NMFC's common stock. Nevertheless, any such changes could adversely affect our
business and impair the Company's ability to make distributions to its stockholders.

The Company will be subject to corporate-level U.S. federal income tax on all of its respective income if it is unable to maintain RIC status
under Subchapter M of the Code, which would have a material adverse effect on its ﬁnancial performance.

        Although the Company intends to continue to qualify annually as a RIC under Subchapter M of the Code, no assurance can be given that the
Company will be able to maintain its RIC status. To maintain RIC status and be relieved of U.S. federal income taxes on income and gains
distributed to its stockholders, the Company must meet the annual distribution, source-of-income and asset diversiﬁcation requirements described
below.

•

The annual distribution requirement for a RIC will be satisﬁed if the Company distributes to its stockholders on an annual basis at
least 90.0% of its net ordinary income plus the excess of realized net short-term capital gains over realized net long term capital
losses, if any. Because the Company uses debt ﬁnancing, the Company is subject to an asset coverage ratio requirement under the
1940 Act, and the Company is subject to certain ﬁnancial covenants contained in the

44

Table of Contents

Holdings Credit Facility and other debt ﬁnancing agreements (as applicable). This asset coverage ratio requirement and these

•

•

ﬁnancial covenants could, under certain circumstances, restrict the Company from making distributions to its stockholders, which
distributions are necessary for the Company to satisfy the distribution requirement. If the Company is unable to obtain cash from
other sources, and thus is unable to make sufﬁcient distributions to its stockholders, the Company could fail to qualify for RIC tax
treatment and thus become subject to certain corporate-level U.S. federal income tax (and any applicable state and local taxes).

The source-of-income requirement will be satisﬁed if at least 90.0% of the Company's allocable share of its gross income for each
year is derived from dividends, interest payments with respect to loans of certain securities, gains from the sale of stock or other
securities, net income from certain "qualiﬁed publicly traded partnerships" or other income derived with respect to the Company's
business of investing in such stock or securities. 

The asset diversiﬁcation requirement will be satisﬁed if the Company meets certain asset diversiﬁcation requirements at the end of
each quarter of its taxable year. To satisfy this requirement, at least 50.0% of the value of the Company's assets must consist of cash,
cash equivalents, U.S. government securities, securities of other RICs, and other such securities if such other securities of any one
issuer do not represent more than 5.0% of the value of the Company's assets or more than 10.0% of the outstanding voting securities
of the issuer; and no more than 25.0% of the value of the Company's assets can be invested in the securities, other than U.S.
government securities or securities of other RICs, of one issuer, of two or more issuers that are controlled, as determined under
applicable Code rules, by the Company and that are engaged in the same or similar or related trades or businesses or of certain
"qualiﬁed publicly traded partnerships". Failure to meet these requirements may result in the Company having to dispose of certain
investments quickly in order to prevent the loss of the Company's RIC status. Because most of the Company's investments are
intended to be in private companies, and therefore may be relatively illiquid, any such dispositions could be made at disadvantageous
prices and could result in substantial losses.

        If the Company fails to qualify for or maintain its RIC status for any reason, and it does not qualify for certain relief provisions under the Code,
the Company would be subject to certain corporate-level U.S. federal income tax (and any applicable state and local taxes). In this event, the
resulting taxes could substantially reduce the Company's net assets, the amount of income available for distribution and the amount of its
distributions, which would have a material adverse effect on its ﬁnancial performance.

You may have current tax liabilities on distributions you reinvest in common stock of NMFC.

        Under the dividend reinvestment plan, if you own shares of common stock of NMFC registered in your own name, you will have all cash
distributions automatically reinvested in additional shares of common stock of NMFC unless you opt out of the dividend reinvestment plan by
delivering notice by phone, internet or in writing to the plan administrator at least three days prior to the payment date of the next dividend or
distribution. If you have not "opted out" of the dividend reinvestment plan, you will be deemed to have received, and for U.S. federal income tax
purposes will be taxed on, the amount reinvested in common stock of NMFC to the extent the amount reinvested was not a tax-free return of capital.
As a result, you may have to use funds from other sources to pay your U.S. federal income tax liability on the value of the common stock received.

45

Table of Contents

The Company may not be able to pay you distributions on its common stock, its distributions to you may not grow over time and a portion of its
distributions to you may be a return of capital for U.S. federal income tax purposes.

        The Company intends to pay quarterly distributions to its stockholders out of assets legally available for distribution. We cannot assure you
that we will continue to achieve investment results that will allow the Company to make a speciﬁed level of cash distributions or year-to-year
increases in cash distributions. If the Company is unable to satisfy the asset coverage test applicable to it as a BDC, or if it violates certain covenants
under the Holdings Credit Facility and the NMFC Credit Facility, the Company's ability to pay distributions to its stockholders could be limited. All
distributions are paid at the discretion of the Company's board of directors and depend on its earnings, ﬁnancial condition, maintenance of the
Company's RIC status, compliance with applicable BDC regulations, compliance with covenants under the Holdings Credit Facility and NMFC
Credit Facility, and such other factors as the Company's board of directors may deem relevant from time to time. The distributions that the Company
pays to its stockholders in a year may exceed its taxable income for that year and, accordingly, a portion of such distributions may constitute a
return of capital for U.S. federal income tax purposes.

The Company may have difﬁculty paying its required distributions if the Company recognizes taxable income before or without receiving cash
representing such income.

        For U.S. federal income tax purposes, the Company includes in its taxable income its allocable share of certain amounts that the Company has
not yet received in cash, such as original issue discount or accruals on a contingent payment debt instrument, which may occur if the Company

receives warrants in connection with the origination of a loan or possibly in other circumstances or contracted payment-in-kind ("PIK") interest,
which generally represents contractual interest added to the loan balance and due at the end of the loan term. The Company's allocable share of such
original issue discount and PIK interest are included in its taxable income before the Company receives any corresponding cash payments. The
Company also may be required to include in its taxable income its allocable share of certain other amounts that the Company will not receive in
cash.

        Because in certain cases the Company may recognize taxable income before or without receiving cash representing such income, the Company
may have difﬁculty making distributions to its stockholders that will be sufﬁcient to enable the Company to meet the annual distribution
requirement necessary to qualify as a RIC. Accordingly, the Company may need to sell some of its assets at times and/or at prices that it would not
consider advantageous, the Company may need to raise additional equity or debt capital, or the Company may need to forego new investment
opportunities or otherwise take actions that are disadvantageous to its business (or be unable to take actions that are advantageous to its business) to
enable the Company to make distributions to its stockholders that will be sufﬁcient to enable the Company to meet the annual distribution
requirement. If the Company is unable to obtain cash from other sources to enable it to meet the annual distribution requirement, the Company may
fail to qualify for the U.S. federal income tax beneﬁts allowable to RICs and, thus, become subject to certain corporate-level U.S. federal income tax
(and any applicable state and local taxes).

Table of Contents

46

Changes in laws or regulations governing the Company's operations may adversely affect our business or cause the Company to alter its
business strategy.

        Changes in the laws or regulations or the interpretations of the laws and regulations that govern BDCs, RICs or non-depository commercial
lenders could signiﬁcantly affect our operations and our cost of doing business. The Company's portfolio companies are subject to U.S. federal,
state and local laws and regulations. New legislation may be enacted or new interpretations, rulings or regulations could be adopted, any of which
could materially adversely affect our business, including with respect to the types of investments the Company is permitted to make, and your
interest as a stockholder potentially with retroactive effect. In addition, any changes to the laws and regulations governing the Company's operations
relating to permitted investments may cause the Company to alter its investment strategy in order to avail itself of new or different opportunities.
These changes could result in material changes to the strategies and may result in the Company's investment focus shifting from the areas of
expertise of the Investment Adviser to other types of investments in which the Investment Adviser may have less expertise or little or no experience.
Any such changes, if they occur, could have a material adverse effect on our business, results of operations and ﬁnancial condition and,
consequently, the value of your investment in us.

        On July 21, 2010, the Wall Street Reform and Consumer Protection Act, or Dodd-Frank Act, was signed into law. Although passage of the
Dodd-Frank Act has resulted in extensive rulemaking and regulatory changes that affect the Company and the ﬁnancial industry as a whole, many of
its provisions remain subject to extended implementation periods and delayed effective dates and will require extensive rulemaking by regulatory
authorities. While the full impact of the Dodd-Frank Act on the Company and the Company's portfolio companies may not be known for an
extended period of time, the Dodd-Frank Act, including future rules implementing its provisions and the interpretation of those rules, along with
other legislative and regulatory proposals directed at the ﬁnancial services industry or affecting taxation that are proposed or pending in the U.S.
Congress, may negatively impact the Company's or the Company's portfolio companies operations, cash ﬂows or ﬁnancial condition, impose
additional costs on the Company or the Company's portfolio companies, intensify the regulatory supervision of the Company or the Company's
portfolio companies or otherwise adversely affect the Company's business or the business of the Company's portfolio companies.

        Over the last several years, there has been an increase in regulatory attention to the extension of credit outside of the traditional banking sector,
raising the possibility that some portion of the non-bank ﬁnancial sector will be subject to new regulation. While it cannot be known at this time
whether these regulations will be implemented or what form they will take, increased regulation of non-bank credit extension could negatively
impact the Company's operations, cash ﬂows or ﬁnancial condition, impose additional costs on the Company, intensify the regulatory supervision of
the Company or otherwise adversely affect the Company's business.

The effect of global climate change may impact the operations of the Company's portfolio companies.

        There may be evidence of global climate change. Climate change creates physical and ﬁnancial risk and some of the Company's portfolio
companies may be adversely affected by climate change. For example, the needs of customers of energy companies vary with weather conditions,
primarily temperature and humidity. To the extent weather conditions are affected by climate change, energy use could increase or decrease
depending on the duration and magnitude of any changes. Increases in the cost of energy could adversely affect the cost of operations of the
Company's portfolio companies if the use of energy products or services is material to their business. A decrease in energy use due to weather
changes may affect some of the Company's portfolio companies' ﬁnancial condition, through decreased revenues. Extreme weather conditions in
general require more system backup, adding to costs, and can contribute to increased system stresses, including service interruptions.

47

Table of Contents

Pending legislation may allow the Company to incur additional leverage.

        As a BDC, under the 1940 Act the Company generally is not permitted to incur indebtedness unless immediately after such borrowing the
Company has an asset coverage for total borrowings of at least 200.0% (i.e., the amount of debt may not exceed 50.0% of the value of the
Company's total assets or the Company may borrow an amount equal to 100.0% of net assets). Legislation introduced in Congress, if passed, would
modify this section of the 1940 Act and increase the amount of debt that BDCs may incur by modifying the percentage from 200.0% to 150.0%. As
a result, the Company may be able to incur additional indebtedness in the future and therefore your risk of an investment in the Company's common
stock may increase.

The Company incurs signiﬁcant costs as a result of being a publicly traded company.

        As a publicly traded company, the Company incurs legal, accounting and other expenses, which are paid by the Company, including costs
associated with the periodic reporting requirements applicable to a company whose securities are registered under the Exchange Act, as well as
additional corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002, or the "Sarbanes-Oxley Act," and
other rules implemented by the SEC.

Efforts to comply with Section 404 of the Sarbanes-Oxley Act involve signiﬁcant expenditures, and non-compliance with Section 404 of the
Sarbanes-Oxley Act may adversely affect the Company and the market price of its common stock.

        The Company is subject to the Sarbanes-Oxley Act, and the related rules and regulations promulgated by the SEC. Under current SEC rules
since its ﬁscal year ended December 31, 2012, the Company's management has been required to report on its internal control over ﬁnancial
reporting pursuant to Section 404 of the Sarbanes-Oxley Act, and rules and regulations of the SEC thereunder. The Company is required to review
on an annual basis its internal control over ﬁnancial reporting, and on a quarterly and annual basis to evaluate and disclose changes in its internal
control over ﬁnancial reporting. As a result, the Company expects to continue to incur additional expenses, which may negatively impact the
Company's ﬁnancial performance and the Company's ability to make distributions to its stockholders. This process also may result in a diversion of
management's time and attention. We cannot be certain as to the timing of completion of any evaluation, testing and remediation actions or the
impact of the same on our operations, and the Company is not able to ensure that the process is effective or that its internal control over ﬁnancial
reporting is or will continue to be effective in a timely manner. In the event that the Company is unable to maintain or achieve compliance with
Section 404 of the Sarbanes-Oxley Act and related rules, the Company and, consequently, the market price of its common stock may be adversely
affected.

The Company's business is highly dependent on information systems and systems failures could signiﬁcantly disrupt our business, which may,
in turn, negatively affect the market price of the Company's common stock and its ability to pay dividends.

        The Company's business is highly dependent on the communications and information systems of the Investment Adviser and its afﬁliates. Any
failure or interruption of such systems could cause delays or other problems in the Company's activities. This, in turn, could have a material adverse
effect on the Company's operating results and, consequently, negatively affect the market price of its common stock and its ability to pay dividends
to its stockholders. In addition, because many of the Company's portfolio companies operate and rely on network infrastructure and enterprise
applications and internal technology systems for development, marketing, operational, support and other business activities, a disruption or failure of
any or all of these systems in the event of a major telecommunications failure, cyber-attack, ﬁre, earthquake, severe weather conditions or other
catastrophic event could cause system

48

Table of Contents

interruptions, delays in product development and loss of critical data and could otherwise disrupt their business operations.

The failure in cyber security systems, as well as the occurrence of events unanticipated in the Company's disaster recovery systems and
management continuity planning could impair the Company's ability to conduct business effectively.

        The occurrence of a disaster such as a cyber attack, a natural catastrophe, an industrial accident, a terrorist attack or war, events unanticipated in

the Company's disaster recovery systems, or a support failure from external providers, could have an adverse effect on the Company's ability to
conduct business and on the Company's results of operations and ﬁnancial condition, particularly if those events affect the Company's computer-
based data processing, transmission, storage, and retrieval systems or destroy data. If a signiﬁcant number of the Company's managers were
unavailable in the event of a disaster, the Company's ability to effectively conduct its business could be severely compromised.

        We depend heavily upon computer systems to perform necessary business functions. Despite the Company's implementation of a variety of
security measures, its computer systems could be subject to cyber attacks and unauthorized access, such as physical and electronic break-ins or
unauthorized tampering. Like other companies, the Company may experience threats to its data and systems, including malware and computer virus
attacks, unauthorized access, system failures and disruptions. If one or more of these events occurs, it could potentially jeopardize the conﬁdential,
proprietary and other information processed and stored in, and transmitted through, the Company's computer systems and networks, or otherwise
cause interruptions or malfunctions in its operations, which could result in damage to the Company's reputation, ﬁnancial losses, litigation, increased
costs, regulatory penalties and/or customer dissatisfaction or loss.

RISKS RELATING TO THE COMPANY'S INVESTMENTS

The Company's investments in portfolio companies may be risky, and the Company could lose all or part of any of its investments.

        Investments in small and middle market businesses are highly speculative and involve a high degree of risk of credit loss. These risks are likely
to increase during volatile economic periods, such as the U.S. and many other economies have recently experienced. Among other things, these
companies:

•

•

•

•

may have limited ﬁnancial resources and may be unable to meet their obligations under their debt instruments that the Company
holds, which may be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of the Company
realizing any guarantees from subsidiaries or afﬁliates of its portfolio companies that the Company may have obtained in connection
with its investment, as well as a corresponding decrease in the value of any equity components of its investments; 

may have shorter operating histories, narrower product lines, smaller market shares and/or more signiﬁcant customer concentrations
than larger businesses, which tend to render them more vulnerable to competitors' actions and market conditions, as well as general
economic downturns; 

are more likely to depend on the management talents and efforts of a small group of persons; therefore, the death, disability,
resignation or termination of one or more of these persons could have a material adverse impact on the Company's portfolio
company and, in turn, on us; 

generally have less predictable operating results, may from time to time be parties to litigation, may be engaged in rapidly changing
businesses with products subject to a substantial risk of obsolescence;

49

Table of Contents

•

•

may require substantial additional capital to support their operations, ﬁnance expansion or maintain their competitive position; and 

generally have less publicly available information about their businesses, operations and ﬁnancial condition.

        In addition, in the course of providing signiﬁcant managerial assistance to certain of the Company's portfolio companies, certain of the
Company's ofﬁcers and directors may serve as directors on the boards of such companies. To the extent that litigation arises out of the Company's
investments in these companies, the Company's ofﬁcers and directors may be named as defendants in such litigation, which could result in an
expenditure of funds (through the Company's indemniﬁcation of such ofﬁcers and directors) and the diversion of management time and resources.

The Company's investment strategy, which is focused primarily on privately held companies, presents certain challenges, including the lack of
available information about these companies.

        The Company invests primarily in privately held companies. There is generally little public information about these companies, and, as a
result, the Company must rely on the ability of the Investment Adviser to obtain adequate information to evaluate the potential returns from, and
risks related to, investing in these companies. If the Company is unable to uncover all material information about these companies, it may not make
a fully informed investment decision, and it may lose money on its investments. Also, privately held companies frequently have less diverse
product lines and smaller market presence than larger competitors. They are, thus, generally more vulnerable to economic downturns and may

experience substantial variations in operating results. These factors could adversely affect the Company's investment returns.

The Company's investments in securities rated below investment grade are speculative in nature and are subject to additional risk factors such
as increased possibility of default, illiquidity of the security, and changes in value based on changes in interest rates.

        The Company's investments are typically rated below investment grade. Securities rated below investment grade are often referred to as
"leveraged loans," "high yield" or "junk" securities, and may be considered "high risk" compared to debt instruments that are rated investment
grade. High yield securities are regarded as having predominantly speculative characteristics with respect to the issuer's capacity to pay interest and
repay principal in accordance with the terms of the obligations and involve major risk exposure to adverse conditions. In addition, high yield
securities generally offer a higher current yield than that available from higher grade issues, but typically involve greater risk. These securities are
especially sensitive to adverse changes in general economic conditions, to changes in the ﬁnancial condition of their issuers and to price ﬂuctuation
in response to changes in interest rates. During periods of economic downturn or rising interest rates, issuers of below investment grade instruments
may experience ﬁnancial stress that could adversely affect their ability to make payments of principal and interest and increase the possibility of
default.

The Company's portfolio may be concentrated in a limited number of industries, which may subject the Company to a risk of signiﬁcant loss if
there is a downturn in a particular industry in which a number of its investments are concentrated.

        The Company's portfolio may be concentrated in a limited number of industries. For example, as of December 31, 2014, the Company's
investments in the software, the business services and the education industries represented approximately 20.2%, 18.3% and 17.7%, respectively, of
the fair value of the Company's portfolio. A downturn in any particular industry in which the Company is invested could signiﬁcantly impact the
portfolio companies operating in that industry, and accordingly, the aggregate returns that the Company realizes from its investment in such
portfolio companies.

50

Table of Contents

        Speciﬁcally, companies in the software industry often have narrow product lines and small market shares. Because of rapid technological
change, the average selling prices of products and some services provided by software companies have historically decreased over their productive
lives. As a result, the average selling prices of products and services offered by software companies in which we invest may decrease over time. In
addition, companies in the business services industry are subject to general economic downturns and business cycles, and will often suffer reduced
revenues and rate pressures during periods of economic uncertainty. Likewise, companies in the education industry are required to comply with
extensive regulatory and accreditation requirements, which could be subject to change by Congress, and which can limit their access to federal aid or
similar loan programs, or otherwise increase their compliance costs. If an industry in which the Company has signiﬁcant investments suffers from
adverse business or economic conditions, as these industries have to varying degrees, a material portion of its investment portfolio could be affected
adversely, which, in turn, could adversely affect the Company's ﬁnancial position and results of operations.

Continuation of the current decline in oil and natural gas prices for a prolonged period of time could have a material adverse effect on the
Company.

        Approximately 5.9% of the Company's portfolio at fair value is invested in energy-related businesses. A decline in oil and natural gas prices
would adversely affect the credit quality of these investments. A decrease in credit quality would, in turn, negatively affect the fair value of these
investments, which would consequently negatively affect the Company's ﬁnancial position and results of operations. Should the current decline in
oil and natural gas prices persist, it is likely that the Company's energy-related portfolio companies' abilities to satisfy ﬁnancial or operating
covenants imposed by the Company or other lenders will be adversely affected, thereby negatively impacting the Company's ﬁnancial condition and
their ability to satisfy their debt service and other obligations to the Company.

If the Company makes unsecured investments, those investments might not generate sufﬁcient cash ﬂow to service its debt obligations to the
Company.

        The Company may make unsecured investments. Unsecured investments may be subordinated to other obligations of the obligor. Unsecured
investments often reﬂect a greater possibility that adverse changes in the ﬁnancial condition of the obligor or general economic conditions
(including, for example, a substantial period of rising interest rates or declining earnings) or both may impair the ability of the obligor to make
payment of principal and interest. If the Company makes an unsecured investment in a portfolio company, that portfolio company may be highly
leveraged, and its relatively high debt-to-equity ratio may increase the risk that its operations might not generate sufﬁcient cash to service its debt
obligations.

If the Company invests in the securities and obligations of distressed and bankrupt issuers, it might not receive interest or other payments.

        From time to time, the Company may invest in other types of investments which are not its primary focus, including investments in the
securities and obligations of distressed and bankrupt issuers, including debt obligations that are in covenant or payment default. Such investments
generally are considered speculative. The repayment of defaulted obligations is subject to signiﬁcant uncertainties. Defaulted obligations might be
repaid only after lengthy workout or bankruptcy proceedings, during which the issuer of those obligations might not make any interest or other
payments.

The lack of liquidity in the Company's investments may adversely affect our business.

        The Company invests, and will continue to invest, in companies whose securities are not publicly traded and whose securities will be subject to
legal and other restrictions on resale or will otherwise be

51

Table of Contents

less liquid than publicly traded securities. The illiquidity of these investments may make it difﬁcult for the Company to sell these investments when
desired. In addition, if the Company is required or otherwise chooses to liquidate all or a portion of its portfolio quickly, it may realize signiﬁcantly
less than the value at which it had previously recorded these investments. The Company's investments are usually subject to contractual or legal
restrictions on resale or are otherwise illiquid because there is usually no established trading market for such investments. Because most of the
Company's investments are illiquid, the Company may be unable to dispose of them in which case the Company could fail to qualify as a RIC
and/or a BDC, or the Company may be unable to do so at a favorable price, and, as a result, the Company may suffer losses.

Price declines and illiquidity in the corporate debt markets may adversely affect the fair value of the Company's portfolio investments, reducing
the Company's net asset value through increased net unrealized depreciation.

        As a BDC, the Company is required to carry its investments at market value or, if no market value is ascertainable, at fair value as determined
in good faith by its board of directors. As part of the valuation process, the Company may take into account the following types of factors, if
relevant, in determining the fair value of its investments:

•

•

•

•

•

•

a comparison of the portfolio company's securities to publicly traded securities; 

the enterprise value of a portfolio company; 

the nature and realizable value of any collateral; 

the portfolio company's ability to make payments and its earnings and discounted cash ﬂow; 

the markets in which the portfolio company does business; and 

changes in the interest rate environment and the credit markets generally that may affect the price at which similar investments may
be made in the future and other relevant factors.

        When an external event such as a purchase transaction, public offering or subsequent sale occurs, the Company will use the pricing indicated
by the external event to corroborate its valuation. The Company will record decreases in the market values or fair values of its investments as
unrealized depreciation. Declines in prices and liquidity in the corporate debt markets may result in signiﬁcant net unrealized depreciation in its
portfolio. The effect of all of these factors on the Company's portfolio may reduce the Company's net asset value by increasing net unrealized
depreciation in the Company's portfolio. Depending on market conditions, the Company could incur substantial realized losses and may suffer
additional unrealized losses in future periods, which could have a material adverse effect on its business, ﬁnancial condition, results of operations
and cash ﬂows.

If the Company is unable to make follow-on investments in its portfolio companies, the value of the Company's investment portfolio could be
adversely affected.

        Following an initial investment in a portfolio company, the Company may make additional investments in that portfolio company as "follow-
on" investments, in order to (i) increase or maintain in whole or in part its equity ownership percentage, (ii) exercise warrants, options or convertible
securities that were acquired in the original or subsequent ﬁnancing or (iii) attempt to preserve or enhance the value of its investment. The Company

may elect not to make follow-on investments or may otherwise lack sufﬁcient funds to make these investments. The Company has the discretion to
make follow-on investments, subject to the availability of capital resources. If the Company fails to make follow-on investments, the continued
viability of a portfolio company and its investment may, in some circumstances, be jeopardized and we could miss an opportunity for the Company
to increase its participation in a successful operation. Even if the Company has sufﬁcient capital to make a desired

52

Table of Contents

follow-on investment, it may elect not to make a follow-on investment because it may not want to increase its concentration of risk, either because it
prefers other opportunities or because it is subject to BDC requirements that would prevent such follow-on investments or such follow-on
investments would adversely impact its ability to maintain its RIC status.

The Company's portfolio companies may incur debt that ranks equally with, or senior to, its investments in such companies.

        The Company invests in portfolio companies at all levels of the capital structure. The Company's portfolio companies may have, or may be
permitted to incur, other debt that ranks equally with, or senior to, the debt in which the Company invests. By their terms, these debt instruments
may entitle the holders to receive payment of interest or principal on or before the dates on which the Company is entitled to receive payments with
respect to the debt instruments in which it invests. In addition, in the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a
portfolio company, holders of debt instruments ranking senior to the Company's investment in that portfolio company would typically be entitled to
receive payment in full before it receives any distribution. After repaying the senior creditors, the portfolio company may not have any remaining
assets to use for repaying its obligation to the Company. In the case of debt ranking equally with debt instruments in which the Company invests, it
would have to share on an equal basis any distributions with other creditors holding such debt in the event of an insolvency, liquidation, dissolution,
reorganization or bankruptcy of the relevant portfolio company.

The disposition of the Company's investments may result in contingent liabilities.

        Most of the Company's investments will involve private securities. In connection with the disposition of an investment in private securities, the
Company may be required to make representations about the business and ﬁnancial affairs of the portfolio company typical of those made in
connection with the sale of a business. The Company may also be required to indemnify the purchasers of such investment to the extent that any
such representations turn out to be inaccurate or with respect to certain potential liabilities. These arrangements may result in contingent liabilities
that ultimately yield funding obligations that must be satisﬁed through the Company's return of certain distributions previously made to it.

There may be circumstances where the Company's debt investments could be subordinated to claims of other creditors or the Company could be
subject to lender liability claims.

        Even though the Company may have structured certain of its investments as senior loans, if one of its portfolio companies were to go bankrupt,
depending on the facts and circumstances, including the extent to which the Company actually provided managerial assistance to that portfolio
company, a bankruptcy court might re-characterize its debt investment and subordinate all or a portion of the Company's claim to that of other
creditors. The Company may also be subject to lender liability claims for actions taken by it with respect to a borrower's business or instances where
it exercises control over the borrower. It is possible that the Company could become subject to a lender's liability claim, including as a result of
actions taken in rendering signiﬁcant managerial assistance.

Second priority liens on collateral securing loans that the Company makes to its portfolio companies may be subject to control by senior
creditors with ﬁrst priority liens. If there is a default, the value of the collateral may not be sufﬁcient to repay in full both the ﬁrst priority
creditors and the Company.

        Certain loans to portfolio companies will be secured on a second priority basis by the same collateral securing senior secured debt of such
companies. The ﬁrst priority liens on the collateral will secure the portfolio company's obligations under any outstanding senior debt and may secure
certain other future debt that may be permitted to be incurred by the portfolio company under the agreements

53

Table of Contents

governing the loans. The holders of obligations secured by the ﬁrst priority liens on the collateral will generally control the liquidation of and be

entitled to receive proceeds from any realization of the collateral to repay their obligations in full before the Company. In addition, the value of the
collateral in the event of liquidation will depend on market and economic conditions, the availability of buyers and other factors. There can be no
assurance that the proceeds, if any, from the sale or sales of all of the collateral would be sufﬁcient to satisfy the loan obligations secured by the
second priority liens after payment in full of all obligations secured by the ﬁrst priority liens on the collateral. If such proceeds are not sufﬁcient to
repay amounts outstanding under the loan obligations secured by the second priority liens, then the Company, to the extent not repaid from the
proceeds of the sale of the collateral, will only have an unsecured claim against the portfolio company's remaining assets, if any.

        The rights the Company may have with respect to the collateral securing the loans it makes to its portfolio companies with senior debt
outstanding may also be limited pursuant to the terms of one or more intercreditor agreements entered into with the holders of ﬁrst priority senior
debt. Under an intercreditor agreement, at any time that obligations that have the beneﬁt of the ﬁrst priority liens are outstanding, any of the
following actions that may be taken in respect of the collateral will be at the direction of the holders of the obligations secured by the ﬁrst priority
liens: the ability to cause the commencement of enforcement proceedings against the collateral, the ability to control the conduct of such
proceedings, the approval of amendments to collateral documents; releases of liens on the collateral and waivers of past defaults under collateral
documents. The Company may not have the ability to control or direct these actions, even if its rights are adversely affected.

The Company generally does not control its portfolio companies.

        The Company does not, and does not expect to, control most of its portfolio companies, even though the Company may have board
representation or board observation rights, and its debt agreements may contain certain restrictive covenants that limit the business and operations
of its portfolio companies. As a result, the Company is subject to the risk that a portfolio company may make business decisions with which the
Company disagrees and the management of such company, may take risks or otherwise act in ways that do not serve the Company's interests as
debt investors. Due to the lack of liquidity of the investments that the Company typically holds in its portfolio companies, it may not be able to
dispose of its investments in the event that the Company disagrees with the actions of a portfolio company as readily as it would otherwise like to or
at favorable prices which could decrease the value of its investments.

Economic recessions, downturns or government spending cuts could impair the Company's portfolio companies and harm its operating results.

        Many of the Company's portfolio companies may be susceptible to economic slowdowns or recessions and may be unable to repay its debt
investments during these periods. Therefore, the Company's non-performing assets are likely to increase, and the value of the Company's portfolio is
likely to decrease during these periods. Adverse economic conditions also may decrease the value of collateral securing some of the Company's debt
investments and the value of its equity investments. Economic slowdowns or recessions could lead to ﬁnancial losses in the Company's portfolio
and a decrease in revenues, net income and assets. Unfavorable economic conditions also could increase the Company's funding costs, limit the
Company's access to the capital markets or result in a decision by lenders not to extend credit to the Company. These events could prevent the
Company from increasing investments and harm its operating results.

54

Table of Contents

A number of the Company's portfolio companies provide services to the U.S. government. Changes in the U.S. government's priorities and
spending, or signiﬁcant delays or reductions in appropriations of the U.S. government's funds, could have a material adverse effect on the
ﬁnancial position, results of operations and cash ﬂows of such portfolio companies.

        A number of the Company's portfolio companies derive a substantial portion of their revenue from the U.S. government. Levels of the U.S.
government's spending in future periods are very difﬁcult to predict and subject to signiﬁcant risks. In addition, signiﬁcant budgetary constraints may
result in further reductions to projected spending levels. In particular, U.S. government expenditures are subject to the potential for automatic
reductions, generally referred to as "sequestration." Sequestration occurred during 2013, and may occur again in the future, resulting in signiﬁcant
additional reductions to spending by the U.S. government on both existing and new contracts as well as disruption of ongoing programs. Even if
sequestration does not occur again in the future, we expect that budgetary constraints and ongoing concerns regarding the U.S. national debt will
continue to place downward pressure on U.S. government spending levels. Due to these and other factors, overall U.S. government spending could
decline, which could result in signiﬁcant reductions to the revenues, cash ﬂow and proﬁts of the Company's portfolio companies that provide
services to the U.S. government.

Defaults by the Company's portfolio companies may harm its operating results.

        A portfolio company's failure to satisfy ﬁnancial or operating covenants imposed by the Company or other lenders could lead to defaults and,
potentially, termination of its loans and foreclosure on its secured assets, which could trigger cross-defaults under other agreements and jeopardize a
portfolio company's ability to meet its obligations under the debt or equity securities that the Company holds.

        The Company may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms, which may include the
waiver of certain ﬁnancial covenants, with a defaulting portfolio company. In addition, lenders in certain cases can be subject to lender liability
claims for actions taken by them when they become too involved in the borrower's business or exercise control over a borrower. It is possible that
the Company could become subject to a lender's liability claim, including as a result of actions taken if it renders signiﬁcant managerial assistance to
the borrower. Furthermore, if one of the Company's portfolio companies were to ﬁle for bankruptcy protection, even though the Company may have
structured its investment as senior secured debt, depending on the facts and circumstances, including the extent to which the Company provided
managerial assistance to that portfolio company, a bankruptcy court might re-characterize its debt holding and subordinate all or a portion of the
Company's claim to claims of other creditors.

Prepayments of the Company's debt investments by its portfolio companies could adversely impact the Company's results of operations and
reduce its return on equity.

        The Company is subject to the risk that the investments it makes in its portfolio companies may be repaid prior to maturity. When this occurs,
subject to maintenance of the Company's RIC status, the Company will generally reinvest these proceeds in temporary investments, pending its
future investment in new portfolio companies. These temporary investments will typically have substantially lower yields than the debt being
prepaid and the Company could experience signiﬁcant delays in reinvesting these amounts. Any future investment in a new portfolio company may
also be at lower yields than the debt that was repaid. As a result, the Company's results of operations could be materially adversely affected if one or
more of its portfolio companies elect to prepay amounts owed to the Company. Additionally, prepayments could negatively impact the Company's
return on equity, which could result in a decline in the market price of its common stock.

55

Table of Contents

The Company may not realize gains from its equity investments.

        When the Company invests in portfolio companies, it may acquire warrants or other equity securities of portfolio companies as well. The
Company may also invest in equity securities directly. To the extent the Company holds equity investments, it will attempt to dispose of them and
realize gains upon its disposition of them. However, the equity interests the Company receives may not appreciate in value and, in fact, may decline
in value. As a result, the Company may not be able to realize gains from its equity interests, and any gains that it does realize on the disposition of
any equity interests may not be sufﬁcient to offset any other losses it experiences. The Company also may be unable to realize any value if a
portfolio company does not have a liquidity event, such as a sale of the business, recapitalization or public offering, which would allow the
Company to sell the underlying equity interests.

The performance of the Company's portfolio companies may differ from its historical performance as its current investment strategy includes
signiﬁcantly more primary originations in addition to secondary market purchases.

        Historically, the Company's investment strategy consisted primarily of secondary market purchases in debt securities. The Company adjusted
its investment strategy to also include signiﬁcantly more primary originations. While loans the Company originates and loans it purchases in the
secondary market face many of the same risks associated with the ﬁnancing of leveraged companies, the Company may be exposed to different
risks depending on speciﬁc business considerations for secondary market purchases or origination of loans. Primary originations require
substantially more time and resources for sourcing, diligencing and monitoring investments, which may consume a signiﬁcant portion of the
Company's resources. Further, the valuation process for primary originations may be more cumbersome and uncertain due to the lack of comparable
market quotes for the investment and would likely require more frequent review by a third-party valuation ﬁrm. This may result in greater costs for
the Company and ﬂuctuations in the quarterly valuations of investments that are primary originations. As a result, this strategy may result in
different returns from these investments than the types of returns the Company has historically experienced from secondary market purchases of
debt securities.

The Company may be subject to additional risks if it invests in foreign securities and/or engages in hedging transactions.

        The 1940 Act generally requires that 70.0% of the Company's investments be in issuers each of whom is organized under the laws of, and has
its principal place of business in, any state of the U.S., the District of Columbia, Puerto Rico, the Virgin Islands or any other possession of the U.S.
The Company's investment strategy does not presently contemplate signiﬁcant investments in securities of non-U.S. companies. However, the
Company may desire to make such investments in the future, to the extent that such transactions and investments are permitted under the 1940 Act.
The Company expects that these investments would focus on the same types of investments that it makes in U.S. middle market companies and
accordingly would be complementary to its overall strategy and enhance the diversity of its holdings. Investing in foreign companies could expose
the Company to additional risks not typically associated with investing in U.S. companies. These risks include changes in exchange control
regulations, political and social instability, expropriation, imposition of foreign taxes, less liquid markets and less available information than is

generally the case in the U.S., higher transaction costs, less government supervision of exchanges, brokers and issuers, less developed bankruptcy
laws, difﬁculty in enforcing contractual obligations, lack of uniform accounting and auditing standards and greater price volatility. Investments
denominated in foreign currencies would be subject to the risk that the value of a particular currency will change in relation to one or more other
currencies. Among the factors that may affect currency values are trade balances, the level of short-term interest rates, differences in relative values
of similar assets in different currencies, long-term opportunities for

56

Table of Contents

investment and capital appreciation and political developments. The Company may employ hedging techniques to minimize these risks, but it can
offer no assurance that it will, in fact, hedge currency risk, or that if it does, such strategies will be effective.

        Engaging in hedging transactions would also, indirectly, entail additional risks to the Company's stockholders. Although it is not currently
anticipated that the Company would engage in hedging transactions as a principal investment strategy, if the Company determined to engage in
hedging transactions it generally would seek to hedge against ﬂuctuations of the relative values of its portfolio positions from changes in market
interest rates or currency exchange rates. Hedging against a decline in the values of the Company's portfolio positions would not eliminate the
possibility of ﬂuctuations in the values of such positions or prevent losses if the values of the positions declined. However, such hedging could
establish other positions designed to gain from those same developments, thereby offsetting the decline in the value of such portfolio positions.

        These hedging transactions could also limit the opportunity for gain if the values of the underlying portfolio positions increased. Moreover, it
might not be possible to hedge against an exchange rate or interest rate ﬂuctuation that was so generally anticipated that the Company would not be
able to enter into a hedging transaction at an acceptable price. If the Company chooses to engage in hedging transactions, there can be no assurances
that the Company will achieve the intended beneﬁts of such transactions and, depending on the degree of exposure such transactions could create,
such transactions may expose the Company to risk of loss.

        While the Company may enter into these types of transactions to seek to reduce currency exchange rate and interest rate risks, unanticipated
changes in currency exchange rates or interest rates could result in poorer overall investment performance than if it had not engaged in any such
hedging transactions. In addition, the degree of correlation between price movements of the instruments used in a hedging strategy and price
movements in the portfolio positions being hedged could vary. Moreover, for a variety of reasons, the Company might not seek to establish a perfect
correlation between the hedging instruments and the portfolio holdings being hedged. Any imperfect correlation could prevent the Company from
achieving the intended hedge and expose the Company to risk of loss. In addition, it might not be possible to hedge fully or perfectly against
currency ﬂuctuations affecting the value of securities denominated in non-U.S. currencies because the value of those securities would likely ﬂuctuate
as a result of factors not related to currency ﬂuctuations.

Uncertainty relating to the LIBOR calculation process may adversely affect the value of the Company's portfolio of LIBOR-indexed, ﬂoating-
rate debt securities.

        Concerns have been publicized that some of the member banks surveyed by the British Bankers' Association ("BBA") in connection with the
calculation of LIBOR across a range of maturities and currencies may have been under-reporting or otherwise manipulating the inter-bank lending
rate applicable to them in order to proﬁt on their derivatives positions or to avoid an appearance of capital insufﬁciency or adverse reputational or
other consequences that may have resulted from reporting inter-bank lending rates higher than those they actually submitted. A number of BBA
member banks have entered into settlements with their regulators and law enforcement agencies with respect to alleged manipulation of LIBOR,
and investigations by regulators and governmental authorities in various jurisdictions are ongoing.

        Actions by the BBA, regulators or law enforcement agencies may result in changes to the manner in which LIBOR is determined. Uncertainty
as to the nature of such potential changes may adversely affect the market for LIBOR-based securities, including the Company's portfolio of
LIBOR-indexed, ﬂoating-rate debt securities. In addition, any further changes or reforms to the determination or supervision of LIBOR may result in
a sudden or prolonged increase or decrease in reported LIBOR,

57

Table of Contents

which could have an adverse impact on the market for LIBOR-based securities or the value of the Company's portfolio of LIBOR-indexed, ﬂoating-
rate debt securities.

RISKS RELATING TO THE COMPANY'S SECURITIES

The market price of the Company's common stock may ﬂuctuate signiﬁcantly.

        The market price and liquidity of the market for shares of the Company's common stock may be signiﬁcantly affected by numerous factors,
some of which are beyond our control and may not be directly related to the Company's operating performance. These factors include:

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

price and volume ﬂuctuations in the overall stock market or in the market for BDCs from time to time; 

investor demand for shares of its common stock; 

signiﬁcant volatility in the market price and trading volume of securities of registered closed-end management investment
companies, BDCs or other ﬁnancial services companies, which is not necessarily related to the operating performance of these
companies; 

the inability to raise equity capital; 

the Company's inability to borrow money or deploy or invest its capital; 

ﬂuctuations in interest rates; 

any shortfall in revenue or net income or any increase in losses from levels expected by investors or securities analysts; 

operating performance of companies comparable to the Company; 

changes in regulatory policies or tax guidelines with respect to RICs or BDCs; 

the Company's loss of status as or ability to operate as a BDC; 

the Company's failure to qualify as a RIC, loss of RIC status or ability to operate as a RIC; 

actual or anticipated changes in the Company's earnings or ﬂuctuations in its operating results; 

changes in the value of the Company's portfolio of investments; 

general economic conditions, trends and other external factors; 

departures of key personnel; or 

loss of a major source of funding.

        In addition, the Company is required to continue to meet certain listing standards in order for its common stock to remain listed on the New
York Stock Exchange ("NYSE"). If the Company were to be delisted by the NYSE, the liquidity of its common stock would be materially
impaired.

Investing in the Company's common stock may involve an above average degree of risk.

        The investments the Company may make may result in a higher amount of risk, volatility or loss of principal than alternative investment
options. These investments in portfolio companies may be highly speculative and aggressive, and therefore, an investment in the Company's
common stock may not be suitable for investors with lower risk tolerance.

58

Table of Contents

Sales of substantial amounts of the Company's common stock in the public market may have an adverse effect on the market price of its

common stock.

        Sales of substantial amounts of the Company's common stock could materially adversely affect the prevailing market prices for its common
stock. If substantial amounts of the Company's common stock were sold, this could impair its ability to raise additional capital through the sale of
securities should the Company desire to do so.

Certain provisions of the Company's certiﬁcate of incorporation and bylaws, as well as aspects of the Delaware General Corporation Law could
deter takeover attempts and have an adverse impact on the price of the Company's common stock.

        The Company's certiﬁcate of incorporation and bylaws as well as the Delaware General Corporation Law contain provisions that may have the
effect of discouraging a third party from making an acquisition proposal for us. Among other things, the Company's certiﬁcate of incorporation and
bylaws:

•

•

•

•

•

•

•

provide for a classiﬁed board of directors, which may delay the ability of its stockholders to change the membership of a majority of
its board of directors; 

authorize the issuance of "blank check" preferred stock that could be issued by its board of directors to thwart a takeover attempt; 

do not provide for cumulative voting; 

provide that vacancies on the board of directors, including newly created directorships, may be ﬁlled only by a majority vote of
directors then in ofﬁce; 

provide that its directors may be removed only for cause; 

require supermajority voting to effect certain amendments to its certiﬁcate of incorporation and bylaws; and 

require stockholders to provide advance notice of new business proposals and director nominations under speciﬁc procedures.

        These anti-takeover provisions may inhibit a change in control in circumstances that could give the holders of the Company's common stock
the opportunity to realize a premium over the market price for its common stock. The Holdings Credit Facility and NMFC Credit Facility also
include covenants that, among other things, restrict its ability to dispose of assets, incur additional indebtedness, make restricted payments, create
liens on assets, make investments, make acquisitions and engage in mergers or consolidations. The Holdings Credit Facility and NMFC Credit
Facility also include change of control provisions that accelerate the indebtedness under these facilities in the event of certain change of control
events.

Shares of the Company's common stock have traded at a discount from net asset value and may do so in the future.

        Shares of closed-end investment companies have frequently traded at a market price that is less than the net asset value that is attributable to
those shares. In part as a result of adverse economic conditions and increasing pressure within the ﬁnancial sector of which the Company is a part,
its common stock has at times traded below its net asset value per share since the Company's IPO on May 19, 2011. The Company's shares could
once again trade at a discount to net asset value. The possibility that its shares of common stock may trade at a discount from net asset value over
the long term is separate and distinct from the risk that the Company's net asset value will decrease. The Company cannot predict whether shares of
its common stock will trade above, at or below its net asset

59

Table of Contents

value. If its common stock trades below its net asset value, the Company will generally not be able to issue additional shares of its common stock at
its market price without ﬁrst obtaining the approval for such issuance from its stockholders and its independent directors. If additional funds are not
available to the Company, the Company could be forced to curtail or cease the Company's new lending and investment activities, and the Company's
net asset value could decrease and the Company's level of distributions could be impacted.

You may not receive dividends or the Company's dividends may decline or may not grow over time.

        The Company cannot assure you that the Company will achieve investment results or maintain a tax status that will allow or require any

speciﬁed level of cash distributions or year-to-year increases in cash distributions. In particular, the Company's future dividends are dependent upon
the investment income it receives on the Company's portfolio investments. To the extent such investment income declines, the Company's ability to
pay future dividends may be harmed.

If the Company issues preferred stock, the net asset value and market value of its common stock will likely become more volatile.

        We cannot assure you that the issuance of preferred stock would result in a higher yield or return to the holders of the Company's common
stock. The issuance of preferred stock would likely cause the net asset value and market value of the common stock to become more volatile. If the
dividend rate on the preferred stock were to approach the net rate of return on the Company's investment portfolio, the beneﬁt of leverage to the
holders of the common stock would be reduced. If the dividend rate on the preferred stock were to exceed the net rate of return on the Company's
portfolio, the leverage would result in a lower rate of return to the holders of common stock than if we had not issued preferred stock. Any decline
in the net asset value of the Company's investments would be borne entirely by the holders of common stock. Therefore, if the market value of the
Company's portfolio were to decline, the leverage would result in a greater decrease in net asset value to the holders of common stock than if we
were not leveraged through the issuance of preferred stock. This greater net asset value decrease would also tend to cause a greater decline in the
market price for the common stock. We might be in danger of failing to maintain the required asset coverage of the preferred stock or of losing our
ratings, if any, on the preferred stock or, in an extreme case, the Company's current investment income might not be sufﬁcient to meet the dividend
requirements on the preferred stock. In order to counteract such an event, we might need to liquidate investments in order to fund a redemption of
some or all of the preferred stock. In addition, we would pay (and the holders of common stock would bear) all costs and expenses relating to the
issuance and ongoing maintenance of the preferred stock, including higher advisory fees if the Company's total return exceeds the dividend rate on
the preferred stock. Holders of preferred stock may have different interests than holders of common stock and may at times have disproportionate
inﬂuence over our affairs.

Holders of any preferred stock the Company might issue would have the right to elect members of our board of directors and class voting rights
on certain matters.

        Holders of any preferred stock we might issue, voting separately as a single class, would have the right to elect two members of our board of
directors at all times and in the event dividends become two full years in arrears would have the right to elect a majority of the directors until such
arrearage is completely eliminated. In addition, preferred stockholders have class voting rights on certain matters, including changes in fundamental
investment restrictions and conversion to open-end status, and accordingly can veto any such changes. Restrictions imposed on the declarations and
payment of dividends or other distributions to the holders of the Company's common stock and preferred stock, both by the 1940 Act and by
requirements imposed by rating agencies, if any, or the terms of the Company's credit facilities, if any, might impair the Company's ability to
maintain its qualiﬁcation as a

60

Table of Contents

RIC for U.S. federal income tax purposes. While we would intend to redeem the Company's preferred stock to the extent necessary to enable the
Company to distribute its income as required to maintain our qualiﬁcation as a RIC, there can be no assurance that such actions could be effected in
time to meet the tax requirements.

Item 1B.    Unresolved Staff Comments 

        Not applicable.

Item 2.    Properties 

        We do not own any real estate or other physical properties materially important to our operations. Our principal executive ofﬁces are located at
787 Seventh Avenue, 48th Floor, New York, New York 10019, where we occupy our ofﬁce space pursuant to our Administration Agreement with
the Administrator. The ofﬁce space is shared with our Investment Adviser, our Administrator and New Mountain Capital. We believe that our
current ofﬁce facilities are suitable and adequate for our business as currently conducted.

Item 3.    Legal Proceedings 

        The Company, the Company's consolidated subsidiaries, the Investment Adviser and the Administrator are not currently subject to any material
pending legal proceedings threatened against us as of December 31, 2014. From time to time, we may be a party to certain legal proceedings
incidental to the normal course of our business including the enforcement of our rights under contracts with our portfolio companies. While the
outcome of these legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a material effect upon our

business, ﬁnancial condition or results of operations.

Item 4.    Mine Safety Disclosures 

        Not applicable.

Table of Contents

61

PART II 

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 

Price Range of Common Stock and Distributions

        New Mountain Finance Corporation's ("NMFC", the "Company", "we", "us" or "our") common stock is traded on the New York Stock
Exchange ("NYSE") under the symbol "NMFC". The following table sets forth the net asset value ("NAV") per share of NMFC's common stock,
the high and low closing sale price for NMFC's common stock, the closing sale price as a percentage of NAV and the quarterly dividend
distributions per share for each ﬁscal quarter since the Company's initial public offering ("IPO") on May 19, 2011.

Fiscal Year Ended
December 31, 2014
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
December 31, 2013
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
December 31, 2012
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
December 31, 2011(1)
Fourth Quarter
Third Quarter
Second Quarter(6)

Closing Sales
Price(3)

NAV Per
Share(2)

High

Low

Premium or
Discount of
High Closing
Sales to
NAV(4)

Premium or
Discount of
Low Closing
Sales to
NAV(4)

Declared
Dividends
Per Share(5)

  $
  $
  $
  $

  $
  $
  $
  $

  $
  $
  $
  $

  $
  $
  $

13.83  $ 15.09  $ 14.14 
14.33  $ 15.39  $ 14.48 
14.65  $ 14.89  $ 13.91 
14.53  $ 15.19  $ 14.46 

14.38  $ 15.19  $ 14.05 
14.32  $ 14.90  $ 14.21 
14.32  $ 15.60  $ 13.82 
14.31  $ 15.45  $ 14.30 

14.06  $ 15.18  $ 13.75 
14.10  $ 15.50  $ 14.18 
13.83  $ 14.29  $ 13.28 
14.05  $ 13.75  $ 13.14 

13.60  $ 13.41  $ 12.27 
13.32  $ 13.37  $ 10.77 
14.25  $ 13.55  $ 12.35 

9.11%  
7.40%  
1.64%  
4.54%  

5.63%  
4.05%  
8.94%  
7.97%  

7.97%  
9.93%  
3.33%  
(2.14)%  

(1.40)%  
0.38%  
(4.91)%  

2.24% $
1.05% $
(5.05)% $
(0.48)% $

(2.29)% $
(0.77)% $
(3.49)% $
(0.07)% $

(2.20)% $
0.57% $
(3.98)% $
(6.48)% $

(9.78)% $
(19.14)% $
(13.33)% $

0.34 
0.46(7)
0.34 
0.34 

0.34 
0.46(8)
0.34 
0.34 

0.48(9)
0.34 
0.57(10)
0.32 

0.30 
0.29 
0.27 

The Company was not unitized until the IPO date of May 19, 2011. 

NAV is determined as of the last date in the relevant quarter and therefore may not reﬂect the NAV per share on the date of
the high and low sales prices. The NAVs shown are based on outstanding shares at the end of each period. 

Closing sales price is determined as the high or low closing sales price noted within the respective quarter, not adjusted for
dividends. 

Calculated as of the respective high or low closing sales price divided by the quarter end NAV. 

Represents the dividend declared for the speciﬁed quarter. 

(1)

(2)

(3)

(4)

(5)

(6)

 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
  
 
  
 
 
 
 
 
 
  
 
  
 
  
 
  
 
  
 
  
 
 
 
 
 
 
  
 
  
 
  
 
  
 
  
 
  
 
 
 
 
 
 
  
 
  
 
  
 
  
 
  
 
  
 
 
 
Period from May 19, 2011 through June 30, 2011 (excludes IPO price of $13.75). 

(7)

Includes a special dividend of $0.12 per share paid on September 3, 2014 and a third quarter dividend of $0.34 per share paid
on September 30, 2014.

62

Table of Contents

(8)

(9)

(10)

Includes a special dividend of $0.12 per share paid on August 30, 2013 and a third quarter dividend of $0.34 per share paid
on September 30, 2013. 

Includes a fourth quarter dividend of $0.34 per share paid on December 28, 2012 and a special dividend of $0.14 per share
paid on January 31, 2013. 

Includes a special dividend of $0.23 per share paid on May 31, 2012 and a second quarter dividend of $0.34 per share paid on
June 29, 2012.

        On February 27, 2015, the last reported sales price of NMFC's common stock was $14.89 per share. As of February 27, 2015, the Company
had approximately 27 stockholders of record and one beneﬁcial owner whose shares are held in the names of brokers, dealers, funds, trusts and
clearing agencies.

Dividends

        The Company intends to pay quarterly distributions to its stockholders and to maintain its status as a regulated investment company ("RIC").
The Company intends to distribute approximately its entire Adjusted Net Investment Income (deﬁned as net investment income adjusted to reﬂect
income as if the cost basis of investments held at the IPO date had stepped-up to fair market value as of the IPO date) on a quarterly basis and
substantially all of its taxable income on an annual basis, except that the Company may retain certain net capital gains for reinvestment.

        The Company maintains an "opt out" dividend reinvestment plan for its common stockholders. As a result, the Company's stockholders' cash
dividends will be automatically reinvested in additional shares of common stock, unless the stockholder elects to receive cash. Cash dividends
reinvested in additional shares of the Company's common stock will be automatically reinvested by the Company into additional shares of the
Company's common stock.

        The Company applies the following in implementing the dividend reinvestment plan. If the price at which newly issued shares are to be
credited to stockholders' accounts is greater than 110.0% of the last determined NAV of the shares, the Company will use only newly issued shares
to implement its dividend reinvestment plan. Under such circumstances, the number of shares to be issued to a stockholder is determined by
dividing the total dollar amount of the distribution payable to such stockholder by the market price per share of the Company's common stock on the
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 the price at which newly issued shares are to be credited to stockholders' accounts is less than 110.0% of the last determined NAV of the
shares, the Company will either issue new shares or instruct the plan administrator to purchase shares in the open market to satisfy the additional
shares required. Shares purchased in open market transactions by the plan administrator will be allocated to a stockholder based on the average
purchase price, excluding any brokerage charges or other charges, of all shares of common stock purchased in the open market. The number of
shares of the Company's common stock to be outstanding after giving effect to payment of the distribution cannot be established until the value per
share at which additional shares will be issued has been determined and elections of its stockholders have been tabulated. See Item 8.—Financial
Statements and Supplementary Data—Note 2, Summary of Signiﬁcant Accounting Policies for additional information.

63

Table of Contents

        The following table reﬂects the Company's cash distributions, including dividends and returns of capital, if any, per share that have been
declared by the Company's board of directors since the Company's IPO:

Record Date

Payment Date

  Amount

  December 16, 2014   December 30, 2014   $
  September 16, 2014   September 30, 2014  
September 3, 2014  
June 30, 2014
March 31, 2014

June 16, 2014
March 17, 2014

August 20, 2014  

  $

  December 17, 2013
  September 16, 2013   September 30, 2013  
August 30, 2013  

August 20, 2013  

December 31, 2013

$

June 14, 2013
March 15, 2013

June 28, 2013
March 28, 2013

  $

  December 31, 2012
  December 14, 2012   December 28, 2012  
  September 14, 2012   September 28, 2012  

January 31, 2013

$

June 15, 2012
May 21, 2012
March 15, 2012

June 29, 2012
May 31, 2012
March 30, 2012

  $

  December 15, 2011
  September 15, 2011   September 30, 2011  

December 30, 2011

$

August 22, 2011

August 31, 2011

  $
  $

0.34 
0.34 
0.12(1)
0.34 
0.34 
1.48 

0.34 
0.34 
0.12(2)
0.34 
0.34 
1.48 

0.14(3)
0.34 
0.34 
0.34 
0.23(4)
0.32 
1.71 

0.30 
0.29 
0.27 
0.86 
5.53 

Date Declared
November 4, 2014
August 5, 2014
July 30, 2014
May 6, 2014
March 4, 2014

November 8, 2013
August 7, 2013
August 7, 2013
May 6, 2013
March 6, 2013

December 27, 2012
November 6, 2012
August 8, 2012
May 8, 2012
May 8, 2012
March 7, 2012

November 8, 2011
August 10, 2011
August 10, 2011

Total

(1)

(2)

(3)

(4)

Special dividend related to realized capital gains attributable to the Company's warrant investments in Learning Care
Group (US), Inc. 

Special dividend related to a distribution received attributable to New Mountain Finance Holdings, L.L.C.'s ("NMF
Holdings" or the "Predecessor Operating Company") investment in YP Equity Investors LLC. 

Special dividend intended to minimize to the greatest extent possible the Company's U.S. federal income or excise tax
liability. 

Special dividend related to estimated realized capital gains attributable to the Predecessor Operating Company's
investments in Lawson Software, Inc. and Infor Lux Bond Company.

        Tax characteristics of all dividends paid by the Company were reported to stockholders on Form 1099 after the end of the calendar year. Future
quarterly dividends, if any, for the Company will be determined by the board of directors.

64

Table of Contents

Unregistered Sales of Equity Securities

        We did not engage in unregistered sales of securities during the year ended December 31, 2014.

Issuer Purchases of Equity Securities

        For the year ended December 31, 2014, the Company did not purchase any of its common stock in the open market.

Stock Performance Graph

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
        This graph compares the return on the Company's common stock with that of the Standard & Poor's 500 Total Return Index ("S&P 500 TR")
and the Russell 2000 Index Total Return ("Russell 2000 TR") as we do not believe that there is an appropriate index of companies with an
investment strategy similar to our own with which to compare the return on the Company's common stock, for the period May 19, 2011
(commencement of operations) to December 31, 2014. The graph assumes that, on May 19, 2011, a person invested $100 in each of the Company's
common stock, the S&P 500 TR and the Russell 2000 TR. The graph measures total stockholder return, which takes into account both changes in
stock price and dividends. It assumes that dividends paid are invested in like securities.

Comparison of Cumulative Total Return Among NMFC, S&P 500 TR and Russell 2000 TR 

        The graph and other information furnished under this Part II Item 5 of this Form 10-K shall not be deemed to be "soliciting material" or to be
ﬁled with the United States Securities and Exchange Commission or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the
"1934" Act. The stock price performance included in the above graph is not necessarily indicative of future stock performance.

65

Table of Contents

Item 6.    Selected Financial Data 

        The selected ﬁnancial data should be read in conjunction with the consolidated ﬁnancial statements and related notes thereto and Item 7.—
Management's Discussion and Analysis of Financial Condition and Results of Operations included in this report. Financial information for the years
ended December 31, 2014, December 31, 2013, December 31, 2012, December 31, 2011, December 31, 2010 and December 31, 2009, has been
derived from the Company's consolidated ﬁnancial statements that were audited by Deloitte & Touche LLP ("Deloitte"), an independent registered
public accounting ﬁrm.

        The below selected ﬁnancial and other data is for NMFC.

(in thousands except shares and per share data)

New Mountain Finance Corporation
Statement of Operations Data:
Investment income
Investment income allocated from NMF Holdings  
Net expenses

  $

Years ended December 31,

2014

2013

2012

Period from
May 19, 2011
(commencement
of operations)
to December 31,
2011

91,923  $
43,678 
34,727 

—  $
90,876  $
— 

—  $
37,511  $
— 

— 
13,669 
— 

 
   
   
   
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
Net expenses allocated from NMF Holdings
Net investment income
Net realized gains on investments
Net realized and unrealized gains (losses) allocated

from NMF Holdings

Net change in unrealized (depreciation)

appreciation of investments

Provision for taxes
Net change in unrealized (depreciation)

appreciation of investment in NMF Holdings

Net increase in net assets resulting from operations  
Per share data:
Net asset value
Net increase in net assets resulting from operations

  $

(basic)

Net increase in net assets resulting from operations

(diluted)(1)

Dividends declared(2)
Balance sheet data:
Total assets
Holdings Credit Facility
Convertible Notes
NMFC Credit Facility
SBA-guaranteed debentures
Total net assets
Other data:
Total return at market value(3)
Total return at net asset value(4)
Number of portfolio companies at period end
  $
Total new investments for the period(5)
Investment sales and repayments for the period(5)   $
Weighted average Yield to Maturity at Cost on
debt portfolio at period end (unaudited)(6)

20,808 
80,066 
357 

40,355 
50,521 
— 

17,719 
19,792 
— 

5,324 
8,345 
— 

9,508 

11,443 

12,087 

(4,235)

(43,863)
(493)

— 
45,575 

— 
— 

— 
— 

(44)
61,920 

(95)
31,784 

— 
— 

6,221 
10,331 

13.83  $

14.38  $

14.06  $

13.60 

  $ 1,514,920  $

0.88 

0.86 
1.48 

1.76 

1.76 
1.48 

2.14 

2.14 
1.71 

468,108 
115,000 
50,000 
37,500 
802,170 

9.66%  
6.56%  
71 
720,871 
384,568 

650,107  $
N/A 
N/A 
N/A 
N/A 
650,107 

345,331  $
N/A 
N/A 
N/A 
N/A 
341,926 

11.62%  
13.27%  
N/A 
N/A 
N/A 

24.84%  
16.61%  
N/A 
N/A 
N/A 

10.70%  

N/A 

N/A 

0.97 

0.38 
0.86 

145,487 
N/A 
N/A 
N/A 
N/A 
145,487 

4.16%
2.82%
N/A 
N/A 
N/A 

N/A 

Weighted average shares outstanding for the period

(basic)

Portfolio turnover(5)

  51,846,164 

  35,092,722 
N/A 

  14,860,838 
N/A 

10,697,691 
N/A 

29.51%  

(1)

In applying the if-converted method, conversion is not assumed for purposes of computing diluted earnings per share if the
effect would be anti-dilutive. For the year ended December 31, 2014, there was no anti-dilution. For the years ended
December 31, 2013 and December 31, 2012, due to reﬂecting earnings for the full year of operations of the Predecessor
Operating Company assuming 100.0% NMFC ownership of Predecessor Operating Company and assuming all of New
Mountain Finance AIV Holdings Corporation's ("AIV Holdings") units in the Predecessor Operating Company were

66

Table of Contents

exchanged for public shares of NMFC during the years then ended, the earnings per share would be $1.79 and $2.18,
respectively.

(2)

Dividends declared in the year ended December 31, 2014 include a $0.12 per share special dividend related to realized capital
gains attributable to the Company's warrant investments in Learning Care Group (US), Inc. Dividends declared in the year
ended December 31, 2013 include a $0.12 per share special dividend related to a distribution received attributable to the
Predecessor Operating Company's investment in YP Equity Investors LLC. Dividends declared in the year ended
December 31, 2012 include a $0.23 per share special dividend related to estimated realized capital gains attributable to the
Predecessor Operating Company's investments in Lawson Software, Inc. and Infor Lux Bond Company and a $0.14 per share
special dividend intended to minimize to the greatest extent possible NMFC's U.S. federal income or excise tax liability. 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(3)

(4)

(5)

(6)

For the years ended December 31, 2014, December 31, 2013, December 31, 2012 and for the period May 19, 2011 to
December 31, 2011, total return is calculated assuming a purchase of common stock at the opening of the ﬁrst day of the year
and assuming a purchase of common stock at initial purchase offering ("IPO"), respectively, and a sale on the closing of the
last day of the respective period ends. Dividends and distributions, if any, are assumed for purposes of this calculation, to be
reinvested at prices obtained under the Company's dividend reinvestment plan. 

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. 

For the year ended December 31, 2014, amounts include the investment activity of the Predecessor Operating Company and
the Company. 

The weighted average Yield to Maturity at Cost calculation assumes that all investments, including secured collateralized
agreements, not on non-accrual are purchased at the adjusted cost on the respective period ends and held until their respective
maturities with no prepayments or losses and exited at par at maturity. Adjusted cost reﬂects the cost for post-IPO
investments in accordance with accounting principles generally accepted in the United States of America ("GAAP") and a
stepped up cost basis of pre-IPO investments (assuming a step-up to fair market value occurred on the IPO date).

67

Table of Contents

        As of May 8, 2014, NMFC assumed all operating activities previously undertaken by NMF Holdings. The following table sets forth selected
ﬁnancial and other data for NMF Holdings when it was the Predecessor Operating Company.

(in thousands except units and per unit data)

New Mountain Finance Holdings, L.L.C.
Statement of Operations Data:
Total investment income
Net expenses
Net investment income
Net realized and unrealized gains

(losses)

Net increase (decrease) in net assets

resulting from operations

Per unit data:
Net asset value
Net increase (decrease) in net assets

resulting from operations (basic and
diluted)

Dividends declared(1)
Balance sheet data:
Total assets
Holdings Credit Facility
SLF Credit Facility
Total net assets
Other data:
Total return at net asset value(2)
Number of portfolio companies at

period end

2013

2012

2011

2010

2009

Years ended December 31,

  $

114,912  $
51,235 
63,677 

85,786  $
40,569 
45,217 

56,523  $
17,998 
38,525 

41,375  $
3,911 
37,464 

21,767 
1,359 
20,408 

15,247 

28,779 

(6,848)

26,328 

  105,272 

78,924 

73,996 

31,677 

63,792 

  125,680 

  $

14.38  $

14.06  $

13.60 

N/A 

N/A 

1.79 
1.48 

2.18 
1.71 

1.02 
0.86 

N/A 
N/A 

N/A 
N/A 

  $ 1,147,841  $ 1,025,564  $

221,849 
214,668 
688,516 

206,938 
214,262 
569,939 

730,579  $ 460,224  $ 330,558 
77,745 
59,697 
129,038 
56,936 
165,928 
— 
  239,441 
  241,927 
420,502 

13.27%  

16.61%  

10.09%  

26.54%  

76.38%

59 
529,307  $

63 
673,218  $

55 

24 
493,331  $ 332,708  $ 268,382 

43 

Total new investments for the period
Investment sales and repayments for

  $

the period

  $

426,561  $

423,874  $

231,962  $ 258,202  $ 125,430 

Weighted average Yield to Maturity at

 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
Cost on debt portfolio at period end
(unaudited)(3)

Weighted average Yield to Maturity on

debt portfolio at period end
(unaudited)(4)

Weighted average Adjusted Yield to

Maturity on debt portfolio at period
end (unaudited)

Weighted average common

membership units outstanding for the
period

Portfolio turnover

11.0%  

10.3%  

10.3%  

— 

— 

10.6%  

10.1%  

10.7%  

—(5) 

—(5)

—(6) 

—(6) 

13.1%  

12.5%  

12.7%

  44,021,920 

  34,011,738 

40.52%  

52.02%  

  30,919,629(7) 
42.13%  

N/A 
76.69%  

N/A 
57.50%

N/A—Fund was not unitized as of December 31, 2010 and December 31, 2009.

(1)

Dividends declared in the year ended December 31, 2013 include a $0.12 per unit special dividend related to a distribution
received attributable to NMF Holdings' investment in YP Equity Investors LLC. Dividends declared in the year ended
December 31, 2012 include a $0.23 per unit special dividend related to estimated realized capital gains attributable to NMF
Holdings' investments in Lawson Software, Inc. and Infor Lux Bond Company and a $0.14 per unit special dividend intended
to minimize to the greatest extent possible NMFC's U.S. federal income or excise tax liability. Actual cash

68

Table of Contents

payments on the dividends declared to AIV Holdings only, for the quarters ended March 31, 2012, June 30, 2012,
December 31, 2012 and March 31, 2013, were made on April 4, 2012, July 9, 2012, January 7, 2013 and April 5, 2013
respectively.

(2)

(3)

(4)

(5)

(6)

For the years ended December 31, 2013 and December 31, 2012, 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 respective period ends.
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. For the year ended December 31, 2011, total return is calculated in two parts: (1) from the
opening of the ﬁrst day of the year to NMFC's IPO date, total return is calculated based on net income over weighted average
net assets and (2) from NMFC's IPO date to the last day of the year, total return is calculated assuming a purchase at net asset
value on NMFC's IPO date and a sale at net asset value on the last day of the year. 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. For
the years ended December 31, 2010 and December 31, 2009, total return is the ratio of net income compared to capital,
adjusted for capital contributions and distributions. 

The weighted average Yield to Maturity at Cost calculation assumes that all investments not on non-accrual are purchased at
the adjusted cost on the respective period ends and held until their respective maturities with no prepayments or losses and
exited at par at maturity. Adjusted cost reﬂects the GAAP cost for post-IPO investments and a stepped up cost basis of pre-
IPO investments (assuming a step-up to fair market value occurred on the IPO date). The weighted average Yield to Maturity
at Cost was not calculated prior to NMFC's IPO. 

The weighted average Yield to Maturity calculation assumes that all investments not on non-accrual are purchased at fair
value on the respective period ends and held until their respective maturities with no prepayments or losses and exited at par
at maturity. The weighted average Yield to Maturity was not calculated subsequent to December 31, 2013. 

Prior to NMFC's IPO, for yield calculation purposes, New Mountain Finance SPV Funding, L.L.C. ("NMF SLF") was treated
as a fully levered asset of NMF Holdings with NMF SLF's net asset value being included in the yield to maturity calculations.
Since NMF SLF is consolidated in accordance with GAAP, at the time of the IPO, NMF Holdings began using the weighted
average Yield to Maturity concept instead of the "Adjusted Yield to Maturity" concept for yield calculation purposes. 

"Adjusted Yield to Maturity" assumes that the investments in NMF Holdings' portfolio are purchased at fair value on the
respective period ends and held until their respective maturities with no prepayments or losses and exited at par at maturity.

 
 
 
 
 
 
 
 
 
 
 
This calculation excludes the impact of existing leverage, except for the non-recourse debt of NMF SLF. NMF SLF is treated
as a fully levered asset of NMF Holdings, with NMF SLF's net asset value being included for yield calculation purposes. 

(7)

Weighted average common membership units outstanding presented from May 19, 2011 to December 31, 2011, as the fund
became unitized on May 19, 2011, the IPO date.

69

Table of Contents

Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations 

        The information in management's discussion and analysis of ﬁnancial condition and results of operations relates to New Mountain Finance
Corporation, including its wholly-owned direct and indirect subsidiaries (collectively, "we", "us", "our", "NMFC" or the "Company").

        The following analysis of our ﬁnancial condition and results of operations should be read in conjunction with our ﬁnancial data and our
ﬁnancial statements and the notes thereto contained in Item 8.—Financial Statements and Supplementary Data, in this report. See Item 1A.—Risk
Factors for a discussion of the uncertainties, risks and assumptions associated with these statements.

Forward-Looking Statements

        The information contained in this section should be read in conjunction with the ﬁnancial data and consolidated ﬁnancial statements and notes
thereto appearing elsewhere in this report. Some of the statements in this report (including in the following discussion) constitute forward-looking
statements, which relate to future events or the future performance or ﬁnancial condition of the Company. The forward-looking statements contained
in this section involve a number of risks and uncertainties, including:

•

•

•

•

•

•

•

statements concerning the impact of a protracted decline in the liquidity of credit markets; 

the general economy, including interest and inﬂation rates, and its impact on the industries in which the Company invests; 

the ability of the Company's portfolio companies to achieve their objectives; 

the Company's ability to make investments consistent with its investment objectives, including with respect to the size, nature and
terms of its investments; 

the ability of New Mountain Finance Advisers BDC, L.L.C. (the "Investment Adviser") or its afﬁliates to attract and retain highly
talented professionals; 

actual and potential conﬂicts of interest with the Investment Adviser and other afﬁliates of New Mountain Capital Group, L.L.C.;
and 

the risk factors set forth in Item 1A.—Risk Factors.

        Forward-looking statements are identiﬁed by their use of such terms and phrases such as "anticipate", "believe", "continue", "could",
"estimate", "expect", "intend", "may", "plan", "potential", "project", "seek", "should", "target", "will", "would" or similar expressions. Actual results
could differ materially from those projected in the forward-looking statements for any reason, including the factors set forth in Item 1A.—Risk
Factors contained in this annual report.

        We have based the forward-looking statements included in this report on information available to us on the date of this report. We assume no
obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as
required by law. Although we undertake no obligation to revise or update any forward-looking statements, you are advised to consult any additional
disclosures that we may make directly to you or through reports that we have ﬁled or in the future may ﬁle with the United States Securities and
Exchange Commission ("SEC"), including annual reports on Form 10-K, registration statements on Form N-2, quarterly reports on Form 10-Q and
current reports on Form 8-K.

Overview

        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 regulated as a BDC

70

Table of Contents

under the Investment Company Act of 1940, as amended (the "1940 Act"). As such, NMFC is obligated to comply with certain regulatory
requirements. NMFC has elected to be treated, and intends to comply with the requirements to continue to qualify annually, as a regulated
investment company ("RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended, (the "Code"). NMFC is also registered as an
investment adviser under the Investment Advisers Act of 1940, as amended (the "Advisers Act").

        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 (deﬁned as New
Mountain Capital Group, L.L.C. and its afﬁliates) 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 (as
deﬁned below). In connection with NMFC's IPO and through a series of transactions, New Mountain Finance Holdings, L.L.C. ("NMF Holdings" or
the "Predecessor Operating Company") acquired all of the operations of the Predecessor Entities, including all of the assets and liabilities related to
such operations.

        NMF Holdings is a Delaware limited liability company. Until May 8, 2014, NMF Holdings was externally managed and was regulated as a
BDC under the 1940 Act. As such, NMF Holdings was obligated to comply with certain regulatory requirements. NMF Holdings was treated as a
partnership for United States ("U.S.") federal income tax purposes for so long as it had at least two members. With the completion of the
underwritten secondary offering on February 3, 2014, NMF Holdings' existence as a partnership for U.S. federal income tax purposes terminated
and NMF Holdings became an entity that is disregarded as a separate entity from its owner for U.S. federal tax purposes. For additional information
on our organizational structure prior to May 8, 2014, see "—Restructuring".

        Until May 8, 2014, NMF Holdings was externally managed by the Investment Adviser. As of May 8, 2014, the Investment Adviser serves as
the external investment adviser to NMFC. 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. New Mountain
Capital is a ﬁrm with a track record of investing in the middle market and with assets under management totaling more than $15.0 billion(1), which
includes total assets held by the Company. New Mountain Capital focuses on investing in defensive growth companies across its private equity,
public equity and credit investment vehicles. NMF Holdings, 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".

        Prior to December 18, 2014, New Mountain Finance SPV Funding, L.L.C. ("NMF SLF") was a Delaware limited liability company. NMF SLF
was a wholly-owned subsidiary of NMF Holdings and thus a wholly-owned indirect subsidiary of the Company. NMF SLF was bankruptcy-remote
and non-recourse to NMFC. As part of an amendment to the Company's exisiting credit facilities with Wells Fargo Bank, National Association,
NMF SLF merged with and into NMF Holdings on

(1)

Includes amounts committed, not all of which have been drawn down and invested to date, as of December 31, 2014.

71

Table of Contents

December 18, 2014. See Item 8.—Financial Statements and Supplementary Data—Note 7, Borrowings for additional information on the Company's
credit facilities.

   
        Until April 25, 2014, New Mountain Finance AIV Holdings Corporation ("AIV Holdings") was a Delaware corporation that was originally
incorporated on March 11, 2011. AIV Holdings was dissolved on April 25, 2014. Guardian AIV, a Delaware limited partnership, was AIV
Holdings' sole stockholder. AIV Holdings was a closed-end, non-diversiﬁed management investment company that was regulated as a BDC under
the 1940 Act. As such, AIV Holdings was obligated to comply with certain regulatory requirements. AIV Holdings was treated, and complied with
the requirements to qualify annually, as a RIC under the Code.

        Prior to the Restructuring (as deﬁned below) on May 8, 2014, NMFC and AIV Holdings were holding companies with no direct operations of
their own, and their sole asset was their ownership in NMF Holdings. In connection with the IPO, NMFC and AIV Holdings each entered into a
joinder agreement with respect to the Limited Liability Company Agreement, as amended and restated (the "Operating Agreement"), of NMF
Holdings, pursuant to which NMFC and AIV Holdings were admitted as members of NMF Holdings. NMFC acquired from NMF Holdings, with
the gross proceeds of the IPO and the Concurrent Private Placement, common membership units ("units") of NMF Holdings (the number of units
were 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 NMF Holdings 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 NMF Holdings prior to the IPO and, as a result of the transactions completed in connection with the IPO, obtained
units in NMF Holdings. Guardian AIV contributed its units in NMF Holdings to its newly formed subsidiary, AIV Holdings, in exchange for
common stock of AIV Holdings. AIV Holdings had the right to exchange all or any portion of its units in NMF Holdings for shares of NMFC's
common stock on a one-for-one basis at any time.

        The original 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
was that any distributions made to NMFC's stockholders that were attributable to such gains generally were not treated as taxable dividends but
rather as return of capital.

        Since NMFC's IPO, and through December 31, 2014, NMFC raised approximately $374.6 million in net proceeds from additional offerings of
common stock and issued shares of its common stock valued at approximately $288.4 million on behalf of AIV Holdings for exchanged units.
NMFC acquired from NMF Holdings units of NMF Holdings equal to the number of shares of NMFC's common stock sold in additional offerings.
With the completion of the ﬁnal secondary offering on February 3, 2014, NMFC owned 100.0% of the units of NMF Holdings, which became a
wholly-owned subsidiary of NMFC.

Restructuring

        As a BDC, AIV Holdings had been subject to the 1940 Act, including certain provisions applicable only to BDCs. Accordingly, and after
careful consideration of the 1940 Act requirements applicable to BDCs, the cost of 1940 Act compliance and a thorough assessment of AIV
Holdings' business model, AIV Holdings' board of directors had determined that continuation as a BDC was not in the best interests of AIV
Holdings and Guardian AIV at the present time. Speciﬁcally, given that AIV Holdings was formed for the sole purpose of holding units of NMF
Holdings and AIV Holdings had disposed of all of the units of NMF Holdings that it was holding as of February 3, 2014, the board of directors of
AIV Holdings approved and declared advisable at an in-person meeting held on March 25, 2014 the withdrawal of AIV Holdings' election to be
regulated as a BDC under the 1940 Act. In addition, the

72

Table of Contents

board of directors of AIV Holdings approved and declared advisable for AIV Holdings to terminate its registration under Section 12(g) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and to dissolve AIV Holdings under the laws of the State of Delaware.

        Upon receipt of necessary stockholder consent to authorize the board of directors of AIV Holdings to withdraw AIV Holdings' election to be
regulated as a BDC, the withdrawal was ﬁled and became effective upon receipt by the U.S. SEC of AIV Holdings' notiﬁcation of withdrawal on
Form N-54C on April 15, 2014. The board of directors of AIV Holdings believed that AIV Holdings met the requirements for ﬁling the notiﬁcation
to withdraw its election to be regulated as a BDC, upon the receipt of the necessary stockholder consent. After the notiﬁcation of withdrawal of AIV
Holdings' BDC election was ﬁled with the SEC, AIV Holdings was no longer subject to the regulatory provisions of the 1940 Act applicable to
BDCs generally, including regulations related to insurance, custody, composition of its board of directors, afﬁliated transactions and any
compensation arrangements.

        In addition, on April 15, 2014, AIV Holdings ﬁled a Form 15 with the SEC to terminate AIV Holdings' registration under Section 12(g) of the
Exchange Act. After these SEC ﬁlings and any other federal or state regulatory or tax ﬁlings were made, AIV Holdings proceeded to dissolve under
Delaware law by ﬁling a certiﬁcate of dissolution in Delaware on April 25, 2014.

        Until May 8, 2014, as a BDC, NMF Holdings had been subject to the 1940 Act, including certain provisions applicable only to BDCs.
Accordingly, and after careful consideration of the 1940 Act requirements applicable to BDCs, the cost of 1940 Act compliance and a thorough
assessment of NMF Holdings' current business model, NMF Holdings' board of directors determined at an in-person meeting held on March 25,
2014 that continuation as a BDC was not in the best interests of NMF Holdings at the present time.

        At the 2014 joint annual meeting of the stockholders of NMFC and the sole unit holder of NMF Holdings held on May 6, 2014, the
stockholders of NMFC and the sole unit holder of NMF Holdings approved a proposal which authorized the board of directors of NMF Holdings to
withdraw NMF Holdings' election to be regulated as a BDC. Additionally, the stockholders of NMFC approved a new investment advisory and
management agreement between NMFC and the Investment Adviser. Upon receipt of the necessary stockholder/unit holder approval to authorize
the board of directors of NMF Holdings to withdraw NMF Holdings' election to be regulated as a BDC, the withdrawal was ﬁled and became
effective upon receipt by the SEC of NMF Holdings' notiﬁcation of withdrawal on Form N-54C on May 8, 2014.

        Effective May 8, 2014, NMF Holdings amended and restated its Operating Agreement such that the board of directors of NMF Holdings was
dissolved and NMF Holdings remained a wholly-owned subsidiary of NMFC with the sole purpose of serving as a special purpose vehicle for NMF
Holdings' credit facility, and NMFC assumed all other operating activities previously undertaken by NMF Holdings under the management of the
Investment Adviser (collectively, the "Restructuring"). After the Restructuring, all wholly-owned direct and indirect subsidiaries of NMFC are
consolidated with NMFC for both 1940 Act and ﬁnancial statement reporting purposes, subject to any ﬁnancial statement adjustments required in
accordance with accounting principles generally accepted in the United States of America ("GAAP"). NMFC continues to remain a BDC under the
1940 Act.

        Also, on May 8, 2014, NMF Holdings ﬁled Form 15 with the SEC to terminate NMF Holdings' registration under Section 12(g) of the
Exchange Act. As a special purpose entity, NMF Holdings is bankruptcy-remote and non-recourse to NMFC. In addition, the assets held at NMF
Holdings will continue to be used to secure NMF Holdings' credit facility.

73

Table of Contents

Current Organization

        During the year ended December 31, 2014, the Company established wholly-owned subsidiaries, NMF Ancora Holdings Inc. ("NMF Ancora")
and NMF YP Holdings Inc. ("NMF YP"), which are structured as Delaware entities that serve as tax blocker corporations which hold equity or
equity-like investments in portfolio companies organized as limited liability companies (or other forms of pass-through entities). Tax blocker
corporations are not consolidated for income tax purposes and may incur income tax expense as a result of their ownership of portfolio companies.
Additionally, the Company has a wholly-owned subsidiary, New Mountain Finance Servicing, L.L.C. ("NMF Servicing") that serves as the
administrative agent on certain investment transactions. New Mountain Finance SBIC, L.P. ("SBIC LP"), and its general partner, New Mountain
Finance SBIC G.P., L.L.C. ("SBIC GP"), were organized in Delaware as a limited partnership and limited liability company, respectively. SBIC LP
and SBIC GP are consolidated wholly-owned direct and indirect subsidiaries of the Company. SBIC LP received a license from the U.S. Small
Business Administration (the "SBA") to operate as a small business investment company ("SBIC") under Section 301(c) of the Small Business
Investment Act of 1958, as amended (the "1958 Act").

        The diagram below depicts the Company's organizational structure as of December 31, 2014.

*

**

Includes partners of New Mountain Guardian Partners, L.P. 

NMFC is the sole limited partner of SBIC LP. NMFC, directly or indirectly through SBIC GP, wholly-owns SBIC LP. NMFC owns 100.0%
of SBIC GP which owns 1.0% of SBIC LP. NMFC owns 99.0% of SBIC LP.

        The Company's investment objective is to generate current income and capital appreciation through the sourcing and origination of debt
securities at all levels of the capital structure, including ﬁrst and second lien debt, notes, bonds and mezzanine securities. In some cases, the
Company's investments may also include equity interests. The primary focus is in the debt of defensive growth companies, which are deﬁned as
generally exhibiting the following characteristics: (i) sustainable secular growth drivers, (ii) high barriers to competitive entry, (iii) high free cash
ﬂow after capital expenditure and working capital needs, (iv) high returns on assets and (v) niche market dominance. Similar to the Company,
SBIC LP's investment objective is to generate current income and capital appreciation under

74

Table of Contents

the investment criteria used by the Company, however, SBIC LP's investments must be SBA eligible companies. Our portfolio may be concentrated
in a limited number of industries. As of December 31, 2014, our top ﬁve industry concentrations were software, business services, education,
federal services and healthcare services.

        As of December 31, 2014, the Company's net asset value was $802.2 million and its portfolio had a fair value of approximately
$1,424.7 million in 71 portfolio companies, with a weighted average Yield to Maturity at Cost of approximately 10.7%. This Yield to Maturity at
Cost ("Yield to Maturity at Cost") calculation assumes that all investments, including secured collateralized agreements, not on non-accrual are
purchased at the adjusted cost on the quarter end date and held until their respective maturities with no prepayments or losses and exited at par at
maturity. Adjusted cost reﬂects the GAAP cost for post-IPO investments and a stepped up cost basis of pre-IPO investments (assuming a step-up to
fair market value occurred on the IPO date). This calculation excludes the impact of existing leverage. Yield to Maturity at Cost uses the London
Interbank Offered Rate ("LIBOR") curves at each quarter's end date. The actual yield to maturity may be higher or lower due to the future selection
of the LIBOR contracts by the individual companies in the Company's portfolio or other factors.

Recent Developments

        On December 31, 2014 and continuing subsequent to the year then ended, the Company's portfolio investment in Edmentum, Inc. disclosed its
projected substantial ﬁnancial deterioration. The Company reﬂects this information in the valuation of this portfolio investment as of December 31,
2014. All interest due to the Company through the year ended December 31, 2014 has been paid. As more information becomes available, the

Company may experience a further mark down of the fair value of this investment. This investment may be placed on non-accrual status in the
future. The investment represents 1.1% of the total portfolio at fair value as of December 31, 2014.

        In January 2015, UniTek emerged from "Pre-Packaged" Chapter 11 Bankruptcy and completed its restructuring.

        On February 23, 2015, the Company's board of directors declared a ﬁrst quarter 2015 distribution of $0.34 per share payable on March 31,
2015 to holders of record as of March 17, 2015.

Critical Accounting Policies

        The preparation of ﬁnancial statements and related disclosures in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the ﬁnancial
statements, and revenues and expenses during the periods reported. Actual results could materially differ from those estimates. We have identiﬁed
the following items as critical accounting policies.

Basis of Accounting

        The Company consolidates its wholly-owned direct and indirect subsidiaries: NMF Holdings, NMF Servicing, SBIC LP, SBIC GP, NMF
Ancora and NMF YP. Previously, the Company consolidated its wholly-owned indirect subsidiary NMF SLF until it merged with and into NMF
Holdings on December 18, 2014. See Item 8.—Financial Statements and Supplementary Data—Note 7, Borrowings for additional information on
the Company's credit facilities. The Company is an investment company following accounting and reporting guidance as described in Accounting
Standards Codiﬁcation Topic 946,  Financial Services—Investment Companies, ("ASC 946"). Prior to the Restructuring, the Predecessor Operating
Company consolidated its wholly-owned subsidiary, NMF SLF. NMFC and AIV Holdings did not consolidate the Predecessor Operating Company.
Prior to the Restructuring, NMFC and AIV Holdings applied investment company master-feeder ﬁnancial statement presentation, as described in
ASC 946 to their interest in the Predecessor Operating Company. NMFC and AIV

75

Table of Contents

Holdings observed that it is also 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 provided stockholders of NMFC and AIV
Holdings with a clearer depiction of their investment in the master fund.

Valuation and Leveling of Portfolio Investments

        At all times consistent with GAAP and the 1940 Act, the Company conducts a valuation of assets, which impacts its net asset value.

        The Company values its assets on a quarterly basis, or more frequently if required under the 1940 Act. In all cases, the Company's board of
directors is ultimately and solely responsible for determining the fair value of its portfolio investments on a quarterly basis in good faith, including
investments that are not publicly traded, those whose market prices are not readily available and any other situation where its portfolio investments
require a fair value determination. Security transactions are accounted for on a trade date basis. The Company's quarterly valuation procedures are
set forth in more detail below:

(1)

(2)

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. 

Investments for which indicative prices are obtained from various pricing services and/or brokers or dealers are valued through a
multi-step valuation process, as described below, to determine whether the quote(s) obtained is representative of fair value in
accordance with GAAP. 

a.

Bond quotes are obtained through independent pricing services. Internal reviews are performed by the investment
professionals of the Investment Adviser to ensure that the quote obtained is representative of fair value in accordance with
GAAP and if so, the quote is used. If the Investment Adviser is unable to sufﬁciently validate the quote(s) internally and if
the investment's par value or its fair value exceeds the materiality threshold, the investment is valued similarly to those assets
with no readily available quotes (see (3) below); and 

b.

For investments other than bonds, the Company looks at the number of quotes readily available and performs the following: 

i.

ii.

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; 

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.

b.

Each portfolio company or investment is initially valued by the investment professionals of the Investment Adviser
responsible for the credit monitoring; 

Preliminary valuation conclusions will then be documented and discussed with the Company's senior management;

76

Table of Contents

c.

d.

If an investment falls into (3) above for four consecutive quarters and if the investment's par value or its fair value exceeds
the materiality threshold, then at least once each ﬁscal year, the valuation for each portfolio investment for which the
Company does not have a readily available market quotation will be reviewed by an independent valuation ﬁrm engaged by
the Company's board of directors; and 

When deemed appropriate by the Company's management, an independent valuation ﬁrm may be engaged to review and
value investment(s) of a portfolio company, without any preliminary valuation being performed by the Investment Adviser.
The investment professionals of the Investment Adviser will review and validate the value provided.

        For investments in revolving credit facilities and delayed draw commitments, the cost basis of the funded investments purchased is offset by
any costs/netbacks received for any unfunded portion on the total balance committed. The fair value is also adjusted for the price appreciation or
depreciation on the unfunded portion. As a result, the purchase of commitments not completely funded may result in a negative fair value until it is
called and funded.

        The values assigned to investments are based upon available information and do not necessarily represent amounts which might ultimately be
realized, since such amounts depend on future circumstances and cannot be reasonably determined until the individual positions are liquidated. Due
to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the
Company's investments may ﬂuctuate from period to period and the ﬂuctuations could be material.

        GAAP fair value measurement guidance classiﬁes the inputs used in measuring fair value into three levels as follows:

Level I—Quoted prices (unadjusted) are available in active markets for identical investments and the Company has the ability to access such
quotes as of the reporting date. The type of investments which would generally be included in Level I include active exchange-traded equity
securities and exchange-traded derivatives. As required by Accounting Standards Codiﬁcation Topic 820,  Fair Value Measurements and
Disclosures ("ASC 820"), the Company, to the extent that it holds such investments, does not adjust the quoted price for these investments,
even in situations where the Company holds a large position and a sale could reasonably impact the quoted price.

Level II—Pricing inputs are observable for the investments, either directly or indirectly, as of the reporting date, but are not the same as
those used in Level I. Level II inputs include the following:

•

Quoted prices for similar assets or liabilities in active markets; 

•

•

•

Quoted prices for identical or similar assets or liabilities in non-active markets (examples include corporate and municipal bonds,
which trade infrequently); 

Pricing models whose inputs are observable for substantially the full term of the asset or liability (examples include most over-the-
counter derivatives, including foreign exchange forward contracts); and 

Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other
means for substantially the full term of the asset or liability.

Level III—Pricing inputs are unobservable for the investment and include situations where there is little, if any, market activity for the
investment.

        The inputs used to measure fair value may fall into different levels. In all instances when the inputs fall within different levels of the hierarchy,
the level within which the fair value measurement is categorized is based on the lowest level of input that is signiﬁcant to the fair value
measurement in its entirety. As such, a Level III fair value measurement may include inputs that are both observable (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).

77

Table of Contents

        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.

        The following table summarizes the levels in the fair value hierarchy that the Company's portfolio investments fall into as of December 31,
2014:

(in thousands)
First lien
Second lien
Subordinated
Equity and other
Total investments

  $

  Level I

Level II

Level III

Total
677,901  $ —  $
604,158 
61,987 
80,625 

508,721  $ 169,180 
  134,406 
469,752 
35,470 
26,517 
80,625 
— 
  $ 1,424,671  $ —  $ 1,004,990  $ 419,681 

  — 
  — 
  — 

        The Company generally uses the following framework when determining the fair value of investments where there are little, if any, market
activity or observable pricing inputs. The Company typically determines the fair value of its performing debt investments utilizing an income
approach. Additional consideration is given using a market based approach, as well as reviewing the overall underlying portfolio company's
performance and associated ﬁnancial risks. The following outlines additional details on the approaches considered:

        Company Performance, Financial Review, and Analysis:    Prior to investment, as part of its due diligence process, the Company evaluates
the overall performance and ﬁnancial stability of the portfolio company. Post investment, the Company analyzes each portfolio company's current
operating performance and relevant ﬁnancial trends versus prior year and budgeted results, including, but not limited to, factors affecting its revenue
and earnings before interest, taxes, depreciation, and amortization ("EBITDA") growth, margin trends, liquidity position, covenant compliance and
changes to its capital structure. The Company also attempts to identify and subsequently track any developments at the portfolio company, within its
customer or vendor base or within the industry or the macroeconomic environment, generally, that may alter any material element of its original
investment thesis. This analysis is speciﬁc to each portfolio company. The Company leverages the knowledge gained from its original due diligence
process, augmented by this subsequent monitoring, to continually reﬁne its outlook for each of its portfolio companies and ultimately form the
valuation of its investment in each portfolio company. When an external event such as a purchase transaction, public offering or subsequent sale
occurs, the Company will consider the pricing indicated by the external event to corroborate the private valuation.

        Market Based Approach:    The Company may estimate the total enterprise value of each portfolio company by utilizing market value cash
ﬂow (EBITDA) multiples of publicly traded comparable companies. The Company considers numerous factors when selecting the appropriate
companies whose trading multiples are used to value its portfolio companies. These factors include, but are not limited to, the type of organization,
similarity to the business being valued, relevant risk factors, as well as size, proﬁtability and growth expectations. The Company may apply an

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
average of various relevant comparable company EBITDA multiples to the portfolio company's latest twelve month ("LTM") EBITDA or projected
EBITDA to calculate portfolio company enterprise value. Signiﬁcant increases or decreases in the multiple will result in an increase or decrease in
enterprise value, resulting in an increase or decrease in the fair value estimate of the investment. In applying the market based approach as of
December 31, 2014, the Company used the relevant EBITDA multiple ranges set forth in the table below to determine the enterprise value of
investments in twelve of its portfolio companies.

78

Table of Contents

The Company believes this was a reasonable range in light of current comparable company trading levels and the speciﬁc companies involved.

        Income Based Approach:    The Company also may use a discounted cash ﬂow analysis to estimate the fair value of the investment. Projected
cash ﬂows represent the relevant security's contractual interest, fee and principal payments plus the assumption of full principal recovery at the
investment's expected maturity date. These cash ﬂows are discounted at a rate established utilizing a yield calibration approach, which incorporates
changes in the credit quality (as measured by relevant statistics) of the portfolio company, as compared to changes in the yield associated with
comparable credit quality market indices, between the date of origination and the valuation date. Signiﬁcant increases or decreases in the discount
rate would result in a decrease or increase in the fair value measurement. In applying the income based approach as of December 31, 2014, the
Company used the discount ranges set forth in the table below to value investments in seventeen of its portfolio companies.

Unobservable Input

  Low   High

Weighted
Average

Range

(in thousands)
Type
First lien

Second lien

Subordinated

Equity and other

  Fair Value
Approach
  $ 169,180  Market approach
Income approach
  134,406  Market approach
Income approach

   Other

35,470  Market approach
Income approach
80,625  Market approach
Income approach

  EBITDA multiple
  Discount rate
  EBITDA multiple
  Discount rate
  N/A(1)
  EBITDA multiple
  Discount rate
  EBITDA multiple
  Discount rate
  N/A(1)

   Other
   Black Scholes analysis   Expected life in years

  $ 419,681 

  Volatility
  Discount rate

  6.5x 

  12.0x 

8.2%   16.5%  

  15.5x 

  5.5x 
  11.0%   16.0%  
  N/A(1)  N/A(1) 
  8.0x 
  10.7%   17.7%  
  7.0x 

  12.0x 

  12.0x 

8.0%   15.0%  
  N/A(1)  N/A(1) 
  11.3 
  31.6%   31.6%  
2.3%  

  11.3 

2.3%  

8.6x 
12.0%
10.6x 
12.7%
N/A(1)

10.0x 
14.7%
8.1x 
12.9%
N/A(1)
11.3 
31.6%
2.3%

(1)

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

NMFC Senior Loan Program I, LLC

        On June 10, 2014, NMFC Senior Loan Program I, LLC ("SLP I") was formed as a Delaware limited liability company. SLP I is a portfolio
company held by the Company. SLP I is structured as a private investment fund, in which all of the investors are qualiﬁed purchasers, as such term
is deﬁned under the 1940 Act. Transfer of interests in SLP I is subject to restrictions, and as a result, such interests are not readily marketable. SLP I
operates under a limited liability company agreement (the "Agreement") and will continue in existence until June 10, 2019, subject to earlier
termination pursuant to certain terms of the Agreement. The term may be extended for up to one year pursuant to certain terms of the Agreement.
SLP I has a three year re-investment period.

        SLP I is capitalized with $93.0 million of capital commitments, $275.0 million of debt from a revolving credit facility and is managed by the
Company. The Company's capital commitment is $23.0 million, representing less than 25.0% ownership, with third party investors representing the
remaining capital commitment. As of December 31, 2014, SLP I had total investments with an

79

 
   
   
   
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
  
 
 
 
 
 
 
 
 
  
 
  
 
  
Table of Contents

aggregate fair value of approximately $369.2 million, debt outstanding of $266.9 million and capital that had been called and funded of
$93.0 million. The Company's investment in SLP I is disclosed on the December 31, 2014 Consolidated Schedule of Investments.

        The Company, as an investment adviser registered under the Advisers Act, acts as the collateral manager to SLP I and is entitled to receive a
management fee for its investment management services provided to SLP I. As a result, SLP I is classiﬁed as an afﬁliate of the Company. For the
year ended December 31, 2014, the Company earned approximately $0.5 million in management fees related to SLP I which is included in other
income. As of December 31, 2014, approximately $0.5 million of management fees related to SLP I was included in receivable from afﬁliates. For
the year ended December 31, 2014, the Company earned approximately $1.1 million of dividend income related to SLP I, which is included in
dividend income. As of December 31, 2014, approximately $0.8 million of dividend income related to SLP I was included in interest and dividend
receivable.

        SLP I invests in senior secured loans issued by companies within the Company's core industry verticals. These investments are typically
broadly syndicated ﬁrst lien loans.

Collateralized agreements or repurchase ﬁnancings

        The Company follows the guidance in Accounting Standards Codiﬁcation Topic 860, Transfers and Servicing—Secured Borrowing and
Collateral, (``ASC 860") when accounting for transactions involving the purchases of securities under collateralized agreements to resell (resale
agreements). These transactions are treated as collateralized ﬁnancing transactions and are recorded at their contracted resale or repurchase
amounts, as speciﬁed in the respective agreements. Interest on collateralized agreements is accrued and recognized over the life of the transaction
and included in interest income. As of December 31, 2014, the Company held one collateralized agreement to resell with a carrying value of $30.0
million, collateralized by a security with a fair value of $30.0 million and guaranteed by the counterparty. The counterparty has the option to
repurchase the collateral from the Company at the par value of the collateralized agreement within a year. The collateralized agreement earns
interest at a rate of 15.0% per annum as of December 31, 2014. The Predecessor Operating Company did not have any collateralized agreements as
of the year ended December 31, 2013.

Revenue Recognition

        The 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 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, if deemed
collectible, 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 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

80

Table of Contents

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, structuring fees, management fees
from a non-controlled/afﬁliated investment and other miscellaneous fees received and are typically non-recurring in nature. Delayed compensation
is income earned from counterparties on trades that do not settle within a set number of business days after trade date. Other income may also

include fees from bridge loans. The Company may from time to time enter into bridge ﬁnancing commitments, an obligation to provide interim
ﬁnancing to a counterparty until permanent credit can be obtained. These commitments are short-term in nature and may expire unfunded. A fee is
received by the Company for providing such commitments. Structuring fees are recognized as income when earned, usually when paid at the closing
of the investment and are non-refundable.

        Prior to the Restructuring, NMFC's revenue recognition policies were as follows:

        Revenue, expenses, and capital gains (losses):    At each quarterly valuation date, the Predecessor Operating Company's investment income,
expenses, net realized gains (losses), and net increase (decrease) in unrealized appreciation (depreciation) were allocated to NMFC based on its pro-
rata interest in the net assets of the Predecessor Operating Company. This was recorded on NMFC's Statements of Operations. Realized gains and
losses are recorded upon sales of NMFC's investments in the Predecessor 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 Predecessor 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 Predecessor Operating Company. As a result,
NMFC experienced immediate unrealized appreciation on its investment.

        All expenses, including those of NMFC, were paid and recorded by the Predecessor Operating Company. Expenses were allocated to NMFC
based on pro-rata ownership interest. In addition, the Predecessor Operating Company paid all of the offering costs related to the IPO and
subsequent offerings. NMFC recorded its portion of the offering costs as a direct reduction to net assets and the cost of their investment in the
Predecessor Operating Company.

Monitoring of Portfolio Investments

        The Company monitors the performance and ﬁnancial trends of its portfolio companies on at least a quarterly basis. The Company attempts to
identify any developments within the portfolio company, the industry or the macroeconomic environment that may alter any material element of its
original investment strategy.

        The Company uses an investment rating system to characterize and monitor the credit proﬁle and expected level of returns on each investment
in the portfolio. The Company uses a four-level numeric rating scale as follows:

•

Investment Rating 1—Investment is performing materially above expectations;

81

Table of Contents

•

•

•

Investment Rating 2—Investment is performing materially in-line with expectations. All new loans are rated 2 at initial purchase; 

Investment Rating 3—Investment is performing materially below expectations and risk has increased materially since the original
investment; and 

Investment Rating 4—Investment is performing substantially below expectations and risks have increased substantially since the
original investment. Payments may be delinquent. There is meaningful possibility that the Company will not recoup its original cost
basis in the investment and may realize a substantial loss upon exit.

        As of December 31, 2014, all investments in the Company's portfolio had an Investment Rating of 1 or 2 with the exception of ﬁve portfolio
company names; four portfolio companies with an Investment Rating of 3 and two portfolio companies with an Investment Rating of 4. As of
December 31, 2014, a portion of the Company's investment in one portfolio company had an Investment Rating of 3 and a portion had an
Investment Rating of 4.

        As of December 31, 2014, the Company's two super priority ﬁrst lien positions in ATI Acquisition Company and related equity positions in
Ancora Acquisition LLC had an Investment Rating of 4 due to the underlying business encountering signiﬁcant regulatory constraints which have
led to the portfolio company's underperformance. As of December 31, 2014, the Company's two super priority ﬁrst lien positions in ATI Acquisition
Company remained on non-accrual status due to the inability of the portfolio company to service its interest payments for the year then ended and
uncertainty about its ability to pay such amounts in the future. During the third quarter of 2013, the 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 December 31, 2014, the

Company's investment in ATI Acquisition Company and Ancora Acquisition LLC had an aggregate cost basis of $1.6 million, an aggregate fair
value of $0.4 million and total unearned interest income of $0.3 million for the year then ended. Unrealized gains (losses) include a fee that the
Company would receive upon maturity of the two super priority ﬁrst lien debt investments.

        During the third quarter of 2014, the Company placed a portion of its ﬁrst lien position in UniTek Global Services, Inc. ("UniTek") on non-
accrual status in anticipation of a voluntary petition for a "Pre-Packaged" Chapter 11 Bankruptcy in the U.S. Bankruptcy Court for the District of
Delaware which was ﬁled on November 3, 2014. As of December 31, 2014, the portion of the UniTek ﬁrst lien position placed on non-accrual status
represented an aggregate cost basis of $12.1 million, an aggregate fair value of $8.8 million and total unearned interest income of $1.0 million for
the year then ended.

Portfolio and Investment Activity

        The fair value of the Company's investments was approximately $1,424.7 million in 71 portfolio companies at December 31, 2014. At
December 31, 2013 and December 31, 2012, the Company's only investment was its investment in the Predecessor Operating Company. The fair
value of the Predecessor Operating Company's investments was approximately $1,115.7 million in 59 portfolio companies at December 31, 2013
and $989.8 million in 63 portfolio companies at December 31, 2012.

82

Table of Contents

        The following table shows the Company's portfolio and investment activity for the year ended December 31, 2014 and the Predecessor
Operating Company's portfolio and investment activity for the years ended December 31, 2013 and December 31, 2012:

(in millions)
New investments in 43, 34 and 45 portfolio companies, respectively
Debt repayments in existing portfolio companies
Sales of securities in 14, 12 and 22 portfolio companies, respectively
Change in unrealized appreciation on 20, 45 and 48 portfolio companies,

respectively

Change in unrealized depreciation on 60, 29 and 30 portfolio companies,

respectively

2014(1)

Years ended December 31,
2013
  $ 720.9  $ 529.3  $ 673.2 
299.2 
124.7 

267.5 
117.0 

395.4 
31.2 

2012

21.2 

27.9 

27.0 

(63.9)  

(19.9)  

(17.1)

(1)

For the year ended December 31, 2014, amounts represent the investment activity of the Predecessor Operating Company
through and including May 7, 2014 and the investment activity of the Company from May 8, 2014 through December 31,
2014.

        At December 31, 2014, the Company's weighted average Yield to Maturity at Cost was approximately 10.7%. At December 31, 2013, the
Predecessor Operating Company's weighted average Yield to Maturity at Cost and weighted average Yield to Maturity was approximately 11.0%
and 10.6%, respectively. The Yield to Maturity calculation used in prior years for the Predecessor Operating Company assumed that all investments
not on non-accrual were purchased at fair value on December 31, 2013 and held until their respective maturities with no prepayments or losses and
exited at par at maturity.

Recent Accounting Standards Updates

        In June 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2013-08, Financial Services—
Investment Companies Topic 946—Amendments to the Scope, Measurement and Disclosure Requirements  ("ASU 2013-08"), which contains new
guidance on assessing whether an entity is an investment company, requiring non-controlling ownership interests in investment companies to be
measured at fair value and requiring certain additional disclosures. ASU 2013-08 is effective for interim and annual periods beginning after
December 15, 2013. The Company is an investment company that is applying the specialized guidance in Topic 946 as of January 1, 2014.

        In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers Topic 606—Summary
and Amendments that Create Revenue from Contracts with Customers and Other Assets and Deferred Costs  ('ASU 2014-09"). ASU 2014-09
establishes a comprehensive and converged standard on revenue recognition to enable ﬁnancial statement users to better understand and consistently
analyze an entity's revenue across industries, transactions and geographies. The core principle of the new guidance is that an entity should recognize
revenue to depict the transfer of promised goods or services to customers in an amount that reﬂects the consideration to which the entity expects to
be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (1) identify the

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction
price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisﬁes a performance obligation. The new
guidance also speciﬁes the accounting for certain costs to obtain or fulﬁll a contract with a customer. The new guidance requires improved
disclosures to help users of ﬁnancial statements better understand the nature, amount, timing, and uncertainty of revenue that is recognized.
Qualitative and quantitative information is

83

Table of Contents

required to be disclosed about: (1) contracts with customers, (2) signiﬁcant judgments and changes in judgments, and (3) assets recognized from
costs to obtain or fulﬁll a contract. The new guidance will apply to all entities. The guidance is effective for interim and annual reporting periods in
ﬁscal years beginning after December 15, 2016. Early application is not permitted. The Company is in the process of evaluating the impact that this
guidance will have on its consolidated ﬁnancial statements and disclosures.

        In June 2014, the FASB issued Accounting Standards Update No. 2014-11, Transfers and Servicing Topic 860—Repurchase-to-Maturity
Transactions, Repurchase Financings, and Disclosures  ("ASU 2014-11"). ASU 2014-11 changes the accounting for repurchase- and resale-to-
maturity agreements by requiring that such agreements be recognized as ﬁnancing arrangements, and requires that a transfer of a ﬁnancial asset and
a repurchase agreement entered into contemporaneously be accounted for separately. ASU 2014-11 requires additional disclosures about certain
transferred ﬁnancial assets accounted for as sales and certain securities ﬁnancing transactions. The accounting changes and additional disclosures
about certain transferred ﬁnancial assets accounted for as sales are effective for the ﬁrst interim and annual reporting periods beginning after
December 15, 2014. The additional disclosures for securities ﬁnancing transactions are required for annual reporting periods beginning after
December 15, 2014 and for interim reporting periods beginning after March 15, 2015. The Company is in the process of evaluating the impact that
this guidance will have on its consolidated ﬁnancial statements and disclosures.

        In August 2014, the FASB issued Accounting Standards Update No. 2014-15, Presentation of Financial Statements—Going Concern Subtopic
205-40—Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern ("ASU 2014-15"). ASU 2014-15 will explicitly
require management to assess an entity's ability to continue as a going concern, and to provide related footnote disclosure in certain circumstances.
The new standard will be effective for all entities in the ﬁrst annual period ending after December 15, 2016. Earlier adoption is permitted. The
adoption of ASU 2014-15 is not expected to have a material impact on the Company's consolidated ﬁnancial statements and disclosures.

Results of Operations

        Under GAAP, NMFC's IPO did not step-up the cost basis of the Predecessor Operating Company's existing investments to fair market value at
the IPO date. Since the total value of the Predecessor Operating Company's investments at the time of the IPO was greater than the investments' cost
basis, a larger amount of amortization of purchase or original issue discount, and different amounts in realized gain and unrealized appreciation,
may be recognized under GAAP in each period than if the step-up had occurred. This will remain until such predecessor investments are sold, repaid
or mature in the future. The Company tracks the transferred (or fair market) value of each of the Predecessor Operating Company's investments as of
the time of the IPO and, for purposes of the incentive fee calculation, adjusts income as if each investment was purchased at the date of the IPO (or
stepped up to fair market value). The respective "Adjusted Net Investment Income" (deﬁned as net investment income adjusted to reﬂect income as
if the cost basis of investments held at the IPO date had stepped-up to fair market value as of the IPO date) is used in calculating both the incentive
fee and dividend payments. See Item 8.—Financial Statements and Supplementary Data—Note 5, Agreements for additional details.

84

Table of Contents

        The following table for the Company for the year ended December 31, 2014 is adjusted to reﬂect the step-up to fair market value and the
allocation of the incentive fees related to hypothetical capital gains out of the adjusted post-incentive fee net investment income.

(in thousands)
Investment income
Interest income
Dividend income

Year Ended
December 31,
2014

Stepped-up
Cost Basis
Adjustments

Incentive Fee
Adjustments(1)

Adjusted
Year Ended
December 31,
2014

  $

85,123  $
2,309 

(193) $
— 

—  $
— 

84,930 
2,309 

 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
Other income
Investment income allocated from NMF

Holdings
Interest income
Dividend income
Other income
Total investment income(2)
Total expenses pre-incentive fee(3)              

Pre-Incentive Fee Net Investment Income

Incentive fee

Post-Incentive Fee Net Investment Income
Net realized gains (losses) on investments
Net realized gains on investments allocated from

NMF Holdings

Net change in unrealized (depreciation)

appreciation of investments(4)
Net change in unrealized appreciation

(depreciation) of investments allocated from
NMF Holdings
Provision for taxes
Capital gains incentive fees
Net increase in net assets resulting from

4,491 

— 

— 

4,491 

40,515 
2,368 
795 
135,601 
43,766 
91,835 
11,769 
80,066 
357 

8,568 

(43,863)  

940 
(493)  
— 

— 
— 
— 
(193)  
— 
(193)  
— 
(193)  
(456)  

— 

649 

— 
— 
— 

— 
— 
— 
— 
— 
— 
6,549 
(6,549)  
— 

— 

— 

— 
— 
6,549 

40,515 
2,368 
795 
135,408 
43,766 
91,642 
18,318 
73,324 
(99)

8,568 

(43,214)

940 
(493)
6,549 

operations

  $

45,575 

   $

45,575 

(1)

(2)

(3)

(4)

For the year ended December 31, 2014, the Company incurred total incentive fees of $11.8 million, of which $(6.5) million
related to the reduction of the capital gains incentive fee accrual on a hypothetical liquidation basis. 

Includes income from non-controlled/non-afﬁliated investments and non-controlled/afﬁliated investments. 

Includes expense waivers and reimbursements of $1.1 million and management fee waivers of $0.7 million. 

Includes net change in unrealized (depreciation) appreciation of investments from non-controlled/non-afﬁliated investments
and non-controlled/afﬁliated investments.

85

Table of Contents

        For the year ended December 31, 2014, the Company had a $0.2 million adjustment to interest income for amortization, a decrease of
$0.5 million to net realized gains and an increase of $0.7 million to net change in unrealized depreciation to adjust for the stepped-up cost basis of
the transferred investments as discussed above. For the year ended December 31, 2014, total adjusted investment income of $135.4 million
consisted of approximately $114.5 million in cash interest from investments, approximately $4.6 million in PIK interest from investments,
approximately $3.9 million in prepayment fees, net amortization of purchase premiums and discounts and origination fees of approximately
$2.5 million, approximately $4.6 million in dividend income and approximately $5.3 million in other income. The Company's Adjusted Net
Investment Income was $73.3 million for the year ended December 31, 2014.

        In accordance with GAAP, for the year ended December 31, 2014, the Company decreased its hypothetical capital gains incentive fee accrual
by $6.5 million 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. As of December 31, 2014, no actual capital gains
incentive fee was owed under the Investment Management Agreement by the Company, as cumulative net Adjusted Realized Gains did not exceed
cumulative Adjusted Unrealized Depreciation.

        At December 31, 2013, the Company's only investment was its investment in the Predecessor Operating Company. The following table for the
Predecessor Operating Company for the year ended December 31, 2013 is adjusted to reﬂect the step-up to fair market value and the allocation of
the incentive fees related to hypothetical capital gains out of the adjusted post-incentive fee net investment income.

 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
(in thousands)
Investment income
Interest income
Dividend income
Other income
Total investment income
Total expenses pre-incentive fee(2)          
Pre-Incentive Fee Net Investment Income

Incentive fee

Post-Incentive Fee Net Investment Income
Net realized gains (losses) on investments
Net change in unrealized appreciation

(depreciation) of investments

Capital gains incentive fees
Net increase in members' capital resulting

Year Ended
December 31,
2013

Stepped-up
Cost Basis
Adjustments

Incentive Fee
Adjustments(1)

Adjusted
Year Ended
December 31,
2013

  $

107,027  $
5,049 
2,836 
114,912 
31,504 
83,408 
19,731 
63,677 
7,253 

(896) $
— 
— 
(896)  
— 
(896)  
— 
(896)  
(3,158)  

—  $
— 
— 
— 
— 
— 
(3,229)  
3,229 
— 

106,131 
5,049 
2,836 
114,016 
31,504 
82,512 
16,502 
66,010 
4,095 

7,994 
— 

4,054 
— 

— 
(3,229)  

12,048 
(3,229)

from operations          

  $

78,924 

   $

78,924 

For the year ended December 31, 2013, the Predecessor Operating Company incurred total incentive fees of $19.7 million, of
which $3.2 million related to capital gains incentive fees on a hypothetical liquidation basis. 

Includes expense waivers and reimbursements of $3.2 million.

86

(1)

(2)

Table of Contents

        For the year ended December 31, 2013, the Predecessor Operating Company had a $0.9 million adjustment to interest income for amortization,
a decrease of $3.2 million to net realized gains and an increase of $4.1 million to net change in unrealized appreciation to adjust for the stepped-up
cost basis of the transferred investments as discussed above. For the year ended December 31, 2013, total adjusted investment income of
$114.0 million consisted of approximately $94.5 million in cash interest from investments, approximately $3.4 million in PIK interest from
investments, approximately $5.8 million in prepayment fees, net amortization of purchase premiums and discounts and origination fees of
approximately $2.5 million, approximately $5.0 million in dividend income and approximately $2.8 million in other income. The Predecessor
Operating Company's Adjusted Net Investment Income was $66.0 million for the year ended December 31, 2013.

        In accordance with GAAP, for the year ended December 31, 2013, the Predecessor Operating Company accrued $3.2 million of 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. As of December 31, 2013,
approximately $1.1 million of capital gains incentive fees was owed under the Investment Management Agreement by the Predecessor Operating
Company, as cumulative net Adjusted Realized Gains exceeded cumulative Adjusted Unrealized Depreciation and was paid during the year ended
December 31, 2014.

        At December 31, 2012, the Company's only investment was its investment in the Predecessor Operating Company. The following table for the
Predecessor Operating Company for the year ended December 31, 2012 is adjusted to reﬂect the step-up to fair market value and the allocation of
the

87

Table of Contents

 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
incentive fees related to hypothetical capital gains out of the adjusted post-incentive fee net investment income.

(in thousands)
Investment income
Interest income
Dividend income
Other income
Total investment income
Total expenses pre-incentive fee(2)          
Pre-Incentive Fee Net Investment Income

Incentive fee

Post-Incentive Fee Net Investment Income
Net realized gains (losses) on investments
Net change in unrealized appreciation

(depreciation) of investments

Capital gains incentive fees
Net increase in members' capital resulting

Year Ended
December 31,
2012

Stepped-up
Cost Basis
Adjustments

Incentive Fee
Adjustments(1)

Adjusted
Year Ended
December 31,
2012

  $

83,646  $
812 
1,328 
85,786 
24,625 
61,161 
15,944 
45,217 
18,851 

(3,476) $
— 
— 
(3,476)  
— 
(3,476)  
— 
(3,476)  
(6,958)  

9,928 
— 

10,434 
— 

—  $
— 
— 
— 
— 
— 
(4,407)  
4,407 
— 

— 
(4,407)  

80,170 
812 
1,328 
82,310 
24,625 
57,685 
11,537 
46,148 
11,893 

20,362 
(4,407)

from operations              

  $

73,996 

   $

73,996 

(1)

(2)

For the year ended December 31, 2012, the Predecessor Operating Company incurred total incentive fees of $15.9 million, of
which $4.4 million related to capital gains incentive fees on a hypothetical liquidation basis. 

Includes expense waivers and reimbursements of $2.5 million.

        For the year ended December 31, 2012, the Predecessor Operating Company had a $3.5 million adjustment to interest income for amortization,
a decrease of $6.9 million to net realized gains and an increase of $10.4 million to net change in unrealized appreciation to adjust for the stepped-up
cost basis of the transferred investments as discussed above. For the year ended December 31, 2012, total adjusted interest income of $80.2 million
consisted of approximately $71.9 million in cash interest from investments, approximately $2.2 million in PIK interest from investments,
approximately $3.6 million in prepayment fees and net amortization of purchase premiums and discounts and origination fees of approximately
$2.5 million. The Predecessor Operating Company's Adjusted Net Investment Income was $46.1 million for the year ended December 31, 2012.

88

Table of Contents

Results of Operations for the Company for the Year Ended December 31, 2014 and the Predecessor Operating Company for the Years

Ended December 31, 2013 and December 31, 2012

Revenue

(in thousands)
Interest income
Interest income allocated from the Predecessor Operating

  $

Years ended December 31,
2013

2014
85,123  $ 107,027  $ 83,646 

2012

Company

Total interest income

40,515 
  125,638 

— 
  107,027 

— 
  83,646 

Dividend income
Dividend income allocated from the Predecessor Operating

Company

Total dividend income

Other income
Other income allocated from the Predecessor Operating

Company

2,309 

5,049 

2,368 
4,677 

— 
5,049 

812 

— 
812 

4,491 

2,836 

1,328 

795 

— 

— 

 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total other income
Total investment income

5,286 

1,328 
  $ 135,601  $ 114,912  $ 85,786 

2,836 

        The Company's total investment income increased by approximately $20.7 million for the year ended December 31, 2014 as compared to the
Predecessor Operating Company's total investment income for the year ended December 31, 2013. The 18.0% increase in total investment income
primarily results from an increase in interest income of approximately $18.6 million from the year ended December 31, 2013 to the year ended
December 31, 2014 which is attributable to larger invested balances, driven by the proceeds from the October 2013, April 2014 and October 2014
primary offerings of the Company's common stock and the June 2014 offering of the Company's convertible notes, the Company's use of leverage
from its revolving credit facilities to originate new investments and prepayment fees received associated with the early repayments or partial
repayments of ten different portfolio companies held by the Predecessor Operating Company as of December 31, 2013. The increase in other
income of approximately $2.5 million during the year ended December 31, 2014 as compared to the year ended December 31, 2013, which
represents fees that are non-recurring in nature, was primarily attributable to structuring, amendment and consent fees received from twenty
different portfolio companies and management fees from a non-controlled afﬁliated portfolio company. The decrease in dividend income during the
year ended December 31, 2014 as compared to the year ended December 31, 2013 was primarily attributable to a large distribution from one of the
Predecessor Operating Company's warrant investments in the prior year.

        The Predecessor Operating Company's total investment income increased by $29.1 million for the year ended December 31, 2013 as compared
to the year ended December 31, 2012. The 34.0% increase in investment income results from the increase in interest and other income for the year
ended December 31, 2013, which was primarily attributable to larger invested balances, driven by the proceeds from the 2012 and 2013 primary
offerings of NMFC's common stock, the Predecessor Operating Company's use of leverage for its revolving credit facilities to originate new
investments and prepayment fees received associated with the early repayments or partial repayments of twenty different portfolio companies held
by the Predecessor Operating Company as of December 31, 2012. Additionally, the Predecessor Operating Company's other income, which
represents fees that are non-recurring in nature, increased due to commitment fees received from three bridge facilities and

89

Table of Contents

consent, amendment and forbearance fees received associated with ten different portfolio companies held by the Predecessor Operating Company as
of December 31, 2012. The increase in dividend income for the year ended December 31, 2013 was attributable to distributions received from two
portfolio companies, which was recorded as dividend income.

Operating Expenses

(in thousands)
Management fee
Management fee allocated from Predecessor Operating Company
Less: management fee waiver
Total Management fee

2014

2012

Years ended December 31,
2013
  $ 13,593  $ 14,905  $ 11,109 
— 
— 
  11,109 

— 
— 
  14,905 

5,983 
(686)  

  18,890 

Incentive fee
Incentive fee allocated from Predecessor Operating Company
Total Incentive fee

  12,070 
6,248 
  18,318 

  16,502 
— 
  16,502 

  11,537 
— 
  11,537 

Capital gains incentive fee(1)
Capital gains incentive fee allocated from Predecessor Operating Company(1)  
Total Capital gains incentive fee(1)

(8,573)  
2,024 
(6,549)  

3,229 
— 
3,229 

4,407 
— 
4,407 

Interest and other ﬁnancing expenses
Interest and other ﬁnancing expenses allocated from Predecessor Operating

Company

Total Interest and other ﬁnancing expenses

Professional fees
Professional fees allocated from Predecessor Operating Company
Total Professional fees

  13,269 

  12,470 

  10,085 

4,764 
  18,033 

— 
  12,470 

— 
  10,085 

2,390 
1,238 
3,628 

2,349 
— 
2,349 

2,091 
— 
2,091 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Administrative fees
Administrative expenses allocated from Predecessor Operating Company
Total Administrative expenses

Other general and administrative expenses
Other general and administrative expenses allocated from Predecessor

1,470 
761 
2,231 

3,429 
— 
3,429 

2,426 
— 
2,426 

1,138 

1,584 

1,374 

Operating Company

Total other general and administrative expenses
Total expenses
Less: expenses waived and reimbursed
Net expenses before income taxes
Income tax expense
Net expenses after income taxes

555 
1,693 
  56,244 

— 
1,584 
  54,468 

— 
1,374 
  43,029 
(2,460)
  40,569 
— 
  $ 55,535  $ 51,235  $ 40,569 

  51,235 
— 

  55,099 
436 

(1,145)  

(3,233)  

(1)

Capital gains incentive fee accrual assumes a hypothetical liquidation basis.

        The Company's total net operating expenses increased by approximately $4.3 million for the year ended December 31, 2014 as compared to the
Predecessor Operating Company's year ended December 31, 2013. The Company's management fee increased by approximately $4.0 million, net of
a management fee waiver, and incentive fees increased by approximately $1.8 million for the year ended December 31, 2014 as compared to the
Predecessor Operating Company's year ended December 31,

90

Table of Contents

2013. The increase in management fee and incentive fee from the Predecessor Operating Company's year ended December 31, 2013 to the
Company's year ended December 31, 2014 was attributable to larger invested balances, driven by the proceeds from the October 2013, April 2014
and October 2014 primary offerings of NMFC's common stock, the June 2014 offering of NMFC's convertible notes and the Company's use of
leverage from its revolving credit facilities to originate new investments. The Company's capital gains incentive fee accrual decreased by
approximately $9.8 million for the year ended December 31, 2014 as compared to the Predecessor Operating Company's year ended December 31,
2013, which was attributable to lower net Adjusted Realized Capital Gains (Losses) and net Adjusted Unrealized Capital Depreciation of
investments during the period due to lower marks on the broader portfolio. As of December 31, 2014, no actual capital gains incentive fee was owed
under the Investment Management Agreement by the Company, as cumulative net Adjusted Realized Gains did not exceed cumulative Adjusted
Unrealized Depreciation.

        Interest and other ﬁnancing expenses increased by approximately $5.6 million during the year ended December 31, 2014, primarily due to the
increase of average debt outstanding from $184.1 million to $244.6 million for the Holdings Credit Facility (as deﬁned below) for the year ended
December 31, 2013 compared to December 31, 2014. In addition, during the year ended December 31, 2014, the Company issued $115.0 million of
convertible notes, closed the NMFC Credit Facility (as deﬁned below) and began to draw on SBA-guaranteed debentures. The Company's total
professional fees, total administrative expenses and total other general and administrative expenses marginally increased by approximately
$0.2 million for the year ended December 31, 2014 as compared to the Predecessor Operating Company's year ended December 31, 2013. During
the year ended December 31, 2014, the Company incurred $10.9 thousand in other expenses that were not subject to the expense cap pursuant to the
administration agreement, as amended and restated (the "Administration Agreement"), with the Administrator, and further restricted by the
Company. For the year ended December 31, 2014, approximately $1.4 million of indirect administrative expenses were included in administrative
expenses, of which $0.8 million were waived by the Administrator. The Company's expenses waived and reimbursed decreased by approximately
$2.1 million for the year ended December 31, 2014 as compared to the Predecessor Operating Company's year ended December 31, 2013 due to the
expiration of the expense cap on March 31, 2014 and the decrease of waived indirect administrative expenses by the Administrator during the year
ended December 31, 2014.

        The Predecessor Operating Company's total net operating expenses increased by approximately $10.7 million for the year ended December 31,
2013 as compared to the year ended December 31, 2012. The Predecessor Operating Company's management fees increased by approximately
$3.8 million and incentive fees increased by approximately $5.0 million for the year ended December 31, 2013 as compared to the year ended
December 31, 2012. The increase in management and incentive fees from the year ended December 31, 2012 to the year ended December 31, 2013
was attributable to larger invested balances, driven by the proceeds from the 2012 and 2013 primary offerings of NMFC's common stock, the
Predecessor Operating Company's use of leverage from its revolving credit facilities to originate new investments and the receipt of a dividend
distribution from one of the Predecessor Operating Company's warrant investments. The Predecessor Operating Company's capital gains incentive
fees decreased approximately $1.2 million for the year ended December 31, 2013 as compared to the year ended December 31, 2012, which was

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
attributable to lower net Adjusted Realized Capital Gains (Losses) and Adjusted Unrealized Capital Appreciation (Depreciation) of investments
during the period. As of December 31, 2013, approximately $1.1 million of capital gains incentive fees was owed under the Investment
Management Agreement by the Predecessor Operating Company, as cumulative net Adjusted Realized Gains exceeded cumulative Adjusted
Unrealized Depreciation and was paid during the year ended December 31, 2014.

91

Table of Contents

        Interest and other credit facility expenses increased by approximately $2.4 million during the year ended December 31, 2013, primarily due to
the increase of average debt outstanding from $133.6 million to $184.1 million for the Holdings Credit Facility and from $181.4 million to $214.3
million for the SLF Credit Facility for the year ended December 31, 2012 compared to December 31, 2013. For the year ended December 31, 2013,
the Predecessor Operating Company incurred approximately $0.1 million in other expenses that were not subject to the expense cap pursuant to the
Administration Agreement with the Administrator and further restricted by the Predecessor Operating Company.

Net Realized Gains and Net Change in Unrealized Appreciation (Depreciation)

(in thousands)
Net realized gains on investments
Net realized gains on investments allocated from Predecessor Operating

Company

Total realized gains on investments

Net change in unrealized (depreciation) appreciation of investments
Net change in unrealized appreciation (depreciation) of investments allocated

from Predecessor Operating Company

Total change in unrealized (depreciation) appreciation of investments

Provision for taxes
Total net realized gains and net change in unrealized (depreciation)

Years ended December 31,
2013

2014

2012

  $

357  $

7,253  $ 18,851 

8,568 
8,925 

— 
7,253 

— 
  18,851 

(43,863)  

7,994 

9,928 

940 
(42,923)  

— 
7,994 

— 
9,928 

(493)  

— 

— 

appreciation of investments

  $ (34,491) $ 15,247  $ 28,779 

        The Company's net realized and unrealized losses resulted in a net loss of approximately $34.5 million for the year ended December 31, 2014
compared to the Predecessor Operating Company's net realized and unrealized gains resulting in a net gain of approximately $15.2 million for the
same period in 2013. We look at net realized and unrealized gains or losses together as movement in unrealized appreciation or depreciation can be
the result of realizations. The net loss for the year ended December 31, 2014 was primarily driven by the overall decrease in the market prices of the
Company's investments during the period and the partial write-down related to two portfolio companies. These losses were partially offset by a
$5.6 million gain from the sale of the Company's warrant investments in one portfolio company and sales or repayments of investments with fair
values in excess of December 31, 2013 valuations resulting in net realized gains being greater than the reversal of the cumulative net unrealized
gains for those investments. The provision for income taxes was attributable to one warrant investment that is held as of December 31, 2014 in one
of the Company's corporate subsidiaries.

        The net gain for the year ended December 31, 2013 was primarily driven by sales or repayment of investments with fair values in excess of
December 31, 2012 valuations, resulting in net realized gains being greater than the reversal of the cumulative net unrealized gains for those
investments. Additionally, during the year ended December 31, 2013, a distribution from a warrant investment resulted in a realized gain of
approximately $1.1 million, the modiﬁcation of terms on one debt investment that was accounted for as an extinguishment resulted in a realized gain
of $1.7 million and the sale of the ﬁrst lien position in ATI Acquisition Company resulted in a realized loss of $4.3 million.

        The total net gain for the year ended December 31, 2012 was primarily related to the overall increase in the market and the quality of the
Predecessor Operating Company's portfolio, directly impacting the prices of the Predecessor Operating Company's portfolio. The appreciation of the
Predecessor Operating Company's portfolio and the sale or repayment of investments with fair values

92

Table of Contents

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
in excess of December 31, 2011 valuations, resulted in net realized gains being greater than the reversal of the cumulative net unrealized gains for
those investments.

Liquidity and Capital Resources

        The primary use of existing funds and any funds raised in the future is expected to be for the Company's repayment of indebtedness, the
Company's investments in portfolio companies, cash distributions to the Company's stockholders or for other general corporate purposes.

        Since NMFC's IPO, and through December 31, 2014, NMFC raised approximately $374.6 million in net proceeds from additional offerings of
common stock and issued shares valued at approximately $288.4 million on behalf of AIV Holdings for exchanged units. NMFC acquired from the
Predecessor Operating Company units of the Predecessor Operating Company equal to the number of shares of NMFC's common stock sold in the
additional offerings.

        On February 3, 2014, NMFC completed an underwritten secondary public offering of 2,325,000 shares of its common stock on behalf of a
selling stockholder, AIV Holdings, at a public offering price of $14.70 per share. In connection with the underwritten secondary public offering, the
underwriters purchased an additional 346,938 shares of NMFC's common stock from AIV Holdings with the exercise of the overallotment option to
purchase up to an additional 346,938 shares of common stock. NMFC did not receive any proceeds from the sale of shares of NMFC's common
stock by AIV Holdings. The Predecessor Operating Company and NMFC did not bear any expenses in connection with this offering. The offering
expenses were borne by the selling stockholder, AIV Holdings. As of February 3, 2014, AIV Holdings no longer owns any units of the Predecessor
Operating Company and NMFC owns 100.0% of the outstanding units of the Predecessor Operating Company, which is now a wholly-owned
subsidiary of NMFC.

        On April 15, 2014, NMFC completed a public offering of 3,500,000 shares of its common stock at a public offering price of $14.30 per share,
which resulted in net proceeds of $51.0 million, or $14.57 per share. NMFC's Investment Adviser agreed to pay the underwriting discounts and
commissions in connection with this offering and an additional supplemental payment to the underwriters of $0.9 million, or $0.27 per share, which
reﬂects the difference between the public offering price and the proceeds per share received by NMFC. In connection with the public offering, the
underwriters purchased an additional 525,000 shares of NMFC's common stock with the exercise of the overallotment option to purchase up to an
additional 525,000 shares of NMFC's common stock, resulting in additional net proceeds of $7.6 million. NMFC's Investment Adviser agreed to pay
the underwriting discounts and commissions in connection with this exercise of the overallotment option and an additional supplemental payment to
the underwriters of $0.1 million, or $0.27 per share, which reﬂects the difference between the public offering price and the proceeds per share
received by NMFC in this exercise of the overallotment option.

        On October 28, 2014, the Company completed a public offering of 5,000,000 shares of its common stock at a public offering price of $14.53
per share, which resulted in net proceeds of $71.8 million. In connection with the public offering, the underwriters purchased an additional 750,000
shares of the Company's common stock with the exercise of the overallotment option to purchase up to an additional 750,000 shares of the
Company's common stock, which resulted in additional net proceeds of $10.8 million.

        The Company's liquidity is generated and generally available through advances from the revolving credit facilities, from cash ﬂows from
operations, and, we expect, through periodic follow-on equity offerings. In addition, we may from time to time enter into additional debt facilities,
increase the size of existing facilities or issue additional debt securities, including unsecured debt and/or debt securities convertible into common
stock. Any such incurrence or issuance would be subject to prevailing market conditions, our liquidity requirements, contractual and regulatory
restrictions and other factors. In

93

Table of Contents

accordance with the 1940 Act, with certain limited exceptions, we are only allowed to borrow amounts such that our asset coverage, calculated
pursuant to the 1940 Act, is at least 200.0% after such borrowing.

        At December 31, 2014, the Company had cash and cash equivalents of approximately $23.4 million and at December 31, 2013 and
December 31, 2012, the Predecessor Operating Company had cash and cash equivalents of approximately $15.0 million and $12.8 million,
respectively. Cash used in operating activities for the Company during the year ended December 31, 2014 was approximately $(289.6) million,
which includes the activity allocated from NMF Holdings, and cash used in operating activities for the Predecessor Operating Company for the years
ended December 31, 2013 and December 31, 2012 was approximately $(40.4) million and $(212.6) million, respectively. Refer to the Predecessor
Operating Company's Consolidated Statements of Cash Flows for the period January 1, 2014 to May 7, 2014 included in an exhibit attached hereto.
We expect that all current liquidity needs by the Company will be met with cash ﬂows from operations and other activities.

Borrowings

        Holdings Credit Facility—On December 18, 2014 the Company entered into the Second Amended and Restated Loan and Security
Agreement (the "Holdings Credit Facility"), among the Company, as the Collateral Manager, NMF Holdings as the Borrower, Wells Fargo
Securities, LLC as the Administrative Agent and Wells Fargo Bank, National Association, as the Lender and Collateral Custodian, which is
structured as a revolving credit facility and matures on December 18, 2019.

        Immediately prior to amending the Holdings Credit Facility, NMF SPV merged with and into NMF Holdings. The Holdings Credit Facility
effectively amended and restated the Predecessor Holdings Credit Facility (as deﬁned below), merged with the SLF Credit Facility (as deﬁned
below), and combined the amount of borrowings previously available.

        The maximum amount of revolving borrowings available under the Holdings Credit Facility is $495.0 million, which is the aggregate of the
$280.0 million previously available under the Predecessor Holdings Credit Facility (as deﬁned below) and the $215.0 million previously available
under the SLF Credit Facility (as deﬁned below). Under the Holdings Credit Facility, NMF Holdings is still permitted to borrow up to 25.0%,
45.0% or 70.0% of the purchase price of pledged assets, subject to approval by the Wells Fargo Securities, LLC. The Holdings Credit Facility is
non-recourse to the Company and is collateralized by all of the investments of NMF Holdings on an investment by investment basis. All fees
associated with the origination or upsizing of the Holdings Credit Facility are capitalized on the Company's Consolidated Statement of Assets and
Liabilities and charged against income as other ﬁnancing expenses over the life of the Holdings Credit Facility. The Holdings Credit Facility
contains certain customary afﬁrmative and negative covenants and events of default. In addition, the Holdings Credit Facility requires the Company
to maintain a minimum asset coverage ratio. The covenants are generally not tied to mark to market ﬂuctuations in the prices of NMF Holdings
investments, but rather to the performance of the underlying portfolio companies.

        The Holdings Credit Facility bears interest at a rate of the LIBOR plus 2.00% per annum for Broadly Syndicated Loans (as deﬁned in the Loan
and Security Agreement) and LIBOR plus 2.75% per annum for all other investments. The Holdings Credit Facility also charges a non-usage fee,
based on the unused facility amount multiplied by the Non-Usage Fee Rate (as deﬁned in the Loan and Security Agreement).

        Prior to December 18, 2014, the Loan and Security Agreement, as amended and restated, dated May 19, 2011 (the "Predecessor Holdings
Credit Facility") among NMF Holdings as the Borrower and Collateral Administrator, Wells Fargo Securities, LLC as the Administrative Agent,
and Wells Fargo Bank, National Association, as the Collateral Custodian, was structured as a revolving credit facility and would mature on
October 27, 2016.

94

Table of Contents

        The maximum amount of revolving borrowings available under the Predecessor Holdings Credit Facility was $280.0 million. Until
December 18, 2014, NMF Holdings 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 Predecessor Holdings Credit Facility was amended and restated
on May 6, 2014 and as a result, it was non-recourse to the Company and was collateralized by all of the investments of NMF Holdings on an
investment by investment basis. All fees associated with the origination or upsizing of the Predecessor Holdings Credit Facility were capitalized on
the Company's Consolidated Statement of Assets and Liabilities and charged against income as other ﬁnancing expenses over the life of the
Predecessor Holdings Credit Facility. The Predecessor Holdings Credit Facility contained certain customary afﬁrmative and negative covenants and
events of default, including the occurrence of a change in control. In addition, the Predecessor Holdings Credit Facility required the Company to
maintain a minimum asset coverage ratio. However, the covenants were generally not tied to mark to market ﬂuctuations in the prices of NMF
Holdings' investments, but rather to the performance of the underlying portfolio companies.

        The Predecessor Holdings Credit Facility bore interest at a rate of the LIBOR plus 2.75% per annum and charged a non-usage fee, based on the
unused facility amount multiplied by the Non-Usage Fee Rate (as deﬁned in the Loan and Security Agreement).

        The following table summarizes the interest expense and non-usage fees incurred, together, on the Holdings Credit Facility and the Predecessor
Holdings Credit Facility for the years ended December 31, 2014, December 31, 2013 and December 31, 2012.

(in millions)
Interest expense
Non-usage fee
Amortization of ﬁnancing costs
Weighted average interest rate

Years ended December 31,
2013

2014

2012

  $
  $
  $

$
7.1 
$
0.2 
0.9 
$
2.9%  

$
5.5 
$
0.4 
0.7 
$
2.9%  

4.2 
0.3 
0.4 
3.1%

 
 
 
 
 
 
 
 
 
Effective interest rate
Average debt outstanding

3.4%  

3.6%  

3.6%

  $ 244.6 

$ 184.1 

$ 133.6 

        The outstanding balance of Holdings Credit Facility as of December 31, 2014 was $468.1 million and the outstanding balance of the
Predecessor Holdings Credit Facility as of December 31, 2013 and December 31, 2012 was $221.8 million and $206.9 million, respectively and
NMF Holdings was in compliance with the applicable covenants in the Holdings Credit Facility or Predecessor 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, NMF Holdings as the Collateral Administrator, Wells Fargo Securities, LLC as the Administrative Agent, and
Wells Fargo Bank, National Association, as the Collateral Custodian, was structured as a revolving credit facility and would mature on October 27,
2016. The maximum amount of revolving borrowings available under the SLF Credit Facility was $215.0 million. The SLF Credit Facility was non-
recourse to the Company and secured by all assets of NMF SLF on an investment by investment basis. All fees associated with the origination or
upsizing of the SLF Credit Facility were capitalized on the Company's Consolidated Statement of Assets and Liabilities and charged against income
as other ﬁnancing expenses over the life of the SLF Credit Facility. The SLF Credit Facility contained certain customary afﬁrmative and negative
covenants and events of default, including the occurrence of a change in control. The covenants were generally not tied to mark to market
ﬂuctuations in the prices of the NMF SLF's investments, but rather to the performance of the underlying portfolio companies. NMF SLF was not

95

Table of Contents

restricted from the purchase or sale of loans with an afﬁliate. Therefore, speciﬁed ﬁrst lien loans could be moved as collateral between the Holdings
Credit Facility and the SLF Credit Facility. The SLF Credit Facility merged with the Holdings Credit Facility on December 18, 2014.

        Until December 18, 2014, the SLF Credit Facility permitted 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 aggregate outstanding loan balance of
all pledged debt securities in the SLF Credit Facility was allowed to be derived from second lien loans, subject to approval by Wells Fargo Bank,
National Association.

        The SLF Credit Facility bore interest at a rate of LIBOR plus 2.00% per annum for ﬁrst lien loans and LIBOR plus 2.75% per annum for
second lien loans, respectively, as amended on March 11, 2013. A non-usage fee was paid, based on the unused facility amount multiplied by the
Non-Usage Fee Rate (as deﬁned in the Loan and Security Agreement).

        The following table summarizes the interest expense and non-usage fees incurred on the SLF Credit Facility for the period January 1, 2014 to
December 17, 2014 (date of SLF Credit Facility merger with and into the Holdings Credit Facility) and for the years ended December 31, 2013 and
December 31, 2012.

(in millions)
Interest expense
Non-usage fee
Amortization of ﬁnancing costs
Weighted average interest rate
Effective interest rate
Average debt outstanding

January 1,
2014 to
December 17,
2014 (date of
merger)

Years ended
December 31,

2013

2012

  $
  $
  $

4.5 
$
—(1) $
$
0.8 
2.2%  
2.6%  

4.9 
$
—(1) $
$
0.9 
2.3%  
2.7%  

4.2 
—(1)
0.7 
2.3%
2.8%

  $

209.3 

$ 214.3 

$ 181.4 

(1)

For the years ended December 31, 2014, December 31, 2013 and December 31, 2012, the total non-usage fee was less
than $50 thousand.

        The SLF Credit Facility merged with the Holdings Credit Facility on December 18, 2014. The outstanding balance as of December 31, 2013
and December 31, 2012 was $214.7 million and $214.3 million, respectively, and NMF SLF was in compliance with the applicable covenants in the
SLF Credit Facility on such dates.

        NMFC Credit Facility—The Senior Secured Revolving Credit Agreement, as amended, dated June 4, 2014 (together with the related guarantee
and security agreement, the "NMFC Credit Facility"), among the Company as the Borrower and Goldman Sachs Bank USA as the Administrative

 
 
 
 
 
 
 
 
 
 
 
 
 
Agent and Collateral Agent, and Goldman Sachs Bank USA and Morgan Stanley, N.A. as Lenders, is structured as a senior secured revolving credit
facility and matures on June 4, 2019. The NMFC Credit Facility is guaranteed by certain domestic subsidiaries of the Company and proceeds from
the NMFC Credit Facility may be used for general corporate purposes, including the funding of portfolio investments.

        The maximum amount of revolving borrowings available under the NMFC Credit Facility is $80.0 million, as amended on December 29, 2014.
The Company is permitted to borrow at various advance rates depending on the type of portfolio investment as outlined in the Senior Secured
Revolving Credit Agreement. All fees associated with the origination of the NMFC Credit Facility are capitalized on the Company's Consolidated
Statement of Assets and Liabilities and charged against income as other ﬁnancing expenses over the life of the NMFC Credit Facility. The NMFC
Credit Facility contains certain customary afﬁrmative and negative covenants and events of default, including certain ﬁnancial covenants related to
asset coverage and liquidity and other maintenance covenants.

96

Table of Contents

        The NMFC Credit Facility will generally bear interest at a rate of LIBOR plus 2.50% per annum or the prime rate plus 1.50% per annum, and
charges a commitment fee, based on the unused facility amount multiplied by 0.375% (as deﬁned in the Senior Secured Revolving Credit
Agreement).

        The following table summarizes the interest expense and non-usage fees incurred on the NMFC Credit Facility for the period June 4, 2014
(commencement of the NMFC Credit Facility) to December 31, 2014 and for the years ended December 31, 2013 and December 31, 2012.

(in millions)
Interest expense
Non-usage fee
Amortization of ﬁnancing costs
Weighted average interest rate
Effective interest rate
Average debt outstanding

  $
  $
  $

  $

Years ended
December 31,

June 4, 2014
(commencement of
facility) to
December 31, 2014

2013(1)
$ — 
$ — 
$ — 

2012(1)
$ — 
$ — 
$ — 

—%  
—%  

—%
—%

0.2 
0.1 
0.1 
2.7%  
3.4%  

11.2 

$ — 

$ — 

(1)

Not applicable, as the NMFC Credit Facility commenced on June 4, 2014.

        As of December 31, 2014, the outstanding balance on the NMFC Credit Facility was $50.0 million and NMFC was in compliance with the
applicable covenants in the NMFC Credit Facility on such dates.

        Convertible Notes—On June 3, 2014, the Company closed a private offering of $115.0 million aggregate principal amount of senior unsecured
convertible notes (the "Convertible Notes"), pursuant to an indenture, dated June 3, 2014 (the "Indenture"). The Convertible Notes were issued in a
private placement only to qualiﬁed institutional buyers pursuant to Rule 144A under the Securities Act of 1933. The Convertible Notes bear interest
at an annual rate of 5.0%, payable semi-annually in arrears on June 15 and December 15 of each year, commencing on December 15, 2014. The
Convertible Notes will mature on June 15, 2019 unless earlier converted or repurchased at the holder's option. The Convertible Notes will be
convertible by the holders into shares of common stock, initially at a conversion rate of 62.7746 shares of the Company's common stock per
$1.0 thousand principal amount of Convertible Notes (7,219,083 common shares) corresponding to an initial conversion price per share of
approximately $15.93, which represents a premium of 12.5% to the $14.16 per share closing price of the Company's common stock on May 28,
2014. The conversion rate will be subject to adjustment upon certain events, such as stock splits and combinations, mergers, spin-offs, increases in
dividends in excess of $0.34 per share per quarter and certain changes in control. Certain of these adjustments, including adjustments for increases
in dividends, are subject to a conversion price ﬂoor of $14.16 per share. In no event will the total number of shares of common stock issuable upon
conversion exceed 70.6214 per $1.0 thousand principal amount of the Convertible Notes. The Company has determined that the embedded
conversion option in the Convertible Notes is not required to be separately accounted for as a derivative under GAAP.

        The Convertible Notes are senior unsecured obligations and rank senior in right of payment to our existing and future indebtedness that is
expressly subordinated in right of payment to the Convertible Notes; equal in right of payment to our existing and future unsecured indebtedness that
is not so subordinated; effectively junior in right of payment to any of our secured indebtedness (including existing unsecured indebtedness that the
Company later secures) to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future
indebtedness (including trade payables) incurred by our subsidiaries and ﬁnancing vehicles. The issuance is considered part of the if-converted
method for calculation of diluted earnings per share.

 
   
 
 
 
 
 
 
 
 
 
 
 
 
97

Table of Contents

        The Company may not redeem the Convertible Notes prior to maturity. No sinking fund is provided for the Convertible Notes. In addition, if
certain corporate events occur in respect of the Company, holders of the Convertible Notes may require the Company to repurchase for cash all or
part of their Convertible Notes at a repurchase price equal to 100.0% of the principal amount of the Convertible Notes to be repurchased, plus
accrued and unpaid interest through, but excluding, the repurchase date.

        The Indenture contains certain covenants, including covenants requiring the Company to provide ﬁnancial information to the holders of the
Convertible Note and the Trustee if the Company ceases to be subject to the reporting requirements of the Exchange Act. These covenants are
subject to limitations and exceptions that are described in the Indenture. As of December 31, 2014, the Company was in compliance with the terms
of the Indenture.

        Interest expense and amortization of ﬁnancing costs incurred on the Convertible Notes for the year ended December 31, 2014 was $3.3 million
and $0.4 million, respectively. The effective interest rate for the year ended December 31, 2014 was 5.6%.

        SBA-guaranteed debentures—On August 1, 2014, SBIC LP received an SBIC license from the SBA.

        The SBIC license allows SBIC LP to obtain leverage by issuing SBA-guaranteed debentures, subject to the issuance of a capital commitment
by the SBA and other customary procedures. SBA-guaranteed debentures are non-recourse, interest only debentures with interest payable semi-
annually and have a ten year maturity. The principal amount of SBA-guaranteed debentures is not required to be paid prior to maturity but may be
prepaid at any time without penalty. The interest rate of SBA-guaranteed debentures is ﬁxed on a semi-annual basis at a market-driven spread over
U.S. Treasury Notes with ten year maturities. The SBA, as a creditor, will have a superior claim to the assets of SBIC LP over the Company's
stockholders in the event SBIC LP is liquidated or the SBA exercises remedies upon an event of default.

        The maximum amount of borrowings available under current SBA regulations is $150.0 million as long as the licensee has at least
$75.0 million in regulatory capital, receives a capital commitment from the SBA and has been through an examination by the SBA subsequent to
licensing.

        As of December 31, 2014, SBIC LP had regulatory capital of $42.2 million and SBA-guaranteed debentures outstanding of $37.5 million. The
SBA-guaranteed debentures incur upfront fees of 3.43%, which consists of a 1.00% commitment fee and a 2.43% issuance discount, which are
amortized over the life of the SBA-guaranteed debentures. As of December 31, 2014, SBIC LP's SBA-guaranteed debentures are set to pool in
March 2015 and until pooling bear interest at an interim ﬂoating rate of LIBOR plus 0.30%. Interest expense and amortization of ﬁnancing costs
incurred on the SBA-guaranteed debentures for the year ended December 31, 2014 was $34 thousand and $12 thousand, respectively.

        The SBIC program is designed to stimulate the ﬂow of private investor capital into eligible small businesses, as deﬁned by the SBA. Under
SBA regulations, SBIC LP is subject to regulatory requirements, including making investments in SBA-eligible businesses, investing at least 25.0%
of its investment capital in eligible smaller businesses, as deﬁned under the 1958 Act, placing certain limitations on the ﬁnancing terms of
investments, regulating the types of ﬁnancing, prohibiting investments in small businesses with certain characteristics or in certain industries and
requiring capitalization thresholds that limit distributions to the Company. SBIC LP is subject to an annual periodic examination by an SBA
examiner to determine SBIC LP's compliance with the relevant SBA regulations and an annual ﬁnancial audit of its ﬁnancial statements that are
prepared on a basis of accounting other than GAAP (such as ASC 820) by an independent auditor. As of December 31, 2014, SBIC LP was in
compliance with SBA regulatory requirements.

98

Table of Contents

Off-Balance Sheet Arrangements

        The Company may become a party to ﬁnancial instruments with off-balance sheet risk in the normal course of business to meet the ﬁnancial
needs of its portfolio companies. These instruments may include commitments to extend credit and involve, to varying degrees, elements of
liquidity and credit risk in excess of the amount recognized in the balance sheet. As of December 31, 2014, the Company had outstanding
commitments to third parties to fund investments totaling $27.4 million and as of December 31, 2013, the Predecessor Operating Company had

outstanding commitments to third parties to fund investments totaling $15.5 million, under various undrawn revolving credit facilities, delayed draw
commitments or other future funding commitments.

        The Company may from time to time enter into ﬁnancing commitment letters or bridge ﬁnancing commitments, which could require funding in
the future. As of December 31, 2014, the Company did not enter into any commitment letters to purchase debt investments. As of December 31,
2013, the Predecessor Operating Company did not enter into any commitment letters to purchase debt investments. As of December 31, 2014, the
Company had not entered into any bridge ﬁnancing commitments which could require funding in the future. As of December 31, 2013, the
Predecessor Operating Company had not entered into any bridge ﬁnancing commitments which could require funding in the future.

Contractual Obligations

        A summary of the Company's signiﬁcant contractual payment obligations as of December 31, 2014 is as follows:

Contractual Obligations Payments
Due by Period (in millions)

Holdings Credit Facility(1)
Convertible Notes(2)
NMFC Credit Facility(3)
SBA-guaranteed debentures(4)
Total Contractual Obligations

Total
  $ 468.1  $

115.0 
50.0 
37.5 

  $ 670.6  $

Less than
1 Year

1 - 3 Years

3 - 5 Years

More than
5 Years

—  $
— 
— 
— 
—  $

—  $
— 
— 
— 
—  $

468.1  $
115.0 
50.0 
— 
633.1  $

— 
— 
— 
37.5 
37.5 

(1)

(2)

(3)

(4)

Under the terms of the $495.0 million Holdings Credit Facility, all outstanding borrowings under that facility
($468.1 million as of December 31, 2014) must be repaid on or before December 18, 2019. As of December 31, 2014,
there was approximately $26.9 million of possible capacity remaining under the Holdings Credit Facility. 

The $115.0 million Convertible Notes will mature on June 15, 2019 unless earlier converted or repurchased at the
holder's option. 

Under the terms of the $80.0 million NMFC Credit Facility, all outstanding borrowings under that facility
($50.0 million as of December 31, 2014) must be repaid on or before June 4, 2019. As of December 31, 2014, there
was approximately $30.0 million of possible capacity remaining under the NMFC Credit Facility. 

The SBA-guaranteed debentures will mature on March 1, 2025.

        The Company has certain contracts under which it has material future commitments. The Company has $27.4 million of undrawn funding
commitments as of December 31, 2014 related to its participation as a lender in revolving credit facilities, delayed draw commitments or other
future funding commitments of the Company's portfolio companies. As of December 31, 2014, the Company did not enter into any bridge ﬁnancing
commitments which could require funding in the future.

99

Table of Contents

        We have entered into the Investment Management Agreement with the Investment Adviser in accordance with the 1940 Act. Under the
Investment Management Agreement, the Investment Adviser has agreed to provide the Company with investment advisory and management
services. We have agreed to pay for these services (1) a management fee and (2) an incentive fee based on its performance.

        We have also entered into an Administration Agreement with the Administrator. Under the Administration Agreement, the Administrator has
agreed to arrange ofﬁce space for us and provide ofﬁce equipment and clerical, bookkeeping and record keeping services and other administrative
services necessary to conduct our respective day-to-day operations. The Administrator has also agreed to perform, or oversee the performance of,
our ﬁnancial records, our reports to stockholders and reports ﬁled with the SEC.

        If any of the contractual obligations discussed above are terminated, our costs under any new agreements that are entered into may increase. In
addition, we would likely incur signiﬁcant time and expense in locating alternative parties to provide the services we expect to receive under the
Investment Management Agreement and the Administration Agreement.

 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distributions and Dividends

        Dividends declared and paid to stockholders of the Company for the year ended December 31, 2014 totaled $77.6 million.

100

Table of Contents

        The following table summarizes the Company's quarterly cash distributions, including dividends and returns of capital, if any, per share that
have been declared by the Company's board of directors since the Company's IPO:

Date Declared

Record Date

Payment Date

Per Share
Amount

  November 4, 2014   December 16, 2014   December 30, 2014   $

August 5, 2014
July 30, 2014
May 6, 2014
March 4, 2014

August 20, 2014  

  September 16, 2014   September 30, 2014  
September 3, 2014  
June 30, 2014
  March 31, 2014

June 16, 2014
  March 17, 2014

  $

  November 8, 2013   December 17, 2013   December 31, 2013   $

August 7, 2013
August 7, 2013
May 6, 2013
March 6, 2013

  September 16, 2013   September 30, 2013  
August 30, 2013  

August 20, 2013  

June 14, 2013
  March 15, 2013

June 28, 2013
  March 28, 2013

  $

  December 27, 2012   December 31, 2012  
  November 6, 2012   December 14, 2012   December 28, 2012  
  September 14, 2012   September 28, 2012  

January 31, 2013   $

August 8, 2012
May 8, 2012
May 8, 2012
March 7, 2012

June 15, 2012
May 21, 2012
  March 15, 2012

June 29, 2012
May 31, 2012
  March 30, 2012

  $

  November 8, 2011   December 15, 2011   December 30, 2011   $
August 10, 2011   September 15, 2011   September 30, 2011  
August 10, 2011  

August 31, 2011

August 22, 2011

  $
  $

0.34 
0.34 
0.12(1)
0.34 
0.34 
1.48 

0.34 
0.34 
0.12(2)
0.34 
0.34 
1.48 

0.14(3)
0.34 
0.34 
0.34 
0.23(4)
0.32 
1.71 

0.30 
0.29 
0.27 
0.86 
5.53 

Fiscal Year Ended
December 31, 2014
Fourth Quarter
Third Quarter
Third Quarter
Second Quarter
First Quarter

December 31, 2013
Fourth Quarter
Third Quarter
Third Quarter
Second Quarter
First Quarter

December 31, 2012
Fourth Quarter
Fourth Quarter
Third Quarter
Second Quarter
Second Quarter
First Quarter

December 31, 2011
Fourth Quarter
Third Quarter
Second Quarter

Total

(1)

(2)

(3)

(4)

Special dividend related to realized capital gains attributable to the Company's warrant investments in Learning Care Group
(US), Inc. 

Special dividend related to a distribution received attributable to the Predecessor Operating Company's investment in YP
Equity Investors LLC. 

Special dividend intended to minimize to the greatest extent possible the Company's U.S. federal income or excise tax
liability. 

Special dividend related to estimated realized capital gains attributable to the Predecessor Operating Company's investments
in Lawson Software, Inc. and Infor Lux Bond Company.

        Tax characteristics of all dividends paid by the Company were reported to stockholders on Form 1099 after the end of the calendar year. Future
quarterly dividends, if any, for the Company will be determined by the board of directors.

 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
        The Company intends to pay quarterly distributions to its stockholders and to maintain its status as a RIC. The Company intends to distribute
approximately its entire portion of Adjusted Net Investment Income on a quarterly basis and substantially its entire taxable income on an annual
basis, except that it may retain certain net capital gains for reinvestment.

101

Table of Contents

        The Company maintains an "opt out" dividend reinvestment plan for its common stockholders. As a result, the Company's stockholders' cash
dividends will be automatically reinvested in additional shares of common stock, unless the stockholder elects to receive cash. Cash dividends
reinvested in additional shares of the Company's common stock will be automatically reinvested by the Company into additional shares of the
Company's common stock. See Item 8—Financial Statements and Supplementary Data—Note 2, Summary of Signiﬁcant Accounting Policies for
additional details regarding the Company's dividend reinvestment plan.

Related Parties

        The Company has entered into a number of business relationships with afﬁliated or related parties, including the following:

•

•

•

The Company has entered into the Investment Management Agreement with the Investment Adviser, a wholly-owned subsidiary of
New Mountain Capital. Therefore, New Mountain Capital is entitled to any proﬁts earned by the Investment Adviser, which includes
any fees payable to the Investment Adviser under the terms of the Investment Management Agreement, less expenses incurred by the
Investment Adviser in performing its services under the Investment Management Agreement. 

The Company has entered into an Administration Agreement with the Administrator, a wholly-owned subsidiary of New Mountain
Capital. The Administrator arranges ofﬁce space for the Company and provides ofﬁce equipment and administrative services
necessary to conduct their respective day-to-day operations pursuant to the Administration Agreement. The Company reimburses the
Administrator for the allocable portion of overhead and other expenses incurred by it in performing its obligations to the Company
under the Administration Agreement, which includes the fees and expenses associated with performing administrative, ﬁnance, and
compliance functions, and the compensation of the Company's chief ﬁnancial ofﬁcer and chief compliance ofﬁcer and their
respective staffs. Pursuant to the Administration Agreement and further restricted by the Company, expenses payable to the
Administrator by the Company as well as other direct and indirect expenses (excluding interest, other ﬁnancing expense, trading
expenses and management and incentive fees) had been capped at $3.5 million for the time period from April 1, 2012 to March 31,
2013 and capped at $4.25 million for the time period from April 1, 2013 to March 31, 2014. The expense cap expired on March 31,
2014. Thereafter, the Administrator may, in its own discretion, submit to the Company for reimbursement some or all of the
expenses that the Administrator has incurred on behalf of the Company during any quarterly period. As a result, the amount of
expenses for which the Company will have to reimburse the Administrator may ﬂuctuate in future quarterly periods and there can be
no assurance given as to when, or if, the Administrator may determine to limit the expenses that the Administrator submits to the
Company for reimbursement in the future. However, it is expected that the Administrator will continue to support part of the expense
burden of the Company in the near future and may decide to not calculate and charge through certain overhead related amounts as
well as continue to cover some of the indirect costs. The Administrator cannot recoup any expenses that the Administrator has
previously waived. For the year ended December 31, 2014, approximately $1.4 million of indirect administrative expenses were
included in administrative expenses, of which $0.8 million were waived by the Administrator. As of December 31, 2014,
approximately $0.3 million were payable to the Administrator. 

The Company, the Investment Adviser and the Administrator have entered into a royalty-free Trademark License Agreement, as
amended, with New Mountain Capital, pursuant to which New Mountain Capital has agreed to grant the Company, the Investment
Adviser and the

102

Table of Contents

Administrator, a non-exclusive, royalty-free license to use the name "New Mountain" and "New Mountain Finance".

        In addition, the Company has 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 Company's investment mandates. The Investment Adviser and its afﬁliates may determine that an investment is
appropriate for the 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 we should invest side-by-side with one or more other funds. Any
such investments will be made only to the extent permitted by applicable law and interpretive positions of the SEC and its staff, and consistent with
the Investment Adviser's allocation procedures.

        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.

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk 

        The Company is subject to certain ﬁnancial market risks, such as interest rate ﬂuctuations. During the year ended December 31, 2014, certain
of the loans held in the Company's portfolio had ﬂoating interest rates. As of December 31, 2014, approximately 87.7% of investments at fair value
(excluding investments on non-accrual, revolvers, delayed draws and non-interest bearing equity investments) represent ﬂoating-rate investments
with a LIBOR ﬂoor (includes investments bearing prime interest rate contracts) and approximately 12.3% of investments at fair value represent
ﬁxed-rate investments. Additionally, the Company's senior secured revolving credit facilities are also subject to ﬂoating interest rates and are
currently paid based on one-month ﬂoating LIBOR rates.

        The following table estimates the potential changes in net cash ﬂow generated from interest income and expenses, should interest rates
increase by 100, 200 or 300 basis points, or decrease by 25 basis points. Interest income is calculated as revenue from interest generated from the
Company's portfolio of investments held on December 31, 2014. Interest expense is calculated based on the terms of the Company's outstanding
revolving credit facilities and convertible notes. For the Company's ﬂoating rate credit facilities, the Company uses the outstanding balance as of
December 31, 2014. Interest expense on the Company's ﬂoating rate credit facilities are calculated using the interest rate as of December 31, 2014,
adjusted for the hypothetical changes in rates, as shown below. The base interest rate case assumes the rates on the Company's portfolio investments
remain unchanged from the actual effective interest rates as of December 31, 2014. These hypothetical calculations are based on a model of the
investments in our portfolio, held as of December 31, 2014, and are only adjusted for assumed changes in the underlying base interest rates.

103

Table of Contents

        Actual results could differ signiﬁcantly from those estimated in the table.

Change in Interest Rates
–25 Basis Points
Base Interest Rate
+100 Basis Points
+200 Basis Points
+300 Basis Points

Estimated Percentage
Change in Interest
Income Net of
Interest Expense
(unaudited)

0.69%(1)
—%
(2.98)%
2.73%
9.16%

(1)

Limited to the lesser of the December 31, 2014 LIBOR rates or a decrease of 25 basis points.

        The Company was not exposed to any foreign currency exchange risks as of December 31, 2014.

104

Table of Contents

Item 8.    Financial Statements and Supplementary Data 

 
 
 
 
 
 
 
 
 
 
 
 
TABLE OF CONTENTS 

Report of Independent Registered Public Accounting Firm
New Mountain Finance Corporation

AUDITED FINANCIAL STATEMENTS

Consolidated Statements of Assets and Liabilities as of December 31, 2014 and December 31, 2013
Consolidated Statements of Operations for the years ended December 31, 2014, December 31, 2013 and

December 31, 2012

Consolidated Statements of Changes in Net Assets for the years ended December 31, 2014,

December 31, 2013 and December 31, 2012

Consolidated Statements of Cash Flows for the years ended December 31, 2014, December 31, 2013

and December 31, 2012

Consolidated Schedule of Investments as of December 31, 2014
Consolidated Schedule of Investments as of December 31, 2013

Notes to the Consolidated Financial Statements of New Mountain Finance Corporation

PAGE

106

107

108

109

110
111
118

123

105

Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Boards of Directors and Stockholders of
New Mountain Finance Corporation
New York, New York

        We have audited the accompanying consolidated statements of assets and liabilities of New Mountain Finance Corporation and subsidiaries
(the "Company") including the consolidated schedules of investments as of December 31, 2014 and 2013, and the related consolidated statements of
(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:2)(cid:9)(cid:10)(cid:11)(cid:12)(cid:13)(cid:14)(cid:6)(cid:9)(cid:15)(cid:4)(cid:10)(cid:12)(cid:8)(cid:9)(cid:12)(cid:9)(cid:4)(cid:7)(cid:12)(cid:6)(cid:10)(cid:10)(cid:4)(cid:7)(cid:10)(cid:11)(cid:12)(cid:6)(cid:9)(cid:16)(cid:12)(cid:13)(cid:6)(cid:10)(cid:14)(cid:12)(cid:17)(cid:2)(cid:18)(cid:10)(cid:12)(cid:19)(cid:2)(cid:5)(cid:12)(cid:4)(cid:6)(cid:13)(cid:14)(cid:12)(cid:2)(cid:19)(cid:12)(cid:7)(cid:14)(cid:4)(cid:12)(cid:7)(cid:14)(cid:5)(cid:4)(cid:4)(cid:12)(cid:20)(cid:4)(cid:6)(cid:5)(cid:10)(cid:12)(cid:8)(cid:9)(cid:12)(cid:7)(cid:14)(cid:4)(cid:12)(cid:3)(cid:4)(cid:5)(cid:8)(cid:2)(cid:16)(cid:12)(cid:4)(cid:9)(cid:16)(cid:4)(cid:16)(cid:12)(cid:21)(cid:4)(cid:13)(cid:4)(cid:22)(cid:23)(cid:4)(cid:5)(cid:12)(cid:24)(cid:25)(cid:11)(cid:12)(cid:26)(cid:27)(cid:25)(cid:28)(cid:12)(cid:6)(cid:9)(cid:16)(cid:12)(cid:7)(cid:14)(cid:4)(cid:12)(cid:13)(cid:2)(cid:9)(cid:10)(cid:2)(cid:29)(cid:8)(cid:16)(cid:6)(cid:7)(cid:4)(cid:16)(cid:12)(cid:30)(cid:9)(cid:6)(cid:9)(cid:13)(cid:8)(cid:6)(cid:29)
highlights for the period from May 19, 2011 (commencement of operations) to December 31, 2011 and for the years ended December 31, 2014,
(cid:26)(cid:27)(cid:25)(cid:24)(cid:12)(cid:6)(cid:9)(cid:16)(cid:12)(cid:26)(cid:27)(cid:25)(cid:26)(cid:31)(cid:12) (cid:14)(cid:4)(cid:10)(cid:4)(cid:12)(cid:30)(cid:9)(cid:6)(cid:9)(cid:13)(cid:8)(cid:6)(cid:29)(cid:12)(cid:10)(cid:7)(cid:6)(cid:7)(cid:4)(cid:22)(cid:4)(cid:9)(cid:7)(cid:10)(cid:12)(cid:6)(cid:9)(cid:16)(cid:12)(cid:30)(cid:9)(cid:6)(cid:9)(cid:13)(cid:8)(cid:6)(cid:29)(cid:12)(cid:14)(cid:8)(cid:15)(cid:14)(cid:29)(cid:8)(cid:15)(cid:14)(cid:7)(cid:10)(cid:12)(cid:6)(cid:5)(cid:4)(cid:12)(cid:7)(cid:14)(cid:4)(cid:12)(cid:5)(cid:4)(cid:10)(cid:3)(cid:2)(cid:9)(cid:10)(cid:8)(cid:23)(cid:8)(cid:29)(cid:8)(cid:7)(cid:20)(cid:12)(cid:2)(cid:19)(cid:12)(cid:7)(cid:14)(cid:4)(cid:12)(cid:22)(cid:6)(cid:9)(cid:6)(cid:15)(cid:4)(cid:22)(cid:4)(cid:9)(cid:7)(cid:12)(cid:2)(cid:19)(cid:12)(cid:7)(cid:14)(cid:4)(cid:12)!(cid:2)(cid:22)(cid:3)(cid:6)(cid:9)(cid:20)(cid:31)(cid:12)"#(cid:5)(cid:12)(cid:5)(cid:4)(cid:10)(cid:3)(cid:2)(cid:9)(cid:10)(cid:8)(cid:23)(cid:8)(cid:29)(cid:8)(cid:7)(cid:20)(cid:12)(cid:8)(cid:10)(cid:12)(cid:7)(cid:2)
(cid:4)$(cid:3)(cid:5)(cid:4)(cid:10)(cid:10)(cid:12)(cid:6)(cid:9)(cid:12)(cid:2)(cid:3)(cid:8)(cid:9)(cid:8)(cid:2)(cid:9)(cid:12)(cid:2)(cid:9)(cid:12)(cid:7)(cid:14)(cid:4)(cid:10)(cid:4)(cid:12)(cid:30)(cid:9)(cid:6)(cid:9)(cid:13)(cid:8)(cid:6)(cid:29)(cid:12)(cid:10)(cid:7)(cid:6)(cid:7)(cid:4)(cid:22)(cid:4)(cid:9)(cid:7)(cid:10)(cid:12)(cid:6)(cid:9)(cid:16)(cid:12)(cid:30)(cid:9)(cid:6)(cid:9)(cid:13)(cid:8)(cid:6)(cid:29)(cid:12)(cid:14)(cid:8)(cid:15)(cid:14)(cid:29)(cid:8)(cid:15)(cid:14)(cid:7)(cid:10)(cid:12)(cid:23)(cid:6)(cid:10)(cid:4)(cid:16)(cid:12)(cid:2)(cid:9)(cid:12)(cid:2)#(cid:5)(cid:12)(cid:6)#(cid:16)(cid:8)(cid:7)(cid:10)(cid:31)

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
(cid:10)(cid:7)(cid:6)(cid:9)(cid:16)(cid:6)(cid:5)(cid:16)(cid:10)(cid:12)(cid:5)(cid:4)%#(cid:8)(cid:5)(cid:4)(cid:12)(cid:7)(cid:14)(cid:6)(cid:7)(cid:12)(cid:18)(cid:4)(cid:12)(cid:3)(cid:29)(cid:6)(cid:9)(cid:12)(cid:6)(cid:9)(cid:16)(cid:12)(cid:3)(cid:4)(cid:5)(cid:19)(cid:2)(cid:5)(cid:22)(cid:12)(cid:7)(cid:14)(cid:4)(cid:12)(cid:6)#(cid:16)(cid:8)(cid:7)(cid:12)(cid:7)(cid:2)(cid:12)(cid:2)(cid:23)(cid:7)(cid:6)(cid:8)(cid:9)(cid:12)(cid:5)(cid:4)(cid:6)(cid:10)(cid:2)(cid:9)(cid:6)(cid:23)(cid:29)(cid:4)(cid:12)(cid:6)(cid:10)(cid:10)#(cid:5)(cid:6)(cid:9)(cid:13)(cid:4)(cid:12)(cid:6)(cid:23)(cid:2)#(cid:7)(cid:12)(cid:18)(cid:14)(cid:4)(cid:7)(cid:14)(cid:4)(cid:5)(cid:12)(cid:7)(cid:14)(cid:4)(cid:12)(cid:30)(cid:9)(cid:6)(cid:9)(cid:13)(cid:8)(cid:6)(cid:29)(cid:12)(cid:10)(cid:7)(cid:6)(cid:7)(cid:4)(cid:22)(cid:4)(cid:9)(cid:7)(cid:10)(cid:12)(cid:6)(cid:5)(cid:4)(cid:12)(cid:19)(cid:5)(cid:4)(cid:4)(cid:12)(cid:2)(cid:19)(cid:12)(cid:22)(cid:6)(cid:7)(cid:4)(cid:5)(cid:8)(cid:6)(cid:29)
(cid:22)(cid:8)(cid:10)(cid:10)(cid:7)(cid:6)(cid:7)(cid:4)(cid:22)(cid:4)(cid:9)(cid:7)(cid:31)(cid:12)&(cid:9)(cid:12)(cid:6)#(cid:16)(cid:8)(cid:7)(cid:12)(cid:8)(cid:9)(cid:13)(cid:29)#(cid:16)(cid:4)(cid:10)(cid:12)(cid:4)$(cid:6)(cid:22)(cid:8)(cid:9)(cid:8)(cid:9)(cid:15)(cid:11)(cid:12)(cid:2)(cid:9)(cid:12)(cid:6)(cid:12)(cid:7)(cid:4)(cid:10)(cid:7)(cid:12)(cid:23)(cid:6)(cid:10)(cid:8)(cid:10)(cid:11)(cid:12)(cid:4)’(cid:8)(cid:16)(cid:4)(cid:9)(cid:13)(cid:4)(cid:12)(cid:10)#(cid:3)(cid:3)(cid:2)(cid:5)(cid:7)(cid:8)(cid:9)(cid:15)(cid:12)(cid:7)(cid:14)(cid:4)(cid:12)(cid:6)(cid:22)(cid:2)#(cid:9)(cid:7)(cid:10)(cid:12)(cid:6)(cid:9)(cid:16)(cid:12)(cid:16)(cid:8)(cid:10)(cid:13)(cid:29)(cid:2)(cid:10)#(cid:5)(cid:4)(cid:10)(cid:12)(cid:8)(cid:9)(cid:12)(cid:7)(cid:14)(cid:4)(cid:12)(cid:30)(cid:9)(cid:6)(cid:9)(cid:13)(cid:8)(cid:6)(cid:29)(cid:12)(cid:10)(cid:7)(cid:6)(cid:7)(cid:4)(cid:22)(cid:4)(cid:9)(cid:7)(cid:10)(cid:31)(cid:12)&(cid:9)(cid:12)(cid:6)#(cid:16)(cid:8)(cid:7)
(cid:6)(cid:29)(cid:10)(cid:2)(cid:12)(cid:8)(cid:9)(cid:13)(cid:29)#(cid:16)(cid:4)(cid:10)(cid:12)(cid:6)(cid:10)(cid:10)(cid:4)(cid:10)(cid:10)(cid:8)(cid:9)(cid:15)(cid:12)(cid:7)(cid:14)(cid:4)(cid:12)(cid:6)(cid:13)(cid:13)(cid:2)#(cid:9)(cid:7)(cid:8)(cid:9)(cid:15)(cid:12)(cid:3)(cid:5)(cid:8)(cid:9)(cid:13)(cid:8)(cid:3)(cid:29)(cid:4)(cid:10)(cid:12)#(cid:10)(cid:4)(cid:16)(cid:12)(cid:6)(cid:9)(cid:16)(cid:12)(cid:10)(cid:8)(cid:15)(cid:9)(cid:8)(cid:30)(cid:13)(cid:6)(cid:9)(cid:7)(cid:12)(cid:4)(cid:10)(cid:7)(cid:8)(cid:22)(cid:6)(cid:7)(cid:4)(cid:10)(cid:12)(cid:22)(cid:6)(cid:16)(cid:4)(cid:12)(cid:23)(cid:20)(cid:12)(cid:22)(cid:6)(cid:9)(cid:6)(cid:15)(cid:4)(cid:22)(cid:4)(cid:9)(cid:7)(cid:11)(cid:12)(cid:6)(cid:10)(cid:12)(cid:18)(cid:4)(cid:29)(cid:29)(cid:12)(cid:6)(cid:10)(cid:12)(cid:4)’(cid:6)(cid:29)#(cid:6)(cid:7)(cid:8)(cid:9)(cid:15)(cid:12)(cid:7)(cid:14)(cid:4)(cid:12)(cid:2)’(cid:4)(cid:5)(cid:6)(cid:29)(cid:29)(cid:12)(cid:30)(cid:9)(cid:6)(cid:9)(cid:13)(cid:8)(cid:6)(cid:29)
statement presentation. We believe that our audits provide a reasonable basis for our opinion.

(cid:12)(cid:12)(cid:12)(cid:12)(cid:12)(cid:12)(cid:12)(cid:12)((cid:9)(cid:12)(cid:2)#(cid:5)(cid:12)(cid:2)(cid:3)(cid:8)(cid:9)(cid:8)(cid:2)(cid:9)(cid:11)(cid:12)(cid:10)#(cid:13)(cid:14)(cid:12)(cid:13)(cid:2)(cid:9)(cid:10)(cid:2)(cid:29)(cid:8)(cid:16)(cid:6)(cid:7)(cid:4)(cid:16)(cid:12)(cid:30)(cid:9)(cid:6)(cid:9)(cid:13)(cid:8)(cid:6)(cid:29)(cid:12)(cid:10)(cid:7)(cid:6)(cid:7)(cid:4)(cid:22)(cid:4)(cid:9)(cid:7)(cid:10)(cid:12)(cid:6)(cid:9)(cid:16)(cid:12)(cid:13)(cid:2)(cid:9)(cid:10)(cid:2)(cid:29)(cid:8)(cid:16)(cid:6)(cid:7)(cid:4)(cid:16)(cid:12)(cid:30)(cid:9)(cid:6)(cid:9)(cid:13)(cid:8)(cid:6)(cid:29)(cid:12)(cid:14)(cid:8)(cid:15)(cid:14)(cid:29)(cid:8)(cid:15)(cid:14)(cid:7)(cid:10)(cid:12)(cid:5)(cid:4)(cid:19)(cid:4)(cid:5)(cid:5)(cid:4)(cid:16)(cid:12)(cid:7)(cid:2)(cid:12)(cid:6)(cid:23)(cid:2)’(cid:4)(cid:12)(cid:3)(cid:5)(cid:4)(cid:10)(cid:4)(cid:9)(cid:7)(cid:12)(cid:19)(cid:6)(cid:8)(cid:5)(cid:29)(cid:20)(cid:11)(cid:12)(cid:8)(cid:9)(cid:12)(cid:6)(cid:29)(cid:29)(cid:12)(cid:22)(cid:6)(cid:7)(cid:4)(cid:5)(cid:8)(cid:6)(cid:29)
(cid:5)(cid:4)(cid:10)(cid:3)(cid:4)(cid:13)(cid:7)(cid:10)(cid:11)(cid:12)(cid:7)(cid:14)(cid:4)(cid:12)(cid:30)(cid:9)(cid:6)(cid:9)(cid:13)(cid:8)(cid:6)(cid:29)(cid:12)(cid:3)(cid:2)(cid:10)(cid:8)(cid:7)(cid:8)(cid:2)(cid:9)(cid:12)(cid:2)(cid:19)(cid:12))(cid:4)(cid:18)(cid:12)*(cid:2)#(cid:9)(cid:7)(cid:6)(cid:8)(cid:9)(cid:12)+(cid:8)(cid:9)(cid:6)(cid:9)(cid:13)(cid:4)(cid:12)!(cid:2)(cid:5)(cid:3)(cid:2)(cid:5)(cid:6)(cid:7)(cid:8)(cid:2)(cid:9)(cid:12)(cid:6)(cid:9)(cid:16)(cid:12)(cid:10)#(cid:23)(cid:10)(cid:8)(cid:16)(cid:8)(cid:6)(cid:5)(cid:8)(cid:4)(cid:10)(cid:12)(cid:6)(cid:10)(cid:12)(cid:2)(cid:19)(cid:12)(cid:21)(cid:4)(cid:13)(cid:4)(cid:22)(cid:23)(cid:4)(cid:5)(cid:12)(cid:24)(cid:25)(cid:11)(cid:12)(cid:26)(cid:27)(cid:25)(cid:28)(cid:12)(cid:6)(cid:9)(cid:16)(cid:12)(cid:26)(cid:27)(cid:25)(cid:24)(cid:11)(cid:12)(cid:6)(cid:9)(cid:16)(cid:12)(cid:7)(cid:14)(cid:4)(cid:12)(cid:5)(cid:4)(cid:10)#(cid:29)(cid:7)(cid:10)(cid:12)(cid:2)(cid:19)(cid:12)(cid:7)(cid:14)(cid:4)(cid:8)(cid:5)
(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:2)(cid:9)(cid:10)(cid:11)(cid:12)(cid:7)(cid:14)(cid:4)(cid:12)(cid:13)(cid:14)(cid:6)(cid:9)(cid:15)(cid:4)(cid:10)(cid:12)(cid:8)(cid:9)(cid:12)(cid:7)(cid:14)(cid:4)(cid:8)(cid:5)(cid:12)(cid:9)(cid:4)(cid:7)(cid:12)(cid:6)(cid:10)(cid:10)(cid:4)(cid:7)(cid:10)(cid:11)(cid:12)(cid:6)(cid:9)(cid:16)(cid:12)(cid:7)(cid:14)(cid:4)(cid:8)(cid:5)(cid:12)(cid:13)(cid:6)(cid:10)(cid:14)(cid:12)(cid:17)(cid:2)(cid:18)(cid:10)(cid:12)(cid:19)(cid:2)(cid:5)(cid:12)(cid:4)(cid:6)(cid:13)(cid:14)(cid:12)(cid:2)(cid:19)(cid:12)(cid:7)(cid:14)(cid:4)(cid:12)(cid:7)(cid:14)(cid:5)(cid:4)(cid:4)(cid:12)(cid:20)(cid:4)(cid:6)(cid:5)(cid:10)(cid:12)(cid:8)(cid:9)(cid:12)(cid:7)(cid:14)(cid:4)(cid:12)(cid:3)(cid:4)(cid:5)(cid:8)(cid:2)(cid:16)(cid:12)(cid:4)(cid:9)(cid:16)(cid:4)(cid:16)(cid:12)(cid:21)(cid:4)(cid:13)(cid:4)(cid:22)(cid:23)(cid:4)(cid:5)(cid:12)(cid:24)(cid:25)(cid:11)(cid:12)(cid:26)(cid:27)(cid:25)(cid:28)(cid:12)(cid:6)(cid:9)(cid:16)(cid:12)(cid:7)(cid:14)(cid:4)(cid:12)(cid:30)(cid:9)(cid:6)(cid:9)(cid:13)(cid:8)(cid:6)(cid:29)
highlights for the period from May 19, 2011 (commencement of operations) to December 31, 2011 and for the years ended December 31, 2014,
2013 and 2012 in conformity with accounting principles generally accepted in the United States of America.

(cid:12)(cid:12)(cid:12)(cid:12)(cid:12)(cid:12)(cid:12)(cid:12)&(cid:10)(cid:12)(cid:16)(cid:8)(cid:10)(cid:13)#(cid:10)(cid:10)(cid:4)(cid:16)(cid:12)(cid:8)(cid:9)(cid:12))(cid:2)(cid:7)(cid:4)(cid:12)(cid:25)(cid:12)(cid:7)(cid:2)(cid:12)(cid:7)(cid:14)(cid:4)(cid:12)(cid:13)(cid:2)(cid:9)(cid:10)(cid:2)(cid:29)(cid:8)(cid:16)(cid:6)(cid:7)(cid:4)(cid:16)(cid:12)(cid:30)(cid:9)(cid:6)(cid:9)(cid:13)(cid:8)(cid:6)(cid:29)(cid:12)(cid:10)(cid:7)(cid:6)(cid:7)(cid:4)(cid:22)(cid:4)(cid:9)(cid:7)(cid:10)(cid:11)(cid:12)(cid:7)(cid:14)(cid:4)(cid:12)!(cid:2)(cid:22)(cid:3)(cid:6)(cid:9)(cid:20)(cid:12)(cid:13)(cid:2)(cid:22)(cid:3)(cid:29)(cid:4)(cid:7)(cid:4)(cid:16)(cid:12)(cid:6)(cid:12)(cid:5)(cid:4)(cid:10)(cid:7)(cid:5)#(cid:13)(cid:7)#(cid:5)(cid:8)(cid:9)(cid:15)(cid:12)(cid:16)#(cid:5)(cid:8)(cid:9)(cid:15)(cid:12)(cid:7)(cid:14)(cid:4)(cid:12)(cid:20)(cid:4)(cid:6)(cid:5)(cid:12)(cid:4)(cid:9)(cid:16)(cid:4)(cid:16)(cid:12)(cid:21)(cid:4)(cid:13)(cid:4)(cid:22)(cid:23)(cid:4)(cid:5)(cid:12)(cid:24)(cid:25)(cid:11)
2014.

        We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's

 
 
  
 
 
 
 
  
 
 
 
 
 
 
internal control over ﬁnancial reporting as of December 31, 2014, based on the criteria established in Internal Control—Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 2, 2015, expressed an
unqualiﬁed opinion on the Company's internal control over ﬁnancial reporting.

/s/ DELOITTE & TOUCHE LLP

New York, New York
March 2, 2015

Table of Contents

106

New Mountain Finance Corporation 

Consolidated Statements of Assets and Liabilities 

(in thousands, except shares and per share data) 

Assets

Investments at fair value

Non-controlled/non-afﬁliated investments (cost of $1,422,891 and $0,

respectively)

Non-controlled/afﬁliated investments (cost $23,000 and $0, respectively)
Investment in New Mountain Finance Holdings, L.L.C. (cost of $0 and

$633,835, respectively)

Total investments at fair value (cost $1,445,891 and $633,835, respectively)
Securities purchased under collateralized agreements to resell
Cash and cash equivalents
Deferred ﬁnancing costs (net of accumulated amortization of $5,867 and $0,

respectively)

Interest and dividend receivable
Receivable from unsettled securities sold
Receivable from afﬁliates
Other assets
Total assets

Liabilities

Holdings Credit Facility
Convertible Notes
NMFC Credit Facility
SBA-guaranteed debentures
Payable for unsettled securities purchased
Management fee payable
Incentive fee payable
Interest payable
Payable to afﬁliates
Deferred tax liability
Other liabilities
Total liabilities

Commitments and contingencies (See Note 9)
Net assets

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

issued

December 31,
2014

December 31,
2013

  $ 1,402,210  $

22,461 

— 
— 

— 
1,424,671 
30,000 
23,445 

14,052 
11,744 
8,912 
490 
1,606 

  $ 1,514,920  $

650,107 
650,107 
— 
— 

— 
— 
— 
— 
— 
650,107 

  $

468,108  $
115,000 
50,000 
37,500 
26,460 
5,144 
4,803 
1,352 
822 
493 
3,068 
712,750 

— 

— 
— 
— 
— 
— 
— 
— 
— 
— 
— 
— 
— 

— 

Common stock, par value $0.01 per share 100,000,000 shares authorized, and

57,997,890 and 45,224,755 shares issued and outstanding, respectively          

Paid in capital in excess of par

580 
817,129 

452 
633,383 

 
 
 
 
 
 
  
 
  
 
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
 
  
 
  
 
 
 
 
 
 
 
 
 
Accumulated undistributed net investment income
Accumulated undistributed net realized gains on investments
Net unrealized (depreciation) appreciation of investments (net of provision for

2,530 
14,131 

— 
5,056 

taxes of $493 and $0, respectively)
Total net assets

Total liabilities and net assets
Number of shares outstanding
Net asset value per share

(32,200)  
802,170  $
  $
  $ 1,514,920  $
  57,997,890 

  $

13.83  $

11,216 
650,107 
650,107 
  45,224,755 
14.38 

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

107

Table of Contents

New Mountain Finance Corporation 

Consolidated Statements of Operations 

(in thousands, except shares and per share data) 

Investment income(1)

From non-controlled/non-afﬁliated investments:

Interest income
Dividend income
Other income

From non-controlled/afﬁliated investments:

Dividend income
Other income

Investment income allocated from New Mountain Finance

Holdings, L.L.C.(2)
Interest income
Dividend income
Other income
Total investment income

Expenses

Incentive fee(1)
Capital gains incentive fee(1)
Total incentive fees(1)
Management fee(1)
Interest and other ﬁnancing expenses(1)
Professional fees(1)
Administrative expenses(1)
Other general and administrative expenses(1)
Net expenses allocated from New Mountain Finance Holdings,

L.L.C.(2)
Total expenses
Less: management fee waived (see Note 5)(1)
Less: expenses waived and reimbursed (see Note 5)(1)
Net expenses
Net investment income before income taxes
Income tax expense(1)
Net investment income

Years ended December 31,
2013

2014

2012

  $

85,123  $
1,243 
4,023 

1,066 
468 

40,515 
2,368 
795 
135,601 

12,070 
(8,573)  
3,497 
13,593 
13,269 
2,390 
1,470 
1,138 

20,808 
56,165 

(686)  
(380)  

55,099 
80,502 
436 
80,066 

—  $
— 
— 

— 
— 

— 
— 
— 

— 
— 

84,925 
3,567 
2,384 
90,876 

36,439 
455 
617 
37,511 

— 
— 
— 
— 
— 
— 
— 
— 

40,355 
40,355 
— 
— 
40,355 
50,521 
— 
50,521 

— 
— 
— 
— 
— 
— 
— 
— 

17,719 
17,719 
— 
— 
17,719 
19,792 
— 
19,792 

   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net realized gains (losses):

Non-controlled/non-afﬁliated investments(1)
Investments allocated from New Mountain Finance Holdings,

L.L.C.(2)

Net change in unrealized (depreciation) appreciation:

Non-controlled/non-afﬁliated investments(1)
Non-controlled/afﬁliated investments(1)
Investments allocated from New Mountain Finance Holdings,

L.L.C.(2)

Investment in New Mountain Finance Holdings, L.L.C.(2)

Provision for taxes(1)
Net increase in net assets resulting from operations

Basic earnings per share
Weighted average shares of common stock outstanding—basic (See

357 

— 

— 

8,568 

5,427 

7,593 

(43,324)  
(539)  

— 
— 

940 
— 
(493)  
45,575  $
0.88  $

6,016 

(44)  
— 
61,920  $
1.76  $

  $
  $

— 
— 

4,494 
(95)
— 
31,784 
2.14 

Note 12)

  51,846,164 

  35,092,722 

Diluted earnings per share
Weighted average shares of common stock outstanding—diluted (See

  $

0.86  $

  14,860,838 
2.14 

1.76  $

Note 12)

  56,157,835 

  35,092,722 

Dividends declared and paid per share

  $

1.48  $

1.48  $

  14,860,838 
1.71 

(1)

(2)

For the year ended December 31, 2014, the amounts reported relate to the period from May 8, 2014 to December 31, 2014. 

For the year ended December 31, 2014, the amounts reported relate to the period from January 1, 2014 to May 7, 2014.

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

108

Table of Contents

New Mountain Finance Corporation 

Consolidated Statements of Changes in Net Assets 

(in thousands) 

Increase (decrease) in net assets resulting from operations:

Net investment income(1)
Net investment income allocated from New Mountain Finance Holdings,

L.L.C.(2)

Net realized gains on investments(1)
Net realized gains on investments allocated from New Mountain Finance

Holdings, L.L.C.(2)

Net change in unrealized (depreciation) appreciation of investments(1)
Net change in unrealized appreciation (depreciation) of investments

Years ended December 31,
2013

2014

2012

  $

57,196  $

—  $

— 

22,870 
357 

50,521 
— 

19,792 
— 

8,568 
(43,863)  

5,427 
— 

7,593 
— 

allocated from New Mountain Finance Holdings, L.L.C.(2)

940 

6,016 

4,494 

Net change in unrealized (depreciation) appreciation of investment in

New Mountain Finance Holdings, L.L.C.(2)

Provision for taxes(1)

Net increase in net assets resulting from operations

Capital transactions

— 
(493)  

45,575 

(44)  
— 
61,920 

(95)
— 
31,784 

Net proceeds from shares sold
Deferred offering costs allocated from New Mountain Finance Holdings,

  141,157 

  100,040 

  133,428 

   
 
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
L.L.C.(2)

Deferred offering costs(1)
Value of shares issued for exchanged units
Dividends declared to stockholders from net investment income
Dividends declared to stockholders from net realized gains
Reinvestment of dividends

Total net increase in net assets resulting from capital transactions  
Net increase in net assets

Net assets at the beginning of the period
Net assets at the end of the period

(250)  
(476)  

(281)  
— 
  193,262 

(323)
— 
56,314 
(19,792)
(50,521)  
(6,927)
(1,323)  
1,955 
5,084 
  164,655 
  246,261 
  196,439 
  308,181 
  145,487 
  341,926 
  $ 802,170  $ 650,107  $ 341,926 

38,840 
(71,365)  
(6,247)  
4,829 
  106,488 
  152,063 
  650,107 

(1)

(2)

For the year ended December 31, 2014, the amounts reported relate to the period from May 8, 2014 to December 31, 2014. 

For the year ended December 31, 2014, the amounts reported relate to the period from January 1, 2014 to May 7, 2014.

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

109

Table of Contents

New Mountain Finance Corporation 

Consolidated Statements of Cash Flows 

(in thousands) 

Years ended December 31,
2013

2014

2012

Cash ﬂows from operating activities
Net increase in net assets resulting from operations
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.(2)
Net realized gains on investments(1)
Net realized gains on investments allocated from New Mountain Finance Holdings, L.L.C.(2)
Net change in unrealized depreciation (appreciation) of investments(1)
Net change in unrealized (appreciation) depreciation of investments allocated from New Mountain Finance

Holdings, L.L.C.(2)

Net change in unrealized depreciation (appreciation) in New Mountain Finance Holdings, L.L.C.(2)
Amortization of purchase discount(1)
Amortization of deferred ﬁnancing costs(1)
Non-cash investment income(1)

(Increase) decrease in operating assets:

Cash and cash equivalents from New Mountain Finance Holdings, L.L.C.(3)
Purchase of investments and delayed draw facilities(1)
Proceeds from sales and paydowns of investments(1)
Cash received for purchase of undrawn portion of revolving credit or delayed draw facilities(1)
Cash paid for purchase of drawn portion of revolving credit facilities(1)
Cash repayments on drawn revolvers(1)
Cash paid for securities purchased under collateralized agreements to resell(1)
Interest and dividend receivable(1)
Receivable from unsettled securities sold(1)
Receivable from afﬁliates(1)
Other assets(1)
Purchase of investment in New Mountain Finance Holdings, L.L.C.(2)
Distributions from New Mountain Finance Holdings, L.L.C.(2)

Increase (decrease) in operating liabilities(1):
Payable for unsettled securities purchased
Management fee payable
Incentive fee payable
Capital gains incentive fee payable
Interest payable
Payable to afﬁliates
Deferred tax liability
Other liabilities

Net cash ﬂows used in operating activities

  $ 45,575  $ 61,920  $ 31,784 

(22,870)
(357)
(8,568)
43,863 

(940)
— 
(1,721)
1,713 
(3,479)

957 
  (529,540)
  261,747 
29 
(2,548)
380 
(30,000)
(207)
(8,912)
(106)
196 
(58,644)
15,247 

17,054 
(911)
(1,522)
(8,573)
1,259 
589 
493 
225 
  (289,571)

(50,521)
— 
(5,427)
— 

(6,016)
44 
— 
— 
— 

— 
— 
— 
— 
— 
— 
— 
— 
— 
— 
— 
  (100,040)
50,165 

— 
— 
— 
— 
— 
— 
— 
— 
(49,875)

(19,792)
— 
(7,593)
— 

(4,494)
95 
— 
— 
— 

— 
— 
— 
— 
— 
— 
— 
— 
— 
— 
— 
  (133,428)
23,314 

— 
— 
— 
— 
— 
— 
— 
— 
  (110,114)

   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash ﬂows from ﬁnancing activities

Net proceeds from shares sold
Dividends paid
Offering costs paid(1)
Proceeds from Holdings Credit Facility(1)
Repayment of Holdings Credit Facility(1)
Proceeds from SLF Credit Facility(1)
Repayment of SLF Credit Facility(1)
Proceeds from Convertible Notes(1)
Proceeds from NMFC Credit Facility(1)
Repayment of NMFC Credit Facility(1)
Proceeds from SBA-guaranteed debentures(1)
Deferred ﬁnancing costs paid(1)

Net cash ﬂows provided by ﬁnancing activities
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
Supplemental disclosure of cash ﬂow information

Cash interest paid
Income taxes paid
Distribution receivable from New Mountain Finance Holdings, L.L.C. 

Non-cash ﬁnancing activities:

Dividends declared and payable
New Mountain Finance AIV Holdings Corporation exchange of New Mountain Finance Holdings, L.L.C.

units for shares

Value of shares issued in connection with dividend reinvestment plan
Accrual for offering costs(1)
Accrual for deferred ﬁnancing costs(1)
Deferred offering costs allocated from New Mountain Finance Holdings, L.L.C(2)
SLF Credit Facility merger with the Holdings Credit Facility(1)

  141,157 
(72,783)
(478)
  384,721 
  (314,400)
21,255 
(37,700)
  115,000 
72,000 
(22,000)
37,500 
(11,256)
  313,016 
23,445 
— 

  100,040 
(50,165)
— 
— 
— 
— 
— 
— 
— 
— 
— 
— 
49,875 
— 
— 
—  $

  133,428 
(23,314)
— 
— 
— 
— 
— 
— 
— 
— 
— 
— 
  110,114  
— 
— 
— 

  $ 23,455  $

  $

9,924  $
437 
— 

—  $
— 
— 

— 
— 
3,405 

  $

—  $

—  $

(3,405)

38,840 
4,829 
516 
375 
(250)
  198,555 

  193,262 
5,084 
— 
— 
(281)
— 

56,314 
1,955 
— 
— 
(323)
— 

(1)

(2)

(3)

For the year ended December 31, 2014, the amounts reported relate to the period from May 8, 2014 to December 31, 2014. 

For the year ended December 31, 2014, the amounts reported relate to the period from January 1, 2014 to May 7, 2014. 

Represents the cash and cash equivalent balance of New Mountain Finance Holdings, L.L.C.'s at the date of restructuring. See Note 1,  Formation and Business
Purpose.

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

110

Table of Contents

New Mountain Finance Corporation 

Consolidated Schedule of Investments 

December 31, 2014 

(in thousands, except shares) 

Portfolio Company, Location and Industry(1)
Non-Controlled/Non-Afﬁliated

Type of
Investment

Interest Rate

Maturity
Date

Principal
Amount,
Par
Value

or Shares   Cost

Percent
of
Net
Assets

Fair
Value

Investments

Funded Debt Investments—

Australia
Project Sunshine IV Pty Ltd**

Media

  First lien(2)

Total Funded Debt Investments—

Australia

Funded Debt Investments—

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

Software

  Second lien(2)

8.00% (Base
Rate + 7.00%)

  9/23/2019   $ 17,689  $ 17,594  $ 17,888 

2.23%

  $ 17,689  $ 17,594  $ 17,888 

2.23%

10.50% (Base
Rate + 9.25%)
10.50% (Base

  7/30/2020   $ 24,630  $ 24,319  $ 22,905 

   
 
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
   
 
 
 
 
  
 
  
 
  
 
  
   
   
 
 
 
 
  
 
  
 
  
 
  
   
   
 
 
 
 
  
 
  
 
  
 
  
 
 
   
   
 
 
 
   
   
 
 
 
 
  
 
  
 
  
 
  
   
   
 
 
 
 
  
 
  
 
  
 
  
 
 
  
  Second lien(3)

  Rate + 9.25%)

  7/30/2020  

8,204 

8,317 

7,629 

Evergreen Skills Lux S.À.R.L.**

Education

  Second lien(3)

9.25% (Base
Rate + 8.25%)

32,834 

  32,636 

  30,534 

3.80%

  4/28/2022  

5,000 

4,877 

4,737 

0.59%

  $ 37,834  $ 37,513  $ 35,271 

4.39%

Total Funded Debt Investments—

Luxembourg

Funded Debt Investments—United

States
Ascend Learning, LLC

Education

  First lien(2)

  Second lien(3)

TIBCO Software Inc**.

Software

  First lien(2)

6.00% (Base
Rate + 5.00%)
9.50% (Base
Rate + 8.50%)

6.50% (Base
Rate + 5.50%)

  7/31/2019   $ 14,888  $ 14,824  $ 14,813 

  11/30/2020 

29,000 

  28,881 

  28,855 

43,888 

  43,705 

  43,668 

5.44%

  12/4/2020  

30,000 

  28,512 

  29,100 

  Subordinated(3)

  11.38%

  12/1/2021  

15,000 

  14,567 

  14,550 

Global Knowledge Training LLC    

Education
Deltek, Inc.

Software

Tenawa Resource

Holdings LLC(16)

Tenawa Resource

Management LLC

Energy

Kronos Incorporated

Software

  Second lien(2)

  Second lien(2)

  Second lien(3)

  First lien(3)

  Second lien(2)

  Second lien(3)

12.00% (Base
Rate + 8.75%)

10.00% (Base
Rate + 8.75%)
10.00% (Base
Rate + 8.75%)

10.50% (Base
Rate + 8.00%)

9.75% (Base
Rate + 8.50%)
9.75% (Base
Rate + 8.50%)

45,000 

  43,079 

  43,650 

5.44%

  10/21/2018 

41,450 

  41,137 

  41,786 

5.21%

  10/10/2019 

40,000 

  39,989 

  40,300 

  10/10/2019 

1,000 

990 

1,008 

41,000 

  40,979 

  41,308 

5.15%

  5/12/2019  

40,000 

  39,838 

  39,820 

4.96%

  4/30/2020  

32,641 

  32,407 

  33,355 

  4/30/2020  

5,000 

4,955 

5,109 

37,641 

  37,362 

  38,464 

4.80%

McGraw-Hill Global Education

Holdings, LLC
Education

  First lien(2)(9)

  First lien(2)

  9.75%

5.75% (Base
Rate + 4.75%)

4/1/2021  

24,500 

  24,362 

  27,195 

  3/22/2019  

9,863 

9,641 

9,830 

Tolt Solutions, Inc.(15)

Business Services

  First lien(2)

  First lien(2)

Acrisure, LLC

Business Services

  Second lien(2)

7.00% (Base
Rate + 6.00%)
12.00% (Base
Rate + 11.00%)

11.50% (Base
Rate + 10.50%)

34,363 

  34,003 

  37,025 

4.62%

3/7/2019  

18,537 

  18,538 

  18,075 

3/7/2019  

18,800 

  18,800 

  18,540 

37,337 

  37,338 

  36,615 

4.56%

  3/31/2020  

35,175 

  34,848 

  35,471 

4.42%

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

111

Table of Contents

New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2014

(in thousands, except shares)

   
 
 
 
 
  
   
   
 
 
 
 
 
   
   
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
   
   
 
 
 
   
   
 
 
 
 
  
 
  
 
  
 
  
   
   
 
 
 
 
  
 
  
 
  
 
  
 
 
  
 
 
 
  
   
   
 
 
 
 
 
   
   
 
 
 
 
  
 
  
 
  
 
  
 
 
 
  
 
 
  
   
   
 
 
 
 
 
   
 
 
 
 
  
 
  
 
  
 
  
 
 
 
   
   
 
 
 
 
  
 
  
 
  
 
  
 
 
 
  
 
 
 
 
 
  
   
   
 
 
 
 
 
   
   
 
 
 
 
  
 
  
 
  
 
  
   
   
 
 
 
 
  
 
  
 
  
 
  
 
 
 
   
   
 
 
 
 
  
 
  
 
  
 
  
 
 
 
  
 
 
 
 
 
  
   
   
 
 
 
 
 
   
   
 
 
 
 
  
 
  
 
  
 
  
 
 
 
  
 
 
 
 
 
  
   
   
 
 
 
 
 
   
   
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
  
 
 
 
 
  
   
   
 
 
 
 
 
   
   
 
 
 
 
  
 
  
 
  
 
  
 
 
 
Portfolio Company, Location and Industry(1)

Type of
Investment

Interest Rate

Maturity
Date

Principal
Amount,
Par
Value

or Shares  Cost  

Percent
of
Net
Assets  

Fair
Value  

UniTek Global Services, Inc.

Business Services

Envision Acquisition

Company, LLC
Healthcare Services

Hill International, Inc.
Business Services

Meritas Schools Holdings, LLC

Education

TASC, Inc.

Federal Services

SRA International, Inc.

Federal Services
Navex Global,Inc.

Software

Rocket Software, Inc.

Software

KeyPoint Government

Solutions, Inc.
Federal Services

CompassLearning, Inc.(14)

Education

Aderant North America, Inc.

Software

Transtar Holding Company
Distribution & Logistics

Pelican Products, Inc.
Business Products

 First lien(2)

 First lien(3)

 First lien(2)

 First lien(3)

 First lien(2)

 First lien(3)

 First lien(3)(11)—Drawn  

 First lien(3)(11)—Drawn  

15.00% PIK (Base Rate + 13.50%
PIK)(7)*
15.00% PIK (Base Rate + 13.50%
PIK)(7)*
15.00% PIK (Base Rate + 13.50%
PIK)(7)*
15.00% PIK (Base Rate + 13.50%
PIK)(7)*
15.00% PIK (Base Rate + 13.50%
PIK)(7)*
15.00% PIK (Base Rate + 13.50%
PIK)(7)*
9.50% (Base Rate + 7.50% + 1.00%
PIK)*
10.25% (Base Rate + 4.00% + 5.25%
PIK)*

  4/15/2018  $ 20,596 $20,104 $14,706  

  4/15/2018   

7,772   7,552   5,550  

  4/15/2018   

6,271   6,116   4,478  

  4/15/2018   

597  

580  

426  

  4/15/2018   

5,213   5,083   3,722  

  4/15/2018   

496  

482  

354  

  1/21/2015   

3,381   3,381   3,381  

  4/15/2016   

2,610   2,610   2,610  

46,936   45,908   35,227  

4.39%

 Second lien(2)

 Second lien(3)

 9.75% (Base Rate + 8.75%)

  11/4/2021   

26,000   25,603   25,772  

 9.75% (Base Rate + 8.75%)

  11/4/2021   

9,250   9,305   9,169  

35,250   34,908   34,941  

4.37%

 First lien(2)

 7.75% (Base Rate + 6.75%)

  9/26/2020   

34,913   34,574   34,215  

4.27%

 First lien(2)

 Second lien(2)

 First lien(2)

 Second lien(3)

 7.00% (Base Rate + 5.75%)

  6/25/2019   

21,658   21,487   21,549  

 10.00% (Base Rate + 9.00%)

  1/23/2021   

12,000   11,943   11,820  

33,658   33,430   33,369  

4.16%

 6.50% (Base Rate + 5.50%)

  5/22/2020   

30,860   30,454   30,108  

 12.00%

  5/21/2021   

2,000   1,960   1,960  

32,860   32,414   32,068  

4.00%

 First lien(2)

 6.50% (Base Rate + 5.25%)

  7/20/2018   

31,765   31,059   31,805  

3.96%

 First lien(4)

 First lien(2)

 Second lien(4)

 Second lien(3)

 5.75% (Base Rate + 4.75%)

 11/19/2021  

10,547   10,442   10,441  

 5.75% (Base Rate + 4.75%)

 11/19/2021  

4,453   4,409   4,409  

 9.75% (Base Rate + 8.75%)

 11/18/2022  

11,953   11,834   11,775  

 9.75% (Base Rate + 8.75%)

 11/18/2022  

5,047   4,997   4,970  

32,000   31,682   31,595  

3.94%

 Second lien(2)

 10.25% (Base Rate + 8.75%)

  2/8/2019   

30,875   30,756   30,875  

3.85%

 First lien(2)

 7.75% (Base Rate + 6.50%)

 11/13/2017  

29,342   28,937   29,359  

3.66%

 First lien(2)

 8.00% (Base Rate + 6.75%)

 11/26/2018  

30,000   29,391   29,184  

3.64%

 Second lien(2)

 Second lien(3)

 10.00% (Base Rate + 8.75%)

  6/20/2019   

24,000   23,767   23,940  

 10.00% (Base Rate + 8.75%)

  6/20/2019   

5,000   5,070   4,988  

29,000   28,837   28,928  

3.61%

 Second lien(2)

 10.00% (Base Rate + 8.75%)

  10/9/2019   

28,300   27,906   27,946  

3.48%

 Second lien(3)

 Second lien(2)

 9.25% (Base Rate + 8.25%)

  4/9/2021   

15,500   15,531   15,306  

 9.25% (Base Rate + 8.25%)

  4/9/2021   

10,000   10,123   9,875  

25,500   25,654   25,181  

3.14%

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

112

Table of Contents

   
 
 
 
 
  
  
 
 
  
   
   
   
  
 
  
 
  
 
  
 
  
 
  
 
  
  
  
  
  
 
 
  
  
  
 
 
  
   
   
   
  
  
  
  
  
 
 
  
  
  
 
 
  
   
   
   
  
  
  
 
 
  
   
   
   
  
  
  
  
  
 
 
  
  
  
 
 
  
   
   
   
  
  
  
  
  
 
 
  
  
  
 
 
  
   
   
   
  
  
  
 
 
  
   
   
   
  
  
  
  
  
  
  
 
 
  
  
  
 
 
  
   
   
   
  
  
  
 
 
  
   
   
   
  
  
  
 
 
  
   
   
   
  
  
  
 
 
  
   
   
   
  
  
  
  
  
 
 
  
  
  
 
 
  
   
   
   
  
  
  
 
 
  
   
   
   
  
  
  
  
  
 
 
  
New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2014

(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
Net
Assets

  First lien(2)

  12.25%

  12/15/2018 

25,000 

  25,000 

  23,250 

2.90%

8.00% (Base
Rate + 6.75%)

7.50% (Base
Rate + 6.50%)

10.25% (Base
Rate + 9.00%)
10.25% (Base
Rate + 9.00%)

9.75% (Base
Rate + 8.75%)

6/4/2018   $ 24,936  $ 24,678  $ 25,029 

3.12%

  12/19/2020 

25,000 

  24,750 

  24,750 

3.09%

5/8/2019  

18,886 

  18,786 

  18,877 

5/8/2019  

5,571 

5,647 

5,569 

24,457 

  24,433 

  24,446 

3.05%

  6/17/2021  

24,000 

  23,761 

  23,760 

2.96%

9.50% (Base
Rate + 8.50%)
9.50% (Base
Rate + 8.50%)

  4/14/2022  

20,000 

  19,871 

  20,162 

  4/14/2022  

2,550 

2,556 

2,571 

22,550 

  22,427 

  22,733 

2.83%

6.25% (Base
Rate + 5.00%)

16.00%
(11.50% + 4.50%
PIK)*

7.00% (Base
Rate + 5.50%)

9.75% (Base
Rate + 8.75%)

7.00% (Base
Rate + 6.00%)

7.50% (Base
Rate + 6.25%)

6.00% (Base
Rate + 4.75%)

10.75% (Base
Rate + 9.50%)

  12/18/2019 

21,780 

  21,594 

  21,771 

2.71%

7/3/2019  

20,458 

  20,458 

  20,828 

2.60%

  10/6/2016  

20,862 

  20,697 

  20,732 

2.58%

  11/19/2019 

19,895 

  19,895 

  19,895 

2.48%

  2/27/2019  

19,850 

  19,722 

  19,825 

2.47%

7/7/2020  

19,950 

  19,592 

  19,152 

2.39%

5/2/2018  

19,059 

  18,521 

  19,083 

2.38%

  4/12/2019  

18,643 

  18,369 

  18,457 

2.30%

YP Holdings LLC(10)
YP LLC

Media
CRGT Inc.

  First lien(2)

Federal Services

Conﬁe Seguros Holding II Co.

  First lien(2)

Consumer Services

  Second lien(2)

  Second lien(3)

  Second lien(3)

PetVet Care Centers LLC

Consumer Services

Sierra Hamilton LLC / Sierra

Hamilton Finance, Inc.
Energy

Aricent Technologies

Business Services

  Second lien(2)

  Second lien(3)

McGraw-Hill School Education

Holdings, LLC

Education

Weston Solutions, Inc.

  First lien(2)

Business Services

  Subordinated(4)

Aspen Dental Management, Inc.

  First lien(2)

Healthcare Services

TWDiamondback Holdings

Corp.(18)

Diamondback Drugs of Delaware,

L.L.C.(TWDiamondback II
Holdings LLC)

Distribution & Logistics

  First lien(4)

American Paciﬁc Corporation**

Specialty Chemicals and

Materials

  First lien(2)

Novitex Acquisition, LLC (fka
ARSloane Acquisition, LLC)

  First lien(2)

  First lien(2)

  Second lien(2)

Business Services

eResearchTechnology, Inc.

Healthcare Services
First American Payment

Systems, L.P.

Business Services

Permian Tank &

Manufacturing, Inc.
Energy

AgKnowledge Holdings

Company, Inc.

Business Services

Vertafore, Inc.

Software

  First lien(2)

  10.50%

  1/15/2018  

24,357 

  24,555 

  18,390 

2.29%

  Second lien(2)

  Second lien(2)

  Second lien(3)

9.25% (Base
Rate + 8.25%)

9.75% (Base
Rate + 8.25%)
9.75% (Base
Rate + 8.25%)

  7/23/2020  

18,500 

  18,326 

  17,814 

2.22%

  10/27/2017 

13,855 

  13,852 

  13,959 

  10/27/2017 

2,000 

2,017 

2,015 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
  
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
  
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
  
 
 
 
 
 
  
MailSouth, Inc. (d/b/a Mspark)

Media

  First lien(2)

Edmentum, Inc.(fka Plato, Inc.)

Education

  Second lien(2)

  Second lien(3)

15,855 

  15,869 

  15,974 

1.99%

6.75% (Base
Rate + 4.99%)

11.25% (Base
Rate + 9.75%)
11.25% (Base
Rate + 9.75%)

  12/14/2016 

16,778 

  16,190 

  15,771 

1.97%

  5/17/2019  

25,000 

  24,713 

  12,500 

  5/17/2019  

6,150 

6,040 

3,075 

31,150 

  30,753 

  15,575 

1.94%

  Subordinated(4)

  10.00%

  6/23/2020  

15,000 

  14,860 

  14,642 

1.83%

GSDM Holdings Corp.
Healthcare Services
Smile Brands Group Inc.

Healthcare Services
Vision Solutions, Inc.

  First lien(2)

Software

Harley Marine Services, Inc.

  Second lien(2)

Distribution & Logistics

  Second lien(2)

Vitera Healthcare Solutions, LLC  

Software

  First lien(2)

  Second lien(2)

7.50% (Base
Rate + 6.25%)

9.50% (Base
Rate + 8.00%)

10.50% (Base
Rate + 9.25%)

6.00% (Base
Rate + 5.00%)
9.25% (Base
Rate + 8.25%)

  8/16/2019  

14,319 

  14,154 

  13,746 

1.71%

  7/23/2017  

14,000 

  13,966 

  13,580 

1.69%

  12/20/2019 

9,000 

8,843 

8,910 

1.11%

  11/4/2020  

1,980 

1,964 

1,970 

  11/4/2021  

7,000 

8,980 

6,906 

8,870 

6,825 

8,795 

1.10%

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

113

Table of Contents

New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2014

(in thousands, except shares)

Portfolio Company, Location and Industry(1)

Type of
Investment

Interest Rate

Maturity
Date

McKissock, LLC
QC McKissock Investment, LLC    

Principal
Amount,
Par Value
or Shares  

Cost

Fair
Value

Percent
of
Net
Assets  

Education

  First lien(2)

  First lien(2)

  First lien(2)(11)—Drawn

Asurion, LLC (fka Asurion

Corporation)

Business Services

  Second lien(3)

  Second lien(2)

Physio-Control International, Inc.

7.50% (Base
Rate + 6.50%)
7.50% (Base
Rate + 6.50%)
7.50% (Base
Rate + 6.50%)

8.50% (Base
Rate + 7.50%)
8.50% (Base
Rate + 7.50%)

  8/5/2019   $

4,923  $

4,877  $

4,844   

  8/5/2019    

3,178   

3,149   

3,127   

8/5/2019    

576   

570   

567   

8,677   

8,596   

8,538   

1.06%

  3/3/2021    

5,000   

4,934   

4,987   

  3/3/2021    

3,000   

2,957   

2,993   

8,000   

7,891   

7,980   

0.99%

Healthcare Products

  First lien(2)

  9.88%

  1/15/2019    

6,651   

6,651   

7,083   

0.88%

Sotera Defense Solutions, Inc.

(Global Defense Technology &
Systems, Inc.)

Federal Services

Brock Holdings III, Inc.

  First lien(2)

Industrial Services

  Second lien(2)

9.00% (Base
Rate + 7.50%)

10.00% (Base
Rate + 8.25%)

  4/21/2017    

7,445   

7,387   

6,626   

0.83%

  3/16/2018    

7,000   

6,934   

5,548   

0.69%

   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
  
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
  
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
   
 
 
   
    
    
    
  
   
 
 
   
    
    
    
  
 
  
 
  
 
 
  
   
   
 
 
   
   
   
 
 
   
    
    
    
  
 
  
 
  
   
   
 
 
   
   
   
 
 
   
    
    
    
  
   
   
 
 
   
    
    
    
  
 
   
   
 
 
   
    
    
    
  
 
  Subordinated(2)(9)

  11.13%

  8/15/2019    

5,000   

4,957   

5,425   

0.68%

Immucor, Inc.

Healthcare Services

Virtual Radiologic Corporation

Healthcare Information

Technology

  First lien(2)

Packaging Coordinators, Inc.(12)

Healthcare Products

  Second lien(3)

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

Business Services

  Second lien(2)

Learning Care Group (US) Inc.(17)    
Learning Care Group (US)

No. 2 Inc.

Education

CRC Health Corporation

Healthcare Services
GCA Services Group, Inc.

Business Services

Sophia Holding Finance LP /
Sophia Holding Finance Inc.
Software

York Risk Services Holding Corp.

  First lien(2)

  Second lien(3)

  Second lien(3)

  Subordinated(3)

Business Services

  Subordinated(3)

Winebow Holdings, Inc. (Vinter

Group, Inc., The)

Distribution & Logistics

  Second lien(3)

Synarc-Biocore Holdings, LLC

Healthcare Services

  Second lien(3)

Education Management LLC**

Education

  First lien(2)

  First lien(3)

ATI Acquisition Company (fka
Ability Acquisition, Inc.)(13)

Education

  First lien(2)

  First lien(2)

Total Funded Debt Investments—

United States

Total Funded Debt Investments

7.25% (Base
Rate + 5.50%)

9.00% (Base
Rate + 8.00%)

8.25% (Base
Rate + 7.25%)

5.50% (Base
Rate + 4.50%)

9.00% (Base
Rate + 8.00%)

9.25% (Base
Rate + 8.00%)

  12/22/2016   

5,963   

5,931   

4,979   

0.62%

  8/1/2022    

5,000   

4,952   

4,925   

0.61%

  1/25/2021    

5,000   

4,940   

4,867   

0.61%

  5/5/2021    

4,465   

4,424   

4,476   

0.56%

  9/28/2021    

4,000   

3,925   

4,098   

0.51%

  11/1/2020    

4,000   

3,968   

3,955   

0.49%

  9.63%

  8.50%

  12/1/2018    

3,500   

3,502   

3,531   

0.44%

  10/1/2022    

3,000   

3,000   

3,011   

0.38%

8.50% (Base
Rate + 7.50%)

9.25% (Base
Rate + 8.25%)

9.25% PIK (Base
Rate + 8.00% PIK)*
9.25% PIK (Base
Rate + 8.00% PIK)*

  1/2/2022    

3,000   

2,979   

2,910   

0.36%

  3/10/2022    

2,500   

2,477   

2,250   

0.28%

  3/30/2018    

1,944   

1,902   

  3/30/2018    

1,097   

1,085   

880   

496   

3,041   

2,987   

1,376   

0.17%

17.25% (Base
Rate + 10.00% + 4.00%
PIK)(7)*
17.25% (Base
Rate + 10.00% + 4.00%
PIK)(7)*

6/30/2012
—Past Due   

6/30/2012
—Past Due   

1,665   

1,434   

216   

103   

94   

103   

1,768   

1,528   

319   

0.04%

  $1,338,642  $1,325,057  $1,291,305    160.98%
  $1,394,165  $1,380,164  $1,344,464    167.60%

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

114

Table of Contents

New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2014

(in thousands, except shares)

Portfolio Company, Location and Industry(1)
Equity—United Kingdom

Type of
Investment

Interest Rate

Maturity
Date

Principal
Amount,
Par Value
or Shares  

Cost

Fair
Value

Percent
of
Net
Assets

   
   
   
 
 
   
    
    
    
  
   
   
 
 
   
    
    
    
  
 
   
   
 
 
   
    
    
    
  
 
   
   
 
 
   
    
    
    
  
 
   
 
 
   
    
    
    
  
   
   
 
 
   
    
    
    
  
 
   
   
 
 
   
    
    
    
  
 
   
   
 
 
   
    
    
    
  
 
   
   
 
 
   
    
    
    
  
   
   
 
 
   
    
    
    
  
   
   
 
 
   
    
    
    
  
 
   
   
 
 
   
    
    
    
  
 
   
   
 
 
   
    
    
    
  
 
  
 
  
   
   
 
 
   
   
   
 
 
   
    
    
    
  
 
 
  
 
 
  
   
   
 
 
   
   
   
 
 
   
   
 
 
 
 
 
 
 
 
 
   
   
 
 
   
  
 
    
    
  
Packaging Coordinators, Inc.(12)
PCI Pharma Holdings UK

Limited**
Healthcare Products

  Ordinary shares(2)

—

—    

19,427  $
   $

580  $
580  $

1,193   
1,193   

0.15%
0.15%

Total Shares—United Kingdom    
Equity—United States

Crowley Holdings Preferred, LLC    

Distribution & Logistics

  Preferred shares(3)

Global Knowledge Training LLC    

Education

  Ordinary shares(2)

  Preferred shares(2)

Tenawa Resource

Holdings LLC(16)

QID NGL LLC

Energy

TWDiamondback Holdings

Corp.(18)
Distribution & Logistics
Ancora Acquisition LLC(13)

Education

Total Shares—United States
Total Shares
Warrants—United States

  Ordinary shares(3)

  Preferred shares(4)

  Preferred shares(6)

Storapod Holding Company, Inc.

Consumer Services
YP Holdings LLC(10)
YP Equity Investors LLC

Media

  Warrants(3)

  Warrants(5)

Learning Care Group (US) Inc.(17)    
ASP LCG Holdings, Inc.

Education

UniTek Global Services, Inc.

Business Services

Alion Science and Technology

Corporation
Federal Services

Ancora Acquisition LLC(13)

Education

Total Warrants—United States
Total Funded Investments
Unfunded Debt Investments—

United States
TWDiamondback Holdings

Corp.(18)

Diamondback Drugs of Delaware,

L.L.C. (TWDiamondback II
Holdings LLC)
Distribution & Logistics
UniTek Global Services, Inc.

Business Services

  Warrants(3)

  Warrants(3)

  Warrants(3)

  Warrants(6)

  First lien(4)(11)—Undrawn  

  First lien(3)(11)—Undrawn  

  First lien(3)(11)—Undrawn  

  First lien(3)(11)—Undrawn  

McKissock, LLC

Education

MailSouth, Inc. (d/b/a Mspark)

  First lien(2)(11)—Undrawn  

Media

  First lien(3)(11)—Undrawn  

12.00%
(10.00% + 2.00%
PIK)*

—

—

—

—

—

—

—

—

—

—

—

—

—
—

—

—

—

—    

35,721  $

35,721  $

35,721   

4.45%

—    

2 

—    

2,423 

—   

—   

—   

8   

9,739   

9,747   

1.22%

—     3,000,000 

3,000   

2,430   

0.30%

—    

—    

200 

372 

   $
   $

2,000   

2,000   

0.25%

83   
40,804  $
41,384  $

83   
49,981   
51,174   

0.01%
6.23%
6.38%

—     360,129  $

156  $

4,142   

0.51%

—    

5 

—   

2,549   

0.32%

—    

622 

37   

299   

0.04%

—     1,014,451(8) 

1,449   

—   

—%

—    

6,000 

293   

—   

—%

—    

20 

—%
0.87%
   $
   $1,423,483  $1,402,628    174.85%

—   
1,935  $

—   
6,990   

  5/19/2015   $

2,763  $

—  $

  1/21/2015    

1/21/2015    

1/21/2015    

5,425 

2,048 

758 

—   

—   

—   

—   

—   

—   

—   

—   

—   

—%

—%

  8/5/2019    

2,304 

(23)  

(37)  

—%

  12/14/2015   

1,900 

(181)  

(156)  

(0.02)%

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

115

Table of Contents

New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2014

   
   
   
 
 
   
  
 
    
    
  
   
   
 
 
   
  
 
    
    
  
 
 
   
 
 
   
   
   
 
 
   
  
 
    
    
  
   
 
 
   
  
 
    
    
  
 
 
   
 
 
   
  
 
    
    
  
 
 
 
  
 
 
 
  
   
   
 
 
   
  
 
   
   
 
 
   
  
 
    
    
  
   
   
 
 
   
  
 
    
    
  
 
 
 
   
   
 
 
   
  
 
    
    
  
 
 
 
   
   
 
 
   
  
 
    
    
  
 
 
 
   
   
 
 
   
   
   
 
 
   
   
   
 
 
   
  
 
    
    
  
   
   
 
 
   
  
 
    
    
  
 
 
   
   
 
 
   
  
 
    
    
  
   
   
 
 
   
  
 
    
    
  
 
 
 
   
 
 
   
  
 
    
    
  
   
   
 
 
   
  
 
    
    
  
 
 
 
   
   
 
 
   
  
 
    
    
  
 
 
   
   
 
 
   
  
 
    
    
  
 
 
 
   
   
 
 
   
  
 
    
    
  
 
 
 
   
   
 
 
   
   
   
 
 
   
   
   
 
 
   
  
 
    
    
  
   
   
 
 
   
  
 
    
    
  
   
   
 
 
   
  
 
    
    
  
   
   
 
 
   
  
 
    
    
  
 
  
 
 
  
 
 
  
   
   
 
 
   
  
 
   
   
 
 
   
  
 
    
    
  
 
   
   
 
 
   
  
 
    
    
  
 
(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
Net
Assets

Aspen Dental Management, Inc.

Healthcare Services

  First lien(3)(11)—Undrawn  

—

Total Unfunded Debt Investments    
Total Non-Controlled/Non-
Afﬁliated Investments
Non-Controlled/Afﬁliated

  4/6/2016   $

5,000  $
  $ 20,198  $

(388) $
(592) $

(225)  
(418)  

(0.03)%
(0.05)%

   $1,422,891  $1,402,210 

  174.80%

Investments(19)

Equity—United States

NMFC Senior Loan Program

I LLC**
Investment in Fund

Total Non-Controlled/Afﬁliated

Investments

Total Investments

  Membership interest(3)

—

—  

—  $

23,000  $

22,461 

2.80%

23,000  $

   $
22,461 
   $1,445,891  $1,424,671 

2.80%
  177.60%

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

(9)

(10)

(11)

(12)

(13)

(14)

(15)

(16)

(17)

(18)

(19)

*

**

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

Investment is pledged as collateral for the Holdings Credit Facility, a revolving credit facility among the Company as Collateral Manager, New Mountain Finance
Holdings, L.L.C. ("NMF Holdings") as the Borrower, Wells Fargo Securities, LLC as the Administrative Agent, and Wells Fargo Bank, National Association, as
the Lender and Collateral Custodian. See Note 7, Borrowings, for details. 

Investment is pledged as collateral for the NMFC Credit Facility, a revolving credit facility among the Company as the Borrower and Goldman Sachs Bank USA
as the Administrative Agent and the Collateral Agent and Goldman Sachs Bank USA and Morgan Stanley, N.A. as Lenders. See Note 7,  Borrowings, for details. 

Investment is held in New Mountain Finance SBIC, L.P. 

Investment is held in NMF YP Holdings, Inc. 

Investment is held in NMF Ancora Holdings, Inc. 

Investment or a portion of the investment is on non-accrual status. See Note 3,  Investments, for details. 

The Company holds 1,014,451 warrants in UniTek Global Services, Inc., which represents a 4.41% equity ownership on a fully diluted basis. 

Securities are registered under the Securities Act. 

The Company holds investments in two related entities of YP Holdings LLC. The Company directly holds warrants to purchase a 4.96% membership interest of YP
Equity Investors, LLC (which at closing represented an indirect 1.0% equity interest in YP Holdings LLC) and holds an investment in the Term Loan B loans
issued by YP LLC, a subsidiary of YP Holdings LLC. 

Par Value amounts represent the drawn or undrawn (as indicated in type of investment) portion of revolving credit facilities or delayed draws. Cost amounts
represent the cash received at settlement date net the impact of paydowns and cash paid for drawn revolvers or delayed draws. 

The Company holds investments in Packaging Coordinators, Inc. and one related entity of Packaging Coordinators, Inc. The Company has a debt investment in
Packaging Coordinators, Inc. and holds ordinary equity in PCI Pharma Holdings UK Limited, a wholly-owned subsidiary of Packaging Coordinators, Inc. 

The Company holds investments in ATI Acquisition Company and Ancora Acquisition LLC. The Company has debt investments in ATI Acquisition Company and
preferred equity and warrants to purchase units of common membership interests of Ancora Acquisition LLC. The Company received its investments in Ancora
Acquisition LLC as a result of its investments in ATI Acquisition Company. 

The Company holds an investment in CompassLearning, Inc. that is structured as a ﬁrst lien last out term loan. 

The Company holds two ﬁrst lien investments in Tolt Solutions, Inc. The debt investment with an interest rate at base rate + 6.00% is structured as a ﬁrst lien ﬁrst
out debt investment. The debt investment with an interest rate at base rate + 11.00% is structured as a ﬁrst lien last out debt investment. 

The Company holds investments in two related entities of Tenawa Resource Holdings LLC. The Company holds 4.76% of the common units in QID NGL LLC
(which at closing represented 98.1% of the ownership in the common units in Tenawa Resource Holdings LLC) and holds a ﬁrst lien investment in Tenawa
Resource Management LLC, a wholly-owned subsidiary of Tenawa Resource Holdings LLC. 

The Company holds investments in two wholly-owned subsidiaries of Learning Care Group (US) Inc. The Company has a debt investment in Learning Care Group
(US) No. 2 Inc. and holds warrants to purchase common stock of ASP LCG Holdings, Inc. 

The Company holds investments in TWDiamondback Holdings Corp. and one related entity of TWDiamondback Holdings Corp. The Company holds preferred
equity in TWDiamondback Holdings Corp. and holds a ﬁrst lien last out term loan and a delayed draw term loan in Diamondback Drugs of Delaware LLC, a
wholly-owned subsidiary of TWDiamondback Holdings Corp. 

Denotes investments in which the Company is an "Afﬁliated Person", as deﬁned in the Investment Company Act of 1940, as amended, due to owning or holding
the power to vote 5.0% or more of the outstanding voting securities of the investment but not controlling the company. 

All or a portion of interest contains payments-in-kind ("PIK"). 

Indicates assets that the 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 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.

   
 
 
 
 
 
 
 
   
   
 
 
 
 
  
 
  
 
  
 
  
   
 
 
   
   
 
 
 
 
   
   
 
 
 
 
  
 
  
 
  
 
  
   
   
 
 
 
 
  
 
  
 
  
 
  
   
   
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
   
   
 
 
 
 
 
   
   
 
 
 
 
Table of Contents

116

New Mountain Finance Corporation 

Consolidated Schedule of Investments (Continued) 

December 31, 2014 

Investment Type
First lien
Second lien
Subordinated
Equity and other
Total investments

Industry Type
Software
Business Services
Education
Federal Services
Healthcare Services
Distribution & Logistics
Energy
Media
Consumer Services
Business Products
Investment in Fund
Specialty Chemicals and Materials
Healthcare Products
Industrial Services
Healthcare Information Technology
Total investments

Interest Rate Type
Floating rates
Fixed rates
Total investments

December 31, 2014
Percent of Total
Investments at Fair Value

47.58%
42.41%
4.35%
5.66%
100.00%

December 31, 2014
Percent of Total
Investments at Fair Value

20.16%
18.27%
17.68%
8.75%
8.05%
6.83%
5.89%
4.29%
3.67%
1.77%
1.58%
1.39%
0.93%
0.39%
0.35%
100.00%

December 31, 2014
Percent of Total
Investments at Fair Value

12.32%
87.68%
100.00%

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

117

Table of Contents

 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
New Mountain Finance Corporation 

Consolidated Schedule of Investments 

December 31, 2013 

(in thousands, except shares) 

Investments

Investment in New Mountain Finance Holdings, L.L.C.(1)

Total Investments

  $ 633,835  $ 650,107 
  $ 633,835  $ 650,107 

100.00%
100.00%

Cost

  Fair Value

Percent of
Net Assets

(1)

At December 31, 2013, New Mountain Finance Corporation's only investment was its investment in New Mountain Finance
Holdings, L.L.C. Refer below for New Mountain Finance Holdings, L.L.C.'s Consolidated Schedule of Investments as of
December 31, 2013.

New Mountain Finance Holdings, L.L.C. 

Consolidated Schedule of Investments 

December 31, 2013 

(in thousands, except shares) 

Portfolio Company, Location and Industry(1)
Funded Debt Investments—

Type of
Investment

Interest Rate

Principal
Amount,
Par Value
or Shares   Cost

Percent
of
Members'
Capital

Fair
Value

Maturity
Date

Bermuda
Stratus Technologies Bermuda

Holdings Ltd.(4)**

Stratus Technologies Bermuda Ltd. /

Stratus Technologies, Inc.
Information Technology

Total Funded Debt Investments—

Bermuda

Funded Debt Investments—Cayman

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

Total Funded Debt Investments—

Cayman Islands

Funded Debt Investments—United

States
McGraw-Hill Global Education

Holdings, LLC
Education

Deltek, Inc.
Software

Global Knowledge Training LLC

Education

UniTek Global Services, Inc.

Business Services

  First lien(2)(7)  12.00%

  3/29/2015   $

6,497  $

6,335  $

6,529 

0.95%

  $

6,497  $

6,335  $

6,529 

0.95%

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

30,000  $ 29,472  $ 30,362 

4.41%

  $

30,000  $ 29,472  $ 30,362 

4.41%

  First lien(2)

  9.75%

4/1/2021   $

24,500  $ 24,348  $ 27,195 

  First lien(3)

  9.00% (Base Rate + 7.75%)

  3/22/2019  

17,850 

  17,367 

  18,225 

42,350 

  41,715 

  45,420 

6.60%

  Second lien(2)  10.00% (Base Rate + 8.75%)   10/10/2019 

41,000 

  40,977 

  41,820 

6.07%

  Second lien(2)  11.00% (Base Rate + 9.75%)   10/21/2018 

41,450 

  41,070 

  41,450 

6.02%

  First lien(2)

  First lien(2)

  First lien(2)

15.00% (Base Rate + 9.50% +
4.00% PIK)*
15.00% (Base Rate + 9.50% +
4.00% PIK)*
15.00% (Base Rate + 9.50% +
4.00% PIK)*

  4/15/2018  

26,382 

  25,508 

  26,382 

  4/15/2018  

6,387 

6,176 

6,387 

  4/15/2018  

5,309 

5,133 

5,309 

Edmentum, Inc.(fka Plato, Inc.)

Education

SRA International, Inc.

Federal Services

  First lien(3)

  5.50% (Base Rate + 4.50%)

  5/17/2018  

6,433 

6,240 

6,465 

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

31,150 

  30,685 

  31,578 

37,583 

  36,925 

  38,043 

5.52%

  First lien(2)

  6.50% (Base Rate + 5.25%)

  7/20/2018  

34,750 

  33,784 

  34,475 

5.01%

38,078 

  36,817 

  38,078 

5.53%

 
 
 
 
 
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
   
 
 
 
 
 
 
  
 
  
 
  
 
  
   
 
 
 
 
 
 
  
 
  
 
  
 
  
   
 
 
 
 
 
 
  
 
  
 
  
 
  
 
   
 
 
 
 
 
   
 
 
 
 
 
 
  
 
  
 
  
 
  
   
 
 
 
 
 
 
  
 
  
 
  
 
  
 
   
 
 
 
 
 
   
 
 
 
 
 
 
  
 
  
 
  
 
  
   
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
  
 
 
  
   
 
 
 
 
 
 
 
   
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
   
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
   
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
  
 
 
 
 
 
  
 
 
 
 
 
  
   
 
 
 
 
 
 
 
   
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
  
 
 
  
   
 
 
 
 
 
 
 
   
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
Kronos Incorporated

Software

  Second lien(2)  9.75% (Base Rate + 8.50%)

  4/30/2020  

31,341 

  31,055 

  32,542 

4.73%

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

118

Table of Contents

New Mountain Finance Holdings, L.L.C.

Consolidated Schedule of Investments (Continued)

December 31, 2013

(in thousands, except shares)

Portfolio Company, Location and Industry(1)

Type of
Investment

Rocket Software, Inc.

Software

Novell, Inc. (fka Attachmate

Corporation, NetIQ Corporation)

  Second lien(2)

Software

  First lien(3)

  Second lien(2)

JHCI Acquisition, Inc.

Distribution & Logistics

  First lien(3)

CompassLearning, Inc.(12)

Education

Transtar Holding Company

  Second lien(3)

  First lien(2)

Distribution & Logistics

  Second lien(2)

KeyPoint Government Solutions, Inc.

Federal Services

Meritas Schools Holdings, LLC

Education

  First lien(3)

  First lien(2)

  First lien(3)

  First lien(2)

Interest Rate

10.25% (Base
Rate + 8.75%)

7.25% (Base
Rate + 5.75%)
11.00% (Base
Rate + 9.50%)

7.00% (Base
Rate + 5.75%)
11.00% (Base
Rate + 9.75%)

8.00% (Base
Rate + 6.75%)

9.75% (Base
Rate + 8.50%)

7.25% (Base
Rate + 6.00%)
7.25% (Base
Rate + 6.00%)

7.00% (Base
Rate + 5.75%)
7.00% (Base
Rate + 5.75%)

Principal
Amount,
Par Value
or Shares  

Maturity
Date

Cost

Fair
Value

Percent
of
Members'
Capital

2/8/2019   $

30,875  $

30,731  $

31,029 

4.51%

  11/22/2017 

6,951 

6,847 

7,080 

  11/22/2018 

23,353 

30,304 

22,780 

29,627 

22,876 

29,956 

4.35%

7/11/2019  

19,536 

19,262 

19,548 

7/11/2020  

10,000 

29,536 

9,705 

9,898 

28,967 

29,446 

4.28%

  11/26/2018 

30,000 

29,261 

29,250 

4.25%

10/9/2019  

28,300 

27,842 

27,168 

3.95%

  11/13/2017 

16,784 

16,448 

16,616 

  11/13/2017 

10,116 

26,900 

9,953 

26,401 

10,015 

26,631 

3.87%

6/25/2019  

19,950 

19,763 

20,087 

6/25/2019  

5,920 

5,865 

5,961 

25,870 

25,628 

26,048 

3.78%

Sierra Hamilton LLC / Sierra Hamilton

Finance, Inc.
Energy

Permian Tank & Manufacturing, Inc.

Energy

Aderant North America, Inc.

Software

YP Holdings LLC(8)
YP LLC

Media

McGraw-Hill School Education

Holdings, LLC

  First lien(2)

  12.25%

  12/15/2018 

25,000 

25,000 

25,000 

  First lien(2)

  10.50%

1/15/2018  

24,500 

24,757 

24,255 

3.63%

3.52%

  Second lien(2)

10.00% (Base
Rate + 8.75%)

  First lien(2)

8.04% (Base
Rate + 6.71%)

6/20/2019  

22,500 

22,201 

23,203 

3.37%

6/4/2018  

22,400 

21,892 

22,722 

3.30%

Education

  First lien(3)

6.25% (Base
Rate + 5.00%)
6.25% (Base

  12/18/2019 

13,000 

12,870 

12,870 

   
   
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
  
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
  
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
  
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
  
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
  
  First lien(2)

  Rate + 5.00%)

  12/18/2019 

9,000 

8,910 

8,910 

22,000 

21,780 

21,780 

3.16%

7.00% (Base
Rate + 5.50%)

9.50% (Base
Rate + 8.25%)

9.75% (Base
Rate + 8.75%)

7.50% (Base
Rate + 6.25%)

6.00% (Base
Rate + 4.75%)

7.50% (Base
Rate + 6.50%)

10.75% (Base
Rate + 9.50%)

7.25% (Base
Rate + 6.25%)

10/6/2016  

21,077 

20,820 

20,813 

3.02%

  10/26/2020 

20,000 

19,731 

20,308 

2.95%

11/4/2021  

20,000 

19,605 

20,075 

2.91%

10/1/2019  

19,950 

19,754 

19,992 

2.90%

5/2/2018  

19,750 

19,047 

19,874 

2.89%

7/16/2019  

19,900 

19,527 

19,813 

2.88%

4/12/2019  

20,000 

19,654 

19,800 

2.88%

3/8/2018  

19,425 

19,246 

19,759 

2.87%

Aspen Dental Management, Inc.

Healthcare Services

  First lien(3)

LM U.S. Member LLC (and LM U.S.

Corp Acquisition Inc.)

Business Services

  Second lien(3)

Envision Acquisition Company, LLC

Healthcare Services

ARSloane Acquisition, LLC

Business Services

eResearchTechnology, Inc.

Healthcare Services

Distribution International, Inc.

  Second lien(2)

  First lien(3)

  First lien(3)

Distribution & Logistics

  First lien(2)

First American Payment Systems, L.P.

  Second lien(3)

  First lien(3)

Business Services

Merrill Communications LLC

Business Services

Insight Pharmaceuticals LLC

Healthcare Products

St. George's University Scholastic

Services LLC

Education

  Second lien(3)

13.25% (Base
Rate + 11.75%)  

8/25/2017  

19,310 

18,766 

19,021 

2.76%

  First lien(3)

8.50% (Base
Rate + 7.00%)

  12/20/2017 

17,379 

17,082 

17,530 

2.55%

Sotera Defense Solutions, Inc. (Global

Defense Technology & Systems, Inc.)  

Federal Services

Conﬁe Seguros Holding II Co.

  First lien(3)

Consumer Services

  Second lien(3)

7.50% (Base
Rate + 6.00%)

10.25% (Base
Rate + 9.00%)

4/21/2017  

18,316 

18,127 

16,118 

2.34%

5/8/2019  

14,886 

14,762 

15,034 

2.18%

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

119

Table of Contents

New Mountain Finance Holdings, L.L.C.

Consolidated Schedule of Investments (Continued)

December 31, 2013

(in thousands, except shares)

Portfolio Company, Location and Industry(1)

Type of
Investment

Interest Rate

Principal
Amount,
Par Value
or Shares  

Maturity
Date

Cost

Fair
Value

Percent
of
Members'
Capital

OpenLink International, Inc.

Software

Smile Brands Group Inc.
Healthcare Services
Brock Holdings III, Inc.
Industrial Services
Vision Solutions, Inc.

Software

Packaging Coordinators, Inc.(10)

Healthcare Products

Lonestar Intermediate Super

Holdings, LLC
Business Services

  First lien(3)

  7.75% (Base Rate + 6.25%)

  10/30/2017  $

14,700  $

14,496  $

14,774   

2.15%

  First lien(3)

  7.50% (Base Rate + 6.25%)

  8/16/2019    

14,464   

14,261   

14,307   

2.08%

  Second lien(2)

  10.00% (Base Rate + 8.25%)

  3/16/2018    

14,000   

13,858   

14,263   

2.07%

  Second lien(2)

  9.50% (Base Rate + 8.00%)

  7/23/2017    

14,000   

13,957   

14,140   

2.05%

  Second lien(2)

  9.50% (Base Rate + 8.25%)

  11/10/2020   

14,000   

13,868   

14,088   

2.05%

  Subordinated(2)

  11.00% (Base Rate + 9.50%)

  9/2/2019    

12,000   

11,701   

12,419   

1.80%

Van Wagner Communications, LLC    

   
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
   
   
 
 
   
    
    
    
  
   
   
 
 
   
    
    
    
  
   
   
 
 
   
    
    
    
  
   
   
 
 
   
    
    
    
  
   
   
 
 
   
    
    
    
  
   
   
 
 
   
    
    
    
  
   
 
 
   
    
    
    
  
Media

Vertafore, Inc.
Software

TransFirst Holdings, Inc.

Business Services

MailSouth, Inc.

Media

Vitera Healthcare Solutions, LLC

  First lien(2)

  6.25% (Base Rate + 5.00%)

  8/3/2018    

11,761   

11,583   

11,997   

1.74%

  Second lien(2)

  9.75% (Base Rate + 8.25%)

  10/29/2017   

10,000   

9,937   

10,198   

1.48%

  Second lien(3)

  11.00% (Base Rate + 9.75%)

  6/27/2018    

10,000   

9,741   

10,138   

1.47%

  First lien(3)

  6.76% (Base Rate + 4.96%)

  12/14/2016   

9,410   

9,333   

9,269   

1.35%

Software

  First lien(3)

  6.00% (Base Rate + 5.00%)

  11/4/2020    

  Second lien(2)

  9.25% (Base Rate + 8.25%)

  11/4/2021    

2,000   

7,000   

1,980   

6,897   

2,000   

7,070   

9,000   

8,877   

9,070   

1.32%

Harley Marine Services, Inc.
Distribution & Logistics

Consona Holdings, Inc.

Software

Physio-Control International, Inc.

Healthcare Products

Virtual Radiologic Corporation

Healthcare Information

  Second lien(2)

  10.50% (Base Rate + 9.25%)

  12/20/2019   

9,000   

8,820   

8,820   

1.28%

  First lien(3)

  7.25% (Base Rate + 6.00%)

  8/6/2018    

8,394   

8,326   

8,457   

1.23%

  First lien(2)

  9.88%

  1/15/2019    

6,651   

6,651   

7,482   

1.09%

Technology

  First lien(3)

  7.25% (Base Rate + 5.50%)

  12/22/2016   

13,563   

13,454   

7,324   

1.06%

Alion Science and Technology

Corporation

Federal Services

Immucor, Inc.

Healthcare Services

Learning Care Group (US), Inc.

Education

Education Management LLC**

Education

GCA Services Group, Inc.

Business Services

Sophia Holding Finance LP / Sophia

Holding Finance Inc.
Software

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

Education

Total Funded Debt Investments—

United States

Total Funded Debt Investments

  First lien(2)(7)

12.00% (10.00% + 2.00%
PIK)*

  11/1/2014    

6,447   

6,360   

6,570   

0.95%

  Subordinated(2)(7)  11.13%

  8/15/2019    

5,000   

4,950   

5,650   

0.82%

  Subordinated(2)

  15.00% PIK*

  5/8/2020    

4,371   

4,253   

4,371   

  Subordinated(2)

  15.00% PIK*

  5/8/2020    

800   

746   

800   

5,171   

4,999   

5,171   

0.75%

  First lien(3)

  8.25% (Base Rate + 7.00%)

  3/30/2018    

5,003   

4,888   

5,028   

0.73%

  Second lien(2)

  9.25% (Base Rate + 8.00%)

  11/1/2020    

4,000   

3,964   

4,064   

0.59%

  Subordinated(2)

  9.63%

  12/1/2018    

3,500   

3,502   

3,623   

0.53%

  First lien(2)

  First lien(2)

17.25% (Base Rate + 10.00% +
4.00% PIK)(5)*
17.25% (Base Rate + 10.00% +
4.00% PIK)(5)*

6/30/2012
—Past Due   
6/30/2012
—Past Due   

1,665   

1,434   

103   

94   

1,768   

1,528   

233   

103   

336   

0.05%

  $1,016,562  $1,001,605  $1,013,641   
  $1,053,059  $1,037,412  $1,050,532   

147.22%
152.58%

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

120

Table of Contents

New Mountain Finance Holdings, L.L.C.

Consolidated Schedule of Investments (Continued)

December 31, 2013

(in thousands, except shares)

Portfolio Company, Location and Industry(1)
Equity—Bermuda

Type of
Investment

Interest Rate

Maturity
Date

Principal
Amount,
Par Value
or Shares

Cost

Fair
Value

Percent
of
Members'
Capital

Stratus Technologies Bermuda

Holdings Ltd.(4)**

Information Technology

Ordinary
shares(2)
Preferred

—
—

—  
—  

156,247  $
35,558 

65  $
15 

46 
10 

   
   
   
 
 
   
    
    
    
  
   
   
 
 
   
    
    
    
  
   
   
 
 
   
    
    
    
  
   
   
 
 
   
    
    
    
  
  
  
   
   
 
 
   
   
   
 
 
   
    
    
    
  
   
   
 
 
   
    
    
    
  
   
   
 
 
   
    
    
    
  
   
   
 
 
   
    
    
    
  
   
   
 
 
   
    
    
    
  
 
   
   
 
 
   
    
    
    
  
   
   
 
 
   
    
    
    
  
  
  
   
   
 
 
   
   
   
 
 
   
    
    
    
  
   
   
 
 
   
    
    
    
  
   
   
 
 
   
    
    
    
  
   
   
 
 
   
    
    
    
  
 
 
  
 
 
  
   
   
 
 
   
   
   
 
 
   
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
  
 
 
 
 
 
shares(2)

Preferred
shares(2)

Preferred
shares(2)

Ordinary
shares(2)
Preferred
shares(2)

Ordinary
shares(2)

Preferred
shares(2)

  Warrants(2)

  Warrants(2)

  Warrants(2)

  Warrants(2)

  Warrants(2)

  Warrants(2)

  Warrants(2)

First lien(2)(9)
—Undrawn

First lien(2)(9)
—Undrawn

Total Shares—Bermuda
Equity—United States

Crowley Holdings Preferred, LLC

Distribution & Logistics
Black Elk Energy Offshore

Operations, LLC

Energy

Global Knowledge Training LLC

Education

Packaging Coordinators, Inc.(10)
Packaging Coordinators

Holdings, LLC

Healthcare Products

Ancora Acquisition LLC(11)

Education

Total Shares—United States
Total Shares
Warrants—United States

Learning Care Group (US), Inc.

Education

YP Holdings LLC(8)
YP Equity Investors LLC

Media

UniTek Global Services, Inc.

Business Services

Storapod Holding Company, Inc.

Consumer Services

Alion Science and Technology

Corporation
Federal Services

Ancora Acquisition LLC(11)

Education

Total Warrants—United States
Total Funded Investments
Unfunded Debt Investments—United

States
Aspen Dental Management, Inc.

Healthcare Services

Advantage Sales & Marketing Inc.

Business Services

Total Unfunded Debt Investments
Total Investments

   $

80 
80  $

56 
56 

0.01%
0.01%

12.00%
(10.00% + 2.00%
PIK)*

—  

35,000  $

35,000  $

35,000 

5.08%

  17.00%

—  

  20,000,000 

20,000 

20,000 

2.91%

—
—

—

—

—

—

—

—

—

—

—

—

—

—  
—  

2 
2,423 

— 
— 

— 

3 
3,006 

3,009 

0.44%

—  

19,427 

1,000 

1,181 

0.17%

—  

372 

   $
   $

83 
56,083  $
56,163  $

83 
59,273 
59,329 

0.01%
8.61%
8.62%

—  

—  

844  $

194  $

3,589 

61 

255 

—  

5 

— 

—  

  1,014,451(6) 

1,449 

—  

360,129 

156 

503 

2,136 

2,639 

1,944 

1,694 

594 

0.38%

0.28%

0.25%

0.09%

—  

6,000 

293 

94 

0.01%

—  

20 

— 
— 
   $
6,965 
2,153  $
   $1,095,728  $1,116,826 

—%
1.01%
162.21%

4/6/2016   $

5,000  $

(388) $

(388)

(0.06)%

  12/17/2015 

  $

10,500 
15,500  $

(787)
(1,260)
(1,648) $
(1,175)
   $1,094,080  $1,115,651 

(0.11)%
(0.17)%
162.04%

(1)

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

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

121

Table of Contents

New Mountain Finance Holdings, L.L.C.

Consolidated Schedule of Investments (Continued)

   
 
 
  
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
  
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2013

(in thousands, except shares)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

(9)

(10)

(11)

(12)

*

**

Investment is pledged as collateral for the Holdings Credit Facility, a revolving credit facility among NMF Holdings as the Borrower and Collateral Administrator, Wells Fargo
Securities, LLC as the Administrative Agent, and Wells Fargo Bank, National Association, as the Collateral Custodian. See Note 7,  Borrowings, for details. 

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, NMF Holdings as the
Collateral Administrator, Wells Fargo Securities, LLC as the Administrative Agent, and Wells Fargo Bank, National Association, as the Collateral Custodian. See Note 7,
Borrowings, for details. 

NMF Holdings holds investments in two related entities of Stratus Technologies Bermuda Holdings, Ltd. ("Stratus Holdings"). NMF Holdings 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. 

Investment is on non-accrual status. 

NMF Holdings holds 1,014,451 warrants in UniTek Global Services, Inc., which represents a 4.46% equity ownership on a fully diluted basis. 

Securities are registered under the Securities Act. 

NMF Holdings holds investments in two related entities of YP Holdings LLC. NMF Holdings 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. 

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. 

NMF Holdings holds investments in Packaging Coordinators, Inc. and one related entity of Packaging Coordinators, Inc. NMF Holdings 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 

NMF Holdings holds investments in ATI Acquisition Company and Ancora Acquisition LLC. NMF Holdings has credit investments in ATI Acquisition Company and preferred equity
and warrants to purchase units of common membership interests of Ancora Acquisition LLC. NMF Holdings received its investments in Ancora Acquisition LLC as a result of its
investments in ATI Acquisition Company. 

NMF Holdings holds an investment in CompassLearning, Inc. that is structured as a ﬁrst lien last out term loan. 

All or a portion of interest contains payments-in-kind ("PIK"). 

Indicates assets that NMF Holdings 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 NMF Holdings' 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.

122

Table of Contents

Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation 

December 31, 2014
(in thousands, except share data) 

Note 1. Formation and Business Purpose

        New Mountain Finance Corporation ("NMFC" or the "Company") is a Delaware corporation that was originally incorporated on June 29,
2010. NMFC is a closed-end, non-diversiﬁed management investment company that has elected to be regulated as a business development company
("BDC") under the Investment Company Act of 1940, as amended (the "1940 Act"). As such, NMFC is obligated to comply with certain regulatory
requirements. NMFC has elected to be treated, and intends to comply with the requirements to continue to qualify annually, as a regulated
investment company ("RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended, (the "Code"). NMFC is also registered as an
investment adviser under the Investment Advisers Act of 1940, as amended (the "Advisers Act").

        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 (deﬁned as New
Mountain Capital Group, L.L.C. and its afﬁliates) 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 (as

   
deﬁned below). In connection with NMFC's IPO and through a series of transactions, New Mountain Finance Holdings, L.L.C. ("NMF Holdings" or
the "Predecessor Operating Company") acquired all of the operations of the Predecessor Entities, including all of the assets and liabilities related to
such operations.

        NMF Holdings is a Delaware limited liability company. Until May 8, 2014, NMF Holdings was externally managed and was regulated as a
BDC under the 1940 Act. As such, NMF Holdings was obligated to comply with certain regulatory requirements. NMF Holdings was treated as a
partnership for United States ("U.S.") federal income tax purposes for so long as it had at least two members. With the completion of the
underwritten secondary offering on February 3, 2014, NMF Holdings' existence as a partnership for U.S. federal income tax purposes terminated
and NMF Holdings became an entity that is disregarded as a separate entity from its owner for U.S. federal tax purposes. For additional information
on the Company's organizational structure prior to May 8, 2014, see "—Restructuring".

        Until May 8, 2014, NMF Holdings was externally managed by New Mountain Finance Advisers BDC, L.L.C. (the "Investment Adviser"). As
of May 8, 2014, the Investment Adviser serves as the external investment adviser to NMFC. 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. New Mountain Capital is a ﬁrm with a track record of investing in the middle market. New Mountain Capital
focuses on investing in defensive growth companies across its private equity, public equity and credit investment vehicles. NMF Holdings, 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

123

Table of Contents

Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 1. Formation and Business Purpose (Continued)

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".

        Prior to December 18, 2014, New Mountain Finance SPV Funding, L.L.C. ("NMF SLF") was a Delaware limited liability company. NMF SLF
was a wholly-owned subsidiary of NMF Holdings and thus a wholly-owned indirect subsidiary of the Company. NMF SLF was bankruptcy-remote
and non-recourse to NMFC. As part of an amendment to the Company's existing credit facilities with Wells Fargo Bank, National Association,
NMF SLF merged with and into NMF Holdings on December 18, 2014. See Note 7, Borrowings, for details.

        Until April 25, 2014, New Mountain Finance AIV Holdings Corporation ("AIV Holdings") was a Delaware corporation that was originally
incorporated on March 11, 2011. AIV Holdings was dissolved on April 25, 2014. Guardian AIV, a Delaware limited partnership, was AIV
Holdings' sole stockholder. AIV Holdings was a closed-end, non-diversiﬁed management investment company that was regulated as a BDC under
the 1940 Act. As such, AIV Holdings was obligated to comply with certain regulatory requirements. AIV Holdings was treated, and complied with
the requirements to qualify annually, as a RIC under the Code.

        Prior to the Restructuring (as deﬁned below) on May 8, 2014, NMFC and AIV Holdings were holding companies with no direct operations of
their own, and their sole asset was their ownership in NMF Holdings. In connection with the IPO, NMFC and AIV Holdings each entered into a
joinder agreement with respect to the Limited Liability Company Agreement, as amended and restated (the "Operating Agreement"), of NMF
Holdings, pursuant to which NMFC and AIV Holdings were admitted as members of NMF Holdings. NMFC acquired from NMF Holdings, with
the gross proceeds of the IPO and the Concurrent Private Placement, common membership units ("units") of NMF Holdings (the number of units
were 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 NMF Holdings 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 NMF Holdings prior to the IPO and, as a result of the transactions completed in connection with the IPO, obtained
units in NMF Holdings. Guardian AIV contributed its units in NMF Holdings to its newly formed subsidiary, AIV Holdings, in exchange for

common stock of AIV Holdings. AIV Holdings had the right to exchange all or any portion of its units in NMF Holdings for shares of NMFC's
common stock on a one-for-one basis at any time.

        The original 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
was that any distributions made to NMFC's stockholders that were attributable to such gains generally were not treated as taxable dividends but
rather as return of capital.

        Since NMFC's IPO, and through December 31, 2014, NMFC raised approximately $374,625 in net proceeds from additional offerings of
common stock and issued shares of its common stock valued at approximately $288,416 on behalf of AIV Holdings for exchanged units. NMFC
acquired from NMF Holdings units of NMF Holdings equal to the number of shares of NMFC's common stock sold in the

124

Table of Contents

Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 1. Formation and Business Purpose (Continued)

additional offerings. With the completion of the ﬁnal secondary offering on February 3, 2014, NMFC owned 100.0% of the units of NMF Holdings,
which became a wholly-owned subsidiary of NMFC.

Restructuring

        As a BDC, AIV Holdings had been subject to the 1940 Act, including certain provisions applicable only to BDCs. Accordingly, and after
careful consideration of the 1940 Act requirements applicable to BDCs, the cost of 1940 Act compliance and a thorough assessment of AIV
Holdings' business model, AIV Holdings' board of directors determined that continuation as a BDC was not in the best interests of AIV Holdings
and Guardian AIV. Speciﬁcally, given that AIV Holdings was formed for the sole purpose of holding units of NMF Holdings and AIV Holdings had
disposed of all of the units of NMF Holdings that it was holding as of February 3, 2014, the board of directors of AIV Holdings approved and
declared advisable at an in-person meeting held on March 25, 2014 the withdrawal of AIV Holdings' election to be regulated as a BDC under the
1940 Act. In addition, the board of directors of AIV Holdings approved and declared advisable for AIV Holdings to terminate its registration under
Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and to dissolve AIV Holdings under the laws of the State
of Delaware.

        Upon receipt of the necessary stockholder consent to authorize the board of directors of AIV Holdings to withdraw AIV Holdings' election to
be regulated as a BDC, the withdrawal was ﬁled and became effective upon receipt by the U.S. Securities and Exchange Commission ("SEC") of
AIV Holdings' notiﬁcation of withdrawal on Form N-54C on April 15, 2014. The board of directors of AIV Holdings believed that AIV Holdings
met the requirements for ﬁling the notiﬁcation to withdraw its election to be regulated as a BDC, upon the receipt of the necessary stockholder
consent. After the notiﬁcation of withdrawal of AIV Holdings' BDC election was ﬁled with the SEC, AIV Holdings was no longer subject to the
regulatory provisions of the 1940 Act applicable to BDCs generally, including regulations related to insurance, custody, composition of its board of
directors, afﬁliated transactions and any compensation arrangements.

        In addition, on April 15, 2014, AIV Holdings ﬁled a Form 15 with the SEC to terminate AIV Holdings' registration under Section 12(g) of the
Exchange Act. After these SEC ﬁlings and any other federal or state regulatory or tax ﬁlings were made, AIV Holdings proceeded to dissolve under
Delaware law by ﬁling a certiﬁcate of dissolution in Delaware on April 25, 2014.

        Until May 8, 2014, as a BDC, NMF Holdings had been subject to the 1940 Act, including certain provisions applicable only to BDCs.
Accordingly, and after careful consideration of the 1940 Act requirements applicable to BDCs, the cost of 1940 Act compliance and a thorough
assessment of NMF Holdings' current business model, NMF Holdings' board of directors determined at an in-person meeting held on March 25,
2014 that continuation as a BDC was not in the best interests of NMF Holdings.

        At the 2014 joint annual meeting of the stockholders of NMFC and the sole unit holder of NMF Holdings held on May 6, 2014, the

stockholders of NMFC and the sole unit holder of NMF Holdings approved a proposal which authorized the board of directors of NMF Holdings to
withdraw NMF Holdings' election to be regulated as a BDC. Additionally, the stockholders of NMFC approved a new investment advisory and
management agreement between NMFC and the Investment Adviser. Upon

125

Table of Contents

Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 1. Formation and Business Purpose (Continued)

receipt of the necessary stockholder/unit holder approval to authorize the board of directors of NMF Holdings to withdraw NMF Holdings' election
to be regulated as a BDC, the withdrawal was ﬁled and became effective upon receipt by the SEC of NMF Holdings' notiﬁcation of withdrawal on
Form N-54C on May 8, 2014.

        Effective May 8, 2014, NMF Holdings amended and restated its Operating Agreement such that the board of directors of NMF Holdings was
dissolved and NMF Holdings remained a wholly-owned subsidiary of NMFC with the sole purpose of serving as a special purpose vehicle for NMF
Holdings' credit facility, and NMFC assumed all other operating activities previously undertaken by NMF Holdings under the management of the
Investment Adviser (collectively, the "Restructuring"). After the Restructuring, all wholly-owned direct and indirect subsidiaries of NMFC are
consolidated with NMFC for both 1940 Act and ﬁnancial statement reporting purposes, subject to any ﬁnancial statement adjustments required in
accordance with accounting principles generally accepted in the United States of America ("GAAP"). NMFC continues to remain a BDC under the
1940 Act.

        Also, on May 8, 2014, NMF Holdings ﬁled Form 15 with the SEC to terminate NMF Holdings' registration under Section 12(g) of the
Exchange Act. As a special purpose entity, NMF Holdings is bankruptcy-remote and non-recourse to NMFC. In addition, the assets held at NMF
Holdings will continue to be used to secure NMF Holdings' credit facility.

Current Organization

        During the year ended December 31, 2014, the Company established wholly-owned subsidiaries, NMF Ancora Holdings Inc. ("NMF Ancora")
and NMF YP Holdings Inc. ("NMF YP"), which are structured as Delaware entities that serve as tax blocker corporations which hold equity or
equity-like investments in portfolio companies organized as limited liability companies (or other forms of pass-through entities). Tax blocker
corporations are not consolidated for income tax purposes and may incur income tax expense as a result of their ownership of portfolio companies.
Additionally, the Company has a wholly-owned subsidiary, New Mountain Finance Servicing, L.L.C. ("NMF Servicing") that serves as the
administrative agent on certain investment transactions. New Mountain Finance SBIC, L.P. ("SBIC LP"), and its general partner, New Mountain
Finance SBIC G.P., L.L.C. ("SBIC GP"), were organized in Delaware as a limited partnership and limited liability company, respectively. SBIC LP
and SBIC GP are consolidated wholly-owned direct and indirect subsidiaries of the Company. SBIC LP received a license from the U.S. Small
Business Association (the "SBA") to operate as a small business investment company ("SBIC") under Section 301(c) of the Small Business
Investment Act of 1958, as amended (the "1958 Act").

126

Table of Contents

Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 1. Formation and Business Purpose (Continued)

        The diagram below depicts the Company's organizational structure as of December 31, 2014.

*

**

Includes partners of New Mountain Guardian Partners, L.P. 

NMFC is the sole limited partner of SBIC LP. NMFC, directly or indirectly through SBIC GP, wholly-owns SBIC LP. NMFC owns 100.0%
of SBIC GP which owns 1.0% of SBIC LP. NMFC owns 99.0% of SBIC LP.

        The Company's investment objective is to generate current income and capital appreciation through the sourcing and origination of debt
securities at all levels of the capital structure, including ﬁrst and second lien debt, notes, bonds and mezzanine securities. In some cases, the
Company's investments may also include equity interests. The primary focus is in the debt of defensive growth companies, which are deﬁned as
generally exhibiting the following characteristics: (i) sustainable secular growth drivers, (ii) high barriers to competitive entry, (iii) high free cash
ﬂow after capital expenditure and working capital needs, (iv) high returns on assets and (v) niche market dominance. Similar to the Company,
SBIC LP's investment objective is to generate current income and capital appreciation under the investment criteria used by the Company, however,
SBIC LP's investments must be SBA eligible companies. The Company's portfolio may be concentrated in a limited number of industries. As of
December 31, 2014, the Company's top ﬁve industry concentrations were software, business services, education, federal services and healthcare
services.

Note 2. Summary of Signiﬁcant Accounting Policies

        Basis of accounting—The Company's consolidated ﬁnancial statements have been prepared in conformity with GAAP. The Company is an
investment company following accounting and reporting

127

Table of Contents

Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 2. Summary of Signiﬁcant Accounting Policies (Continued)

guidance in Accounting Standards Codiﬁcation Topic 946, Financial Services—Investment Companies, ("ASC 946"). NMFC consolidates its
wholly-owned direct and indirect subsidiaries: NMF Holdings, NMF Servicing, SBIC LP, SBIC GP, NMF Ancora and NMF YP. Previously, the
Company consolidated its wholly-owned indirect subsidiary NMF SLF until it merged with and into NMF Holdings on December 18, 2014. See
Note 7, Borrowings, for details. Prior to the Restructuring, the Predecessor Operating Company consolidated its wholly-owned subsidiary, NMF
SLF. NMFC and AIV Holdings did not consolidate the Predecessor Operating Company. Prior to the Restructuring, NMFC and AIV Holdings
applied investment company master-feeder ﬁnancial statement presentation, as described in ASC 946 to their interest in the Predecessor Operating
Company. NMFC and AIV Holdings observed that it was also industry practice to follow the presentation prescribed for a master fund-feeder fund
structure in ASC 946 in instances in which a master fund was owned by more than one feeder fund and that such presentation provided stockholders
of NMFC and AIV Holdings with a clearer depiction of their investment in the master fund.

        The Company's consolidated ﬁnancial statements reﬂect all adjustments and reclassiﬁcations which, in the opinion of management, are
necessary for the fair presentation of the results of operations and ﬁnancial condition for all periods presented. All intercompany transactions have
been eliminated. Revenues are recognized when earned and expenses when incurred. The ﬁnancial results of the Company's portfolio investments
are not consolidated in the ﬁnancial statements. 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 Predecessor Operating Company's historical operating expenses are not
comparable to its operating expenses after the completion of the IPO.

        The Company's consolidated ﬁnancial statements are prepared in accordance with GAAP and pursuant to the requirements for reporting on
Form 10-K and Article 6 of Regulation S-X. In the opinion of management, all adjustments, consisting solely of normal recurring accruals
considered necessary for the fair presentation of ﬁnancial statements have been included.

        Investments—The Company applies fair value accounting in accordance with GAAP. Fair value is the amount that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Investments are reﬂected on the
Company's Consolidated Statements of Assets and Liabilities at fair value, with changes in unrealized gains and losses resulting from changes in fair
value reﬂected in the Company's Consolidated Statements of Operations as "Net change in unrealized appreciation (depreciation) of investments"
and realizations on portfolio investments reﬂected in the Company's Consolidated Statements of Operations as "Net realized gains (losses) on
investments".

        The Company values its assets on a quarterly basis, or more frequently if required under the 1940 Act. In all cases, the Company's board of
directors is ultimately and solely responsible for determining the fair value of the portfolio investments on a quarterly basis in good faith, including
investments that are not publicly traded, those whose market prices are not readily available and any other situation where its portfolio investments
require a fair value determination. Security transactions

128

Table of Contents

Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 2. Summary of Signiﬁcant Accounting Policies (Continued)

are accounted for on a trade date basis. The Company's quarterly valuation procedures are set forth in more detail below:

(1)

(2)

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. 

Investments for which indicative prices are obtained from various pricing services and/or brokers or dealers are valued through a
multi-step valuation process, as described below, to determine whether the quote(s) obtained is representative of fair value in
accordance with GAAP. 

a.

b.

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 

For investments other than bonds, the Company looks at the number of quotes readily available and performs the following: 

i.

ii.

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. 

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.

b.

c.

d.

Each portfolio company or investment is initially valued by the investment professionals of the Investment Adviser
responsible for the credit monitoring; 

Preliminary valuation conclusions will then be documented and discussed with the Company's senior management; 

If an investment falls into (3) above for four consecutive quarters and if the investment's par value or its fair value exceeds
the materiality threshold, then at least once each ﬁscal year, the valuation for each portfolio investment for which the
Company does not have a readily available market quotation will be reviewed by an independent valuation ﬁrm engaged by
the Company's board of directors; and 

When deemed appropriate by the Company's management, an independent valuation ﬁrm may be engaged to review and
value investment(s) of a portfolio company, without any

129

Table of Contents

Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 2. Summary of Signiﬁcant Accounting Policies (Continued)

preliminary valuation being performed by the Investment Adviser. The investment professionals of the Investment Adviser
will review and validate the value provided.

        For investments in revolving credit facilities and delayed draw commitments, the cost basis of the funded investments purchased is offset by
any costs/netbacks received for any unfunded portion on the total balance committed. The fair value is also adjusted for the price appreciation or
depreciation on the unfunded portion. As a result, the purchase of commitments not completely funded may result in a negative fair value until it is

called and funded.

        The values assigned to investments are based upon available information and do not necessarily represent amounts which might ultimately be
realized, since such amounts depend on future circumstances and cannot be reasonably determined until the individual positions are liquidated. Due
to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the
Company's investments may ﬂuctuate from period to period and the ﬂuctuations could be material.

        Prior to the Restructuring, NMFC was a holding company with no direct operations of its own, and its sole asset was its ownership in the
Predecessor Operating Company. Prior to the completion of the underwritten secondary public offering on February 3, 2014, AIV Holdings was a
holding company with no direct operations of its own, and its sole asset was its ownership in the Predecessor Operating Company. NMFC's and AIV
Holdings' investments in the Predecessor Operating Company were carried at fair value and represented the respective pro-rata interest in the net
assets of the Predecessor Operating Company as of the applicable reporting date. NMFC and AIV Holdings valued 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.

        Collateralized agreements or repurchase ﬁnancings—The Company follows the guidance in Accounting Standards Codiﬁcation Topic 860,
Transfers and Servicing—Secured Borrowing and Collateral, ("ASC 860") when accounting for transactions involving the purchases of securities
under collateralized agreements to resell (resale agreements). These transactions are treated as collateralized ﬁnancing transactions and are recorded
at their contracted resale or repurchase amounts, as speciﬁed in the respective agreements. Interest on collateralized agreements is accrued and
recognized over the life of the transaction and included in interest income. As of December 31, 2014, the Company held one collateralized
agreement to resell with a carrying value of $30,000, collateralized by a security with a fair value of $30,000 and guaranteed by the counterparty.
The counterparty has the option to repurchase the collateral from the Company at the par value of the collateralized agreement within a year. The
collateralized agreement earns interest at a rate of 15.0% per annum as of December 31, 2014. The Predecessor Operating Company did not have
any collateralized agreements as of the year ended December 31, 2013.

        Cash and cash equivalents—Cash and cash equivalents include cash and short-term, highly liquid investments. The Company deﬁnes cash
equivalents as securities that are readily convertible into known amounts of cash and so near maturity that there is insigniﬁcant risk of changes in
value. These securities have original maturities of three months or less.

Table of Contents

130

Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 2. Summary of Signiﬁcant Accounting Policies (Continued)

Revenue recognition

        The 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 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, if deemed
collectible, 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 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, structuring fees, management fees
from a non-controlled/afﬁliated investment and other miscellaneous fees received and are typically non-recurring in nature. Delayed compensation
is income earned from counterparties on trades that do not settle within a set number of business days after trade date. Other income may also
include fees from bridge loans. The Company may from time to time enter into bridge ﬁnancing commitments, an obligation to provide interim
ﬁnancing to a counterparty until permanent credit can be obtained. These commitments are short-term in nature and may expire unfunded. A fee is
received by the Company for providing such commitments. Structuring fees are recognized as income when earned, usually when paid at the closing
of the investment and are non-refundable.

        Prior to the Restructuring, NMFC's revenue recognition policies were as follows:

        Revenue, expenses, and capital gains (losses):    At each quarterly valuation date, the Predecessor Operating Company's investment income,
expenses, net realized gains (losses), and net increase (decrease) in unrealized appreciation (depreciation) were allocated to NMFC based on its pro-
rata interest in the net assets of the Predecessor Operating Company. This was recorded on NMFC's Statements of Operations. Realized gains and
losses were recorded upon sales of NMFC's investments in the Predecessor Operating Company. Net change in unrealized appreciation
(depreciation) of

131

Table of Contents

Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 2. Summary of Signiﬁcant Accounting Policies (Continued)

investment in New Mountain Finance Holdings, L.L.C. was 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. included the unrealized appreciation (depreciation) from the IPO. NMFC used the proceeds
from its IPO and Concurrent Private Placement to purchase units in the Predecessor 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 Predecessor Operating Company. As a result,
NMFC experienced immediate unrealized appreciation on its investment.

        All expenses, including those of NMFC, were paid and recorded by the Predecessor Operating Company. Expenses were allocated to NMFC
based on its pro-rata ownership interest. In addition, the Predecessor Operating Company paid all of the offering costs related to the IPO and
subsequent offerings. NMFC recorded its portion of the offering costs as a direct reduction to net assets and the cost of its investment in the
Predecessor Operating Company.

        Interest and other ﬁnancing expenses—Interest and other ﬁnancing fees are recorded on an accrual basis by the Company. See Note 7,
Borrowings, for details.

        Deferred ﬁnancing costs—The deferred ﬁnancing costs of the Company consists of capitalized expenses related to the origination and
amending of the Company's borrowings. The Company amortizes these costs into expense using the straight-line method over the stated life of the
related borrowing. See Note 7, Borrowings, for details.

        Income taxes—The Company has elected to be treated, and intends to comply with the requirements to qualify annually, as a RIC under
subchapter M of the Code. As a RIC, the Company is not subject to U.S. federal income tax on the portion of taxable income and gains timely
distributed to its stockholders.

        To continue to qualify as a RIC, the Company is required to meet certain income and asset diversiﬁcation tests in addition to distributing at
least 90.0% of its investment company taxable income, as deﬁned by the Code. Since U.S. federal income tax regulations differ from GAAP,
distributions in accordance with tax regulations may differ from net investment income and realized gains recognized for ﬁnancial reporting
purposes.

        Differences between taxable income and the results of operations for ﬁnancial reporting purposes may be permanent or temporary in nature.
Permanent differences are reclassiﬁed among capital accounts in the ﬁnancial statements to reﬂect their tax character. Differences in classiﬁcation
may also result from the treatment of short-term gains as ordinary income for tax purposes.

        For U.S. federal income tax purposes, distributions paid to stockholders of the Company are reported as ordinary income, return of capital, long
term capital gains or a combination thereof.

        The Company will be subject to a 4.0% nondeductible federal excise tax on certain undistributed income unless the Company distributes, in a
timely manner as required by the Code, an amount at least equal to the sum of (1) 98.0% of its respective net ordinary income earned for the
calendar year

132

Table of Contents

Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 2. Summary of Signiﬁcant Accounting Policies (Continued)

and (2) 98.2% of its respective capital gain net income for the one-year period ending October 31 in the calendar year.

        Certain consolidated subsidiaries of the Company are subject to U.S. federal and state income taxes. These taxable entities are not consolidated
for income tax purposes and may generate income tax liabilities or assets from permanent and temporary differences in the recognition of items for
ﬁnancial reporting and income tax purposes.

        For the year ended December 31, 2014, the Company recognized a total provision for income taxes of $929, for the Company's consolidated
subsidiaries. The Company did not recognize a beneﬁt or provision for taxes during the year ended December 31, 2013. As of December 31, 2014
and December 31, 2013, the Company had $493 and $0, respectively, of deferred tax liabilities primarily relating to deferred taxes attributable to
certain differences between the computation of income for U.S. federal income tax purposes as compared to GAAP. For the year ended
December 31, 2014, the Company recorded current income tax expense of approximately $436. The Company did not recognize any income tax
expense for the year ended December 31, 2013.

        The Company has adopted the Income Taxes topic of the Accounting Standards Codiﬁcation Topic 740 ("ASC 740"). ASC 740 provides
guidance for income taxes, including how uncertain income tax positions should be recognized, measured, and disclosed in the ﬁnancial statements.
Based on its analysis, the Company has determined that there were no material uncertain income tax positions through December 31, 2014. The
2011, 2012, 2013 and 2014 tax years remain subject to examination by the U.S. federal, state, and local tax authorities.

        Dividends—Distributions to common stockholders of the Company are recorded on the record date as set by the board of directors. The
Company intends to make distributions to its stockholders that will be sufﬁcient to enable the Company to maintain its status as a RIC. The
Company intends to distribute approximately all of its adjusted net investment income (see Note 5, Agreements) on a quarterly basis and
substantially all of its taxable income on an annual basis, except that the Company may retain certain net capital gains for reinvestment.

        The Company has adopted a dividend reinvestment plan that provides on behalf of its stockholders for reinvestment of any distributions
declared, unless a stockholder elects to receive cash.

        The Company applies the following in implementing the dividend reinvestment plan. If the price at which newly issued shares are to be
credited to stockholders' accounts is greater than 110.0% of the last determined net asset value of the shares, the Company will use only newly
issued shares to implement its dividend reinvestment plan. Under such circumstances, the number of shares to be issued to a stockholder is

determined by dividing the total dollar amount of the distribution payable to such stockholder by the market price per share of the Company's
common stock on the New York Stock Exchange ("NYSE") on the distribution payment date. Market price per share on that date will be the closing
price for such shares on the NYSE or, if no sale is reported for such day, the average of their electronically reported bid and asked prices.

        If the price at which newly issued shares are to be credited to stockholders' accounts is less than 110.0% of the last determined net asset value
of the shares, the Company will either issue new shares

133

Table of Contents

Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 2. Summary of Signiﬁcant Accounting Policies (Continued)

or instruct the plan administrator to purchase shares in the open market to satisfy the additional shares required. Shares purchased in open market
transactions by the plan administrator will be allocated to a stockholder based on the average purchase price, excluding any brokerage charges or
other charges, of all shares of common stock purchased in the open market. The number of shares of the Company's common stock to be
outstanding after giving effect to payment of the distribution cannot be established until the value per share at which additional shares will be issued
has been determined and elections of the Company's stockholders have been tabulated.

        Earnings per share—The Company's earnings per share ("EPS") amounts have been computed based on the weighted-average number of
shares of common stock outstanding for the period. Basic EPS is computed by dividing net increase (decrease) in net assets resulting from
operations by the weighted average number of shares of common stock outstanding during the period of computation. Diluted EPS is computed by
dividing net increase (decrease) in net assets resulting from operations by the weighted average number of shares of common stock assuming all
potential shares had been issued, and its related net impact to net assets accounted for, and the additional shares of common stock were dilutive.
Diluted EPS reﬂects the potential dilution, using the as-if-converted method for convertible debt, which could occur if all potentially dilutive
securities were exercised.

        Foreign securities—The accounting records of the Company are maintained in U.S. dollars. Investment securities denominated in foreign
currencies are translated into U.S. dollars based on the rate of exchange of such currencies on the date of valuation. Purchases and sales of
investment securities and income and expense items denominated in foreign currencies are translated into U.S. dollars based on the rate of exchange
of such currencies on the respective dates of the transactions. The Company does not isolate that portion of the results of operations resulting from
changes in foreign exchange rates on investments from the ﬂuctuations arising from changes in market prices of securities held. Such ﬂuctuations
are included with "Net change in unrealized appreciation (depreciation) of investments" and "Net realized gains (losses) on investments" in the
Company's Consolidated Statements of Operations.

        Investments denominated in foreign currencies may be negatively affected by movements in the rate of exchange between the U.S. dollar and
such foreign currencies. This movement is beyond the control of the Company and cannot be predicted.

        Use of estimates—The preparation of the Company's consolidated ﬁnancial statements in conformity with GAAP requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the Company's consolidated ﬁnancial
statements and the reported amounts of revenues and expenses during the reporting periods. Changes in the economic environment, ﬁnancial
markets, and other metrics used in determining these estimates could cause actual results to differ from the estimates used, and the differences could
be material.

        Dividend income recorded related to distributions received from ﬂow-through investments is an accounting estimate based on the most recent
estimate of the tax treatment of the distribution. During the three months ended March 31, 2014, the Predecessor Operating Company adjusted an
accounting estimate related to the classiﬁcation of dividend income for a distribution received from one of the Predecessor Operating Company's
warrant investments. Based on updated tax projections received

134

Table of Contents

Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 2. Summary of Signiﬁcant Accounting Policies (Continued)

during the quarter ended March 31, 2014, the Predecessor Operating Company increased dividend income by $214 and reduced the realized gain by
$214 to agree to the tax treatment on the investment. This resulted in a reclass from capital gains incentive fee to incentive fee of $43 for the quarter
ended March 31, 2014.

        Based on updated tax projections received during the three months ended June 30, 2014, the Company increased dividend income by $472 and
reduced the realized gain by $472 to agree to the tax treatment of a distribution received in the ﬁrst quarter of 2014 from one of the Company's
warrant investments. This resulted in a reclass from capital gains incentive fee to incentive fee of $94 for the quarter ended June 30, 2014. During
the quarter ended September 30, 2013, the Predecessor 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 Predecessor Operating Company's warrant investments. Based on tax
projections received during the quarter ended September 30, 2013, the Predecessor 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. Based on updated tax projections received during the
quarter ended December 31, 2013, the Predecessor Operating Company increased dividend income previously recorded by $224 and reduced the
realized gain previously recorded by $224 to agree to the tax treatment on the investment. This resulted in a reclass of $45 from capital gains
incentive fee to incentive fee.

Note 3. Investments

        At December 31, 2014, the Company's investments consisted of the following:

Investment Cost and Fair Value by Type

First lien
Second lien
Subordinated
Equity and other
Total investments

135

Table of Contents

  $

Fair Value

Cost
696,994  $
621,234 
61,344 
66,319 

677,901 
604,158 
61,987 
80,625 
  $ 1,445,891  $ 1,424,671 

Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 3. Investments (Continued)

Investment Cost and Fair Value by Industry

Software

Cost
287,538  $

Fair Value

287,234 

  $

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Services
Education
Federal Services
Healthcare Services
Distribution & Logistics
Energy
Media
Consumer Services
Business Products
Investment in Fund
Specialty Chemicals and Materials
Healthcare Products
Industrial Services
Healthcare Information Technology
Total investments

273,088 
256,522 
124,840 
114,111 
97,344 
92,393 
58,281 
48,350 
25,654 
23,000 
19,722 
12,183 
6,934 
5,931 

260,325 
251,916 
124,608 
114,692 
97,382 
83,890 
61,081 
52,348 
25,181 
22,461 
19,825 
13,201 
5,548 
4,979 
  $ 1,445,891  $ 1,424,671 

        At December 31, 2013, NMFC's only investment was its investment in the Predecessor Operating Company. At December 31, 2013, the
Predecessor Operating Company's investments consisted of the following:

Investment Cost and Fair Value by Type

First lien
Second lien
Subordinated
Equity and other
Total investments

136

Table of Contents

  $

Fair Value

Cost
550,534  $
460,078 
25,152 
58,316 

553,549 
468,945 
26,863 
66,294 
  $ 1,094,080  $ 1,115,651 

Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 3. Investments (Continued)

Investment Cost and Fair Value by Industry

Software
Education
Business Services
Distribution & Logistics
Federal Services
Healthcare Services
Energy
Media
Healthcare Products
Consumer Services
Industrial Services
Healthcare Information Technology
Information Technology
Total investments

  $

Fair Value

Cost
243,158  $
225,214 
140,797 
120,156 
84,965 
78,295 
69,757 
42,808 
40,285 
14,918 
13,858 
13,454 
6,415 

249,174 
235,787 
145,465 
120,247 
83,888 
80,331 
69,255 
45,932 
41,772 
15,628 
14,263 
7,324 
6,585 
  $ 1,094,080  $ 1,115,651 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
        As of December 31, 2014, the Company's two super priority 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 third quarter of 2013, the Predecessor 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 December 31, 2014, the Company's
investment had an aggregate cost basis of $1,611, an aggregate fair value of $402 and total unearned interest income of $329 for the year then
ended. As of December 31, 2013, the Predecessor Operating Company's total investment in ATI Acquisition Company and Ancora Acquisition LLC
had an aggregate cost basis of $1,611, an aggregate fair value of $419 and total unearned interest income of $316 for the year then ended. As of
December 31, 2014 and December 31, 2013, unrealized gains (losses) include a fee that the Company would receive upon maturity of the two super
priority ﬁrst lien debt investments.

        During the third quarter of 2014, the Company placed a portion of its ﬁrst lien position in UniTek Global Services, Inc. ("UniTek") on non-
accrual status in anticipation of a voluntary petition for a "Pre-Packaged" Chapter 11 Bankruptcy in the U.S. Bankruptcy Court for the District of
Delaware which was ﬁled on November 3, 2014. As of December 31, 2014, the portion of the UniTek ﬁrst lien position placed on non-accrual status
represented an aggregate cost basis of $12,078, an aggregate fair value of $8,846 and total unearned interest income of $975 for the year then
ended.

        As of December 31, 2014, the Company had unfunded commitments on revolving credit facilities and bridge facilities of $8,948 and $0,
respectively. The Company had unfunded commitments in the form of a delayed draw or other future funding commitments of $18,475 as of
December 31, 2014. The unfunded commitments on revolving credit facilities and a delayed draw are disclosed on the Company's Consolidated
Schedule of Investments as of December 31, 2014.

137

Table of Contents

Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 3. Investments (Continued)

        At December 31, 2013, NMFC's only investment was its investment in the Predecessor Operating Company. As of December 31, 2013, the
Predecessor Operating Company had unfunded commitments on revolving credit facilities and bridge facilities of $15,500 and $0, respectively. The
Predecessor Operating Company did not have any unfunded commitments in the form of a delayed draw or other future funding commitments as of
December 31, 2013. The unfunded commitments on revolving credit facilities are disclosed on the Predecessor Operating Company's Consolidated
Schedule of Investments as of December 31, 2013.

NMFC Senior Loan Program I, LLC

        On June 10, 2014, NMFC Senior Loan Program I, LLC ("SLP I") was formed as a Delaware limited liability company. SLP I is a portfolio
company held by the Company. SLP I is structured as a private investment fund, in which all of the investors are qualiﬁed purchasers, as such term
is deﬁned under the 1940 Act. Transfer of interests in SLP I is subject to restrictions, and as a result, such interests are not readily marketable. SLP I
operates under a limited liability company agreement (the "Agreement") and will continue in existence until June 10, 2019, subject to earlier
termination pursuant to certain terms of the Agreement. The term may be extended for up to one year pursuant to certain terms of the Agreement.
SLP I has a three year re-investment period.

        SLP I is capitalized with $93,000 of capital commitments, $275,000 of debt from a revolving credit facility and is managed by the Company.
The Company's capital commitment is $23,000, representing less than 25.0% ownership, with third party investors representing the remaining
capital commitment. As of December 31, 2014, SLP I had total investments with an aggregate fair value of approximately $369,194, debt
outstanding of $266,916 and capital that had been called and funded of $93,000. The Company's investment in SLP I is disclosed on the
December 31, 2014 Consolidated Schedule of Investments.

        The Company, as an investment adviser registered under the Advisers Act, acts as the collateral manager to SLP I and is entitled to receive a
management fee for its investment management services provided to SLP I. As a result, SLP I is classiﬁed as an afﬁliate of the Company. For the

year ended December 31, 2014, the Company earned approximately $468 in management fees related to SLP I which is included in other income.
As of December 31, 2014, approximately $468 of management fees related to SLP I was included in receivable from afﬁliates. For the year ended
December 31, 2014, the Company earned approximately $1,066 of dividend income related to SLP I, which is included in dividend income. As of
December 31, 2014, approximately $828 of dividend income related to SLP I was included in interest and dividend receivable.

        SLP I invests in senior secured loans issued by companies within the Company's core industry verticals. These investments are typically
broadly syndicated ﬁrst lien loans.

Table of Contents

138

Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 3. Investments (Continued)

        Investment risk factors—First and second lien debt that the Company invests in is entirely, or almost entirely, rated below investment grade or
may be unrated. Debt investments rated below investment grade are often referred to as "leveraged loans," "high yield" or "junk" debt investments,
and may be considered "high risk" compared to debt investments that are rated investment grade. These debt investments are considered speculative
because of the credit risk of the issuers. Such issuers are considered more likely than investment grade issuers to default on their payments of
interest and principal and such risk of default could reduce the net asset value and income distributions of the Company. In addition, some of the
Company's debt investments will not fully amortize during their lifetime, which could result in a loss or a substantial amount of unpaid principal and
interest due upon maturity. First and second lien debt may also lose signiﬁcant market value before a default occurs. Furthermore, an active trading
market may not exist for these ﬁrst and second lien debt investments. This illiquidity may make it more difﬁcult to value the debt.

        Subordinated debt is generally subject to similar risks as those associated with ﬁrst and second lien debt, except that such debt is subordinated
in payment and /or lower in lien priority. Subordinated debt is subject to the additional risk that the cash ﬂow of the borrower and the property
securing the debt, if any, may be insufﬁcient to meet scheduled payments after giving effect to the senior secured and unsecured obligations of the
borrower.

        The Company may directly invest in the equity of private companies or in some cases, equity investments could be made in connection with a
debt investment. Equity investments may or may not appreciate in value. As a result the Company may or may not be able to recognize realized
gains upon disposition.

Note 4. Fair Value

        Fair value is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. Accounting Standards Codiﬁcation Topic 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 Company has the ability to access such
quotes as of the reporting date. The type of investments which would generally be included in Level I include active exchange-traded equity
securities and exchange-traded derivatives. As required by ASC 820, the Company, to the extent that it holds such investments, does not
adjust the quoted price for these investments, even in situations where the Company holds a large position and a sale could reasonably
impact the quoted price.

Level II—Pricing inputs are observable for the investments, either directly or indirectly, as of the reporting date, but are not the same as
those used in Level I. Level II inputs include the following:

•

•

Quoted prices for similar assets or liabilities in active markets; 

Quoted prices for identical or similar assets or liabilities in non-active markets (examples include corporate and municipal bonds,
which trade infrequently);

139

Table of Contents

Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 4. Fair Value (Continued)

•

•

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.

        The following table summarizes the levels in the fair value hierarchy that the Company's portfolio investments fall into as of December 31,
2014:

First lien
Second lien
Subordinated
Equity and other
Total investments

Table of Contents

  $

  Level I

Level II

Level III

Total
677,901  $ —  $
604,158 
61,987 
80,625 

508,721  $ 169,180 
  134,406 
469,752 
35,470 
26,517 
80,625 
— 
  $ 1,424,671  $ —  $ 1,004,990  $ 419,681 

  — 
  — 
  — 

140

Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Note 4. Fair Value (Continued)

        At December 31, 2013, NMFC's only investment was its investment in the Predecessor Operating Company. The following table summarizes
the levels in the fair value hierarchy that the Predecessor Operating Company's portfolio investments fall into as of December 31, 2013:

First lien
Second lien
Subordinated
Equity and other
Total investments

  $

Level I

Level III

Total
553,549  $
468,945 
26,863 
66,294 

28,411 
55,538 
5,171 
64,600 
  $ 1,115,651  $ 1,694  $ 960,237  $ 153,720 

Level II
—  $ 525,138  $
  413,407 
— 
21,692 
— 
— 
1,694 

        The following table summarizes the changes in fair value of Level III portfolio investments for the year ended December 31, 2014, as well as
the portion of appreciation (depreciation) included in income attributable to unrealized appreciation (depreciation) related to those assets and
liabilities still held by the Company at December 31, 2014:

Fair value, December 31, 2013
Total gains or losses included in earnings:

Net realized gains on investments
Net change in unrealized (depreciation)

Total
  $ 153,720  $

First Lien

Second Lien

Subordinated  

28,411  $

55,538  $

5,171  $

Equity and
other
64,600 

7,329 

1,260 

581 

196 

5,292 

appreciation

(20,922)  

(12,451)  

(16,043)  

(33)  

7,605 

Purchases, including capitalized PIK and

revolver fundings

  265,112 

  114,940 

85,719 

35,695 

28,758 

Proceeds from sales and paydowns of

investments

Transfers into Level III(1)(2)
Transfers out of Level III(1)
Fair value, December 31, 2014
Unrealized (depreciation) appreciation for

the period relating to those Level III assets
that were still held by the Company at the
end of the period:

(74,968)  

  109,610 

(20,200)  

(1,233)  
38,253 
— 

  $ 419,681  $ 169,180  $

(42,130)  
70,941 
(20,200)  
134,406  $

(5,559)  
— 
— 
35,470  $

(26,046)
416 
— 
80,625 

  $ (17,254) $ (11,978) $

(15,404) $

163  $

9,965 

(1)

(2)

As of December 31, 2014, the portfolio investments were transferred into Level III from Level II or Level I and out of
Level III into Level II at fair value as of the beginning of the quarter in which the reclassiﬁcations occurred. 

During the year ended December 31, 2014, the valuation methodology for two portfolio companies changed due to the
portfolio companies deterioration in operating results and as such, these portfolio companies were transferred into Level III
from Level II during the year then ended.

141

Table of Contents

Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 4. Fair Value (Continued)

        At December 31, 2013, NMFC's only investment was its investment in the Predecessor Operating Company. The following table summarizes
the changes in fair value of Level III portfolio investments for the year ended December 31, 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

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Predecessor Operating Company at December 31, 2013:

Fair value, December 31, 2012
Total gains or losses included in earnings:

Net realized (losses) gains on

investments

Net change in unrealized appreciation

(depreciation)

Purchases, including capitalized PIK and

Total
  $ 119,128  $

First Lien

42,885 

Second Lien
$

43,255  $

Subordinated  

Equity and
other(3)

22,891  $

10,097 

(1,623)  

(3,986)

5,251 

4,319 

380 

843 

380 

506 

1,603 

(417)

revolver fundings

  120,147 

28,874 

31,060 

2,620 

57,593 

Proceeds from sales and paydowns of

investments

Transfers into Level III
Transfers out of Level III
Fair value, December 31, 2013
Unrealized appreciation (depreciation) for
the period relating to those Level III
assets that were still held by the
Predecessor Operating Company at the
end of the period:

(85,910)  
6,574 
(9,847)  
  $ 153,720  $

(41,417)

(20,000)  

(21,226)  

6,574(1)  
(8,838)(1)  
$
28,411 

— 
— 
55,538  $

— 
— 
5,171  $

(3,267)
— 

(1,009)(2)
64,600 

  $

821  $

(333)

$

722  $

409  $

23 

(1)

(2)

(3)

As of December 31, 2013, 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. 

As of December 31, 2013, the portfolio investments were transferred out of Level III into Level I at fair value as of the
beginning of the quarter in which the reclassiﬁcations occurred. 

During the year ended December 31, 2013, the Predecessor Operating Company received dividends of $5,049 from its equity
and other investments, which were recorded as dividend income. Estimates related to the tax characterization of these
distributions were provided as of December 31, 2013.

        Except as noted in the tables above, there were no other transfers in or out of Level I, II, or III during the years ended December 31, 2014 and
December 31, 2013. 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

142

Table of Contents

Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 4. Fair Value (Continued)

Level III. The Company invests in revolving credit facilities. These investments are categorized as Level III investments as these assets are not
actively traded and their fair values are often implied by the term loans of the respective portfolio companies.

        The Company generally uses the following framework when determining the fair value of investments where there are little, if any, market
activity or observable pricing inputs. The Company typically determines the fair value of its performing debt investments utilizing an income
approach. Additional consideration is given using a market based approach, as well as reviewing the overall underlying portfolio company's
performance and associated ﬁnancial risks. The following outlines additional details on the approaches considered:

 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
        Company Performance, Financial Review, and Analysis:    Prior to investment, as part of its due diligence process, the Company evaluates
the overall performance and ﬁnancial stability of the portfolio company. Post investment, the Company analyzes each portfolio company's current
operating performance and relevant ﬁnancial trends versus prior year and budgeted results, including, but not limited to, factors affecting its revenue
and earnings before interest, taxes, depreciation, and amortization ("EBITDA") growth, margin trends, liquidity position, covenant compliance and
changes to its capital structure. The Company also attempts to identify and subsequently track any developments at the portfolio company, within its
customer or vendor base or within the industry or the macroeconomic environment, generally, that may alter any material element of its original
investment thesis. This analysis is speciﬁc to each portfolio company. The Company leverages the knowledge gained from its original due diligence
process, augmented by this subsequent monitoring, to continually reﬁne its outlook for each of its portfolio companies and ultimately form the
valuation of its investment in each portfolio company. When an external event such as a purchase transaction, public offering or subsequent sale
occurs, the Company will consider the pricing indicated by the external event to corroborate the private valuation.

        Market Based Approach:    The Company may estimate the total enterprise value of each portfolio company by utilizing market value cash
ﬂow (EBITDA) multiples of publicly traded comparable companies. The Company considers numerous factors when selecting the appropriate
companies whose trading multiples are used to value its portfolio companies. These factors include, but are not limited to, the type of organization,
similarity to the business being valued, relevant risk factors, as well as size, proﬁtability and growth expectations. The Company may apply an
average of various relevant comparable company EBITDA multiples to the portfolio company's latest twelve month ("LTM") EBITDA or projected
EBITDA to calculate portfolio company enterprise value. Signiﬁcant increases or decreases in the multiple will result in an increase or decrease in
enterprise value, resulting in an increase or decrease in the fair value estimate of the investment. In applying the market based approach as of
December 31, 2014, the Company used the relevant EBITDA multiple ranges set forth in the table below to determine the enterprise value of
investments in twelve of its portfolio companies. The Company believes this was a reasonable range in light of current comparable company trading
levels and the speciﬁc companies involved.

        Income Based Approach:    The Company also may use a discounted cash ﬂow analysis to estimate the fair value of the investment. Projected
cash ﬂows represent the relevant security's contractual interest, fee and principal payments plus the assumption of full principal recovery at the
investment's

143

Table of Contents

Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 4. Fair Value (Continued)

expected maturity date. These cash ﬂows are discounted at a rate established utilizing a yield calibration approach, which incorporates changes in
the credit quality (as measured by relevant statistics) of the portfolio company, as compared to changes in the yield associated with comparable
credit quality market indices, between the date of origination and the valuation date. Signiﬁcant increases or decreases in the discount rate would
result in a decrease or increase in the fair value measurement. In applying the income based approach as of December 31, 2014, the Company used
the discount ranges set forth in the table below to value investments in seventeen of its portfolio companies.

Unobservable Input

  Low

Type
First lien

Second lien

Approach
  Fair Value
  $ 169,180  Market approach
Income approach
  134,406  Market approach
Income approach

Subordinated

Equity and other  

   Other

35,470  Market approach
Income approach
80,625  Market approach
Income approach

   Other

  EBITDA multiple
  Discount rate
  EBITDA multiple
  Discount rate
  N/A(1)
  EBITDA multiple
  Discount rate
  EBITDA multiple
  Discount rate
  N/A(1)

Range

High
  12.0x 

  6.5x 

8.2%   16.5%  

  15.5x 

  5.5x 
  11.0%   16.0%  
  N/A(1)   N/A(1)  
  8.0x 
  10.7%   17.7%  
  7.0x 

  12.0x 

  12.0x 

8.0%   15.0%  
  N/A(1)   N/A(1)  

Weighted
Average

8.6x 
12.0%
10.6x 
12.7%
N/A(1)

10.0x 
14.7%
8.1x 
12.9%
N/A(1)

 
   
   
   
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
  
 
 
 
 
 
   Black Scholes analysis   Expected life in years

  Volatility
  Discount rate

  $ 419,681 

  11.3 

  11.3 
  31.6%   31.6%  
2.3%  

2.3%  

11.3 
31.6%
2.3%

(1)

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

        Based on a comparison to similar BDC credit facilities, the terms and conditions of the Holdings Credit Facility and the NMFC Credit Facility
(as deﬁned in Note 7, Borrowings) are representative of market. The carrying values of the Holdings Credit Facility and NMFC Credit Facility
approximate fair value as of December 31, 2014, as the facilities are continually monitored and examined by both the borrower and the lender. The
carrying value of the SBA-guaranteed debentures approximate fair value as of December 31, 2014 based on a comparision of market interest rates
for the Company's borrowings and similar entities. The fair value of the Holdings Credit Facility, NMFC Credit Facility and SBA-guaranteed
debentures are considered Level III. The fair value of the Convertible Notes (as deﬁned in Note 7, Borrowings) as of December 31, 2014 was
$117,803, which was based on quoted prices and considered Level II. See Note 7, Borrowings, for details. The carrying value of the collateralized
agreement approximates fair value as of December 31, 2014 and is considered Level III. The fair value of other ﬁnancial assets and liabilities
approximates their carrying value based on the short-term nature of these items.

Table of Contents

144

Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 4. Fair Value (Continued)

        Fair value risk factors—The Company seeks investment opportunities that offer the possibility of attaining substantial capital appreciation.
Certain events particular to each industry in which the Company's portfolio companies conduct their operations, as well as general economic and
political conditions, may have a signiﬁcant negative impact on the operations and proﬁtability of the Company's investments and/or on the fair value
of the Company's investments. The Company's investments are subject to the risk of non-payment of scheduled interest or principal, resulting in a
reduction in income to the Company and their corresponding fair valuations. Also, there may be risk associated with the concentration of
investments in one geographic region or in certain industries. These events are beyond the control of the Company and cannot be predicted.
Furthermore, the ability to liquidate investments and realize value is subject to uncertainties.

Note 5. Agreements

        NMF Holdings entered into an investment advisory and management agreement, as amended and restated with the Investment Adviser on
May 19, 2011. Until May 8, 2014, under the investment advisory and management agreement, the Investment Adviser managed the day-to-day
operations of, and provided investment advisory services to, NMF Holdings. For providing these services, the Investment Adviser received a fee
from NMF Holdings, consisting of two components—a base management fee and an incentive fee.

        On May 6, 2014, the stockholders of NMFC approved a new investment advisory and management agreement (the "Investment Management
Agreement") with the Investment Adviser which became effective on May 8, 2014. Under the Investment Management Agreement, the Investment
Adviser manages the day-to-day operations of, and provides investment advisory services to, the Company. For providing these services, the
Investment Adviser receives a fee from the Company, consisting of two components—a base management fee and an incentive fee.

        The base management fee is calculated at an annual rate of 1.75% of the Company's gross assets, which equals the Company's total assets on
the Consolidated Statements of Assets and Liabilities, less (i) the borrowings under the SLF Credit Facility (as deﬁned in Note 7, Borrowings) and
(ii) cash and cash equivalents. The base management fee is payable quarterly in arrears, and is calculated based on the average value of the
Company's gross assets, which equals the Company's total assets, as determined in accordance with GAAP, borrowings under the SLF Credit
Facility, and cash and cash equivalents at the end of each of the two most recently completed calendar quarters, and appropriately adjusted on a pro
rata basis for any equity capital raises or repurchases during the current calendar quarter. The Company has not invested, and currently is not
invested, in derivatives. To the extent the Company invests in derivatives in the future, the Company will use the actual value of the derivatives, as

 
 
 
 
 
 
  
 
 
 
 
  
 
 
 
 
 
 
 
 
  
 
  
 
  
reported on the Consolidated Statements of Assets and Liabilities, for purposes of calculating its base management fee.

        Since IPO, the base management fee calculation has deducted the borrowings under the SLF Credit Facility. The SLF Credit Facility has
historically consisted of primarily lower yielding assets at higher advance rates. As part of an amendment to the Company's existing credit facilities
with Wells Fargo Bank, National Association, the SLF Credit Facility merged with the Predecessor Holdings Credit Facility and into the Holdings
Credit Facility on December 18, 2014 (as deﬁned in Note 7, Borrowings).

145

Table of Contents

Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 5. Agreements (Continued)

Post credit facility merger and to be consistent with the methodology since IPO, the Investment Advisor will waive management fees on the leverage
associated with those assets that share the same underlying yield characteristics with investments leveraged under the legacy SLF Credit Facility.
The Investment Advisor cannot recoup management fees that the Investment Advisor has previously waived. For the year ended December 31,
2014, management fees waived were approximately $686.

        The incentive fee consists of two parts. The ﬁrst part is calculated and payable quarterly in arrears and equals 20.0% of the Company's "Pre-
Incentive Fee Adjusted Net Investment Income" for the immediately preceding quarter, subject to a "preferred return", or "hurdle", and a "catch-up"
feature. "Pre-Incentive Fee Net Investment Income" means interest income, dividend income and any other income (including any other fees (other
than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees that the
Company receives from portfolio companies) accrued during the calendar quarter, minus the Company's operating expenses for the quarter
(including the base management fee, expenses payable under an administration agreement, as amended and restated (the "Administration
Agreement"), with the Administrator, and any interest expense and distributions paid on any issued and outstanding preferred stock (of which there
are none as of December 31, 2014), but excluding the incentive fee). Pre-Incentive Fee Net Investment Income includes, in the case of investments
with a deferred interest feature (such as original issue discount, debt instruments with PIK interest and zero coupon securities), accrued income that
the Company has not yet received in cash. Pre-Incentive Fee Net Investment Income does not include any realized capital gains, realized capital
losses or unrealized capital appreciation or depreciation.

        Under GAAP, NMFC's IPO did not step-up the cost basis of the Predecessor Operating Company's existing investments to fair market value at
the IPO date. Since the total value of the Predecessor Operating Company's investments at the time of the IPO was greater than the investments' cost
basis, a larger amount of amortization of purchase or original issue discount, as well as different amounts in realized gain and unrealized
appreciation, may be recognized under GAAP in each period than if the step-up had occurred. This will remain until such predecessor investments
are sold, repaid or mature in the future. The Company tracks the transferred (or fair market) value of each of its investments as of the time of the IPO
and, for purposes of the incentive fee calculation, adjusts Pre-Incentive Fee Net Investment Income to reﬂect the amortization of purchase or original
issue discount on the Company's investments as if each investment was purchased at the date of the IPO, or stepped up to fair market value. This is
deﬁned as "Pre-Incentive Fee Adjusted Net Investment Income". The Company also uses the transferred (or fair market) value of each of its
investments as of the time of the IPO to adjust capital gains ("Adjusted Realized Capital Gains") or losses ("Adjusted Realized Capital Losses") and
unrealized capital appreciation ("Adjusted Unrealized Capital Appreciation") and unrealized capital depreciation ("Adjusted Unrealized Capital
Depreciation").

        Pre-Incentive Fee Adjusted Net Investment Income, expressed as a rate of return on the value of the Company's net assets at the end of the
immediately preceding calendar quarter, will be compared to a "hurdle rate" of 2.0% per quarter (8.0% annualized), subject to a "catch-up"
provision measured as of the end of each calendar quarter. The hurdle rate is appropriately pro-rated for any partial

146

Table of Contents

Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 5. Agreements (Continued)

periods. The calculation of the Company's incentive fee with respect to the Pre-Incentive Fee Adjusted Net Investment Income for each quarter is as
follows:

•

•

•

No incentive fee is payable to the Investment Adviser in any calendar quarter in which the Company's Pre-Incentive Fee Adjusted
Net Investment Income does not exceed the hurdle rate of 2.0% (the "preferred return" or "hurdle"). 

100.0% of the Company's Pre-Incentive Fee Adjusted Net Investment Income with respect to that portion of such Pre-Incentive Fee
Adjusted Net Investment Income, if any, that exceeds the hurdle rate but is less than or equal to 2.5% in any calendar quarter (10.0%
annualized) is payable to the Investment Adviser. This portion of the Company's Pre-Incentive Fee Adjusted Net Investment Income
(which exceeds the hurdle rate but is less than or equal to 2.5%) is referred to as the "catch-up". The catch-up provision is intended to
provide the Investment Adviser with an incentive fee of 20.0% on all of the Company's Pre-Incentive Fee Adjusted Net Investment
Income as if a hurdle rate did not apply when the Company's Pre-Incentive Fee Adjusted Net Investment Income exceeds 2.5% in
any calendar quarter. 

20.0% of the amount of the Company's Pre-Incentive Fee Adjusted Net Investment Income, if any, that exceeds 2.5% in any calendar
quarter (10.0% annualized) is payable to the Investment Adviser once the hurdle is reached and the catch-up is achieved.

        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 Company's Adjusted Realized Capital Gains, if any, on a cumulative basis from inception
through the end of each calendar year, computed net of all Adjusted Realized Capital Losses and Adjusted Unrealized Capital Depreciation on a
cumulative basis, less the aggregate amount of any previously paid capital gain incentive fee.

        In accordance with GAAP, the Company accrues a hypothetical capital gains incentive fee based upon the cumulative net Adjusted Realized
Capital Gains and Adjusted Realized Capital Losses and the cumulative net Adjusted Unrealized Capital Appreciation and Adjusted Unrealized
Capital Depreciation on investments held at the end of each period. Actual amounts paid to the Investment Adviser are consistent with the
Investment Management Agreement and are based only on actual Adjusted Realized Capital Gains computed net of all Adjusted Realized Capital
Losses and Adjusted Unrealized Capital Depreciation on a cumulative basis from inception through the end of each calendar year as if the entire
portfolio was sold at fair value.

147

Table of Contents

Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 5. Agreements (Continued)

        The following table summarizes the management fees and incentive fees incurred by the Company for the years ended December 31, 2014,
December 31, 2013 and December 31, 2012.

Management fee
Management fee allocated from NMF Holdings(2)

2014
  $ 13,593  $

Years ended December 31,
2013

2012

5,983 

  11,812 

—  $

— 
4,849 

 
 
 
 
 
 
 
 
 
 
 
Less: management fee waiver
Total Management fee

(686)  

— 
  11,812 

  18,890 

— 
4,849 

Incentive fee, excluding accrued capital gains incentive fees
Incentive fee, excluding accrued capital gains incentive fees allocated from

  $ 12,070  $

—  $

— 

NMF Holdings(2)
Total Incentive fee

6,248 
  18,318 

  13,050 
  13,050 

Accrued capital gains incentive fees(1)
Accrued capital gains incentive fees allocated from NMF Holdings(1)(2)
Total Accrued capital gains incentive fees

  $ (8,573) $

—  $

2,024 
(6,549)  

2,351 
2,351 

5,056 
5,056 

— 
1,977 
1,977 

(1)

(2)

As of December 31, 2014, no actual capital gains incentive fee was owed under the Investment Management Agreement by
the Company, as cumulative net Adjusted Realized Capital Gains did not exceed cumulative Adjusted Unrealized Capital
Depreciation. As of December 31, 2013, approximately $1,113 of capital gains incentive fees was owed under the Investment
Management Agreement by the Predecessor Operating Company, as cumulative net Adjusted Realized Capital Gains
exceeded cumulative Adjusted Unrealized Capital Depreciation and was paid during the year ended December 31, 2014. As
of December 31, 2012, no actual capital gains incentive fee was owed under the Investment Management Agreement by the
Predecessor Operating Company, as cumulative net Adjusted Realized Capital Gains did not exceed cumulative Adjusted
Unrealized Capital Depreciation. 

For the years ended December 31, 2013 and December 31, 2012, the Company is reﬂecting its proportionate share of the
Predecessor Operating Company's management, incentive and capital gains incentive fees. For the years ended December 31,
2013 and December 31, 2012, the management fees at NMF Holdings were $14,905 and $11,109, respectively. For the years
ended December 31, 2013 and December 31, 2012, the incentive fee, excluding accrued capital gains incentive fees, at NMF
Holdings was $16,502 and $11,537, respectively. For the years ended December 31, 2013, and December 31, 2012 the
accrued capital gains incentive fees at NMF Holdings were $3,229 and $4,407, respectively.

        The Company's Consolidated Statements of Operations below are adjusted as if the step-up in cost basis to fair market value had occurred at the
IPO date, May 19, 2011.

148

Table of Contents

Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 5. Agreements (Continued)

        The following Consolidated Statements of Operations for the year ended December 31, 2014 is adjusted to reﬂect this step-up to fair market
value.

Investment income
Interest income(1)
Dividend income
Other income
Investment income allocated from NMF Holdings
Interest income(1)
Dividend income
Other income

Year Ended
December 31, 2014

Stepped-up
Cost Basis
Adjustments

Adjusted Year
Ended December 31,
2014

  $

85,123  $
2,309 
4,491 

(193) $
— 
— 

40,515 
2,368 
795 

— 
— 
— 

84,930 
2,309 
4,491 

40,515 
2,368 
795 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
Total investment income(2)
Total expenses pre-incentive fee(3)

Pre-Incentive Fee Net Investment Income

Incentive fee(4)

Post-Incentive Fee Net Investment Income
Net realized gains (losses) on investments
Net realized gains on investments allocated from NMF

Holdings

Net change in unrealized (depreciation) appreciation of

investments(5)

Net change in unrealized appreciation (depreciation) of

investments allocated from NMF Holdings

Provision for taxes
Net increase in net assets resulting from operations

135,601 
43,766 
91,835 
11,769 
80,066 
357 

8,568 

(43,863)  

940 
(493)  

(193)  
— 
(193)  
— 
(193)  
(456)  

— 

649 

— 
— 

  $

45,575 

   $

135,408 
43,766 
91,642 
11,769 
79,873 
(99)

8,568 

(43,214)

940 
(493)
45,575 

(1)

(2)

(3)

(4)

(5)

Includes $4,644 in payment-in-kind interest from investments. 

Includes income from non-controlled/non-afﬁliated investments and non-controlled/afﬁliated investments. 

Includes expense waivers and reimbursements of $1,145 and management fee waivers of $686. 

For the year ended December 31, 2014, the Company and Predecessor Operating Company incurred total incentive fees of
$11,769, of which $(6,549) is related to a decrease of the capital gains incentive fee accrual on a hypothetical liquidation
basis. 

Includes net change in unrealized (deprecation) appreciation of investments from non-controlled/non-afﬁliated investments
and non-controlled/afﬁliated investments.

149

Table of Contents

Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 5. Agreements (Continued)

        At December 31, 2013, NMFC's only investment was its investment in the Predecessor Operating Company. The following Consolidated
Statement of Operations of the Predecessor Operating Company for the year ended December 31, 2013 is adjusted to reﬂect this step-up to fair
market value.

Investment income
Interest income(1)
Dividend income
Other income
Total investment income
Total net expenses pre-incentive fee(2)
Pre-Incentive Fee Net Investment Income

Incentive fee(3)

Post-Incentive Fee Net Investment Income

Year Ended
December 31, 2013

Stepped-up
Cost Basis
Adjustments

Adjusted
Year Ended
December 31, 2013

  $

107,027  $
5,049 
2,836 
114,912 
31,504 
83,408 
19,731 
63,677 

(896) $
— 
— 
(896)  
— 
(896)  
— 
(896)  

106,131 
5,049 
2,836 
114,016 
31,504 
82,512 
19,731 
62,781 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net realized gains (losses) on investments
Net change in unrealized appreciation (depreciation) of

investments

Net increase in members' capital resulting from

7,253(4) 

(3,158)  

4,095 

7,994 

4,054 

12,048 

operations

  $

78,924 

   $

78,924 

Includes $3,428 in payment-in-kind interest from investments. 

Includes expense waivers and reimbursements of $3,233. 

For the year ended December 31, 2013, the Predecessor Operating Company incurred total incentive fees of $19,731, of
which $3,229 related to capital gains incentive fees on a hypothetical liquidation basis. 

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.

150

(1)

(2)

(3)

(4)

Table of Contents

Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 5. Agreements (Continued)

        At December 31, 2012, NMFC's only investment was its investment in the Predecessor Operating Company. The following Consolidated
Statement of Operations of the Predecessor Operating Company for the year ended December 31, 2012 is adjusted to reﬂect this step-up to fair
market value.

  $

Investment income
Interest income(1)
Dividend income
Other income
Total investment income
Total expenses pre-incentive fee(2)

Pre-Incentive Fee Net Investment Income

Incentive fee(3)

Post-Incentive Fee Net Investment Income
Net realized gains (losses) on investments
Net change in unrealized appreciation (depreciation) of

investments

Net increase in members' capital resulting from

Year Ended
December 31, 2012

Stepped-up
Cost Basis
Adjustments

Adjusted
Year Ended
December 31, 2012

83,646  $
812 
1,328 
85,786 
24,625 
61,161 
15,944 
45,217 
18,851 

(3,476) $
— 
— 
(3,476)  
— 
(3,476)  
— 
(3,476)  
(6,958)  

9,928 

10,434 

80,170 
812 
1,328 
82,310 
24,625 
57,685 
15,944 
41,741 
11,893 

20,362 

operations

  $

73,996 

   $

73,996 

(1)

(2)

(3)

Includes $2,240 in payment-in-kind interest from investments. 

Includes expense waivers and reimbursements of $2,460. 

For the year ended December 31, 2012, the Predecessor Operating Company incurred total incentive fees of $15,944, of
which $4,407 related to capital gains incentive fees on a hypothetical liquidation basis.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
        The Company has entered into an Administration Agreement with the Administrator under which the Administrator provides administrative
services. The Administrator performs, or oversees the performance of, the Company's consolidated ﬁnancial records, prepares reports ﬁled with the
SEC, generally monitors the payment of the Company's expenses and watches the performance of administrative and professional services rendered
by others. The Company will reimburse the Administrator for the Company's allocable portion of overhead and other expenses incurred by the
Administrator in performing its obligations to the Company under the Administration Agreement. Pursuant to the Administration Agreement and
further restricted by the Company, expenses payable to the Administrator by the Company as well as other direct and indirect expenses (excluding
interest, other ﬁnancing expenses, trading expenses and management and incentive fees) had 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 expense cap expired on
March 31, 2014. Thereafter,

151

Table of Contents

Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 5. Agreements (Continued)

the Administrator may, in its own discretion, submit to the Company for reimbursement some or all of the expenses that the Administrator has
incurred on behalf of the Company during any quarterly period. As a result, the amount of expenses for which the Company will have to reimburse
the Administrator may ﬂuctuate in future quarterly periods and there can be no assurance given as to when, or if, the Administrator may determine
to limit the expenses that the Administrator submits to the Company for reimbursement in the future. However, it is expected that the Administrator
will continue to support part of the expense burden of the Company in the near future and may decide to not calculate and charge through certain
overhead related amounts as well as continue to cover some of the indirect costs. The Administrator cannot recoup any expenses that the
Administrator has previously waived. For the year ended December 31, 2014, approximately $1,395 of indirect administrative expenses were
included in administrative expenses of which $770 of indirect administrative expenses were waived by the Administrator. As of December 31,
2014, $326 of indirect administrative expenses were included in payable to afﬁliates as the expenses were payable to the Administrator.

        The Predecessor Operating Company had revised its presentation of expenses and expense waivers and reimbursements for the year ended
December 31, 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 Company incurred the following expenses, which were waived by the Administrator or were in excess of the expense cap, for the years
ended December 31, 2014, December 31, 2013 and December 31, 2012:

Years ended December 31,
2013

2014

2012

Administrative expenses
Administrative expenses allocated from NMF Holdings
Professional fees
Professional fees allocated from NMF Holdings
Other general and administrative expenses
Other general and administrative expenses allocated from NMF

  $

380  $
390 
— 
375 
— 

—  $

1,180 
— 
1,360 
— 

— 
554 
— 
583 
— 

Holdings

Total expense reimbursement

— 

— 
  $ 1,145  $ 2,540  $ 1,137 

— 

        As of December 31, 2014, no expense waivers and reimbursements were receivable from an afﬁliate. As of December 31, 2013 and
December 31, 2012, $399 and $305, respectively, of the expense waivers and reimbursements were allocated from NMF Holdings and were
receivable by NMF Holdings from an afﬁliate.

        The Company, the Investment Adviser and the Administrator have also entered into a Trademark License Agreement, as amended, with New
Mountain Capital, pursuant to which New Mountain Capital has agreed to grant the Company, the Investment Adviser and the Administrator, a non-
exclusive, royalty-free license to use the "New Mountain" and the "New Mountain Finance"

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
152

Table of Contents

Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 5. Agreements (Continued)

names. Under the Trademark License Agreement, as amended, subject to certain conditions, the Company, the Investment Adviser and the
Administrator will have a right to use the "New Mountain" and "New Mountain Finance" names, for so long as the Investment Adviser or one of its
afﬁliates remains the investment adviser of the Company. Other than with respect to this limited license, the Company, the Investment Adviser and
the Administrator will have no legal right to the "New Mountain" or the "New Mountain Finance" names.

        NMFC entered into a Registration Rights Agreement with Steven B. Klinsky (the Chairman of the Company's board of directors), an entity
related to Steven B. Klinsky and the Investment Adviser. Subject to several exceptions, the Investment Adviser has 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 the Investment Adviser and any of their
transferees. The rights under the Registration Rights Agreement can be conditionally exercised by the Investment Adviser, meaning that prior to the
effectiveness of the registration statement related to the shares, the Investment Adviser can withdraw its request to have the shares registered.
Investment Adviser may assign its 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 Steven B. Klinsky were registered on a shelf registration statement on
Form N-2.

        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, 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, which means that these holders may include their respective shares in
any future registrations of NMFC's equity securities, whether or not that registration relates to a primary offering by NMFC or a secondary offering
by or on behalf of any of NMFC's stockholders. The Investment Adviser and Steven B. Klinsky (and a related entity) have priority over NMFC in
any registration that is an underwritten offering.

        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 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. 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.

153

Table of Contents

Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014

Note 6. Related Parties

        The Company has entered into a number of business relationships with afﬁliated or related parties.

(in thousands, except share data)

        The Company has entered into the Investment Management Agreement with the Investment Adviser, a wholly-owned subsidiary of New
Mountain Capital. Therefore, New Mountain Capital is entitled to any proﬁts earned by the Investment Adviser, which includes any fees payable to
the Investment Adviser under the terms of the Investment Management Agreement, less expenses incurred by the Investment Adviser in performing
its services under the Investment Management Agreement.

        The Company has entered into an Administration Agreement with the Administrator, a wholly-owned subsidiary of New Mountain Capital.
The Administrator arranges ofﬁce space for the Company and provides ofﬁce equipment and administrative services necessary to conduct their
respective day-to-day operations pursuant to the Administration Agreement. The Company reimburses the Administrator for the allocable portion of
overhead and other expenses incurred by it in performing its obligations to the Company under the Administration Agreement which includes the
fees and expenses associated with performing administrative, ﬁnance and compliance functions, and the compensation of the Company's chief
ﬁnancial ofﬁcer and chief compliance ofﬁcer and their respective staffs. Pursuant to the Administration Agreement and further restricted by the
Company, expenses payable to the Administrator by the Company as well as other direct and indirect expenses (excluding interest, other ﬁnancing
expenses, trading expenses and management and incentive fees) had 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 expense cap expired on March 31, 2014. Thereafter, the
Administrator may, in its own discretion, submit to the Company for reimbursement some or all of the expenses that the Administrator has incurred
on behalf of the Company during any quarterly period. As a result, the amount of expenses for which the Company will have to reimburse the
Administrator may ﬂuctuate in future quarterly periods and there can be no assurance given as to when, or if, the Administrator may determine to
limit the expenses that the Administrator submits to the Company for reimbursement in the future. However, it is expected that the Administrator
will continue to support part of the expense burden of the Company in the near future and may decide to not calculate and charge through certain
overhead related amounts as well as continue to cover some of the indirect costs. The Administrator cannot recoup any expenses that the
Administrator has previously waived. For the year ended December 31, 2014, approximately $1,395 of indirect administrative expenses were
included in administrative expenses of which $770 of indirect administrative expenses were waived by the Administrator. As of December 31,
2014, $326 of indirect administrative expenses were included in payable to afﬁliates as the expenses were payable to the Administrator.

        The Company, the Investment Adviser and the Administrator have entered into a royalty-free Trademark License Agreement, as amended, with
New Mountain Capital, pursuant to which New Mountain Capital has agreed to grant the Company, the Investment Adviser and the Administrator, a
non-exclusive, royalty-free license to use the name "New Mountain" and "New Mountain Finance".

        The Company has adopted a formal code of ethics that governs the conduct of 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 Company's investment mandates.

154

Table of Contents

Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 6. Related Parties (Continued)

The Investment Adviser and its afﬁliates may determine that an investment is appropriate for the Company or for one or more of those other funds.
In such event, depending on the availability of such investment and other appropriate factors, the Investment Adviser or its afﬁliates may determine
that the Company should invest side-by-side with one or more other funds. Any such investments will be made only to the extent permitted by
applicable law and interpretive positions of the SEC and its staff and consistent with the Investment Adviser's allocation procedures.

        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.

Note 7. Borrowings

        Holdings Credit Facility—On December 18, 2014 the Company entered into the Second Amended and Restated Loan and Security Agreement
(the "Holdings Credit Facility"), among the Company, as the Collateral Manager, NMF Holdings as the Borrower, Wells Fargo Securities, LLC as
the Administrative Agent and Wells Fargo Bank, National Association, as the Lender and Collateral Custodian, which is structured as a revolving
credit facility and matures on December 18, 2019.

        Immediately prior to amending the Holdings Credit Facility, NMF SPV merged with and into NMF Holdings. The Holdings Credit Facility
effectively amended and restated the Predecessor Holdings Credit Facility (as deﬁned below), merged with the SLF Credit Facility (as deﬁned
below), and combined the amount of borrowings previously available.

        The maximum amount of revolving borrowings available under the Holdings Credit Facility is $495,000, which is the aggregate of the
$280,000 previously available under the Predecessor Holdings Credit Facility (as deﬁned below) and the $215,000 previously available under the
SLF Credit Facility (as deﬁned below). Under the Holdings Credit Facility, NMF Holdings is still permitted to borrow up to 25.0%, 45.0% or 70.0%
of the purchase price of pledged assets, subject to approval by the Wells Fargo Securities, LLC. The Holdings Credit Facility is non-recourse to the
Company and is collateralized by all of the investments of NMF Holdings on an investment by investment basis. All fees associated with the
origination or upsizing of the Holdings Credit Facility are capitalized on the Company's Consolidated Statement of Assets and Liabilities and
charged against income as other ﬁnancing expenses over the life of the Holdings Credit Facility. The Holdings Credit Facility contains certain
customary afﬁrmative and negative covenants and events of default. In addition, the Holdings Credit Facility requires the Company to maintain a
minimum asset coverage ratio. The covenants are generally not tied to mark to market ﬂuctuations in the prices of NMF Holdings investments, but
rather to the performance of the underlying portfolio companies.

        The Holdings Credit Facility bears interest at a rate of the LIBOR plus 2.00% per annum for Broadly Syndicated Loans (as deﬁned in the Loan
and Security Agreement) and LIBOR plus 2.75% per annum for all other investments. The Holdings Credit Facility also charges a non-usage fee,
based on the unused facility amount multiplied by the Non-Usage Fee Rate (as deﬁned in the Loan and Security Agreement).

155

Table of Contents

Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 7. Borrowings (Continued)

        Prior to December 18, 2014, the Loan and Security Agreement, as amended and restated, dated May 19, 2011 (the "Predecessor Holdings
Credit Facility") among NMF Holdings as the Borrower and Collateral Administrator, Wells Fargo Securities, LLC as the Administrative Agent,
and Wells Fargo Bank, National Association, as the Collateral Custodian, was structured as a revolving credit facility and would mature on
October 27, 2016. NMF Holdings became a party to the Predecessor Holdings Credit Facility upon the IPO of NMFC. The Predecessor Holdings
Credit Facility amended and restated the credit facility of the Predecessor Entities (the "Predecessor Credit Facility").

        The maximum amount of revolving borrowings available under the Predecessor Holdings Credit Facility was $280,000. Until December 18,
2014, NMF Holdings 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 Predecessor Holdings Credit Facility was amended and restated on May 6, 2014 and as a
result, it was non-recourse to the Company and was collateralized by all of the investments of NMF Holdings on an investment by investment basis.
All fees associated with the origination or upsizing of the Predecessor Holdings Credit Facility was capitalized on the Company's Consolidated
Statement of Assets and Liabilities and charged against income as other ﬁnancing expenses over the life of the Predecessor Holdings Credit Facility.
The Predecessor Holdings Credit Facility contained certain customary afﬁrmative and negative covenants and events of default, including the
occurrence of a change in control. In addition, the Predecessor Holdings Credit Facility required the Company to maintain a minimum asset
coverage ratio. However, the covenants were generally not tied to mark to market ﬂuctuations in the prices of NMF Holdings' investments, but

rather to the performance of the underlying portfolio companies.

        The Predecessor Holdings Credit Facility bore interest at a rate of the London Interbank Offered Rate ("LIBOR") plus 2.75% per annum and
charged a non-usage fee, based on the unused facility amount multiplied by the Non-Usage Fee Rate (as deﬁned in the Loan and Security
Agreement).

        The following table summarizes the interest expense and non-usage fees incurred, together, on the Holdings Credit Facility and the Predecessor
Holdings Credit Facility for the years ended December 31, 2014, December 31, 2013 and December 31, 2012.

Interest expense
Non-usage fee
Amortization of ﬁnancing costs
Weighted average interest rate
Effective interest rate
Average debt outstanding

  $
  $
  $

Years ended December 31,
2013

2014

2012

7,147 
$
243 
$
$
893 
2.9%  
3.4%  

5,487 
$
367 
$
$
682 
2.9%  
3.6%  

4,172 
281 
413 
3.1%
3.6%

  $ 244,598 

$ 184,124 

$ 133,600 

        As of December 31, 2014 the outstanding balance on the Holdings Credit Facility was $468,108 and as of December 31, 2013 and
December 31, 2012, the outstanding balance on the Predecessor Holdings Credit Facility was $221,849 and $206,938, respectively, and NMF
Holdings was in compliance

156

Table of Contents

Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 7. Borrowings (Continued)

with the applicable covenants in the Holdings Credit Facility and Predecessor 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, NMF Holdings as the Collateral Administrator, Wells Fargo Securities, LLC as the Administrative Agent, and
Wells Fargo Bank, National Association, as the Collateral Custodian, was structured as a revolving credit facility and would mature on October 27,
2016. The maximum amount of revolving borrowings available under the SLF Credit Facility was $215,000. The SLF Credit Facility was non-
recourse to the Company and secured by all assets of NMF SLF on an investment by investment basis. All fees associated with the origination or
upsizing of the SLF Credit Facility were capitalized on the Company's Consolidated Statement of Assets and Liabilities and charged against income
as other ﬁnancing expenses over the life of the SLF Credit Facility. The SLF Credit Facility containd certain customary afﬁrmative and negative
covenants and events of default, including the occurrence of a change in control. The covenants were generally not tied to mark to market
ﬂuctuations in the prices of NMF SLF's investments, but rather to the performance of the underlying portfolio companies. NMF SLF was not
restricted from the purchase or sale of loans with an afﬁliate. Therefore, speciﬁed loans could be moved as collateral between the Holdings Credit
Facility and the SLF Credit Facility. The SLF Credit Facility merged with the Holdings Credit Facility on December 18, 2014.

        Until December 18, 2014, the SLF Credit Facility permitted 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 aggregate outstanding loan balance of
all pledged debt securities in the SLF Credit Facility was allowed to be derived from second lien loans, subject to approval by Wells Fargo Bank,
National Association.

        The SLF Credit Facility bore interest at a rate of LIBOR plus 2.00% per annum for ﬁrst lien loans and LIBOR plus 2.75% per annum for
second lien loans, respectively. A non-usage fee was paid, based on the unused facility amount multiplied by the Non-Usage Fee Rate (as deﬁned in
the Loan and Security Agreement).

        The following table summarizes the interest expense and non-usage fees incurred on the SLF Credit Facility for the period January 1, 2014 to

 
 
 
 
 
 
 
 
 
 
 
 
December 17, 2014 (date of SLF Credit Facility merger with and into the Holdings Credit Facility) and for the years ended December 31, 2013 and
December 31, 2012.

Interest expense
Non-usage fee
Amortization of ﬁnancing costs
Weighted average interest rate
Effective interest rate
Average debt outstanding

January 1,
2014 to
December 17,
2014 (date of
merger)

Years ended
December 31,

2013

2012

  $
  $
  $

4,549 
$
28 
$
$
846 
2.2%  
2.6%  

4,891 
$
3 
$
$
864 
2.3%  
2.7%  

4,274 
22 
747 
2.3%
2.8%

  $

209,333 

$ 214,317 

$ 181,395 

157

Table of Contents

Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 7. Borrowings (Continued)

        As of December 31, 2014, the SLF Credit Facility had merged with the Holdings Credit Facility. As of December 31, 2013 and December 31,
2012, the outstanding balance on the SLF Credit Facility was $214,668 and $214,262, respectively, and NMF SLF was in compliance with the
applicable covenants in the SLF Credit Facility on such dates.

        NMFC Credit Facility—The Senior Secured Revolving Credit Agreement, as amended, dated June 4, 2014 (together with the related guarantee
and security agreement, the "NMFC Credit Facility"), among the Company as the Borrower and Goldman Sachs Bank USA as the Administrative
Agent and Collateral Agent, and Goldman Sachs Bank USA and Morgan Stanley, N.A. as Lenders, is structured as a senior secured revolving credit
facility and matures on June 4, 2019. The NMFC Credit Facility is guaranteed by certain domestic subsidiaries of the Company and proceeds from
the NMFC Credit Facility may be used for general corporate purposes, including the funding of portfolio investments.

        The maximum amount of revolving borrowings available under the NMFC Credit Facility is $80,000, as amended on December 29, 2014. The
Company is permitted to borrow at various advance rates depending on the type of portfolio investment as outlined in the Senior Secured Revolving
Credit Agreement. All fees associated with the origination of the NMFC Credit Facility are capitalized on the Company's Consolidated Statement of
Assets and Liabilities and charged against income as other ﬁnancing expenses over the life of the NMFC Credit Facility. The NMFC Credit Facility
contains certain customary afﬁrmative and negative covenants and events of default, including certain ﬁnancial covenants related to asset coverage
and liquidity and other maintenance covenants.

        The NMFC Credit Facility will generally bear interest at a rate of LIBOR plus 2.50% per annum or the prime rate plus 1.50% per annum, and
charges a commitment fee, based on the unused facility amount multiplied by 0.375% (as deﬁned in the Senior Secured Revolving Credit
Agreement).

        The following table summarizes the interest expense and non-usage fees incurred on the NMFC Credit Facility for the period June 4, 2014
(commencement of the NMFC Credit Facility) to December 31, 2014 and for the years ended December 31, 2013 and December 31, 2012.

Interest expense
Non-usage fee
Amortization of ﬁnancing costs
Weighted average interest rate

  $
  $
  $

Years ended
December 31,

June 4, 2014
(commencement of
facility) to
December 31, 2014

2013(1)
$ — 
$ — 
$ — 

2012(1)
$ — 
$ — 
$ — 

—%  

—%

175 
86 
121 
2.7%  

 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
 
 
 
 
 
 
 
 
 
Effective interest rate
Average debt outstanding

3.4%  

—%  

—%

  $

11,227 

$ — 

$ — 

(1)

Not applicable, as the NMFC Credit Facility commenced on June 4, 2014.

        As of December 31, 2014, the outstanding balance on the NMFC Credit Facility was $50,000, and NMFC was in compliance with the
applicable covenants in the NMFC Credit Facility on such dates.

158

Table of Contents

Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 7. Borrowings (Continued)

        Convertible Notes—On June 3, 2014, the Company closed a private offering of $115,000 aggregate principal amount of senior unsecured
convertible notes (the "Convertible Notes"), pursuant to an indenture, dated June 3, 2014 (the "Indenture"). The Convertible Notes were issued in a
private placement only to qualiﬁed institutional buyers pursuant to Rule 144A under the Securities Act of 1933. The Convertible Notes bear interest
at an annual rate of 5.0%, payable semi-annually in arrears on June 15 and December 15 of each year, commencing on December 15, 2014. The
Convertible Notes will mature on June 15, 2019 unless earlier converted or repurchased at the holder's option. The Convertible Notes will be
convertible by the holders into shares of common stock, initially at a conversion rate of 62.7746 shares of the Company's common stock per $1
principal amount of Convertible Notes (7,219,083 common shares) corresponding to an initial conversion price per share of approximately $15.93,
which represents a premium of 12.5% to the $14.16 per share closing price of the Company's common stock on May 28, 2014. The conversion rate
will be subject to adjustment upon certain events, such as stock splits and combinations, mergers, spin-offs, increases in dividends in excess of
$0.34 per share per quarter and certain changes in control. Certain of these adjustments, including adjustments for increases in dividends, are subject
to a conversion price ﬂoor of $14.16 per share. In no event will the total number of shares of common stock issuable upon conversion exceed
70.6214 per $1 principal amount of the Convertible Notes. The Company has determined that the embedded conversion option in the Convertible
Notes is not required to be separately accounted for as a derivative under GAAP.

        The Convertible Notes are senior unsecured obligations and rank senior in right of payment to the Company's existing and future indebtedness
that is expressly subordinated in right of payment to the Convertible Notes; equal in right of payment to the Company's existing and future unsecured
indebtedness that is not so subordinated; effectively junior in right of payment to any of the Company's secured indebtedness (including existing
unsecured indebtedness that the Company later secures) to the extent of the value of the assets securing such indebtedness; and structurally junior to
all existing and future indebtedness (including trade payables) incurred by the Company's subsidiaries and ﬁnancing vehicles. As more reﬂected in
Note 12, Earnings Per Share, the issuance is to be considered as part of the if-converted method for calculation of diluted earnings per share.

        The Company may not redeem the Convertible Notes prior to maturity. No sinking fund is provided for the Convertible Notes. In addition, if
certain corporate events occur in respect of the Company, holders of the Convertible Notes may require the Company to repurchase for cash all or
part of their Convertible Notes at a repurchase price equal to 100.0% of the principal amount of the Convertible Notes to be repurchased, plus
accrued and unpaid interest through, but excluding, the repurchase date.

        The Indenture contains certain covenants, including covenants requiring the Company to provide ﬁnancial information to the holders of the
Convertible Note and the Trustee if the Company ceases to be subject to the reporting requirements of the Exchange Act. These covenants are
subject to limitations and exceptions that are described in the Indenture. As of December 31, 2014, the Company was in compliance with the terms
of the Indenture.

        Interest expense and amortization of ﬁnancing costs incurred on the Convertible Notes for the year ended December 31, 2014 was $3,322 and
$432, respectively. The effective interest rate for the year ended December 31, 2014 was 5.6%.

159

 
 
Table of Contents

Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 7. Borrowings (Continued)

        SBA-guaranteed debentures—On August 1, 2014, SBIC LP received an SBIC license from the SBA.

        The SBIC license allows SBIC LP to obtain leverage by issuing SBA-guaranteed debentures, subject to the issuance of a capital commitment
by the SBA and other customary procedures. SBA-guaranteed debentures are non-recourse to the Company, interest only debentures with interest
payable semi-annually and have a ten year maturity. The principal amount of SBA-guaranteed debentures is not required to be paid prior to maturity
but may be prepaid at any time without penalty. The interest rate of SBA-guaranteed debentures is ﬁxed on a semi-annual basis at a market-driven
spread over U.S. Treasury Notes with ten year maturities. The SBA, as a creditor, will have a superior claim to the assets of SBIC LP over the
Company's stockholders in the event SBIC LP is liquidated or the SBA exercises remedies upon an event of default.

        The maximum amount of borrowings available under current SBA regulations is $150,000 as long as the licensee has at least $75,000 in
regulatory capital, receives a capital commitment from the SBA and has been through an examination by the SBA subsequent to licensing.

        As of December 31, 2014, SBIC LP had regulatory capital of $42,168 and SBA-guaranteed debentures outstanding of $37,500. The SBA-
guaranteed debentures incur upfront fees of 3.43%, which consists of a 1.00% commitment fee and a 2.43% issuance discount, which are amortized
over the life of the SBA-guaranteed debentures. As of December 31, 2014, SBIC LP's SBA-guaranteed debentures are set to pool in March 2015
and until pooling bear interest at an interim ﬂoating rate of LIBOR plus 0.30%. Interest expense and amortization of ﬁnancing costs incurred on the
SBA-guaranteed debentures for the year ended December 31, 2014 was $34 and $12, respectively.

        The SBIC program is designed to stimulate the ﬂow of private investor capital into eligible small businesses, as deﬁned by the SBA. Under
SBA regulations, SBIC LP is subject to regulatory requirements, including making investments in SBA-eligible businesses, investing at least 25.0%
of its investment capital in eligible smaller businesses, as deﬁned under the 1958 Act, placing certain limitations on the ﬁnancing terms of
investments, regulating the types of ﬁnancing, prohibiting investments in small businesses with certain characteristics or in certain industries and
requiring capitalization thresholds that limit distributions to the Company. SBIC LP is subject to an annual periodic examination by an SBA
examiner to determine SBIC LP's compliance with the relevant SBA regulations and an annual ﬁnancial audit of its ﬁnancial statements that are
prepared on a basis of accounting other than GAAP (such as ASC 820) by an independent auditor. As of December 31, 2014, SBIC LP was in
compliance with SBA regulatory requirements.

        Leverage risk factors—The Company utilizes and may utilize leverage to the maximum extent permitted by the law for investment and other
general business purposes. The Company's lenders will have ﬁxed dollar claims on certain assets that are superior to the claims of the Company's
common stockholders, and the Company would expect such lenders to seek recovery against these assets in the event of a default. The use of
leverage also magniﬁes the potential for gain or loss on amounts invested. Leverage may magnify interest rate risk (particularly on the Company's
ﬁxed-rate investments), which is the risk that the prices of portfolio investments will fall or rise if market interest rates for those types of securities
rise or fall. As a result, leverage may cause greater changes in the Company's net asset value. Similarly, leverage may cause a sharper decline in the
Company's income

160

Table of Contents

Note 7. Borrowings (Continued)

Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

than if the Company had not borrowed. Such a decline could negatively affect the Company's ability to make dividend payments to its stockholders.
Leverage is generally considered a speculative investment technique. The Company's ability to service any debt incurred will depend largely on
ﬁnancial performance and will be subject to prevailing economic conditions and competitive pressures.

Note 8. Regulation

        The Company has elected to be treated, and intends to comply with the requirements to continue to qualify annually, as a RIC under
Subchapter M of the Code. In order to continue to qualify as a RIC, among other things, the Company is required to timely distribute to its
stockholders at least 90.0% of investment company taxable income, as deﬁned by the Code, for each year. The Company, among other things,
intends to make and continue to make the requisite distributions to its stockholders, which will generally relieve the Company from U.S. federal,
state, and local income taxes (excluding excise taxes which may be imposed under the Code).

        Additionally as a BDC, the Company must not acquire any assets other than "qualifying assets" speciﬁed in the 1940 Act unless, at the time the
acquisition is made, at least 70.0% of its total assets are qualifying assets (with certain limited exceptions).

Note 9. Commitments and Contingencies

        In the normal course of business, the Company may enter into contracts that contain a variety of representations and warranties and which
provide general indemniﬁcations. The Company may also enter into future funding commitments such as revolving credit facilities, bridge ﬁnancing
commitments or delayed draw commitments. As of December 31, 2014, the Company had unfunded commitments on revolving credit facilities of
$8,948, no outstanding bridge ﬁnancing commitments and other future funding commitments of $18,475. The unfunded commitments on revolving
credit facilities and a delayed draw are disclosed on the Company's Consolidated Schedule of Investments. As of December 31, 2013, the
Company's only investment was its investment in the Predecessor Operating Company. As of December 31, 2013, the Predecessor Operating
Company had unfunded commitments on revolving credit facilities of $15,500 and no outstanding bridge ﬁnancing commitments or other future
funding commitments, all of which were disclosed on NMF Holdings' Consolidated Schedule of Investments.

        The Company also has revolving borrowings available under the Holdings Credit Facility and the NMFC Credit Facility as of December 31,
2014. See Note 7, Borrowings, for details.

        The Company may from time to time enter into ﬁnancing commitment letters. As of December 31, 2014, the Company did not enter into any
commitment letters to purchase debt investments, which could require funding in the future. As of December 31, 2013, the Company's only
investment was its investment in the Predecessor Operating Company. As of December 31, 2013, the Predecessor Operating Company did not enter
into any commitment letters to purchase debt investments, which could require funding in the future.

161

Table of Contents

Note 10. Distributions

Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

        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. During the years ended December 31, 2014,
December 31, 2013 and December 31, 2012, the Company's reclassiﬁcations of amounts for book purposes arising from permanent book/tax
differences related to return of capital distributions were as follows:

Undistributed net investment income
Distributions in excess of net realized gains
Additional paid-in-capital

  $ (6,171) $ —  $ — 
  — 
  — 

  — 
6,397 
(226)   — 

Years ended December 31,
2014

2013

2012

 
 
 
 
 
 
 
 
 
 
 
 
        For U.S. federal income tax purposes, distributions paid to stockholders of the Company are reported as ordinary income, return of capital, long
term capital gains or a combination thereof. The tax character of distributions paid by the Company for the years ended December 31, 2014,
December 31, 2013 and December 31, 2012 were estimated to be as follows:

Ordinary income (non-qualiﬁed)
Ordinary income (qualiﬁed)
Capital gains
Return of capital
Total

2014

2012

Years ended December 31,
2013
  $ 73,968  $ 44,778  $ 26,218 
— 
501 
— 
  $ 77,612  $ 51,844  $ 26,719 

664 
2,754 
226 

2,742 
4,324 
— 

        As of December 31, 2014, December 31, 2013 and December 31, 2012, the costs of investments for the Company for tax purposes were
$1,474,075, $642,704 and $343,248, respectively.

        At December 31, 2014, December 31, 2013 and December 31, 2012, the components of distributable earnings on a tax basis differ from the
amounts reﬂected per the Company's Consolidated Statements of Assets and Liabilities by temporary book/tax differences primarily arising from
differences between the tax and book basis of the Company's investment in securities held directly as well as through the Predecessor Operating
Company and undistributed income.

162

Table of Contents

Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 10. Distributions (Continued)

        As of December 31, 2014, December 31, 2013 and December 31, 2012, the Company's components of accumulated earnings / (deﬁcit) on a tax
basis were as follows:

Accumulated capital gains / (losses)
Other temporary differences
Undistributed ordinary income
Unrealized (appreciation) / depreciation
Components of distributable earnings

Years ended December 31,

  $

2014

— 
4,775 
— 
(30,383)(1)

  $ (25,608)

2013

2012

—  $

$
  10,070 
3,856 
2,346 
$ 16,272  $

— 
7,942 
528 
(2,274)
6,196 

(1)

Prior to the Restructuring, the Company's only investment was its investment in the Predecessor Operating Company.
After the Restructuring, the Company directly holds the Predecessor Operating Company's investments. As a result,
included in unrealized (appreciation) / depreciation is $(10,069) of timing differences attributable to deferred offering
costs, built-in gains and other book/tax differences impacting the tax basis of the Predecessor Operating Company's
investments. These differences were carried over to the Company, as the new operating company, from the
Predecessor Operating Company.

        The Company is subject to a 4.0% nondeductible federal excise tax on certain undistributed income unless the Company distributes, in a timely
manner as required by the Code, an amount at least equal to the sum of (1) 98.0% of its net ordinary income earned for the calendar year and
(2) 98.2% of its capital gain net income for the one-year period ending October 31 in the calendar year. For the year ended December 31, 2014, the
Company had no accrued estimated excise taxes. For the year ended December 31, 2013, the Company accrued estimated excise taxes of $2.3. For
the year ended December 31, 2012, the Company had no accrued estimated excise taxes.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
163

Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Table of Contents

Note 11. Net Assets

        The table below illustrates the effect of certain transactions on the net asset accounts of the Company:

Common Stock

Shares

Par
Amount

Paid in
Capital in
Excess
of Par

Undistributed
Net
Investment
Income

Accumulated
Undistributed
Net Realized
Gains

Net
Unrealized
Appreciation
(Depreciation)

Total
Net Assets

Balance at December 31,

2011

  10,697,691  $

107  $

144,249  $

  13,628,560 

136 

191,561 

—  $

— 

286  $

845  $

145,487 

— 

— 

191,697 

Issuances of common

stock

Deferred offering costs
allocated from New
Mountain Finance
Holdings, L.L.C. 
Dividends declared
Net increase in net assets

resulting from
operations

Balance at December 31,

Issuances of common

stock

Deferred offering costs
allocated from New
Mountain Finance
Holdings, L.L.C. 
Dividends declared
Net increase in net assets

resulting from
operations

Balance at December 31,

— 
— 

— 

— 
— 

— 

(323)
— 

— 
(19,792)

— 
(6,927)

— 
— 

(323)
(26,719)

— 

19,792 

7,593 

4,399 

31,784 

2012

  24,326,251  $

243  $

335,487  $

  20,898,504 

209 

298,177 

—  $

— 

952  $

5,244  $

341,926 

— 

— 

298,386 

— 
— 

— 

— 
— 

— 

(281)
— 

— 
(50,521)

— 
(1,323)

— 
— 

(281)
(51,844)

— 

50,521 

5,427 

5,972 

61,920 

2013

  45,224,755  $

452  $

633,383  $

—  $

5,056  $

11,216  $

650,107 

Issuances of common

stock

Deferred offering costs
allocated from New
Mountain Finance
Holdings, L.L.C. 
Deferred offering costs
Dividends declared
Net increase (decrease)
in net assets resulting
from operations
Tax reclassiﬁcations
related to return of
capital distributions
(See Note 10)

Balance at December 31,

  12,773,135 

128 

184,698 

— 

— 

— 

184,826 

— 
— 
— 

— 

— 

— 
— 
— 

— 

— 

(250)
(476)
— 

— 
— 
(71,365)

— 
— 
(6,247)

— 
— 
— 

(250)
(476)
(77,612)

— 

80,066 

8,925 

(43,416)

45,575 

(226)

(6,171)

6,397 

— 

— 

2014

  57,997,890  $

580  $

817,129  $

2,530  $

14,131  $

(32,200) $

802,170 

164

Table of Contents

Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Note 12. Earnings Per Share

December 31, 2014
(in thousands, except share data)

        The following information sets forth the computation of basic and diluted net increase in the Company's net assets per share resulting from
operations for the years ended December 31, 2014, December 31, 2013 and December 31, 2012:

2014

Years ended December 31,
2013

2012

Earnings per share—basic
Numerator for basic earnings per share:
Denominator for basic weighted average share:
Basic earnings per share:
Earnings per share—diluted(1)
Numerator for increase in net assets per share
Adjustment for interest on Convertible Notes and incentive fees,

net

Numerator for diluted earnings per share:

Denominator for basic weighted average share
Adjustment for dilutive effect of Convertible Notes
Denominator for diluted weighted average share
Diluted earnings per share

  $

  $

  $

  $

45,575  $

61,920  $

  51,846,164 

  35,092,722 

0.88  $

1.76  $

31,784 
  14,860,838 
2.14 

45,575  $

61,920  $

31,784 

2,658 
48,233  $

— 
61,290  $

— 
31,784 

  51,846,164 
4,311,671 
  56,157,835 

  35,092,722 
— 
  35,092,722 

  $

0.86  $

1.76  $

  14,860,838 
— 
  14,860,838 
2.14 

(1)

In applying the if-converted method, conversion is not assumed for purposes of computing diluted earnings per share if the
effect would be anti-dilutive. For the year ended December 31, 2014, there was no anti-dilution. For the years ended
December 31, 2013 and December 31, 2012, due to reﬂecting earnings for the full year of operations of the Predecessor
Operating Company assuming 100.0% NMFC ownership of Predecessor Operating Company and assuming all of AIV
Holdings' units in the Predecessor Operating Company were exchanged for public shares of NMFC during the years then
ended, the earnings per share would be $1.79 and $2.18, respectively.

165

Table of Contents

Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 13. Financial Highlights

        The following information sets forth the ﬁnancial highlights for the Company for the years ended December 31, 2014, December 31, 2013,
December 31, 2012 and the period May 19, 2011 to December 31, 2011. The ratios to average net assets have been annualized for the period
May 19, 2011 to December 31, 2011.

Per share data(1):
Net asset value, January 1, 2014, January 1, 2013, January 1, 2012

and May 19, 2011(2), respectively

  $

Net investment income
Net realized and unrealized gains (losses)(3)
Net increase (decrease) in net assets resulting from operations

allocated from NMF Holdings:
Net investment income(4)

Years ended December 31,

2014

2013

2012

May 19, 2011
(commencement of
operations) to
December 31, 2011

14.38  $
1.10 
(0.80)

14.06  $
— 
— 

13.60  $
— 
— 

0.44 

1.45 

1.33 

13.50 
— 
— 

0.78 

 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
 
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
Net realized and unrealized gains (losses)(3)(4)

Total net increase
Net change in unrealized appreciation (depreciation) of investment in

NMF Holdings

Dividends declared to stockholders from net investment income
Dividends declared to stockholders from net realized gains
Net asset value, December 31, 2014, December 31, 2013,

December 31, 2012 and December 31, 2011, respectively

Per share market value, December 31, 2014, December 31, 2013,

December 31, 2012 and December 31, 2011, respectively

  $

  $

Total return based on market value(5)
Total return based on net asset value(6)
Shares outstanding at end of period
Average weighted shares outstanding for the period
Average net assets for the period
Ratio to average net assets(7):
Net investment income
Total expenses, before waivers/reimbursements
Total expenses, net of waivers/reimbursements

0.19 
0.93 

— 
(1.36)
(0.12)

0.35 
1.80 

— 
(1.45)
(0.03)

0.84 
2.17 

— 
(1.28)
(0.43)

13.83  $

14.38  $

14.06  $

14.94  $
9.66%  
6.56%  

15.04  $
11.62%  
13.27%  

14.90  $
24.84%  
16.61%  

(0.40)
0.38 

0.58 
(0.78)
(0.08)

13.60 

13.41 
4.16%
2.82%

57,997,890 
51,846,164 

45,224,755 
35,092,722 

24,326,251 
14,860,838 

  $

749,732  $

502,822  $

196,312  $

10,697,691 
10,697,691 
147,766 

10.68%  
7.65%  
7.41%  

10.10%  
8.53%  
8.13%  

9.53%  
9.61%  
8.55%  

9.08%
6.62%
5.79%

(1)

(2)

(3)

(4)

Per share data is based on weighted average shares outstanding for the respective period (except for dividends declared to stockholders which is based on actual rate
per share). 

Data presented from May 19, 2011 to December 31, 2011 as the fund became unitized on May 19, 2011, the IPO date. 

Includes the accretive effect of common stock issuances per share, which for the years ended December 31, 2014, December 31, 2013 and December 31, 2012
were $0.05, $0.04 and $0.03, respectively. No additional common stock issuances were made during 2011 after the IPO. 

For the years ended December 31, 2014, December 31, 2013, December 31, 2012 and December 31, 2011, 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.

166

Table of Contents

Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 13. Financial Highlights (Continued)

(5)

(6)

(7)

Total return is calculated assuming a purchase of common stock at the opening of the ﬁrst day of the year and a sale on the closing of the last business day of the
period. Dividends and distributions, if any, are assumed for purposes of this calculation, to be reinvested at prices obtained under the Company's dividend
reinvestment plan. 

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. 

Ratio to average net assets for the years ended December 31, 2014, December 31, 2013 and December 31, 2012 and for the period May 19, 2011 to December 31,
2011, 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. For
the year ended December 31, 2014, the Company is reﬂecting its net investment income and expenses as well as its proportionate share of the Predecessor
Operating Company's net investment income and expenses. For the years ended December 31, 2013 and December 31, 2012 and for the period May 19, 2011 to
December 31, 2011, the Company is reﬂecting its proportionate share of the Predecessor Operating Company's net investment income and expenses.

        The following information sets forth the ﬁnancial highlights for the Company for the year ended December 31, 2014 and NMF Holdings for the
years ended December 31, 2013, December 31, 2012, December 31, 2011 and December 31, 2010.

Average debt outstanding—Holdings Credit Facility(1)
Average debt outstanding—SLF Credit Facility(2)
Average debt outstanding—Convertible Notes(3)
Average debt outstanding—SBA-guaranteed debentures(4)
Average debt outstanding—NMFC Credit Facility(5)
Asset coverage ratio(6)
Portfolio turnover(7)

NMFC
Year ended
December 31,
2014

  $
  $
  $
  $
  $

243,693  $
208,377  $
115,000  $
29,167  $
11,227  $
226.70%  
29.51%  

NMF Holdings
Years ended December 31,

2013
184,124  $
214,317  $
—  $
—  $
—  $
257.73%  
40.52%  

2012
133,600  $
181,395  $
—  $
—  $
—  $
235.31%  
52.02%  

2011

61,561  $
133,825  $
—  $
—  $
—  $
242.56%  
42.13%  

2010
68,343 
27,672 
— 
— 
— 

307.43%
76.69%

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)

(2)

(3)

(4)

(5)

(6)

(7)

For the year ended December 31, 2014, average debt outstanding represents the Company's average debt outstanding as well as the Company's proportionate share
of the Predecessor Operating Company's average debt outstanding. The average debt outstanding for the year ended December 31, 2014 at the Holdings Credit
Facility was $244,598. 

For the year ended December 31, 2014, average debt outstanding represents the Company's average debt outstanding as well as the Company's proportionate share
of the Predecessor Operating Comapany's average debt outstanding for the period January 1, 2014 to December 17, 2014 (date of SLF Credit Facility merger with
and into the Holdings Credit Facility). The average debt outstanding for the period January 1, 2014 to December 17, 2014 at the SLF Credit Facility was $209,333.

For the year ended December 31, 2014, average debt outstanding represents the period from June 3, 2014 (issuance of the Convertible Notes) to December 31,
2014. 

For the year ended December 31, 2014, average debt outstanding represents the period from November 17, 2014 (date of initial SBA-guaranteed debenture
borrowing) to December 31, 2014. 

For the year ended December 31, 2014, average debt outstanding represents the period from June 4, 2014 (commencement of the NMFC Credit Facility) to
December 31, 2014. 

On November 5, 2014, the Company received exemptive relief from the SEC allowing the Company to modify the asset coverage requirement to exclude the SBA-
guaranteed debentures from this calculation. 

For the year ended December 31, 2014, portfolio turnover represents the investment activity of the Predecessor Operating Company and the Company.

167

Table of Contents

Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 14. Selected Quarterly Financial Data (unaudited)

        The below selected quarterly ﬁnancial data is for the Company.

(in thousands except for per share data)

Total Investment
Income

Net Investment
Income

Total Net Realized
and Unrealized
(Losses) Gains

Net Increase
(Decrease) in Net
Assets Resulting
from Operations

Total

  Per Share

Total

  Per Share

Total

  Per Share

Total

  Per Share

Quarter Ended
December 31,

2014

  $ 36,748  $

0.65  $ 25,919  $

0.46  $ (34,865) $

(0.62) $ (8,946) $

(0.16)

September 30,

2014

June 30, 2014
March 31, 2014  

  34,706 
  33,708 
  30,439 

December 31,

0.67 
0.65 
0.65 

  20,800 
  17,289 
  16,058 

0.40 
0.34 
0.34 

(13,389)  
6,373 
7,390 

(0.26)  
0.12 
0.16 

7,411 
  23,662 
  23,448 

0.14 
0.46 
0.50 

2013

  $ 26,783  $

0.60  $ 14,826  $

0.33  $

3,119  $

0.07  $ 17,945  $

0.40 

September 30,

2013

June 30, 2013
March 31, 2013  

  22,012 
  26,400 
  15,681 

December 31,

0.58 
0.82 
0.62 

  10,803 
  17,674 
7,218 

0.29 
0.55 
0.28 

6,664 
(6,682)  
8,298 

0.17 
  17,467 
(0.21)   10,992 
  15,516 
0.33 

0.46 
0.34 
0.61 

2012

  $ 14,165  $

0.65  $

7,759  $

0.36  $

2,047  $

0.09  $

9,806  $

0.45 

September 30,

2012

June 30, 2012
March 31, 2012  

9,742 
7,023 
6,581 

0.60 
0.66 
0.62 

4,574 
4,029 
3,430 

0.28 
0.38 
0.32 

5,381 
(194)  
4,758 

0.34 
(0.02)  
0.45 

9,955 
3,835 
8,188 

0.62 
0.36 
0.77 

Note 15. Recent Accounting Standards Updates

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
        In June 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2013-08, Financial Services—
Investment Companies Topic 946—Amendments to the Scope, Measurement and Disclosure Requirements  ("ASU 2013-08"), which contains new
guidance on assessing whether an entity is an investment company, requiring non-controlling ownership interests in investment companies to be
measured at fair value and requiring certain additional disclosures. ASU 2013-08 is effective for interim and annual periods beginning after
December 15, 2013. The Company is an investment company that is applying the specialized guidance in Topic 946 as of January 1, 2014.

        In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers Topic 606—Summary
and Amendments that Create Revenue from Contracts with Customers and Other Assets and Deferred Costs  ("ASU 2014-09"). ASU 2014-09
establishes a comprehensive and converged standard on revenue recognition to enable ﬁnancial statement users to better understand and consistently
analyze an entity's revenue across industries, transactions and geographies. The core principle of the new guidance is that an entity should recognize
revenue to depict the transfer of promised goods or services to customers in an amount that reﬂects the consideration to which the entity expects to
be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (1) identify the
contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction
price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisﬁes a performance obligation. The new
guidance also speciﬁes the

168

Table of Contents

Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 15. Recent Accounting Standards Updates (Continued)

accounting for certain costs to obtain or fulﬁll a contract with a customer. The new guidance requires improved disclosures to help users of ﬁnancial
statements better understand the nature, amount, timing, and uncertainty of revenue that is recognized. Qualitative and quantitative information is
required to be disclosed about: (1) contracts with customers, (2) signiﬁcant judgments and changes in judgments, and (3) assets recognized from
costs to obtain or fulﬁll a contract. The new guidance will apply to all entities. The guidance is effective for interim and annual reporting periods in
ﬁscal years beginning after December 15, 2016. Early application is not permitted. The Company is in the process of evaluating the impact that this
guidance will have on its consolidated ﬁnancial statements and disclosures.

        In June 2014, the FASB issued Accounting Standards Update No. 2014-11, Transfers and Servicing Topic 860—Repurchase-to-Maturity
Transactions, Repurchase Financings, and Disclosures  ("ASU 2014-11"). ASU 2014-11 changes the accounting for repurchase- and resale-to-
maturity agreements by requiring that such agreements be recognized as ﬁnancing arrangements, and requires that a transfer of a ﬁnancial asset and
a repurchase agreement entered into contemporaneously be accounted for separately. ASU 2014-11 requires additional disclosures about certain
transferred ﬁnancial assets accounted for as sales and certain securities ﬁnancing transactions. The accounting changes and additional disclosures
about certain transferred ﬁnancial assets accounted for as sales are effective for the ﬁrst interim and annual reporting periods beginning after
December 15, 2014. The additional disclosures for securities ﬁnancing transactions are required for annual reporting periods beginning after
December 15, 2014 and for interim reporting periods beginning after March 15, 2015. The Company is in the process of evaluating the impact that
this guidance will have on its consolidated ﬁnancial statements and disclosures.

        In August 2014, the FASB issued Accounting Standards Update No. 2014-15, Presentation of Financial Statements—Going Concern Subtopic
205-40—Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern ("ASU 2014-15"). ASU 2014-15 will explicitly
require management to assess an entity's ability to continue as a going concern, and to provide related footnote disclosure in certain circumstances.
The new standard will be effective for all entities in the ﬁrst annual period ending after December 15, 2016. Earlier adoption is permitted. The
adoption of ASU 2014-15 is not expected to have a material impact on the Company's consolidated ﬁnancial statements and disclosures.

Note 16. Subsequent Events

        On December 31, 2014 and continuing subsequent to the year then ended, the Company's portfolio investment in Edmentum, Inc. disclosed its
projected substantial ﬁnancial deterioration. The Company reﬂects this information in the valuation of this portfolio investment as of December 31,
2014. All interest due to the Company through the year ended December 31, 2014 has been paid. As more information becomes available, the
Company may experience a further mark down of the fair value of this investment. This investment may be placed on non-accrual status in the

future. The investment represents 1.1% of the total portfolio at fair value as of December 31, 2014.

        In January 2015, UniTek emerged from "Pre-Packaged" Chapter 11 Bankruptcy and completed its restructuring.

        On February 23, 2015, the Company's board of directors declared a ﬁrst quarter 2015 distribution of $0.34 per share payable on March 31,
2015 to holders of record as of March 17, 2015.

169

Table of Contents

        The terms "we", "us", "our" and the "Company" refers to New Mountain Finance Corporation and its consolidated subsidiaries.

Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 

        None.

Item 9A.    Controls and Procedures 

(a)    Evaluation of Disclosure Controls and Procedures

        As of December 31, 2014 (the end of the period covered by this report), we, including our Chief Executive Ofﬁcer and Chief Financial Ofﬁcer,
evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as deﬁned in Rule 13a-15(e) of the Securities Act
of 1934, as amended). Based on that evaluation, our management, including the Chief Executive Ofﬁcer and Chief Financial Ofﬁcer, concluded that
our disclosure controls and procedures were effective and provided reasonable assurance that information required to be disclosed in our periodic
United States Securities and Exchange Commission ﬁlings is recorded, processed, summarized and reported within the time periods speciﬁed in the
United States Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our
management, including our Chief Executive Ofﬁcer and Chief Financial Ofﬁcer, as appropriate, to allow timely decisions regarding required
disclosure. However, in evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how
well designed and operated can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was
required to apply its judgment in evaluating the cost-beneﬁt relationship of such possible controls and procedures.

(b)    Report of Management on Internal Control Over Financial Reporting

        Management is responsible for establishing and maintaining adequate internal control over ﬁnancial reporting, and for performing an
assessment of the effectiveness of internal control over ﬁnancial reporting. Internal control over ﬁnancial reporting is a process designed to provide
reasonable assurance regarding the reliability of ﬁnancial reporting and the preparation of ﬁnancial statements for external purposes in accordance
with generally accepted accounting principles. The Company's internal control over ﬁnancial reporting includes those policies and procedures that
(i) pertain to assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of ﬁnancial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in
accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the Company assets that could have a material effect on the ﬁnancial statements.

        Management performed an assessment of the effectiveness of the Company's internal control over ﬁnancial reporting as of December 31, 2014
based upon the criteria in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on management's assessment, management determined that the Company's internal control over ﬁnancial reporting was
effective as of December 31, 2014.

(c)    Attestation Report of the Registered Public Accounting Firm.

        Our independent registered public accounting ﬁrm, Deloitte & Touche LLP, has issued an attestation report on New Mountain Finance
Corporation's internal control over ﬁnancial reporting, which is set forth on the following page.

170

Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 

To the Board of Directors and Stockholders of
New Mountain Finance Corporation
New York, New York

        We have audited the internal control over ﬁnancial reporting of New Mountain Finance Corporation and subsidiaries (the "Company") as of
December 31, 2014, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over ﬁnancial
reporting and for its assessment of the effectiveness of internal control over ﬁnancial reporting, included in the accompanying Report of
Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over
ﬁnancial reporting based on our audit.

        We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over ﬁnancial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal control over ﬁnancial reporting, assessing the risk that
a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.

        A company's internal control over ﬁnancial reporting is a process designed by, or under the supervision of, the company's principal executive
and principal ﬁnancial ofﬁcers, or persons performing similar functions, and effected by the company's board of directors, management, and other
personnel to provide reasonable assurance regarding the reliability of ﬁnancial reporting and the preparation of ﬁnancial statements for external
purposes in accordance with generally accepted accounting principles. A company's internal control over ﬁnancial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reﬂect the transactions and dispositions
of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of ﬁnancial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the ﬁnancial statements.

        Because of the inherent limitations of internal control over ﬁnancial reporting, including the possibility of collusion or improper management
override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any
evaluation of the effectiveness of the internal control over ﬁnancial reporting to future periods are subject to the risk that the controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

        In our opinion, the Company maintained, in all material respects, effective internal control over ﬁnancial reporting as of December 31, 2014,
based on the criteria established in Internal

171

Table of Contents

Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

        We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated
statements as of and for the year ended December 31, 2014 of the Company and our report dated March 2, 2015 expressed an unqualiﬁed opinion on
those consolidated ﬁnancial statements and included an explanatory paragraph regarding the Company's restructuring.

/s/ DELOITTE & TOUCHE LLP

New York, New York
March 2, 2015

172

Table of Contents

(d)    Changes in Internal Controls Over Financial Reporting

        Management has not identiﬁed any change in the Company's internal control over ﬁnancial reporting that occurred during the quarter ended
December 31, 2014 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over ﬁnancial reporting.

Item 9B.    Other Information 

        None.

Table of Contents

173

        The terms "we", "us", "our" and the "Company" refers to New Mountain Finance Corporation and its consolidated subsidiaries.

PART III 

        We will ﬁle a deﬁnitive Proxy Statement for the Company's 2015 Annual Meeting of Stockholders with the United States Securities and
Exchange Commission, pursuant to Regulation 14A, not later than 120 days after the end of our ﬁscal year. Accordingly, certain information
required by Part III has been omitted under General Instruction G(3) to Form 10-K. Only those sections of our deﬁnitive Proxy Statement that
speciﬁcally address the items set forth herein are incorporated by reference.

Item 10.    Directors, Executive Ofﬁcers and Corporate Governance 

        The information required by Item 10 is hereby incorporated by reference from the deﬁnitive Proxy Statement relating to the Company's 2015
Annual Meeting of Stockholders, to be ﬁled with the United States Securities and Exchange Commission within 120 days following the end of the
Company's ﬁscal year.

Item 11.    Executive Compensation 

        The information required by Item 11 is hereby incorporated by reference from the deﬁnitive Proxy Statement relating to the Company's 2015
Annual Meeting of Stockholders, to be ﬁled with the United States Securities and Exchange Commission within 120 days following the end of the
Company's ﬁscal year.

Item 12.    Security Ownership of Certain Beneﬁcial Owners and Management and Related Stockholder Matters 

        The information required by Item 12 is hereby incorporated by reference from the deﬁnitive Proxy Statement relating to the Company's 2015
Annual Meeting of Stockholders, to be ﬁled with the United States Securities and Exchange Commission within 120 days following the end of the
Company's ﬁscal year.

Item 13.    Certain Relationships and Related Transactions, and Director Independence 

        The information required by Item 13 is hereby incorporated by reference from the deﬁnitive Proxy Statement relating to the Company's 2015
Annual Meeting of Stockholders, to be ﬁled with the United States Securities and Exchange Commission within 120 days following the end of the
Company's ﬁscal year.

Item 14.    Principal Accountant Fees and Services 

        The information required by Item 14 is hereby incorporated by reference from the deﬁnitive Proxy Statement relating to the Company's 2015

(cid:2)(cid:3)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:9)(cid:10)(cid:11)(cid:3)(cid:12)(cid:7)(cid:13)(cid:14)(cid:7)(cid:15)(cid:10)(cid:13)(cid:16)(cid:17)(cid:18)(cid:13)(cid:6)(cid:19)(cid:9)(cid:20)(cid:21)(cid:22)(cid:7)(cid:10)(cid:13)(cid:7)(cid:23)(cid:9)(cid:7)(cid:24)(cid:6)(cid:9)(cid:19)(cid:7)(cid:25)(cid:11)(cid:10)(cid:18)(cid:7)(cid:10)(cid:18)(cid:9)(cid:7)(cid:26)(cid:3)(cid:11)(cid:10)(cid:9)(cid:19)(cid:7)(cid:15)(cid:10)(cid:5)(cid:10)(cid:9)(cid:21)(cid:7)(cid:15)(cid:9)(cid:16)(cid:4)(cid:20)(cid:11)(cid:10)(cid:11)(cid:9)(cid:21)(cid:7)(cid:5)(cid:3)(cid:19)(cid:7)(cid:27)(cid:28)(cid:16)(cid:18)(cid:5)(cid:3)(cid:12)(cid:9)(cid:7)(cid:29)(cid:13)(cid:30)(cid:30)(cid:11)(cid:21)(cid:21)(cid:11)(cid:13)(cid:3)(cid:7)(cid:25)(cid:11)(cid:10)(cid:18)(cid:11)(cid:3)(cid:7)(cid:31) !(cid:7)(cid:19)(cid:5)"(cid:21)(cid:7)(cid:14)(cid:13)(cid:6)(cid:6)(cid:13)(cid:25)(cid:11)(cid:3)(cid:12)(cid:7)(cid:10)(cid:18)(cid:9)(cid:7)(cid:9)(cid:3)(cid:19)(cid:7)(cid:13)(cid:14)(cid:7)(cid:10)(cid:18)(cid:9)
(cid:29)(cid:13)(cid:30)#(cid:5)(cid:3)"$(cid:21)(cid:7)(cid:24)(cid:21)(cid:16)(cid:5)(cid:6)(cid:7)"(cid:9)(cid:5)(cid:20)%

174

PART IV 

Table of Contents

Item 15.    Exhibits and Financial Statement Schedules 

(a)    Documents Filed as Part of this Report

(cid:7)(cid:7)(cid:7)(cid:7)(cid:7)(cid:7)(cid:7)(cid:7)&(cid:18)(cid:9)(cid:7)(cid:14)(cid:13)(cid:6)(cid:6)(cid:13)(cid:25)(cid:11)(cid:3)(cid:12)(cid:7)(cid:24)(cid:3)(cid:5)(cid:3)(cid:16)(cid:11)(cid:5)(cid:6)(cid:7)(cid:21)(cid:10)(cid:5)(cid:10)(cid:9)(cid:30)(cid:9)(cid:3)(cid:10)(cid:21)(cid:7)(cid:5)(cid:20)(cid:9)(cid:7)(cid:21)(cid:9)(cid:10)(cid:7)(cid:14)(cid:13)(cid:20)(cid:10)(cid:18)(cid:7)(cid:11)(cid:3)(cid:7)’(cid:10)(cid:9)(cid:30)(cid:7)()

New Mountain Finance Corporation

Consolidated Statements of Assets and Liabilities as of December 31, 2014 and December 31, 2013
Consolidated Statements of Operations for the years ended December 31, 2014, December 31, 2013 and

December 31, 2012

Consolidated Statements of Changes in Net Assets for the years ended December 31, 2014, December 31,

2013 and December 31, 2012

Consolidated Statements of Cash Flows for the years ended December 31, 2014, December 31, 2013 and

December 31, 2012

Consolidated Schedule of Investments as of December 31, 2014
Consolidated Schedule of Investments as of December 31, 2013

Notes to the Consolidated Financial Statements of New Mountain Finance Corporation

  107

108

109

110
  111
  118

123

175

Table of Contents

(b)    Exhibits

(cid:7)(cid:7)(cid:7)(cid:7)(cid:7)(cid:7)(cid:7)(cid:7)&(cid:18)(cid:9)(cid:7)(cid:14)(cid:13)(cid:6)(cid:6)(cid:13)(cid:25)(cid:11)(cid:3)(cid:12)(cid:7)(cid:9)(cid:28)(cid:18)(cid:11)(cid:23)(cid:11)(cid:10)(cid:21)(cid:7)(cid:5)(cid:20)(cid:9)(cid:7)(cid:24)(cid:6)(cid:9)(cid:19)(cid:7)(cid:5)(cid:21)(cid:7)#(cid:5)(cid:20)(cid:10)(cid:7)(cid:13)(cid:14)(cid:7)(cid:10)(cid:18)(cid:11)(cid:21)(cid:7)(cid:20)(cid:9)#(cid:13)(cid:20)(cid:10)(cid:7)(cid:13)(cid:20)(cid:7)(cid:18)(cid:9)(cid:20)(cid:9)(cid:23)"(cid:7)(cid:11)(cid:3)(cid:16)(cid:13)(cid:20)#(cid:13)(cid:20)(cid:5)(cid:10)(cid:9)(cid:19)(cid:7)(cid:23)"(cid:7)(cid:20)(cid:9)(cid:14)(cid:9)(cid:20)(cid:9)(cid:3)(cid:16)(cid:9)(cid:7)(cid:10)(cid:13)(cid:7)(cid:9)(cid:28)(cid:18)(cid:11)(cid:23)(cid:11)(cid:10)(cid:21)(cid:7)#(cid:20)(cid:9)*(cid:11)(cid:13)(cid:4)(cid:21)(cid:6)"(cid:7)(cid:24)(cid:6)(cid:9)(cid:19)(cid:7)(cid:25)(cid:11)(cid:10)(cid:18)(cid:7)(cid:10)(cid:18)(cid:9)(cid:7)(cid:26)(cid:3)(cid:11)(cid:10)(cid:9)(cid:19)(cid:7)(cid:15)(cid:10)(cid:5)(cid:10)(cid:9)(cid:21)
Securities and Exchange Commission:

Exhibit
Number

Description

3.1(a) (cid:2)(cid:30)(cid:9)(cid:3)(cid:19)(cid:9)(cid:19)(cid:7)(cid:5)(cid:3)(cid:19)(cid:7)+(cid:9)(cid:21)(cid:10)(cid:5)(cid:10)(cid:9)(cid:19)(cid:7)(cid:29)(cid:9)(cid:20)(cid:10)(cid:11)(cid:24)(cid:16)(cid:5)(cid:10)(cid:9)(cid:7)(cid:13)(cid:14)(cid:7)’(cid:3)(cid:16)(cid:13)(cid:20)#(cid:13)(cid:20)(cid:5)(cid:10)(cid:11)(cid:13)(cid:3)(cid:7)(cid:13)(cid:14)(cid:7),(cid:9)(cid:25)(cid:7)(cid:8)(cid:13)(cid:4)(cid:3)(cid:10)(cid:5)(cid:11)(cid:3)(cid:7)-(cid:11)(cid:3)(cid:5)(cid:3)(cid:16)(cid:9)(cid:7)(cid:29)(cid:13)(cid:20)#(cid:13)(cid:20)(cid:5)(cid:10)(cid:11)(cid:13)(cid:3). /

3.1(b) (cid:29)(cid:9)(cid:20)(cid:10)(cid:11)(cid:24)(cid:16)(cid:5)(cid:10)(cid:9)(cid:7)(cid:13)(cid:14)(cid:7)(cid:29)(cid:18)(cid:5)(cid:3)(cid:12)(cid:9)(cid:7)(cid:13)(cid:14)(cid:7)+(cid:9)(cid:12)(cid:11)(cid:21)(cid:10)(cid:9)(cid:20)(cid:9)(cid:19)(cid:7)(cid:2)(cid:12)(cid:9)(cid:3)(cid:10)(cid:7)(cid:5)(cid:3)(cid:19)0(cid:13)(cid:20)(cid:7)+(cid:9)(cid:12)(cid:11)(cid:21)(cid:10)(cid:9)(cid:20)(cid:9)(cid:19)(cid:7)1(cid:14)(cid:24)(cid:16)(cid:9)(cid:7)(cid:13)(cid:14)(cid:7),(cid:9)(cid:25)(cid:7)(cid:8)(cid:13)(cid:4)(cid:3)(cid:10)(cid:5)(cid:11)(cid:3)(cid:7)-(cid:11)(cid:3)(cid:5)(cid:3)(cid:16)(cid:9)

Corporation(3)

3.2

Amended and Restated Bylaws of New Mountain Finance Corporation(2)

4.1

4.2

-(cid:13)(cid:20)(cid:30)(cid:7)(cid:13)(cid:14)(cid:7)(cid:15)(cid:10)(cid:13)(cid:16)(cid:17)(cid:7)(cid:29)(cid:9)(cid:20)(cid:10)(cid:11)(cid:24)(cid:16)(cid:5)(cid:10)(cid:9)(cid:7)(cid:13)(cid:14)(cid:7),(cid:9)(cid:25)(cid:7)(cid:8)(cid:13)(cid:4)(cid:3)(cid:10)(cid:5)(cid:11)(cid:3)(cid:7)-(cid:11)(cid:3)(cid:5)(cid:3)(cid:16)(cid:9)(cid:7)(cid:29)(cid:13)(cid:20)#(cid:13)(cid:20)(cid:5)(cid:10)(cid:11)(cid:13)(cid:3).(cid:31)/

Indenture by and between New Mountain Finance Corporation, as Issuer, and U.S. Bank National
Association, as Trustee, dated June 3, 2014(7)

4.3

Form of Global Note 5.00% Convertible Senior Note Due 2019 (included as part of Exhibit 4.2)(7)

10.1

Second Amended and Restated Loan and Security Agreement, dated as of December 18, 2014, by and
among New Mountain Finance Corporation, as the collateral manager, New Mountain Finance Holdings,

 
 
  
 
 
 
 
L.L.C., as the borrower, Wells Fargo Securities, LLC, as administrative agent, and Wells Fargo,
National Association, as lender and custodian(9)

Form of Variable Funding Note of New Mountain Finance Holdings, L.L.C., as the Borrower(1)

Form of Amended and Restated Account Control Agreement among New Mountain Finance Holdings,
L.L.C., Wells Fargo Securities, LLC as the Administrative Agent and Wells Fargo Bank, National
Association, as Securities Intermediary(1)

Form of Senior Secured Revolving Credit Agreement, by and between New Mountain Finance
Corporation, as Borrower, and Goldman Sachs Bank USA, as Administrative Agent and Syndication
Agent, dated June 4, 2014(8)

Form of Guarantee and Security Agreement dated June 4, 2014, among New Mountain Finance
Corporation, as Borrower, and Goldman Sachs Bank USA, as Administrative Agent(8)

Amendment No. 1, dated December 31, 2014, to the Senior Secured Revolving Credit Agreement dated
June 4, 2014, by and among New Mountain Finance Corporation, as Borrower, and Goldman Bank
USA, as Administrative Agent and Syndication Agent(10)

Investment Advisory and Management Agreement by and between New Mountain Finance Corporation
and New Mountain Finance Advisers BDC, LLC(6)

Form of Safekeeping Agreement among New Mountain Finance Holdings, L.L.C., Wells Fargo
Securities, LLC as the Administrative Agent and Wells Fargo Bank, National Association, as
Safekeeping Agent(1)

Custody Agreement by and between New Mountain Finance Corporation and U.S. Bank National
Association(5)

Amended and Restated Administration Agreement(4)

Form of Trademark License Agreement(1)

10.2 

10.3 

10.4 

10.5 

10.6 

10.7 

10.8 

10.9 

10.10 

10.11 

Table of Contents

Exhibit
Number

176

Description

10.12 

Amendment No. 1 to Trademark License Agreement(4)

10.13 

10.14 

Form of Registration Rights Agreement(1)

Form of Indemniﬁcation Agreement by and between New Mountain Finance Corporation and each
director(1)

10.15 

Dividend Reinvestment Plan(2)

11.1 

Computation of Per Share Earnings for New Mountain Finance Corporation (included in the notes to the
ﬁnancial statements contained in this report)

14.1 

Code of Ethics(1)

21.1 

Subsidiaries of New Mountain Finance Corporation:
    New Mountain Finance Holdings, L.L.C. (Delaware)
    New Mountain Finance SPV Funding, L.L.C. (Delaware)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
    NMF Ancora Holdings, Inc. (Delaware)
    NMF YP Holdings, Inc. (Delaware)
    New Mountain Finance Servicing, L.L.C. (Delaware)
    New Mountain Finance SBIC G.P., L.L.C. (Delaware)
    New Mountain Finance SBIC, L.P. (Delaware)

31.1 

31.2 

32.1 

32.2 

Certiﬁcation of Chief Executive Ofﬁcer pursuant to Rule 13a-14(a) of the Securities Exchange Act of
1934, as amended

Certiﬁcation of Chief Financial Ofﬁcer pursuant to Rule 13a-14(a) of the Securities Exchange Act of
1934, as amended

Certiﬁcation of Chief Executive Ofﬁcer pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 (18
U.S.C. 1350)

Certiﬁcation of Chief Financial Ofﬁcer pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 (18
U.S.C. 1350)

99.1 

Supplemental Financial Information

(1)

(2)

(3)

(4)

(5)

(6)

Previously ﬁled in connection with New Mountain Finance Holdings, L.L.C.'s registration statement on Form N-2 Pre-
Effective Amendment No. 3 (File Nos. 333-168280 and 333-172503) ﬁled on May 9, 2011. 

Previously ﬁled in connection with New Mountain Finance Corporation's quarterly report on Form 10-Q ﬁled on August 11,
2011. 

Previously ﬁled in connection with New Mountain Finance Corporation and New Mountain Finance AIV Holdings
Corporation report on Form 8-K ﬁled on August 25, 2011. 

Previously ﬁled in connection with New Mountain Finance Corporation's quarterly report on Form 10-Q ﬁled on
November 14, 2011. 

Previously ﬁled in connection with New Mountain Finance Corporation's registration statement on Form N-2 Post-Effective
Amendment No. 2 (File Nos. 333-189706 and 333-189707) ﬁled on April 11, 2014. 

Previously ﬁled in connection with New Mountain Finance Corporation's report on Form 8-K ﬁled on May 8, 2014.

177

Table of Contents

(7)

(8)

(9)

(10)

Previously ﬁled in connection with New Mountain Finance Corporation's report on Form 8-K ﬁled on June 4, 2014. 

Previously ﬁled in connection with New Mountain Finance Corporation's report on Form 8-K ﬁled on June 10, 2014. 

Previously ﬁled in connection with New Mountain Finance Corporation's report on Form 8-K ﬁled on December 23, 2014. 

Previously ﬁled in connection with New Mountain Finance Corporation's report on Form 8-K ﬁled on January 5, 2015.

(c)    Financial Statement Schedules

        No ﬁnancial statement schedules are ﬁled herewith because (1) such schedules are not required or (2) the information has been presented in the
aforementioned ﬁnancial statements.

178

 
  
 
  
 
  
 
  
 
  
 
 
 
 
 
Table of Contents

SIGNATURES 

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized on March 2, 2015.

  NEW MOUNTAIN FINANCE CORPORATION

  By: 

/s/ ROBERT A. HAMWEE

Robert A. Hamwee
Chief Executive Ofﬁcer
(Principal Executive Ofﬁcer)

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.

SIGNATURE

TITLE

DATE

By:  

/s/ ROBERT A. HAMWEE

  Chief Executive Ofﬁcer (Principal Executive

  March 2, 2015

Robert A. Hamwee

Ofﬁcer) and Director

By:  

/s/ DAVID M. CORDOVA

  Chief Financial Ofﬁcer and Treasurer

  March 2, 2015

David M. Cordova

By:  

/s/ STEVEN B. KLINSKY

  Chairman of the Board, Director

  March 2, 2015

Steven B. Klinsky

By:  

/s/ ADAM B. WEINSTEIN

  Executive Vice President, Chief

  March 2, 2015

Adam B. Weinstein

Administrative Ofﬁcer and Director

By:  

/s/ ALFRED F. HURLEY, JR.

  Director

  March 2, 2015

Alfred F. Hurley, Jr.

By:  

/s/ DAVID MALPASS

  Director

  March 2, 2015

David Malpass

By:  

/s/ DAVID OGENS

  Director

  March 2, 2015

David Ogens

By:  

/s/ KURT J. WOLFGRUBER

  Director

  March 2, 2015

Kurt J. Wolfgruber

179

(Back To Top ) 

 
 
 
 
 
 
 
 
 
 
 
Section 2: EX-31.1 (EX-31.1)

QuickLinks -- Click here to rapidly navigate through this document

EXHIBIT 31.1 

I, Robert A. Hamwee, Chief Executive Ofﬁcer of New Mountain Finance Corporation, certify that:

CERTIFICATION OF CHIEF EXECUTIVE OFFICER 

1.

2.

3.

4.

I have reviewed this annual report on Form 10-K of New Mountain Finance Corporation; 

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report; 

Based on my knowledge, the ﬁnancial statements, and other ﬁnancial information included in this report, fairly present in all material
respects the ﬁnancial condition, results of operations and cash ﬂows of the registrant as of, and for, the periods presented in this report; 

The registrant's other certifying ofﬁcer and I are responsible for establishing and maintaining disclosure controls and procedures (as deﬁned
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over ﬁnancial reporting (as deﬁned in Exchange Act Rules 13a-15(f)
and 15d-15(f)) for the registrant and have: 

a)

b)

c)

d)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is being prepared; 

designed such internal control over ﬁnancial reporting, or caused such internal control over ﬁnancial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of ﬁnancial reporting and the preparation of ﬁnancial
statements for external purposes in accordance with generally accepted accounting principles; 

evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and 

disclosed in this report any change in the registrant's internal control over ﬁnancial reporting that occurred during the registrant's
most recent ﬁscal quarter (the registrant's fourth ﬁscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal control over ﬁnancial reporting; and 

5.

The registrant's other certifying ofﬁcer and I have disclosed, based on our most recent evaluation of internal control over ﬁnancial reporting,
to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): 

a)

b)

all signiﬁcant deﬁciencies and material weaknesses in the design or operation of internal control over ﬁnancial reporting which are
reasonably likely to adversely affect the registrant's ability to record, process, summarize and report ﬁnancial information; and 

any fraud, whether or not material, that involves management or other employees who have a signiﬁcant role in the registrant's
internal control over ﬁnancial reporting.

Dated this 2nd day of March, 2015

/s/ ROBERT A. HAMWEE

Robert A. Hamwee

  
QuickLinks

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
(Back To Top ) 

Section 3: EX-31.2 (EX-31.2)

QuickLinks -- Click here to rapidly navigate through this document

EXHIBIT 31.2 

I, David M. Cordova, Chief Financial Ofﬁcer of New Mountain Finance Corporation, certify that:

CERTIFICATION OF CHIEF FINANCIAL OFFICER 

1.

2.

3.

4.

I have reviewed this annual report on Form 10-K of New Mountain Finance Corporation; 

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report; 

Based on my knowledge, the ﬁnancial statements, and other ﬁnancial information included in this report, fairly present in all material
respects the ﬁnancial condition, results of operations and cash ﬂows of the registrant as of, and for, the periods presented in this report; 

The registrant's other certifying ofﬁcer and I are responsible for establishing and maintaining disclosure controls and procedures (as deﬁned
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over ﬁnancial reporting (as deﬁned in Exchange Act Rules 13a-15(f)
and 15d-15(f)) for the registrant and have: 

a)

b)

c)

d)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is being prepared; 

designed such internal control over ﬁnancial reporting, or caused such internal control over ﬁnancial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of ﬁnancial reporting and the preparation of ﬁnancial
statements for external purposes in accordance with generally accepted accounting principles; 

evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and 

disclosed in this report any change in the registrant's internal control over ﬁnancial reporting that occurred during the registrant's
most recent ﬁscal quarter (the registrant's fourth ﬁscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal control over ﬁnancial reporting; and 

5.

The registrant's other certifying ofﬁcer and I have disclosed, based on our most recent evaluation of internal control over ﬁnancial reporting,
to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): 

a)

all signiﬁcant deﬁciencies and material weaknesses in the design or operation of internal control over ﬁnancial reporting which are

reasonably likely to adversely affect the registrant's ability to record, process, summarize and report ﬁnancial information; and 

b)

any fraud, whether or not material, that involves management or other employees who have a signiﬁcant role in the registrant's
internal control over ﬁnancial reporting.

Dated this 2nd day of March, 2015

/s/ DAVID M. CORDOVA

David M. Cordova

QuickLinks

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER
(Back To Top ) 

Section 4: EX-32.1 (EX-32.1)

QuickLinks -- Click here to rapidly navigate through this document

EXHIBIT 32.1 

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. 1350) 

        In connection with the Annual Report on Form 10-K for the period ended December 31, 2014 (the "Report") of New Mountain Finance
Corporation (the "Registrant"), as ﬁled with the United States Securities and Exchange Commission on the date hereof, I, Robert A. Hamwee, the
Chief Executive Ofﬁcer of the Registrant, hereby certify, to the best of my knowledge, that:

        (1)   The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended;
and

        (2)   The information contained in the Report fairly presents, in all material respects, the ﬁnancial condition and results of operations of
the Registrant.

/s/ ROBERT A. HAMWEE

Name:   Robert A. Hamwee
  March 2, 2015
Date:

QuickLinks

EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C.
1350)
(Back To Top ) 

  
   
   
   
Section 5: EX-32.2 (EX-32.2)

QuickLinks -- Click here to rapidly navigate through this document

EXHIBIT 32.2 

CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. 1350) 

        In connection with the Annual Report on Form 10-K for the period ended December 31, 2014 (the "Report") of New Mountain Finance
Corporation (the "Registrant"), as ﬁled with the United States Securities and Exchange Commission on the date hereof, I, David M. Cordova, the
Chief Financial Ofﬁcer of the Registrant, hereby certify, to the best of my knowledge, that:

        (1)   The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended;
and

        (2)   The information contained in the Report fairly presents, in all material respects, the ﬁnancial condition and results of operations of
the Registrant.

/s/ DAVID M. CORDOVA

Name:   David M. Cordova
Date:

  March 2, 2015

QuickLinks

EXHIBIT 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C.
1350)
(Back To Top ) 

Section 6: EX-99.1 (EX-99.1)

QuickLinks -- Click here to rapidly navigate through this document

TABLE OF CONTENTS 

EXHIBIT 99.1 

  PAGE  

SUPPLEMENTAL FINANCIAL INFORMATION

New Mountain Finance Holdings, L.L.C.

Consolidated Statements of Operations from April 1, 2014 to May 7, 2014 and from January 1, 2014

to May 7, 2014 (unaudited) and for the three months and six months ended June 30, 2013
(unaudited)

Consolidated Statements of Cash Flows from January 1, 2014 to May 7, 2014 (unaudited) and for the

six months ended June 30, 2013 (unaudited)

2 

3 

   
   
   
 
 
 
  
 
 
  
 
 
 
 
AUDITED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm
New Mountain Finance Holdings, L.L.C.

Consolidated Statements of Assets, Liabilities and Members' Capital as of December 31, 2013 and

December 31, 2012

Consolidated Statements of Operations for the years ended December 31, 2013, December 31, 2012

and December 31, 2011

Consolidated Statements of Changes in Members' Capital for the years ended December 31, 2013,

December 31, 2012 and December 31, 2011

Consolidated Statements of Cash Flows for the years ended December 31, 2013, December 31, 2012

and December 31, 2011

Consolidated Schedule of Investments as of December 31, 2013
Consolidated Schedule of Investments as of December 31, 2012

New Mountain Finance Corporation

Statements of Assets and Liabilities as of December 31, 2013 and December 31, 2012
Statements of Operations for the years ended December 31, 2013, December 31, 2012 and from

May 19, 2011 (commencement of operations) to December 31, 2011

Statements of Changes in Net Assets for the years ended December 31, 2013, December 31, 2012 and

from May 19, 2011 (commencement of operations) to December 31, 2011

Statements of Cash Flows for the years ended December 31, 2013, December 31, 2012 and from

May 19, 2011 (commencement of operations) to December 31, 2011

New Mountain Finance AIV Holdings Corporation

Statements of Assets and Liabilities as of December 31, 2013 and December 31, 2012
Statements of Operations for the years ended December 31, 2013, December 31, 2012 and from

May 19, 2011 (commencement of operations) to December 31, 2011

Statements of Changes in Net Assets for the years ended December 31, 2013, December 31, 2012 and

from May 19, 2011 (commencement of operations) to December 31, 2011

Statements of Cash Flows for the years ended December 31, 2013, December 31, 2012 and from

May 19, 2011 (commencement of operations) to December 31, 2011

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

1

4 

6 

7 

8 

9 
10 
17 

22 

23 

24 

25 

26 

27 

28 

29 

30 

New Mountain Finance Holdings, L.L.C 

Consolidated Statements of Operations 

(in thousands) 

(unaudited) 

Investment income
Interest income
Dividend income
Other income
Total investment income

Expenses

Incentive fee
Capital gains incentive fee
Total incentive fees
Management fee

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

  $

12,847  $
279 
113  
13,239 

1,882 
523 
2,405 
1,879 

27,321  $
6,436 
1,399 
35,156 

5,407 
(1,701)  
3,706 
3,727 

40,986  $
2,374 
797 
44,157 

6,325 
2,050 
8,375 
6,055 

52,364 
6,433 
1,677 
60,474 

8,865 
981 
9,846 
7,295 

 
 
  
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest and other ﬁnancing expenses
Professional fees
Administrative expenses
Other general and administrative expenses
Total expenses
Less: expenses waived and reimbursed (see

Note 5)
Net expenses
Net investment income
Net realized gains on investments
Net change in unrealized (depreciation)

appreciation of investments

Net increase in members' capital resulting

1,408 
393 
176 
166 
6,427 

— 
6,427 
6,812 
5,860 

3,118 
563 
939 
396 
12,449 

4,821 
1,255 
772 
556 
21,834 

(836)  

(774)  

11,613 
23,543 
3,312 

21,060 
23,097 
8,640 

6,189 
1,135 
1,698 
806 
26,969 

(1,665)
25,304 
35,170 
4,356 

(3,742)  

(12,031)  

1,072 

(141)

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) 

Cash ﬂows from operating activities
Net increase in members' capital resulting from operations

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
Net change in unrealized (appreciation) depreciation of investments
Amortization of purchase discount
Amortization of deferred ﬁnancing costs
Non-cash investment income

(Increase) decrease in operating assets:

Purchase of investments
Proceeds from sales and paydowns of investments
Cash received for purchase of undrawn portion of revolving credit or delayed draw facilities
Cash paid for purchase of drawn portion of revolving credit or delayed draw facilities
Cash paid on drawn revolvers
Cash repayments on drawn revolvers
Interest and dividend receivable
Receivable from unsettled securities sold
Receivable from afﬁliate
Other assets

Increase (decrease) in operating liabilities:

Capital gains incentive fee payable
Incentive fee payable
Management fee payable
Payable for unsettled securities purchased
Interest payable
Payable to afﬁliate
Other liabilities

Net cash ﬂows used in operating activities

Cash ﬂows from ﬁnancing activities
Net proceeds from shares sold
Dividends paid
Offering costs paid
Proceeds from Holdings Credit Facility
Repayment of Holdings Credit Facility
Proceeds from SLF Credit Facility
Repayment of SLF Credit Facility
Deferred ﬁnancing costs paid

Net cash ﬂows provided by ﬁnancing activities
Net (decrease) increase 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
Supplemental disclosure of cash ﬂow information

From
January 1, 2014
to May 7, 2014

Six months
ended
June 30, 2013

  $

32,809  $

39,385 

(8,640)
(1,072)
(997)
591 
(1,264)

(188,042)
122,821 
126 
(516)
(380)
570 
(1,006)
— 
75 
(660)

937 
2,221 
2,199 
5,716 
(721)
153 
113 
(34,967)

58,644 
(15,247)
(150)
114,482 
(137,100)
332 
— 
(18)
20,943 
(14,024)
14,981 

  $

957  $

(4,356)
141 
(1,923)
735 
(2,177)

(262,254)
201,388 
— 
— 
— 
— 
(4,862)
9,962 
(114)
(715)

981 
2,017 
505 
9,900 
45 
46 
166 
(11,130)

57,020 
(36,992)
(542)
171,818 
(169,320)
3,238 
(10,400)
(498)
14,324 
3,194 
12,752 
15,946 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
Cash interest paid

Non-cash ﬁnancing activities:

Value of members' capital issued in connection with dividend reinvestment plan
Accrual for offering costs
Accrual for deferred ﬁnancing costs

  $

  $

4,749  $

1,038  $
617 
125 

5,256 

2,496 
1,276 
25 

3

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Boards of Directors and investors of
New Mountain Finance Holdings, L.L.C.,
New Mountain Finance Corporation and
New Mountain Finance AIV Holdings Corporation
New York, New York

        We have audited the accompanying consolidated statement of assets, liabilities and members' capital of New Mountain Finance Holdings,
L.L.C., including the consolidated schedules of investments as of December 31, 2013 and 2012, and the related consolidated statements of
operations, consolidated statements of changes in members' capital, and cash ﬂows for the three years in the period ended December 31, 2013 and
the ﬁnancial highlights for each of the ﬁve years in the period ended December 31, 2013. Also, we have audited the statements of assets and
liabilities of New Mountain Finance Corporation and New Mountain Finance AIV Holdings Corporation as of December 31, 2013 and 2012, and
the related statements of operations, changes in net assets, cash ﬂows and the ﬁnancial highlights for the period from May 19, 2011(commencement
of operations) to December 31, 2011 and for the years ended December 31, 2013 and 2012. These ﬁnancial statements are the responsibility of the
management of New Mountain Finance Holdings, L.L.C., New Mountain Finance Corporation and New Mountain Finance AIV Holdings
Corporation. Our responsibility is to express an opinion on these ﬁnancial statements and ﬁnancial highlights based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). These
standards require that we plan and perform the audit to obtain reasonable assurance about whether the ﬁnancial statements are free of material
misstatement. New Mountain Finance Holdings, L.L.C. and New Mountain Finance AIV Holdings Corporation are not required to have, nor were
we engaged to perform, an audit of their internal control over ﬁnancial reporting. Our audits of New Mountain Finance Holdings, L.L.C. and New
Mountain Finance AIV Holdings Corporation included consideration of their internal control over ﬁnancial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of their internal control
over ﬁnancial reporting. Accordingly we express no such opinion for New Mountain Finance Holdings, L.L.C. and New Mountain Finance AIV
Holdings Corporation. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the ﬁnancial statements. An
audit also includes assessing the accounting principles used and signiﬁcant estimates made by management, as well as evaluating the overall
ﬁnancial statement presentation. Our procedures included conﬁrmation of investments as of December 31, 2013 and 2012, by correspondence with
the custodian, loan agent or borrower; where replies were not received, we performed other auditing procedures. We believe that our audits provide
a reasonable basis for our opinion.

        As discussed in Note 16, on February 3, 2014, New Mountain Finance AIV Holdings sold its remaining units in New Mountain Finance
Holdings, L.L.C. (the "Operating Company") and no longer owns any units of the Operating Company.

        In our opinion, such ﬁnancial statements and ﬁnancial highlights referred to above present fairly, in all material respects, the consolidated
ﬁnancial position of New Mountain Finance Holdings, L.L.C. as of December 31, 2013 and 2012, and the consolidated results of its operations, its
consolidated changes in members' capital, and its consolidated cash ﬂows for each of the three years in the period ended December 31, 2013 and the
ﬁnancial highlights for the each of the ﬁve years in the period ended December 31,2013; and the ﬁnancial positions of New Mountain Finance
Corporation and New Mountain Finance AIV Holdings Corporation as of December 31, 2013 and 2012 and the results of

4

their operations, changes in their net assets, their cash ﬂows, and the ﬁnancial highlights for the period from May 19, 2011(commencement of
operations) to December 31, 2011 and for the years ended December 31, 2013 and 2012, in conformity with accounting principles generally
accepted in the United States of America.

/s/ DELOITTE & TOUCHE LLP

 
 
  
 
  
 
 
 
 
 
 
New York, New York
March 5, 2014

5

New Mountain Finance Holdings, L.L.C.

Consolidated Statements of Assets, Liabilities and Members' Capital

(in thousands, except units and per unit data)

Assets

Investments at fair value (cost of $1,094,080 and $976,243, respectively)
Cash and cash equivalents
Interest and dividend receivable
Deferred credit facility costs (net of accumulated amortization of $3,562 and

$2,016, respectively)
Receivable from afﬁliate
Receivable from unsettled securities sold
Other assets
Total assets

Liabilities

Holdings Credit Facility
SLF Credit Facility
Capital gains incentive fee payable
Incentive fee payable
Management fee payable
Payable for unsettled securities purchased
Interest payable
Payable to afﬁliate
Dividends payable
Other liabilities
Total liabilities
Members' Capital

Total liabilities and members' capital
Outstanding common membership units
Capital per unit

December 31,
2013

December 31,
2012

  $

1,115,651  $
14,981 
10,531 

989,820 
12,752 
6,340 

4,727 
459 
— 
1,492 
1,147,841  $

5,490 
534 
9,962 
666 
1,025,564 

  $

221,849 
214,668 
7,636 
4,104 
3,856 
3,690 
814 
80 
— 
2,628 
459,325 
688,516 
1,147,841  $

206,938 
214,262 
4,407 
3,390 
3,222 
9,700 
712 
— 
11,192 
1,802 
455,625 
569,939 
1,025,564 
  40,548,189 
14.06 

14.38  $

  $

  $

  47,896,693 

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

6

New Mountain Finance Holdings, L.L.C.

Consolidated Statements of Operations

(in thousands)

Years ended December 31,

   
 
 
 
 
 
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investment income
Interest income
Dividend income
Other income
Total investment income

Expenses

Incentive fee
Capital gains incentive fee
Total incentive fees
Management fee
Interest and other credit facility expenses
Administrative expenses
Professional fees
Other general and administrative expenses
Total expenses
Less: expenses waived and reimbursed (see Note 5)
Net expenses
Net investment income
Net realized gains on investments
Net change in unrealized appreciation (depreciation) of investments        
Net increase in members' capital resulting from operations

2013

2012

2011

  $ 107,027  $ 83,646  $

5,049 
2,836 
  114,912 

812 
1,328 
  85,786 

16,502 
3,229 
19,731 
14,905 
12,470 
3,429 
2,349 
1,584 
54,468 
(3,233)  
51,235 
63,677 
7,253 
7,994 

  11,537 
4,407 
  15,944 
  11,109 
  10,085 
2,426 
2,091 
1,374 
  43,029 

  40,569 
  45,217 
  18,851 
9,928 

(2,460)  

  $

78,924  $ 73,996  $

55,809 
— 
714 
56,523 

3,522 
— 
3,522 
4,938 
7,086 
1,615 
2,037 
986 
20,184 
(2,186)
17,998 
38,525 
16,252 
(23,100)
31,677 

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

7

New Mountain Finance Holdings, L.L.C.

Consolidated Statements of Changes in Members' Capital

(in thousands)

Years ended December 31,
2012

2013

2011

Increase (decrease) in members' capital resulting from operations:

Net investment income
Net realized gains on investments
Net change in unrealized appreciation (depreciation) of investments
Net increase in members' capital resulting from operations

Contributions
Distributions
Dividends declared
Offering costs
Reinvestment of dividends

Net increase in members' capital

Members' capital at the beginning of the period
Members' capital at the end of the period

  $

45,217  $
18,851 
9,928 
73,996 
  133,428 
— 

63,677  $
7,253 
7,994 
78,924 
  100,040 
— 

38,525 
16,252 
(23,100)
31,677 
  195,295 
(10,249)
(26,591)
(59,378)  
(11,557)
(564)  
— 
1,955 
  178,575 
  149,437 
  241,927 
  420,502 
  $ 688,516  $ 569,939  $ 420,502 

(65,140)  
(331)  
5,084 
  118,577 
  569,939 

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

8

   
   
 
 
 
 
 
 
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
New Mountain Finance Holdings, L.L.C.

Consolidated Statements of Cash Flows

(in thousands)

Cash ﬂows from operating activities
Net increase in members' capital resulting from operations
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
Net change in unrealized (appreciation) depreciation of investments
Amortization of purchase discount
Amortization of deferred credit facility costs
Non-cash investment income

(Increase) decrease in operating assets:

Purchase of investments
Proceeds from sales and paydowns of investments
Cash received for purchase of undrawn portion of revolving credit or

delayed draw facilities

Cash paid for drawn revolver
Cash repayments on drawn revolvers
Interest and dividend receivable
Receivable from afﬁliate
Receivable from unsettled securities sold
Other assets

Increase (decrease) in operating liabilities:

Capital gains incentive fee payable
Incentive fee payable
Management fee payable
Payable for unsettled securities purchased
Interest payable
Payable to afﬁliate
Other liabilities

Net cash ﬂows used in operating activities

Cash ﬂows from ﬁnancing activities

Contributions
Distributions
Dividends paid
Offering costs paid
Proceeds from Holdings Credit Facility
Repayment of Holdings Credit Facility
Proceeds from SLF Credit Facility
Repayment of SLF Credit Facility
Deferred credit facility costs paid

Net cash ﬂows provided by ﬁnancing activities
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
Supplemental disclosure of cash ﬂow information

Cash interest paid

Non-cash operating activities:

Non-cash activity on investments

Non-cash ﬁnancing activities:

Years ended December 31,
2012

2013

2011

  $ 78,924  $ 73,996  $ 31,677 

(7,253)  
(7,994)  
(3,365)  
1,546 
(4,473)  

(18,851)  
(9,928)  
(5,996)  
1,160 
(2,187)  

(16,252)
23,100 
(5,862)
786 
(1,538)

  (529,695)   (673,355)   (494,694)
  231,962 
  423,874 
  426,561 

388 
— 
— 
(4,191)  
75 
9,962 
(225)  

137 
(12,705)  
12,705 
967 
(165)  
(9,962)  
(50)  

1,363 
(535)
— 
(4,299)
(369)
— 
(351)

3,229 
714 
634 
(6,010)  
102 
80 
639 

— 
2,317 
2,200 
(86,857)
934 
(394)
534 
(40,352)   (212,648)   (316,278)

4,407 
1,073 
1,021 
2,095 
(1,035)  
— 
151 

(71,248)  
(720)  

(46,231)  
(268)  

  100,040 
— 

  133,428 
— 

  195,295 
(10,249)
(26,591)
(11,557)
  457,978 
  336,508 
  523,099 
  (443,067)   (445,199)   (267,168)
  172,060 
  112,993 
(63,068)
(4,377)
  320,853 
4,575 
10,744 
  $ 14,981  $ 12,752  $ 15,319 

23,306 
(22,900)  
(808)  

42,581 
2,229 
12,752 

(64,659)  
(3,082)  

(2,567)  
15,319 

  210,081 

  $ 10,323  $

9,433  $

4,358 

  $

1,986  $

—  $

— 

— 

Dividends declared and payable
Value of members' capital issued in connection with dividend reinvestment

  $

—  $ 11,192  $

 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
 
  
 
  
 
  
 
 
  
 
  
 
  
plan

Accrual for offering costs
Accrual for deferred credit facility costs

5,084 
768 
21 

1,955 
556 
46 

— 
— 
192 

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

9

New Mountain Finance Holdings, L.L.C.

Consolidated Schedule of Investments

December 31, 2013

(in thousands, except shares)

Type of
Investment

Interest Rate

Maturity
Date

Principal
Amount,
Par Value
or Shares   Cost

Percent of
Members'
Capital

  Fair Value  

Portfolio Company, Location and

Industry(1)
Funded Debt Investments—

Bermuda
Stratus Technologies Bermuda

Holdings Ltd.(4)**
Stratus Technologies

Bermuda Ltd. / Stratus
Technologies, Inc.
Information Technology
Total Funded Debt Investments

—Bermuda

Funded Debt Investments—

Cayman Islands
Pinnacle Holdco S.à r.l. /

Pinnacle (US) Acquisition
Co Limited**
Software

Total Funded Debt Investments

—Cayman Islands

Funded Debt Investments—

United States
McGraw-Hill Global

Education Holdings, LLC
Education

Deltek, Inc.
Software

Global Knowledge
Training LLC
Education

UniTek Global Services, Inc.

  First lien(2)(7)  12.00%

3/29/2015   $

6,497  $ 6,335  $

6,529 

  $

6,497  $ 6,335  $

6,529 

  Second lien(2)  10.50% (Base Rate + 9.25%)  

7/30/2020   $

30,000  $ 29,472  $

30,362 

  $

30,000  $ 29,472  $

30,362 

  First lien(2)

  9.75%

4/1/2021   $

24,500  $ 24,348  $

27,195 

  First lien(3)

  9.00% (Base Rate + 7.75%)  

3/22/2019  

17,850 

  17,367 

42,350 

  41,715 

18,225 

45,420 

  Second lien(2)  10.00% (Base Rate + 8.75%)   10/10/2019 

41,000 

  40,977 

41,820 

0.95%

0.95%

4.41%

4.41%

6.60%

6.07%

  Second lien(2)  11.00% (Base Rate + 9.75%)   10/21/2018 

41,450 

  41,070 

41,450 

6.02%

Business Services

  First lien(2)

  First lien(2)

  First lien(2)

15.00% (Base
Rate + 9.50% +
4.00% PIK)*
15.00% (Base
Rate + 9.50% +
4.00% PIK)*
15.00% (Base
Rate + 9.50% +
4.00% PIK)*

4/15/2018  

26,382 

  25,508 

26,382 

4/15/2018  

6,387 

6,176 

6,387 

4/15/2018  

5,309 

5,133 

38,078 

  36,817 

Edmentum, Inc.(fka Plato, Inc.) 

Education

  First lien(3)

  5.50% (Base Rate + 4.50%)  

5/17/2018  

6,433 

6,240 

  Second lien(2)  11.25% (Base Rate + 9.75%)  

5/17/2019  

31,150 

  30,685 

37,583 

  36,925 

SRA International, Inc.
Federal Services
Kronos Incorporated

Software

Rocket Software, Inc.

Software

  First lien(2)

  6.50% (Base Rate + 5.25%)  

7/20/2018  

34,750 

  33,784 

34,475 

  Second lien(2)  9.75% (Base Rate + 8.50%)  

4/30/2020  

31,341 

  31,055 

32,542 

  Second lien(2)  10.25% (Base Rate + 8.75%)  

2/8/2019  

30,875 

  30,731 

31,029 

5,309 

38,078 

6,465 

31,578 

38,043 

5.53%

5.52%

5.01%

4.73%

4.51%

   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
  
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
  
 
 
 
 
 
 
  
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
Novell, Inc. (fka Attachmate

Corporation, NetIQ
Corporation)
Software

  First lien(3)

  7.25% (Base Rate + 5.75%)   11/22/2017 

6,951 

6,847 

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

23,353 

  22,780 

30,304 

  29,627 

7,080 

22,876 

29,956 

4.35%

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)

December 31, 2013

(in thousands, except shares)

Portfolio Company, Location and

Industry(1)
JHCI Acquisition, Inc.

Type of
Investment

Interest Rate

Maturity
Date

Principal
Amount,
Par Value
or Shares   Cost

Percent of
Members'
Capital

  Fair Value  

Distribution & Logistics

  First lien(3)

  7.00% (Base Rate + 5.75%)  

7/11/2019   $

19,536  $ 19,262  $

19,548 

  Second lien(3)  11.00% (Base Rate + 9.75%)  

7/11/2020  

10,000 

9,705 

29,536 

  28,967 

9,898 

29,446 

  First lien(2)

  8.00% (Base Rate + 6.75%)   11/26/2018 

30,000 

  29,261 

29,250 

  Second lien(2)  9.75% (Base Rate + 8.50%)  

10/9/2019  

28,300 

  27,842 

27,168 

  First lien(3)

  7.25% (Base Rate + 6.00%)   11/13/2017 

16,784 

  16,448 

  First lien(2)

  7.25% (Base Rate + 6.00%)   11/13/2017 

10,116 

9,953 

Meritas Schools Holdings, LLC  

Education

  First lien(3)

  7.00% (Base Rate + 5.75%)  

6/25/2019  

19,950 

  19,763 

  First lien(2)

  7.00% (Base Rate + 5.75%)  

6/25/2019  

5,920 

5,865 

26,900 

  26,401 

25,870 

  25,628 

16,616 

10,015 

26,631 

20,087 

5,961 

26,048 

  First lien(2)

  12.25%

  12/15/2018 

25,000 

  25,000 

25,000 

3.63%

  First lien(2)

  10.50%

1/15/2018  

24,500 

  24,757 

24,255 

  Second lien(2)  10.00% (Base Rate + 8.75%)  

6/20/2019  

22,500 

  22,201 

23,203 

3.52%

3.37%

  First lien(2)

  8.04% (Base Rate + 6.71%)  

6/4/2018  

22,400 

  21,892 

22,722 

3.30%

  First lien(3)

  6.25% (Base Rate + 5.00%)   12/18/2019 

13,000 

  12,870 

  First lien(2)

  6.25% (Base Rate + 5.00%)   12/18/2019 

9,000 

8,910 

22,000 

  21,780 

12,870 

8,910 

21,780 

Healthcare Services

  First lien(3)

  7.00% (Base Rate + 5.50%)  

10/6/2016  

21,077 

  20,820 

20,813 

  Second lien(3)  9.50% (Base Rate + 8.25%)   10/26/2020 

20,000 

  19,731 

20,308 

2.95%

  Second lien(2)  9.75% (Base Rate + 8.75%)  

11/4/2021  

20,000 

  19,605 

20,075 

Business Services

  First lien(3)

  7.50% (Base Rate + 6.25%)  

10/1/2019  

19,950 

  19,754 

19,992 

eResearchTechnology, Inc.

Healthcare Services

Distribution International, Inc.
Distribution & Logistics

  First lien(3)

  6.00% (Base Rate + 4.75%)  

5/2/2018  

19,750 

  19,047 

19,874 

  First lien(2)

  7.50% (Base Rate + 6.50%)  

7/16/2019  

19,900 

  19,527 

19,813 

CompassLearning, Inc.(12)

Education

Transtar Holding Company
Distribution & Logistics

KeyPoint Government

Solutions, Inc.
Federal Services

Sierra Hamilton LLC / Sierra
Hamilton Finance, Inc.
Energy

Permian Tank &

Manufacturing, Inc.
Energy

Aderant North America, Inc.

Software

YP Holdings LLC(8)
YP LLC
Media

McGraw-Hill School Education

Holdings, LLC
Education

Aspen Dental Management, Inc.

LM U.S. Member LLC (and LM
U.S. Corp Acquisition Inc.)
Business Services
Envision Acquisition
Company, LLC
Healthcare Services

ARSloane Acquisition, LLC

4.28%

4.25%

3.95%

3.87%

3.78%

3.16%

3.02%

2.91%

2.90%

2.89%

2.88%

   
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
  
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
  
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
  
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
  
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
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)

December 31, 2013

(in thousands, except shares)

Type of
Investment

Interest Rate

Principal
Amount,
Par Value
or Shares  

Maturity
Date

Cost

  Fair Value  

Percent of
Members'
Capital

Portfolio Company, Location
and Industry(1)
First American Payment

Systems, L.P.
Business Services

Healthcare Products
St. George's University

Scholastic Services LLC
Education

Sotera Defense Solutions, Inc.

(Global Defense
Technology &
Systems, Inc.)
Federal Services

OpenLink International, Inc.

Software

Smile Brands Group Inc.
Healthcare Services
Brock Holdings III, Inc.
Industrial Services
Vision Solutions, Inc.

Software
Packaging

Coordinators, Inc.(10)
Healthcare Products

Lonestar Intermediate Super

Holdings, LLC
Business Services

Van Wagner

Communications, LLC
Media

Vertafore, Inc.
Software

TransFirst Holdings, Inc.

Business Services

MailSouth, Inc.

Media

Vitera Healthcare
Solutions, LLC
Software

Harley Marine Services, Inc.
Distribution & Logistics

Consona Holdings, Inc.

Software
Physio-Control

International, Inc.
Healthcare Products

  Second lien(3)

  10.75% (Base Rate + 9.50%) 

4/12/2019   $

20,000  $ 19,654  $

19,800 

Merrill Communications LLC  

Business Services

  First lien(3)

  7.25% (Base Rate + 6.25%)  

3/8/2018  

19,425 

  19,246 

19,759 

Insight Pharmaceuticals LLC  

2.88%

2.87%

  Second lien(3)

13.25% (Base
Rate + 11.75%)

8/25/2017  

19,310 

  18,766 

19,021 

2.76%

  First lien(3)

  8.50% (Base Rate + 7.00%)   12/20/2017  

17,379 

  17,082 

17,530 

2.55%

Conﬁe Seguros Holding II Co.  

Consumer Services

  Second lien(3)

  10.25% (Base Rate + 9.00%) 

5/8/2019  

14,886 

  14,762 

15,034 

  First lien(3)

  7.50% (Base Rate + 6.00%)  

4/21/2017  

18,316 

  18,127 

16,118 

  First lien(3)

  7.75% (Base Rate + 6.25%)   10/30/2017  

14,700 

  14,496 

14,774 

  First lien(3)

  7.50% (Base Rate + 6.25%)  

8/16/2019  

14,464 

  14,261 

14,307 

  Second lien(2)

  10.00% (Base Rate + 8.25%) 

3/16/2018  

14,000 

  13,858 

14,263 

  Second lien(2)

  9.50% (Base Rate + 8.00%)  

7/23/2017  

14,000 

  13,957 

14,140 

2.34%

2.18%

2.15%

2.08%

2.07%

2.05%

  Second lien(2)

  9.50% (Base Rate + 8.25%)   11/10/2020  

14,000 

  13,868 

14,088 

2.05%

  Subordinated(2)   11.00% (Base Rate + 9.50%) 

9/2/2019  

12,000 

  11,701 

12,419 

1.80%

  First lien(2)

  6.25% (Base Rate + 5.00%)  

8/3/2018  

11,761 

  11,583 

11,997 

  Second lien(2)

  9.75% (Base Rate + 8.25%)   10/29/2017  

10,000 

9,937 

10,198 

  Second lien(3)

  11.00% (Base Rate + 9.75%) 

6/27/2018  

10,000 

9,741 

10,138 

  First lien(3)

  6.76% (Base Rate + 4.96%)   12/14/2016  

9,410 

9,333 

9,269 

  First lien(3)

  6.00% (Base Rate + 5.00%)  

11/4/2020  

  Second lien(2)

  9.25% (Base Rate + 8.25%)  

11/4/2021  

2,000 

7,000 

9,000 

1,980 

6,897 

8,877 

  Second lien(2)

  10.50% (Base Rate + 9.25%)  12/20/2019  

9,000 

8,820 

  First lien(3)

  7.25% (Base Rate + 6.00%)  

8/6/2018  

8,394 

8,326 

2,000 

7,070 

9,070 

8,820 

8,457 

1.74%

1.48%

1.47%

1.35%

1.32%

1.28%

1.23%

  First lien(2)

  9.88%

1/15/2019  

6,651 

6,651 

7,482 

1.09%

Virtual Radiologic Corporation 

Healthcare Information

Technology

  First lien(3)

  7.25% (Base Rate + 5.50%)   12/22/2016  

13,563 

  13,454 

7,324 

1.06%

   
   
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
  
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
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)

December 31, 2013

(in thousands, except shares)

Portfolio Company, Location

and Industry(1)

Alion Science and

Technology Corporation

Federal Services

Immucor, Inc.

Healthcare Services
Learning Care Group

(US), Inc.
Education

Education

Management LLC**

Type of
Investment

Interest Rate

Maturity
Date

Principal
Amount,
Par Value
or Shares

Cost

  Fair Value  

Percent of
Members'
Capital

  First lien(2)(7)

12.00% (10.00% +
2.00% PIK)*

  11/1/2014  $

6,447  $

6,360  $

6,570 

  Subordinated(2)(7)  11.13%

  8/15/2019 

5,000 

4,950 

5,650 

  Subordinated(2)

  15.00% PIK*

  Subordinated(2)

  15.00% PIK*

5/8/2020  

5/8/2020  

4,371 

800 

5,171 

4,253 

746 

4,999 

4,371 

800 

5,171 

0.95%

0.82%

0.75%

Education

  First lien(3)

GCA Services Group, Inc.

Business Services

  Second lien(2)

Sophia Holding Finance LP /

8.25% (Base Rate +
7.00%)

9.25% (Base Rate +
8.00%)

  3/30/2018 

5,003 

4,888 

5,028 

0.73%

  11/1/2020 

4,000 

3,964 

4,064 

0.59%

Sophia Holding
Finance Inc.
Software

ATI Acquisition Company

(fka Ability
Acquisition, Inc.)(11)

  Subordinated(2)

  9.63%

  12/1/2018 

3,500 

3,502 

3,623 

0.53%

Education

  First lien(2)

  First lien(2)

Total Funded Debt

Investments—United States  

17.25% (Base Rate +
10.00% + 4.00%
PIK)(5)*
17.25% (Base Rate +
10.00% + 4.00%
PIK)(5)*

6/30/2012
—
Past Due  
6/30/2012
—
Past Due  

1,665 

1,434 

103 

1,768 

94 

1,528 

233 

103 

336 

0.05%

  $ 1,016,562  $ 1,001,605  $ 1,013,641 

147.22%

  $ 1,053,059  $ 1,037,412  $ 1,050,532 

152.58%

Total Funded Debt

Investments

Equity—Bermuda

Stratus Technologies

Bermuda
Holdings Ltd.(4)**
Information Technology

Total Shares—Bermuda
Equity—United States
Crowley Holdings
Preferred, LLC

Distribution & Logistics
Black Elk Energy Offshore

Operations, LLC
Energy

Global Knowledge
Training LLC
Education

  Ordinary shares(2)  

  Preferred shares(2) 

—

—

—  

—  

156,247  $

35,558 

   $

65  $

15 

80 
80  $

46 

10 

56 
56 

0.01%
0.01%

  Preferred shares(2) 

12.00% (10.00% +
2.00% PIK)*

—  

35,000  $

35,000  $

35,000 

5.08%

  Preferred shares(2)  17.00%

—  

  20,000,000 

20,000 

20,000 

2.91%

  Ordinary shares(2)  

  Preferred shares(2) 

—

—

—  

—  

2 

2,423 

— 

— 

— 

3 

3,006 

3,009 

0.44%

 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
  
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
  
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
  
 
 
 
 
 
  
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
  
 
 
 
 
 
  
 
 
 
 
 
 
 
 
  
 
 
 
Packaging

Coordinators, Inc.(10)
Packaging Coordinators

Holdings, LLC
Healthcare Products

  Ordinary shares(2)  

—

—  

19,427 

1,000 

1,181 

0.17%

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)

December 31, 2013

(in thousands, except shares)

Type of
Investment

Interest Rate  

Maturity
Date

Principal
Amount,
Par Value
or Shares

Cost

  Fair Value  

Percent of
Members'
Capital

Preferred
shares(2)

— 

—  

372 

83  $
56,083  $
56,163  $

83 
59,273 
59,329 

0.01%
8.61%
8.62%

$
$
$

$

  Warrants(2)

  Warrants(2)

  Warrants(2)

  Warrants(2)

— 

— 

— 

— 

—  

—  

844 

3,589 

—  

5 

194  $

61 

255 

— 

503 

2,136 

2,639 

1,944 

1,694 

0.38%

0.28%

0.25%

—  

  1,014,451(6)  

1,449 

  Warrants(2)

— 

—  

360,129 

  Warrants(2)

  Warrants(2)

— 

— 

—  

—  

6,000 

20 

156 

293 

594 

0.09%

94 

0.01%

— 
2,153  $

— 
$
6,965 
$ 1,095,728  $ 1,116,826 

—%
1.01%
162.21%

Portfolio Company, Location

and Industry(1)

Ancora Acquisition LLC(11)

Education

Total Shares—United States
Total Shares
Warrants—United States

Learning Care Group (US), Inc. 

Education

YP Holdings LLC(8)
YP Equity Investors LLC

Media

UniTek Global Services, Inc.

Business Services

Storapod Holding
Company, Inc.
Consumer Services

Alion Science and Technology

Corporation
Federal Services

Ancora Acquisition LLC(11)

Education

Total Warrants—United States  
Total Funded Investments
Unfunded Debt Investments—

United States
Aspen Dental

Management, Inc.

Healthcare Services

Advantage Sales &
Marketing Inc.

Business Services
Total Unfunded Debt

Investments
Total Investments

First lien(2)(9)—
Undrawn

First lien(2)(9)—
Undrawn

— 

4/6/2016   $

5,000 

$

(388) $

(388)

(0.06)%

—  12/17/2015 

10,500 

(1,260)

(787)

(0.11)%

  $

15,500 

(1,648) $

$
(1,175)
$ 1,094,080  $ 1,115,651 

(0.17)%
162.04%

(1)

(2)

(3)

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. 

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. 

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.

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

14

New Mountain Finance Holdings, L.L.C.

Consolidated Schedule of Investments (Continued)

December 31, 2013

(in thousands, except shares)

(6)

(7)

(8)

(9)

(10)

(11)

(12)

*

**

The Operating Company holds 1,014,451 warrants in UniTek Global Services, Inc., which represents a 4.46% equity ownership on a fully diluted basis. 

Securities are registered under the Securities Act. 

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. 

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. 

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. 

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. 

The Operating Company holds an investment in CompassLearning, Inc. that is structured as a ﬁrst lien last out term loan. 

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.

15

New Mountain Finance Holdings, L.L.C.

Consolidated Schedule of Investments (Continued)

December 31, 2013

Investment Type
First lien
Second lien
Subordinated
Equity and other

  December 31, 2013

Percent of
Total Investments
at Fair Value

49.62%
42.03%
2.41%
5.94%

   
   
 
 
 
 
 
 
 
 
 
 
 
 
Total investments

100.00%

Industry Type
Software
Education
Business Services
Distribution & Logistics
Federal Services
Healthcare Services
Energy
Media
Healthcare Products
Consumer Services
Industrial Services
Healthcare Information Technology
Information Technology
Total investments

Interest Rate Type
Floating rates
Fixed rates
Total investments

  December 31, 2013

Percent of
Total Investments
at Fair Value

22.33%
21.13%
13.04%
10.78%
7.52%
7.20%
6.21%
4.12%
3.74%
1.40%
1.28%
0.66%
0.59%
100.00%

  December 31, 2013

Percent of
Total Investments
at Fair Value

85.08%
14.92%
100.00%

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) 
Funded Debt Investments—Bermuda

Stratus Technologies Bermuda

Holdings Ltd.(4)**

Stratus Technologies Bermuda Ltd. / Stratus

Technologies, Inc.

Information Technology

Total Funded Debt Investments—Bermuda  
Funded Debt Investments—Cayman

Islands
Pinnacle Holdco S.à r.l. / Pinnacle (US)

Acquisition Co Limited**

Type of
Investment  

Interest Rate

Maturity
Date

Principal
Amount,
Par
Value

or Shares   Cost

Percent
of
Members'
Capital

Fair
Value

First
lien(2)(7)

  12.00%

3/29/2015   $
  $

6,664  $ 6,396  $
6,664  $ 6,396  $

6,631 
6,631 

1.16%
1.16%

6.50% (Base

 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
Software

  First lien(3)  Rate + 5.25%)
10.50% (Base
Rate + 9.25%)

Second
lien(2)

7/30/2019   $

2,992  $ 2,971  $

2,999 

7/30/2020  

30,000 

  29,420 

32,992 

  32,391 

30,488 

33,487 

5.88%

  $ 32,992  $32,391  $ 33,487 

5.88%

Total Funded Debt Investments—Cayman

Islands

Funded Debt Investments—United

Kingdom
Magic Newco, LLC**

Software

Total Funded Debt Investments—United

Kingdom

Funded Debt Investments—United States

Edmentum, Inc.(fka Plato, Inc.)

Education

Novell, Inc. (fka Attachmate Corporation,

NetIQ Corporation)

Software

Rocket Software, Inc.

Software

Pharmaceutical Research Associates, Inc.

Healthcare Services

UniTek Global Services, Inc.

Business Services

KeyPoint Government Solutions, Inc.

Federal Services

Global Knowledge Training LLC

Education

Managed Health Care Associates, Inc.

Healthcare Services

Transtar Holding Company

Distribution & Logistics(10)
Meritas Schools Holdings, LLC

Education

Kronos Incorporated

Software

  First lien(3) 

7.25% (Base
Rate + 6.00%)

  12/12/2018  $ 14,963  $14,543  $ 15,105 

2.65%

  $ 14,963  $14,543  $ 15,105 

2.65%

  First lien(3) 
Second
lien(2)

7.50% (Base
Rate + 6.00%)
11.25% (Base
Rate + 9.75%)

  First lien(3) 
Second
lien(2)

7.25% (Base
Rate + 5.75%)
11.00% (Base
Rate + 9.50%)

Second
lien(2)

Second
lien(2)

  First lien(2) 

  First lien(2) 

  First lien(2) 

10.25% (Base
Rate + 8.75%)

10.50% (Base
Rate + 9.25%)

9.00% (Base
Rate + 7.50%)
9.00% (Base
Rate + 7.50%)
9.00% (Base
Rate + 7.50%)

5/17/2018   $ 11,700  $11,378  $ 11,744 

5/17/2019  

29,150 

  28,604 

40,850 

  39,982 

28,567 

40,311 

7.07%

  11/22/2017 

7,700 

  7,560 

7,785 

  11/22/2018 

24,000 

  23,326 

31,700 

  30,886 

23,560 

31,345 

5.50%

2/8/2019  

30,875 

  30,711 

30,933 

5.43%

6/10/2019  

30,000 

  29,402 

30,319 

5.32%

4/16/2018  

19,650 

  19,202 

19,331 

4/16/2018  

5,970 

  5,798 

5,873 

4/16/2018  

4,963 

  4,781 

4,882 

30,583 

  29,781 

30,086 

5.28%

  First lien(3) 

  First lien(2) 

7.25% (Base
Rate + 6.00%)
7.25% (Base
Rate + 6.00%)

  11/13/2017 

20,000 

  19,608 

19,900 

  11/13/2017 

10,000 

  9,703 

9,950 

  First lien(3) 

  First lien(3) 
Second
lien(2)

6.50% (Base
Rate + 4.99%)
7.25% (Base
Rate + 4.00%)
11.50% (Base
Rate + 9.75%)

  First lien(2) 
Second
lien(2)

3.47% (Base
Rate + 3.25%)
6.72% (Base
Rate + 6.50%)

Second
lien(2)

9.75% (Base
Rate + 8.50%)

  First lien(3) 
Second
lien(2)

7.50% (Base
Rate + 6.00%)
11.50% (Base
Rate + 10.00%)

30,000 

  29,311 

29,850 

5.24%

4/21/2017  

4,776 

  4,718 

4,705 

4/21/2017  

1,174 

  1,159 

1,156 

  10/21/2018 

24,250 

  23,814 

30,200 

  29,691 

23,755 

29,616 

5.20%

8/1/2014  

14,756 

  13,240 

14,276 

2/1/2015  

15,000 

  12,790 

29,756 

  26,030 

14,475 

28,751 

5.05%

10/9/2019  

28,300 

  27,787 

28,654 

5.03%

7/29/2017  

8,150 

  8,084 

8,171 

1/29/2018  

20,000 

  19,747 

28,150 

  27,831 

20,000 

28,171 

4.94%

Second
lien(2)

9.75% (Base
Rate + 8.50%)

4/30/2020  

25,000 

  24,753 

25,125 

4.41%

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) 

St. George's University Scholastic

Type of
Investment

Interest Rate

Maturity
Date

Principal
Amount,
Par
Value

or Shares   Cost

Percent
of
Members'
Capital

Fair
Value

Services LLC

Education

SRA International, Inc.

Federal Services

Aderant North America, Inc.

Software

LM U.S. Member LLC (and LM U.S.

Corp Acquisition Inc.)

Business Services

Learning Care Group (US), Inc.

Education

  First lien(2)

  First lien(3)

  First lien(2)

8.50% (Base
Rate + 7.00%)

6.50% (Base
Rate + 5.25%)
6.50% (Base
Rate + 5.25%)

  12/20/2017  $ 25,000  $24,501  $ 24,500 

4.30%

7/20/2018  

20,436 

  19,741 

19,542 

7/20/2018  

4,315 

  4,225 

4,126 

24,751 

  23,966 

23,668 

4.15%

  Second lien(2)  

11.00% (Base
Rate + 7.75%)

6/20/2019  

22,500 

  22,163 

23,062 

4.05%

  Second lien(2)  

9.50% (Base
Rate + 8.25%)

  10/26/2020 

20,000 

  19,704 

20,150 

3.54%

  First lien(2)

  12.00%

4/27/2016  

17,369 

  17,174 

  Subordinated(2)  15.00% PIK*

6/30/2016  

3,782 

  3,639 

21,151 

  20,813 

16,696 

3,434 

20,130 

3.53%

Six3 Systems, Inc.

Federal Services

  First lien(2)

First American Payment Systems, L.P.

Business Services

eResearchTechnology, Inc.

Healthcare Services

Insight Pharmaceuticals LLC

Healthcare Products
Transplace Texas, L.P.

  Second lien(2)  

  First lien(3)

  Second lien(2)  

Distribution & Logistics(10)

  Second lien(2)  

PODS, Inc.(6)

Consumer Services

PODS Funding Corp. II

  First lien(3)

7.00% (Base
Rate + 5.75%)

10.75% (Base
Rate + 9.50%)

8.00% (Base
Rate + 6.50%)

13.25% (Base
Rate + 11.75%)

11.00% (Base
Rate + 9.00%)

7.25% (Base
Rate + 6.00%)

10/4/2019  

20,000 

  19,805 

20,025 

3.51%

4/12/2019  

20,000 

  19,609 

19,900 

3.49%

5/2/2018  

19,950 

  19,202 

19,850 

3.48%

8/25/2017  

19,310 

  18,659 

19,503 

3.42%

4/12/2017  

20,000 

  19,586 

19,500 

3.42%

  11/29/2016 

14,007 

  13,668 

13,972 

5,113 

19,085 

3.35%

Storapod Holding Company, Inc. 

  Subordinated(2)  21.00% PIK*

  11/29/2017 

5,296 

  5,156 

19,303 

  18,824 

Smile Brands Group Inc.

Healthcare Services

Ascensus, Inc.

Business Services

  First lien(3)

  First lien(2)

  First lien(3)

Sotera Defense Solutions, Inc. (Global

Defense Technology & Systems, Inc.)

Federal Services

IG Investments Holdings, LLC

  First lien(3)

Business Services

OpenLink International, Inc.

Software

Landslide Holdings, Inc. (Crimson

Acquisition Corp.)

  Second lien(2)  

  First lien(3)

7.00% (Base
Rate + 5.25%)

8.00% (Base
Rate + 6.75%)
8.00% (Base
Rate + 6.75%)

7.50% (Base
Rate + 6.00%)

10.25% (Base
Rate + 9.00%)

7.75% (Base
Rate + 6.25%)

7.00% (Base

  12/21/2017 

19,859 

  19,598 

18,767 

3.29%

  12/21/2018 

8,500 

  8,330 

8,330 

  12/21/2018 

8,500 

  8,330 

8,330 

17,000 

  16,660 

16,660 

2.92%

4/21/2017  

15,758 

  15,644 

15,600 

2.74%

  10/31/2020 

15,000 

  14,852 

14,925 

2.62%

  10/30/2017 

14,850 

  14,600 

14,850 

2.61%

 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
  
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
  
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
  
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
Software

  First lien(3)

  Rate + 5.75%)

6/19/2018  

14,625 

  14,353 

14,671 

2.57%

KPLT Holdings, Inc. (Centerplate, Inc., et

al.)

Consumer Services

Sabre Inc.

Software

Brock Holdings III, Inc.

Industrial Services

Triple Point Technology, Inc.

Software

Lonestar Intermediate Super

Holdings, LLC

  Subordinated(2) 

  First lien(3)

  Second lien(2)  

  First lien(3)

Business Services

Aspen Dental Management, Inc

  Subordinated(2) 

Healthcare Services

  First lien(3)

11.75%
(10.25% + 1.50%
PIK)*

7.25% (Base
Rate + 6.00%)

10.00% (Base
Rate + 8.25%)

6.25% (Base
Rate + 5.00%)

11.00% (Base
Rate + 9.50%)

7.00% (Base
Rate + 5.50%)

4/16/2019  

14,637 

  14,351 

14,344 

2.52%

  12/29/2017 

13,965 

  13,918 

14,186 

2.49%

3/16/2018  

14,000 

  13,825 

14,105 

2.48%

  10/27/2017 

12,968 

  12,549 

13,021 

2.28%

9/2/2019  

12,000 

  11,666 

12,765 

2.24%

10/6/2016  

12,870 

  12,652 

12,210 

2.14%

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

Van Wagner Communications, LLC  

Principal
Amount,
Par
Value
or Shares  

Cost

Fair
Value

Percent
of
Members'
Capital

Media

Supervalu Inc.**

Retail

Vision Solutions, Inc.

  First lien(2)

  First lien(2)

Software

Merrill Communications LLC

  Second lien(2)

Business Services

MailSouth, Inc.

Media

Immucor, Inc.

  First lien(2)

  First lien(3)

Healthcare Services

  First lien(3)

8.25% (Base
Rate + 7.00%)

8.00% (Base
Rate + 6.75%)

9.50% (Base
Rate + 8.00%)

10.75% (Base
Rate + 7.50%)

6.75% (Base
Rate + 5.00%)

5.75% (Base
Rate + 4.50%)

  Subordinated(2)(7)

  11.13%

Virtual Radiologic Corporation

Healthcare Information

Technology

  First lien(3)

Permian Tank & Manufacturing, Inc.  

Energy

Vertafore, Inc.

Software

Merge Healthcare Inc.**
Healthcare Services
TransFirst Holdings, Inc.

  First lien(3)

  Second lien(2)

7.75% (Base
Rate + 4.50%)

9.00% (Base
Rate + 7.25%)

9.75% (Base
Rate + 8.25%)

8/3/2018   $ 12,000  $ 11,772  $ 12,160 

2.13%

8/30/2018  

11,940 

  11,597 

12,146 

2.13%

7/23/2017  

12,000 

  11,913 

11,700 

2.05%

3/10/2013  

11,422 

  11,421 

11,279 

1.98%

  12/14/2016 

11,136 

  11,018 

11,025 

1.94%

8/19/2018  

8/15/2019  

4,938 

5,000 

9,938 

4,772 

4,943 

9,715 

5,006 

5,650 

10,656 

1.87%

  12/22/2016 

14,702 

  14,550 

10,291 

1.81%

3/15/2017  

10,072 

9,852 

10,072 

1.77%

  First lien(2)(7)

  11.75%

5/1/2015  

9,000 

8,916 

9,709 

  10/29/2017 

10,000 

9,924 

10,050 

1.76%

1.70%

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

Conﬁe Seguros Holding II Co.

  First lien(3)

Consumer Services

  Second lien(2)

7.25% (Base
Rate + 6.00%)

10.25% (Base
Rate + 9.00%)

8/6/2018  

8,479 

8,398 

8,511 

1.49%

  First lien(2)

  9.88%

1/15/2019  

7,000 

7,000 

7,717 

5/8/2019  

8,000 

7,842 

8,040 

1.41%

1.35%

Physio-Control International, Inc.

Healthcare Products

Surgery Center Holdings, Inc.

Healthcare Services
Research Pharmaceutical

Services, Inc.

Healthcare Services

Alion Science and Technology

Corporation

  First lien(3)

  First lien(3)

Federal Services

GCA Services Group, Inc.

  First lien(2)(7)

Business Services

Education Management LLC**

  Second lien(2)

Education

Brickman Group Holdings, Inc.

Business Services
Ozburn-Hessey Holding

Company LLC

6.50% (Base
Rate + 5.00%)

6.75% (Base
Rate + 5.25%)

12.00%
(10.00% + 2.00%
PIK)*

9.25% (Base
Rate + 8.00%)

8.25% (Base
Rate + 7.00%)

2/6/2017  

6,834 

6,809 

6,800 

1.19%

2/18/2017  

7,125 

7,046 

6,662 

1.17%

11/1/2014  

6,320 

6,131 

6,093 

1.07%

11/1/2020  

5,000 

4,951 

4,900 

0.86%

  First lien(3)

3/30/2018  

5,058 

4,921 

4,232 

  Subordinated(2)

  9.13%

11/1/2018  

3,650 

3,342 

3,842 

0.74%

0.68%

Distribution & Logistics(10)

  Second lien(2)

YP Holdings LLC(8)
YP Intermediate Holdings Corp. / YP

Intermediate Holdings II LLC

Media

Mach Gen, LLC

Power Generation

ATI Acquisition Company (fka
Ability Acquisition, Inc.)

  Second lien(2)

  Second lien(2)

Education

  First lien(2)

  First lien(2)

  First lien(2)

11.50% (Base
Rate + 9.50%)

  10/10/2016 

4,000 

3,947 

3,680 

0.65%

15.00%
(12.00% + 3.00%
PIK)*

7.82% PIK (Base
Rate + 7.50%)*  

5/18/2017  

3,559 

3,326 

3,586 

0.63%

2/22/2015  

3,676 

3,474 

2,396 

0.42%

12.25% (Base
Rate + 5.00% +
4.00% PIK)(5)*   12/30/2014 
17.25% (Base
Rate + 10.00% +
4.00% PIK)(5)*  
17.25% (Base
Rate + 10.00% +
4.00% PIK)(5)*  

6/30/2012
—Past Due 

6/30/2012
—Past Due 

4,432 

4,306 

— 

1,665 

1,517 

649 

103 

94 

6,200 

5,917 

103 

752 

0.13%

Airvana Network Solutions Inc.

Software

  First lien(2)

Total Funded Debt Investments—

United States

Total Funded Debt Investments

10.00% (Base
Rate + 8.00%)

3/25/2015  

648 

640 

650 

0.11%

  $ 942,670  $921,787  $ 925,287 
  $ 997,289  $975,117   $ 980,510 

162.35%
172.04%

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)

Principal
Amount,
Par

Percent
of

   
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
  
 
 
 
 
 
  
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Portfolio Company, Location and Industry(1)
Equity—Bermuda

Type of
Investment  

Interest Rate

Maturity
Date

Value
or Shares  

Cost

Fair
Value

Members'
Capital

Stratus Technologies Bermuda

Holdings Ltd.(4)**

Information Technology

Total Shares—Bermuda
Equity—United States

Global Knowledge Training LLC

Education

Total Shares—United States
Total Shares
Warrants—United States
YP Holdings LLC(8)
YP Equity Investors LLC

Media

Alion Science and Technology

Corporation
Federal Services

PODS, Inc.(6)
Storapod Holding Company, Inc.

Consumer Services

Learning Care Group (US), Inc.

Education

Total Warrants—United States
Total Funded Investments
Unfunded Debt Investments—

United States
Advantage Sales & Marketing Inc.

Business Services

Total Unfunded Debt Investments
Total Investments

Ordinary
shares(2)
Preferred
shares(2)

Ordinary
shares(2)
Preferred
shares(2)

  Warrants(2) 

  Warrants(2) 

  Warrants(2) 

  Warrants(2) 

First
lien(2)(9)—
Undrawn

—

—

—

—

—

—

—

—

—

—  

  144,270  $

65  $

—  

32,830 

   $

15 

80 
80  $

65 

15 

80 
80 

—  

2  $

2  $

2 

—  

2,423 

1,195 

1,197 
1,197  $
1,277  $

   $
   $

2,423 

2,425 
2,425 
2,505 

0.01%
0.01%

0.43%
0.43%
0.44%

—  

5  $

466  $

7,230 

1.27%

—  

6,000 

293 

192 

0.03%

—  

  360,129 

156 

156 

0.03%

—  

844 

14 
194 
   $
7,592 
1,109  $
   $977,503  $ 990,607 

0.00%
1.33%
173.81%

  12/17/2015  $ 10,500  $ (1,260) $
  $ 10,500  $ (1,260) $

(787)
(787)
   $976,243  $ 989,820 

(0.14)%
(0.14)%
173.67%

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

(9)

(10)

*

**

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. 

The Holdings Credit Facility is collateralized by the indicated investments. 

The SLF Credit Facility is collateralized by the indicated investments. 

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. 

Investment is on non-accrual status. 

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. 

Securities are registered under the Securities Act. 

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. 

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. 

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

Investment Type
First lien
Second lien
Subordinated
Equity and other
Total investments

Industry Type
Software
Education
Healthcare Services
Business Services
Federal Services
Distribution & Logistics(1)
Consumer Services
Media
Healthcare Products
Industrial Services
Retail
Healthcare Information Technology
Energy
Information Technology
Power Generation
Total investments

  December 31, 2012

Percent of
Total Investments
at Fair Value

49.86%
44.56%
4.56%
1.02%
100.00%

  December 31, 2012

Percent of
Total Investments
at Fair Value

24.92%
15.17%
14.52%
14.49%
9.64%
5.23%
4.21%
3.44%
2.75%
1.42%
1.23%
1.04%
1.02%
0.68%
0.24%
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)

 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets

Investment in New Mountain Finance Holdings, L.L.C., at fair value

(cost of $633,835 and $335,730, respectively)

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

Total assets

Liabilities

Dividends payable
Total liabilities

Net assets

Preferred stock, par value $0.01 per share, 2,000,000 shares authorized,

none issued

Common stock, par value $0.01 per share 100,000,000 shares

authorized, and 45,224,755 and 24,326,251 shares issued and
outstanding, respectively
Paid in capital in excess of par
Accumulated undistributed net realized gains
Net unrealized appreciation

Total net assets

Total liabilities and net assets
Number of shares outstanding
Net asset value per share

  December 31, 2013

  December 31, 2012

  $

  $

650,107  $

— 

650,107  $

— 
— 

— 

341,926 
3,405 
345,331 

3,405 
3,405 

— 

452 
633,383 
5,056 
11,216 
650,107  $
650,107  $

45,224,755 

14.38  $

243 
335,487 
952 
5,244 
341,926 
345,331 
24,326,251 
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)

Years ended December 31,

2013

2012

From May 19, 2011
(commencement of
operations) to
December 31, 2011

Net investment income allocated from New Mountain

Finance Holdings, L.L.C.
Interest income
Dividend income
Other income
Total expenses

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

Net realized and unrealized gain (loss) allocated from

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

investments

Net realized and unrealized gain (loss) allocated from

  $

84,925  $
3,567 
2,384 
(40,355)  

36,439  $
455 
617 
(17,719)  

50,521 

19,792 

5,427 

6,016 

7,593 

4,494 

New Mountain Finance Holdings, L.L.C. 

11,443 

12,087 

13,437 
— 
232 
(5,324)

8,345 

1,141 

(5,376)

(4,235)

Total net increase in net assets resulting from operations

allocated from New Mountain Finance Holdings,
L.L.C. 

61,964 

31,879 

4,110 

   
 
 
 
 
  
 
  
 
 
 
 
 
  
 
  
 
 
 
 
 
 
 
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net change in unrealized (depreciation) appreciation of

investment in New Mountain Finance Holdings, L.L.C.   

Net increase in net assets resulting from operations
Basic earnings per share
Weighted average shares of common stock outstanding—

basic (See Note 12)
Diluted earnings per share
Weighted average shares of common stock outstanding—

(44)  
61,920  $
1.76  $

(95)  
31,784  $
2.14  $

6,221 
10,331 
0.97 

  $
  $

  35,092,722 

  14,860,838 

  $

1.79  $

2.18  $

10,697,691 
0.38 

diluted (See Note 12)

  44,021,920 

  34,011,738 

30,919,629 

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

23

New Mountain Finance Corporation

Statements of Changes in Net Assets

(in thousands)

Years ended December 31,

2013

2012

From May 19, 2011
(commencement of
operations) to
December 31, 2011

Increase (decrease) in net assets resulting from operations:

Net investment income allocated from New Mountain Finance

Holdings, L.L.C. 

$

50,521 

$

19,792  $

Net realized gains on investments allocated from New

Mountain Finance Holdings, L.L.C. 

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

Net change in unrealized (depreciation) appreciation of

5,427 

7,593 

6,016 

4,494 

investment in New Mountain Finance Holdings, L.L.C. 
Net increase in net assets resulting from operations

(44)
61,920 

(95)  

31,784 

8,345 

1,141 

(5,376)

6,221 
10,331 

Capital transactions

Net proceeds from shares sold
Deferred offering costs allocated from New Mountain Finance

Holdings, L.L.C. 

Value of shares issued for exchanged units
Dividends declared
Reinvestment of dividends

Total net increase in net assets resulting from capital

transactions

Net increase in net assets

Net assets at the beginning of the period
Net assets at the end of the period

  100,040 

  133,428 

129,865 

(281)
  193,262 
(51,844)
5,084 

(323)  

56,314 
(26,719)  
1,955 

  246,261 
  308,181 
  341,926 
  650,107 

  164,655 
  196,439 
  145,487 
$ 341,926  $

(3,998)
18,489 
(9,200)
— 

135,156 
145,487 
— 
145,487 

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

24

   
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
New Mountain Finance Corporation

Statements of Cash Flows

(in thousands)

Cash ﬂows from operating activities:
Net increase in net assets resulting from operations
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

Years ended December 31,

2013

2012

From May 19, 2011
(commencement of
operations) to
December 31, 2011

  $

61,920  $

31,784  $

10,331 

Finance Holdings, L.L.C. 

(50,521)  

(19,792)  

(8,345)

Net realized and unrealized (gains) losses allocated from New

Mountain Finance Holdings, L.L.C. 

(11,443)  

(12,087)  

Net change in unrealized depreciation (appreciation) in New

Mountain Finance Holdings, L.L.C.          

(Increase) decrease in operating assets:

44 

95 

Purchase of investment
Distributions from New Mountain Finance Holdings, L.L.C.   

Net cash ﬂows used in by operating activities        

(100,040)  
50,165 
(49,875)  

(133,428)  
23,314 
(110,114 )  

Cash ﬂows from ﬁnancing activities:

Net proceeds from shares sold
Dividends declared

Net cash ﬂows provided by ﬁnancing activities        

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 operating activities:

Distribution receivable from New Mountain Finance

Holdings, L.L.C. 

Non-cash ﬁnancing activities:

Dividends declared and payable
New Mountain Guardian Partners, L.P. exchange of New
Mountain Finance Holdings, L.L.C. units for shares

New Mountain Finance AIV Holdings Corporation exchange

of New Mountain Finance Holdings, L.L.C. units for
shares

Value of shares issued in connection with dividend

reinvestment plan

Deferred offering costs allocated from New Mountain

Finance Holdings, L.L.C. 

  $

  $

  $

100,040 
(50,165)  
49,875 
— 
— 
—  $

133,428 
(23,314)  
110,114 
— 
— 
—  $

—  $

3,405  $

—  $

(3,405) $

— 

— 

18,489 

193,262 

56,314 

5,084 

1,955 

— 

— 

(281)  

(323)  

(3,998)

4,235 

(6,221)

(129,865)
9,200 
(120,665)

129,865 
(9,200)
120,665 
— 
— 
— 

— 

— 

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)

Assets

Investment in New Mountain Finance Holdings, L.L.C., at fair value

(cost of $61,993 and $244,015, respectively)

Distributions receivable from New Mountain Finance Holdings,

L.L.C. 
Total assets

Liabilities

Dividends payable
Total liabilities

Net assets

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

outstanding

Paid in capital in excess of par
Distributions in excess of net realized gains
Net unrealized appreciation (depreciation)

Total net assets

Total liabilities and net assets

  December 31, 2013

  December 31, 2012

  $

  $

  $

38,409  $

228,013 

— 
38,409  $

— 
— 

—(1) 

61,993 
(26,812)
3,228 
38,409 
38,409  $

7,786 
235,799 

7,786 
7,786 

—(1)

244,015 
(6,676)
(9,326)
228,013 
235,799 

(1)

As of December 31, 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)

Net investment income allocated from New Mountain Finance

Holdings, L.L.C.
Interest income
Dividend income
Other income
Total expenses

Years ended December 31,

2013

2012

From May 19, 2011
(commencement of
operations) to
December 31,
2011

  $

22,102 
1,482 
452 
(10,881)

$

47,207  $
357 
712 
(22,850)  

25,399 
— 
439 
(10,063)

Net investment income allocated from New Mountain

Finance Holdings, L.L.C. 

13,155 

25,426 

15,775 

Net realized and unrealized gain (loss) allocated from New

Mountain Finance Holdings, L.L.C.
Net realized gains on investments
Net change in unrealized appreciation (depreciation) of

1,826 

11,259 

2,158 

investments

1,978 

5,433 

(10,163)

Net realized and unrealized gain (loss) allocated from New

Mountain Finance Holdings, L.L.C. 

3,804 

16,692 

Total net increase in net assets resulting from operations

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

16,959 

42,118 

(8,005)

7,770 

   
 
 
 
 
  
 
  
 
 
 
 
 
  
 
  
 
 
 
 
 
 
 
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Finance Holdings, L.L.C. 

(14,925)

381 

Net change in unrealized appreciation (depreciation) on

investment in New Mountain Finance Holdings, L.L.C. 

Net increase in net assets resulting from operations

10,576 
12,610 

1,616 
44,115  $

$

  $

— 

(6,212)
1,558 

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)

Increase (decrease) in net assets resulting from operations:

Net investment income allocated from New Mountain Finance

Holdings, L.L.C. 

  $

13,155 

$ 25,426  $

15,775 

Years ended December 31,

2013

2012

From May 19, 2011
(commencement of
operations) to
December 31,
2011

Net realized gains on investments allocated from New

Mountain Finance Holdings, L.L.C. 

Net change in unrealized appreciation (depreciation) of

investments allocated from New Mountain Finance Holdings,
L.L.C. 

Net realized (losses) gains on investment in New Mountain

Finance Holdings, L.L.C. 

Net change in unrealized appreciation (depreciation) on

investment in New Mountain Finance Holdings, L.L.C. 
Net increase in net assets resulting from operations

Capital transactions

1,826 

11,259 

2,158 

1,978 

5,433 

(10,163)

(14,925)

381 

10,576 
12,610 

1,616 
44,115 

Distribution to New Mountain Guardian AIV, L.P. 
Deferred offering costs allocated from New Mountain Finance

  (188,868)

(58,216)

Holdings, L.L.C. 

Contributions from exchanged shares
Dividends declared

Total net (decrease) increase in net assets resulting from

capital transactions

Net (decrease) increase in net assets
Net assets at the beginning of the period
Net assets at the end of the period

(50)
— 
(13,296)

(241)
— 
(32,660)

  (202,214)
  (189,604)
  228,013 
38,409 

  $

(91,117)
(47,002)
  275,015 
$ 228,013  $

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

28

New Mountain Finance AIV Holdings Corporation

— 

(6,212)
1,558 

— 

(7,559)
298,407 
(17,391)

273,457 
275,015 
— 
275,015 

   
   
 
 
 
 
 
 
 
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Statements of Cash Flows

(in thousands)

Cash ﬂows from operating activities:
Net increase in net assets resulting from operations
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

Years ended December 31,

2013

2012

From May 19, 2011
(commencement of
operations) to
December 31, 2011

  $

12,610  $

44,115  $

1,558 

Finance Holdings, L.L.C. 

(13,155)  

(25,426)  

(15,775)

Net realized and unrealized (gains) losses allocated from New

Mountain Finance Holdings, L.L.C. 

(3,804)  

(16,692)  

Net realized losses (gains) on investment in New Mountain

Finance Holdings, L.L.C. 

Net change in unrealized (appreciation) depreciation in New

Mountain Finance Holdings, L.L.C. 
(Increase) decrease in operating assets:

14,925 

(381)  

(10,576)  

(1,616)  

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

Net cash ﬂows provided by operating activities

21,082 
21,082 

24,874 
24,874 

Cash ﬂows from ﬁnancing activities:

Net proceeds from shares sold
Distribution to New Mountain Guardian AIV, L.P.          
Dividends declared

Net cash ﬂows used in ﬁnancing activities
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 operating activities:

Distribution receivable from New Mountain Finance

Holdings, L.L.C. 

Non-cash ﬁnancing activities:

Dividends declared and payable
New Mountain Guardian AIV, L.P. contribution of New

Mountain Finance Holdings, L.L.C units for shares of New
Mountain Finance AIV Holdings, L.L.C. 

Deferred offering costs allocated from New Mountain

  $

  $

  $

188,868 
(188,868)  
(21,082)  
(21,082)  

58,216 
(58,216)  
(24,874)  
(24,874)  

— 
— 
—  $

— 
— 
—  $

—  $

7,786  $

—  $

(7,786) $

8,005 

— 

6,212 

17,391 
17,391 

— 
— 
(17,391)
(17,391)
— 
— 
— 

— 

— 

— 

— 

298,407 

Finance Holdings, L.L.C. 

(50)  

(241)  

(7,559)

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

December 31, 2013

(in thousands, except units/shares and per unit/share data)

        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 $12.0 billion as of December 31, 2013, which includes
total assets held by the Operating Company. 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

30

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 (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 1. Formation and Business Purpose (Continued)

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.

        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.

        Since NMFC's IPO, and through December 31, 2013, NMFC raised approximately $233,468 in net proceeds from additional offerings of
common stock and issued shares of its common stock valued at approximately $249,576 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 December 31, 2013, NMFC and AIV Holdings owned approximately 94.4% and 5.6%, 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.

31

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 (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 1. Formation and Business Purpose (Continued)

        The diagram below depicts the Companies' organizational structure as of December 31, 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").

32

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 (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 1. Formation and Business Purpose (Continued)

        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' ﬁnancial statements are prepared in accordance with GAAP and pursuant to the requirements for reporting on Form 10-K and
Article 6 of Regulation S-X. In the opinion of management, all adjustments, consisting solely of normal recurring accruals considered necessary for
the fair presentation of ﬁnancial statements have been included.

        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

33

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 (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 2. Summary of Signiﬁcant Accounting Policies (Continued)

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. 

a.

b.

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 

For investments other than bonds, the Operating Company looks at the number of quotes readily available and performs the
following: 

i.

ii.

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. 

Investments for which one quote is received from a pricing service are validated internally. The investment
professionals of the Investment Adviser analyze the market quotes obtained using an array of valuation methods
(further described below) to validate the fair value. If the Investment Adviser is unable to sufﬁciently validate the
quote internally and if the investment's par value or its fair value exceeds the materiality threshold, the investment is
valued similarly to those assets with no readily available quotes (see (3) below).

34

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 (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 2. Summary of Signiﬁcant Accounting Policies (Continued)

(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.

b.

c.

d.

Each portfolio company or investment is initially valued by the investment professionals of the Investment Adviser
responsible for the credit monitoring; 

Preliminary valuation conclusions will then be documented and discussed with the Operating Company's senior
management; 

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 

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.

        For investments in revolving credit facilities and delayed draw commitments, the cost basis of the funded investments purchased is offset by
any netbacks received for any unfunded portion on the total balance committed. The fair value is also adjusted for the price appreciation or
depreciation on the unfunded portion. As a result, the purchase of commitments not completely funded may result in a negative fair value until it is
called and funded.

        The values assigned to investments are based upon available information and do not necessarily represent amounts which might ultimately be
realized, since such amounts depend on future circumstances and cannot be reasonably determined until the individual positions are liquidated. Due
to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the
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.

35

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 (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 2. Summary of Signiﬁcant Accounting Policies (Continued)

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

36

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 (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 2. Summary of Signiﬁcant Accounting Policies (Continued)

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.

        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 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

37

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 (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 2. Summary of Signiﬁcant Accounting Policies (Continued)

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 income taxes,
including 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, 2013. The 2011, 2012 and 2013
tax years remain subject to examination by the 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.

38

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 (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 2. Summary of Signiﬁcant Accounting Policies (Continued)

        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.

39

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 (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 2. Summary of Signiﬁcant Accounting Policies (Continued)

        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 quarter 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 quarter 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. Based on updated tax projections received during
the quarter ended December 31, 2013, the Operating Company increased dividend income previously recorded by $224 and reduced the realized
gain previously recorded by $224 to agree to the tax treatment on the investment. This resulted in a reclass of $45 from capital gains incentive fee to
incentive fee.

Note 3. Investments

        At December 31, 2013 the Operating Company's investments consisted of the following:

Investment Cost and Fair Value by Type

First lien
Second lien
Subordinated
Equity and other
Total investments

40

  $

Fair Value

Cost
550,534  $
460,078 
25,152 
58,316 

553,549 
468,945 
26,863 
66,294 
  $ 1,094,080  $ 1,115,651 

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 (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 3. Investments (Continued)

Investment Cost and Fair Value by Industry

Software
Education
Business Services
Distribution & Logistics
Federal Services
Healthcare Services
Energy
Media
Healthcare Products
Consumer Services
Industrial Services
Healthcare Information Technology
Information Technology
Total investments

  $

Fair Value

Cost
243,158  $
225,214 
140,797 
120,156 
84,965 
78,295 
69,757 
42,808 
40,285 
14,918 
13,858 
13,454 
6,415 

249,174 
235,787 
145,465 
120,247 
83,888 
80,331 
69,255 
45,932 
41,772 
15,628 
14,263 
7,324 
6,585 
  $ 1,094,080  $ 1,115,651 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
        At December 31, 2012 the Operating Company's investments consisted of the following:

Investment Cost and Fair Value by Type

First lien
Second lien
Subordinated
Equity and other
Total investments

Cost

  Fair Value

  $ 496,931  $ 493,502 
  441,073 
45,148 
10,097 
  $ 976,243  $ 989,820 

  433,829 
43,097 
2,386 

41

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 (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 3. Investments (Continued)

Investment Cost and Fair Value by Industry

Software
Education
Healthcare Services
Business Services
Federal Services
Distribution & Logistics(1)
Consumer Services
Media
Healthcare Products
Industrial Services
Retail
Healthcare Information Technology
Energy
Information Technology
Power Generation
Total investments

Cost

  Fair Value

  $ 241,742  $ 246,696 
  150,151 
  143,724 
  143,420 
95,428 
51,834 
41,625 
34,001 
27,220 
14,105 
12,146 
10,291 
10,072 
6,711 
2,396 
  $ 976,243  $ 989,820 

  155,047 
  139,370 
  140,426 
95,150 
51,320 
41,173 
26,582 
25,659 
13,825 
11,597 
14,550 
9,852 
6,476 
3,474 

(1)

Industries were disclosed separately in previously issued ﬁnancial statements.

        During the quarter ended December 31, 2013, the Operating Company sold its ﬁrst lien position in ATI Acquisition Company, resulting in a
realized loss of $4,306. Prior to the sale, this investment had a cost basis of $4,306, a zero fair value and total unearned interest income of $611 for
the year ended. As of December 31, 2013, the Operating Company's two super priority 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 year then ended and uncertainty about its
ability to pay such amounts in the future. During the third quarter of 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 December 31, 2013, the Operating
Company's investment in ATI Acquisition Company and Ancora Acquisition LLC had an aggregate cost basis of $1,611, an aggregate fair value of
$419 and total unearned interest income of $316 for the year 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

42

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 (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 3. Investments (Continued)

$5,917 and an aggregate fair value of $752. As of December 31, 2013 and December 31, 2012, unrealized gains (losses) include a fee that the
Operating Company would receive upon maturity of the two super priority ﬁrst lien debt investments.

        As of December 31, 2013, the Operating Company had unfunded commitments on revolving credit facilities and bridge facilities of $15,500
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, 2013. The unfunded commitments on revolving credit facilities are disclosed on the Operating Company's
Consolidated Schedule of Investments as of December 31, 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.

        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,

43

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 (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 4. Fair Value (Continued)

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.

44

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 (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 4. Fair Value (Continued)

        The following table summarizes the levels in the fair value hierarchy that the Operating Company's portfolio investments fall into as of
December 31, 2013:

First lien
Second lien
Subordinated
Equity and other
Total investments

  $

Level I

Level III

Total
553,549  $
468,945 
26,863 
66,294 

28,411 
55,538 
5,171 
64,600 
  $ 1,115,651  $ 1,694  $ 960,237  $ 153,720 

Level II
—  $ 525,138  $
  413,407 
— 
21,692 
— 
— 
1,694 

        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
Second lien
Subordinated
Equity and other
Total investments

  $ 493,502  $ —  $ 450,617  $
  — 
  — 
  — 

42,885 
43,255 
22,891 
10,097 
  $ 989,820  $ —  $ 870,692  $ 119,128 

  441,073 
45,148 
10,097 

  397,818 
22,257 
— 

45

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 (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 4. Fair Value (Continued)

        The following table summarizes the changes in fair value of Level III portfolio investments for the year ended December 31, 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 December 31, 2013:

Fair value, December 31, 2012
Total gains or losses included in

earnings:
Net realized (losses) gains on

investments

Total
  $ 119,128  $

First Lien

42,885 

(1,623)  

(3,986)

Net change in unrealized appreciation

(depreciation)

5,251 

4,319 

Purchases, including capitalized PIK and

Second Lien
$

43,255  $

Subordinated  

Equity and
other(3)

22,891  $

10,097 

380 

843 

380 

506 

1,603 

(417)

revolver fundings

  120,147 

28,874 

31,060 

2,620 

57,593 

Proceeds from sales and paydowns of

investments

Transfers into Level III
Transfers out of Level III
Fair value, December 31, 2013
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:

(85,910)  
6,574 
(9,847)  
  $ 153,720  $

(41,417)

(20,000)  

(21,226)  

6,574(1)  
(8,838)(1) 
$
28,411 

— 
— 
55,538  $

— 
— 
5,171  $

(3,267)
— 
(1,009)(2)
64,600 

  $

821  $

(333)

$

722  $

409  $

23 

(1)

As of December 31, 2013, 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)

(3)

As of December 31, 2013, the portfolio investments were transferred out of Level III into Level I at fair value as of the
beginning of the quarter in which the reclassiﬁcations occurred. 

During the year ended December 31, 2013, the Operating Company received dividends of $5,049 from its equity and other
investments, which were recorded as dividend income. Estimates related to the tax characterization of these distributions
were provided as of December 31, 2013.

46

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 (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 4. Fair Value (Continued)

        The following table summarizes the changes in fair value of Level III portfolio investments for the year ended December 31, 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 December 31, 2012:

Fair value, December 31, 2011
Total gains or losses included in earnings:

Total
90,967  $

  $

First Lien

Second Lien

Subordinated  

Equity and
other

33,141  $

48,405  $

6,571  $

2,850 

Net realized gains (losses) on investments  
Net change in unrealized (depreciation)

4,950 

4,927 

23 

— 

— 

appreciation

(185)  

(7,918)  

(173)  

(75)  

7,981 

Purchases, including capitalized PIK and

revolver fundings

Proceeds from sales and paydowns of

investments

Transfers into Level III(1)
Transfers out of Level III(1)
Fair value, December 31, 2012
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:

75,647 

49,205 

10,020 

16,395 

27 

(36,555)  
20,347 
(36,043)  
  $ 119,128  $

(30,328)  
19,881 
(26,023)  
42,885  $

(5,000)  
— 

(10,020)  
43,255  $

— 
— 
— 
22,891  $

(1,227)

466(2)
— 
10,097 

  $

3,689  $

(4,216) $

(1) $

(75) $

7,981 

(1)

(2)

As of December 31, 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. 

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 years ended December 31, 2013 and
December 31, 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.

 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
47

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 (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 4. Fair Value (Continued)

        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 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 December 31, 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

48

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 (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 4. Fair Value (Continued)

applying the income based approach as of December 31, 2013, the Operating Company used the discount ranges set forth in the table below to value
investments in eight of its portfolio companies.

Unobservable Input

  Low   High

Weighted
Average

Range

Type
First lien

Second lien

Subordinated

Equity and other

  Fair Value
  $

Approach
28,411  Market approach
Income approach
55,538  Market approach
Income approach
5,171  Market approach
Income approach
64,600  Market approach
Income approach

  EBITDA multiple
  Discount rate
  EBITDA multiple
  Discount rate
  EBITDA multiple
  Discount rate
  EBITDA multiple
  Discount rate

  $ 153,720  Black Scholes analysis   Expected life in years

7.0x   10.0x  
9.2%   10.2%  
7.5x  
5.0x  
  10.1%   11.7%  
9.0x  
  13.0%   15.0%  
7.5x  
1.3x  
8.0%   20.0%  
2.0 

7.0x  

4.0 

  Volatility
  Discount rate

  21.0%   36.6%  
3.0%  

0.3%  

8.5x
9.7%
6.2x
11.1%
8.0x
14.0%
4.7x
13.6%
2.6 
27.9%
0.8%

        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 December 31, 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 year ended December 31, 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.

49

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 (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

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 an administration agreement, as amended and restated (the
"Administration Agreement"), with the Administrator, and any interest expense and distributions paid on any issued and outstanding preferred
membership units (of which there are none as of December 31, 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

50

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 (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 5. Agreements (Continued)

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:

•

•

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

51

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 (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 5. Agreements (Continued)

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 years ended December 31,
2013, December 31, 2012 and December 31, 2011.

Years ended December 31,
2012

2013

2011(1)

Management fee
Incentive fee, excluding accrued capital gains incentive fees
Accrued capital gains incentive fees(2)

  $ 14,905  $ 11,109  $ 4,938 
3,522 
— 

  16,502 
3,229 

  11,537 
4,407 

(1)

(2)

For the period from May 19, 2011 (effective date of the Investment Management Agreement) to December 31, 2011. 

As of December 31, 2013, approximately $1,113 of capital gains incentive fees was owed under the Investment
Management Agreement, as cumulative net Adjusted Realized Capital Gains exceeded cumulative Adjusted
Unrealized Capital Depreciation. As of December 31, 2012 and December 31, 2011, 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. As of December 31, 2013, December 31, 2012 and
December 31, 2011, no payments have been made relating to the capital gains incentive fee.

        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.

52

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 (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 5. Agreements (Continued)

        The following Statement of Operations for the year ended December 31, 2013 is adjusted to reﬂect this step-up to fair market value.

Year ended
December 31,
2013

Stepped-up
Cost Basis
Adjustments

Adjusted
year ended
December 31,
2013

Investment income
Interest income(1)
Dividend income
Other income
Total investment income
Total net expenses pre-incentive fee(2)
Pre-Incentive Fee Net Investment Income

Incentive fee(3)

  $

Post-Incentive Fee Net Investment Income
Net realized gains (losses) on investments
Net change in unrealized appreciation of investments
Net increase in members' capital resulting from operations

  $

107,027  $
5,049 
2,836 
114,912 
31,504 
83,408 
19,731 
63,677 

7,253(4) 
7,994 
78,924 

(896) $
— 
— 
(896)  
— 
(896)  
— 
(896)  
(3,158)  
4,054 

   $

106,131 
5,049 
2,836 
114,016 
31,504 
82,512 
19,731 
62,781 
4,095 
12,048 
78,924 

(1)

(2)

(3)

(4)

Includes $3,428 in payment-in-kind interest from investments. 

Includes expense waivers and reimbursements of $3,233. 

For the year ended December 31, 2013, the Operating Company incurred total incentive fees of $19,731, of which $3,229
related to capital gains incentive fees on a hypothetical liquidation basis. 

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.

53

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 (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 5. Agreements (Continued)

 
 
 
 
 
 
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
        The following Statement of Operations for the year ended December 31, 2012 is adjusted to reﬂect this step-up to fair market value.

Year ended
December 31,
2012

Stepped-up
Cost Basis
Adjustments

Adjusted
year ended
December 31,
2012

Investment income
Interest income
Dividend income
Other income
Total investment income
Total expenses pre-incentive fee(1)

Pre-Incentive Fee Net Investment Income

Incentive fee(2)

  $

Post-Incentive Fee Net Investment Income
Net realized gains (losses) on investments
Net change in unrealized appreciation of investments
Net increase in members' capital resulting from operations

  $

83,646  $
812 
1,328 
85,786 
24,625 
61,161 
15,944 
45,217 
18,851 
9,928 
73,996 

(3,476) $
— 
— 
(3,476)  
— 
(3,476)  
— 
(3,476)  
(6,958)  
10,434 

   $

80,170 
812 
1,328 
82,310 
24,625 
57,685 
15,944 
41,741 
11,893 
20,362 
73,996 

(1)

(2)

Includes expense waivers and reimbursements of $2,460. 

For the year ended December 31, 2012, the Operating Company incurred total incentive fees of $15,944, of which $4,407
related to capital gains incentive fees on a hypothetical liquidation basis.

54

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 (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 5. Agreements (Continued)

        The following Statement of Operations for the Operating Company for the period May 19, 2011 (effective date of the Investment Management
Agreement) to December 31, 2011 is adjusted to reﬂect this step-up to fair market value.

Period from
May 19, 2011
to December 31,
2011

Stepped-up
Cost Basis
Adjustments

Adjusted
period from
May 19, 2011
to December 31,
2011

Investment income
Interest income
Other income
Total investment income
Total expenses pre-incentive fee(1)

  $

Pre-Incentive Fee Net Investment Income

Incentive fee(2)

Post-Incentive Fee Net Investment Income
Net realized gains (losses) on investments
Net change in unrealized (depreciation) appreciation of

investments

Net increase in members' capital resulting from operations   $

38,836  $
670 
39,506 
11,863 
27,643 
3,522 
24,121 
3,298 

(2,019) $
— 
(2,019)  
— 
(2,019)  
— 
(2,019)  
(2,422)  

36,817 
670 
37,487 
11,863 
25,624 
3,522 
22,102 
876 

(15,538)  
11,881 

4,441 

   $

(11,097)
11,881 

 
 
 
 
 
 
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)

(2)

Includes expense waivers and reimbursements of $2,186. 

For the year ended December 31, 2011, the Operating Company had no incentive fees related to capital gains incentive fees
on a hypothetical liquidation basis.

        The Companies have entered into an Administration Agreement 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 expenses incurred by the Administrator in performing its obligations to the Companies under the Administration Agreement.
Pursuant to the Administration Agreement 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.

55

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 (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 5. Agreements (Continued)

        The Operating Company has revised its presentation of expenses and expense waivers and reimbursements for the years ended December 31,
2012 and December 31, 2011. 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 years ended December 31, 2013, December 31,
2012 and December 31, 2011:

Professional fees
Administrative expenses
Other general and administrative expenses
Total expense waivers and reimbursements

2011

2013

Years ended December 31,
2012
  $ 1,773  $ 1,070  $ 1,315 
871 
— 
  $ 3,233  $ 2,460  $ 2,186 

1,460 
— 

1,390 
— 

        As of December 31, 2013 and December 31, 2012, $459 and $534, respectively, 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

56

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 (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 5. Agreements (Continued)

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 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 December 31, 2013, NMFC and AIV Holdings own approximately 94.4% and 5.6%,
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.

57

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 (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 6. Related Parties (Continued)

        The Companies have entered into an Administration Agreement 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. 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 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 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 expense cap will expire on
March 31, 2014. Thereafter, the Administrator may, in its own discretion, submit to the Operating Company for reimbursement some or all of the
expenses that the Administrator has incurred on behalf of the Operating Company during any quarterly period. As a result, the amount of expenses
for which the Operating Company will have to reimburse the Administrator may ﬂuctuate in future quarterly periods and there can be no assurance
given as to when, or if, the Administrator may determine to limit the expenses that the Administrator submits to the Operating Company for
reimbursement in the future. However, it is expected that the Administrator will continue to support part of the expense burden of the Operating
Company in the near future.

        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.

58

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 (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 6. Related Parties (Continued)

        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.

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 $280,000, as amended on October 28, 2013. As
of December 31, 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).

59

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 (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 7. Borrowing Facilities (Continued)

        The following table summarizes the interest expense and non-usage fees incurred by the Operating Company on the Holdings Credit Facility
for the years ended December 31, 2013, December 31, 2012 and December 31, 2011.

Interest expense
Non-usage fee
Weighted average interest rate
Average debt outstanding

Years ended December 31,
2012

2013

2011

  $
  $

$
5,487 
367 
$
2.9%  

$
4,172 
281 
$
3.1%  

2,043 
608 
3.2%

  $ 184,124 

$ 133,600 

$ 61,561 

        The outstanding balance of Holdings Credit Facility as of December 31, 2013, December 31, 2012 and December 31, 2011 was $221,849,
$206,938 and $129,038, 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 December 31, 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 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).

60

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 (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 7. Borrowing Facilities (Continued)

        The following table summarizes the interest expense and non-usage fees incurred by the Operating Company on the SLF Credit Facility for the
years ended December 31, 2013, December 31, 2012 and December 31, 2011.

Interest expense
Non-usage fee
Weighted average interest rate
Average debt outstanding

Years ended December 31,
2012

2013

2011

  $
  $

$
4,891 
$
3 
2.3%  

$
4,274 
$
22 
2.3%  

3,369 
94 
2.5%

  $ 214,317 

$ 181,395 

$ 133,825 

        The outstanding balance as of December 31, 2013, December 31, 2012 and December 31, 2011 was $214,668, $214,262 and $165,928,
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

 
 
 
 
 
 
 
 
 
 
61

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 (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 8. Regulation (Continued)

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).

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 December 31, 2013, the Operating Company had unfunded commitments on
revolving credit facilities of $15,500, and no outstanding bridge ﬁnancing commitments or 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
December 31, 2013. See Note 7, Borrowing Facilities, for details.

        The Operating Company may from time to time enter into ﬁnancing commitment letters. As of December 31, 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. Distributions

        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. During the years ended December 31, 2013,
December 31, 2012 and December 31, 2011, NMFC did not have any reclassiﬁcations of amounts for book purposes arising from permanent
book/tax differences. During the years ended December 31, 2013, December 31, 2012 and December 31, 2011, AIV Holdings had

62

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 (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 10. Distributions (Continued)

reclassiﬁcations of amounts for book purposes arising from permanent book/tax differences related to return of capital distributions and consent
dividends, respectively.

Undistributed net investment income
Distributions in excess of net realized gains
Additional paid-in-capital

December 31, 2013
AIV
Holdings

December 31, 2012
AIV
Holdings

December 31, 2011
AIV
Holdings

  NMFC  
—  $ —  $

  NMFC  
—  $ —  $

(21,821)   — 
  — 
21,821 

(9,707)   — 
  — 
9,707 

  NMFC  
  $ —  $
  — 
  — 

— 
(1,536)
1,536 

        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. The tax character of distributions paid by NMFC and AIV Holdings for the years ended
December 31, 2013, December 31, 2012 and December 31, 2011 were estimated to be as follows:

Years ended December 31,

NMFC

2013
  AIV Holdings

NMFC

  AIV Holdings

  NMFC

  AIV Holdings

2012

2011

Ordinary income(non-qualiﬁed)   $ 44,778  $
Ordinary income (qualiﬁed)
Capital gains
Return of capital
Total

2,742 
4,324 
— 

  $ 51,844  $

19,972  $ 26,218  $

716 
— 
181,476 
202,164  $ 26,719  $

— 
501 
— 

40,692  $ 8,944  $

— 
2,056 
48,128 
90,876  $ 9,200  $

— 
256 
— 

14,694 
— 
2,697 
— 
17,391 

        As of December 31, 2013, the costs of investments for NMFC and AIV Holdings for tax purposes were $642,704 and $68,547, respectively. As
of December 31, 2012, the costs of investments for NMFC and AIV Holdings for tax purposes were $343,248 and $245,659, respectively. As of
December 31, 2013, NMFC and AIV Holdings had capital loss carryforwards of approximately zero and $15,772, respectively.

        At December 31, 2013, December 31, 2012 and December 31, 2011, the components of distributable earnings on a tax basis differ from the
amounts reﬂected per NMFC's and AIV Holdings' respective Statements of Assets and Liabilities by temporary book/tax differences primarily
arising from differences between the tax and book basis of NMFC's and AIV Holdings' respective investment in the Operating Company and
undistributed income.

63

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 (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 10. Distributions (Continued)

        As of December 31, 2013, December 31, 2012 and December 31, 2011, the components of accumulated earnings / (deﬁcit) on a tax basis were
as follows:

Accumulated capital gains /

(losses)

Other temporary differences
Undistributed ordinary income
Unrealized (appreciation) /

depreciation

Components of distributable

NMFC

2013
  AIV Holdings

Years ended December 31,

NMFC

2012
  AIV Holdings

2011

  NMFC   AIV Holdings

  $

—  $

  10,070 
3,856 

(15,772) $
(4,982)  
— 

—  $

—  $ —  $

7,942 
528 

(5,032)   — 
66 

— 

— 
— 
1,778 

2,346 

(2,830)  

(2,274)  

(10,970)  

823 

(886)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
earnings

  $ 16,272  $

(23,584) $

6,196  $

(16,002) $

889  $

892 

        NMFC and AIV Holdings are 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. For the year ended December 31, 2012, both NMFC and AIV Holdings had no accrued estimated excise taxes. For the year ended
December 31, 2013, NMFC and AIV Holdings accrued estimated excise taxes of $2.3 and zero, respectively.

64

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 (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 11. Stockholders' Equity

        The table below illustrates the effect of certain transactions on the capital accounts of NMFC:

Common Stock

Shares

  Par Amount

Paid in Capital
in Excess
of Par

Undistributed
Net Investment
Income

Accumulated
Undistributed Net
Realized Gains

Net Unrealized
Appreciation
(Depreciation)

Total
Stockholders'
Equity

—  $

—  $

—  $

—  $

—  $

—  $

— 

  7,272,727 

  2,172,000 

  1,252,964 

— 
— 

— 

73 

22 

12 

— 
— 

— 

99,927 

29,843 

18,477 

— 

— 

— 

— 

— 

— 

— 

100,000 

— 

29,865 

— 

18,489 

(3,998)
— 

— 
(8,345)

— 
(855)

— 
— 

(3,998)
(9,200)

— 

8,345 

1,141 

845 

10,331 

  10,697,691  $

107  $

144,249  $

  13,628,560 

136 

191,561 

—  $

— 

286  $

845  $

145,487 

— 

— 

191,697 

— 
— 

— 

— 
— 

— 

(323)
— 

— 
(19,792)

— 
(6,927)

— 
— 

(323)
(26,719)

— 

19,792 

7,593 

4,399 

31,784 

  24,326,251  $

243  $

335,487  $

  20,898,504 

209 

298,177 

—  $

— 

952  $

5,244  $

341,926 

— 

— 

298,386 

Balance at

December 31,
2010

Issuances of

common stock in
the IPO(1)
Issuances of

common stock in
private
placement(2)

Issuances of

common stock to
New Mountain
Guardian(3)
Deferred offering
costs allocated
from New
Mountain
Finance
Holdings, L.L.C.  
Dividends declared  
Net increase in
stockholders'
equity resulting
from operations  

Balance at

December 31,
2011

Issuances of

common stock
Deferred offering
costs allocated
from New
Mountain
Finance
Holdings, L.L.C.  
Dividends declared  
Net increase in
stockholders'
equity resulting
from operations  

Balance at

December 31,
2012

Issuances of

common stock
Deferred offering

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
costs allocated
from New
Mountain
Finance
Holdings, L.L.C.  
Dividends declared  
Net increase in
stockholders'
equity resulting
from operations  

Balance at

December 31,
2013

— 
— 

— 

— 
— 

— 

(281)
— 

— 
(50,521)

— 
(1,323)

— 
— 

(281)
(51,844)

— 

50,521 

5,427 

5,972 

61,920 

  45,224,755  $

452  $

633,383  $

—  $

5,056  $

11,216  $

650,107 

(1)

(2)

(3)

On May 19, 2011, NMFC priced its 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 the Concurrent Private Placement. 

On May 19, 2011, NMFC issued 1,252,964 share of common stock to New Mountain Guardian Partners, L.P. for their respective ownership interest in the
Predecessor Entities.

65

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 (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 11. Stockholders' Equity (Continued)

        The table below illustrates the effect of certain transactions on the capital accounts of AIV Holdings:

Common Stock

  Shares   Par Amount

Paid in Capital
in Excess
of Par

Undistributed
Net Investment
Income

Distributions
In Excess of Net
Realized Gains

Net Unrealized
(Depreciation)
Appreciation  

Total
Stockholder's
Equity

—  $

—  $

—  $

—  $

—  $

—  $

— 

100 

—(1) 

298,407 

— 

— 

— 

298,407 

— 

— 

— 

— 

(7,559)

— 

— 

(15,775)

— 

(1,616)

— 

— 

(7,559)

(17,391)

— 

— 

— 

15,775 

2,158 

(16,375)

1,558 

— 

— 

1,536 

— 

(1,536)

— 

— 

100  $

—(1)$

292,384  $

—  $

(994) $

(16,375) $

275,015 

Balance at

December 31,
2010
Issuance of

common stock
to New
Mountain
Guardian
AIV, L.P.(2)
Deferred offering
costs allocated
from New
Mountain
Finance
Holdings,
L.L.C. 
Dividends
declared
Net increase

(decrease) in
stockholder's
equity resulting
from operations 

Tax

reclassiﬁcations
related to
consent
dividends (See
Note 10)
Balance at

December 31,
2011

Deferred offering
costs allocated
from New

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mountain
Finance
Holdings,
L.L.C. 
Dividends
declared
Distribution to

New Mountain
Guardian
AIV, L.P. 
Net increase in
stockholder's
equity resulting
from operations 

Tax

reclassiﬁcations
related to return
of capital
distributions
(See Note 10)

Balance at

December 31,
2012

Deferred offering
costs allocated
from New
Mountain
Finance
Holdings,
L.L.C. 
Dividends
declared
Distribution to

New Mountain
Guardian
AIV, L.P. 
Net increase

(decrease) in
stockholder's
equity resulting
from operations 

Tax

reclassiﬁcations
related to return
of capital
distributions
(See Note 10)

Balance at

December 31,
2013

— 

— 

— 

— 

— 

— 

— 

— 

(241)

— 

— 

(25,426)

— 

(7,234)

(57,835)

— 

(381)

— 

— 

— 

(241)

(32,660)

(58,216)

— 

25,426 

11,640 

7,049 

44,115 

— 

— 

9,707 

— 

(9,707)

— 

— 

100  $

—(1)$

244,015  $

—  $

(6,676) $

(9,326) $

228,013 

— 

— 

— 

— 

— 

(50)

— 

— 

(13,155)

— 

(141)

— 

— 

(50)

(13,296)

— 

(203,793)

— 

14,925 

— 

(188,868)

— 

— 

— 

13,155 

(13,099)

12,554 

12,610 

— 

— 

21,821 

— 

(21,821)

— 

— 

100  $

—(1)$

61,993  $

—  $

(26,812) $

3,228  $

38,409 

(1)

(2)

As of December 31, 2013, December 31, 2012 and December 31, 2011, the par amount of the total common stock was $1. 

On May 19, 2011, AIV Holdings issued 100 shares of common stock to New Mountain Guardian AIV, L.P. for their respective ownership interest in the
Predecessor Entities.

66

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 (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 12. 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 year ended December 31, 2013, December 31, 2012 and the period from May 19, 2011 (commencement of operations) to December 31,
2011:

Years ended December 31,

May 19, 2011
(commencement of

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
   
 
 
 
 
Numerator for basic earnings per share:
Denominator for basic weighted average share:
Basic earnings per share:
Numerator for diluted earnings per share(a):
Denominator for diluted weighted average share(b):
Diluted earnings per share:

2013

2012

  $

61,920  $

31,784  $

  35,092,722 

  14,860,838 

  $
  $

1.76  $
78,924  $

2.14  $
73,996  $

  44,021,920 

  34,011,738 

  $

1.79  $

2.18  $

operations) to
December 31,
2011

10,331 
10,697,691 
0.97 
11,881 
30,919,629 
0.38 

(a)

(b)

Includes the full income at the Operating Company for the period. For the period May 19, 2011 (commencement of
operations) to December 31, 2011, NMFC's unrealized appreciation in the Operating Company resulting from the IPO is
netted against AIV Holdings' unrealized depreciation in the Operating Company resulting from the IPO. 

Assumes all AIV Holdings units in the Operating Company were exchanged for public shares of NMFC during the years
ended December 31, 2013, December 31, 2012 and for the period from May 19, 2011 to December 31, 2011, respectively
(see Note 1, Formation and Business Purpose).

67

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 (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 13. Financial Highlights

        The following information sets forth the ﬁnancial highlights for the Operating Company for the respective years ended December 31st.

Total return based on net

asset value(a)

Average net assets for the

2013

2012

2011

2010

2009

Years ended December 31,

13.27%  

16.61%  

10.09%  

26.54%  

76.38%

period

$

630,156 

$

474,561 

$

361,031 

$ 245,951 

$ 195,467 

Ratio to average net assets:
Net investment income
Total expenses (gross)
Total expenses (net of

reimbursable expenses)  

Net assets, end of year
Average debt outstanding—

Holdings Credit Facility  

Average debt outstanding—

SLF Credit Facility

Weighted average common

membership units
outstanding for the year

Asset coverage ratio
Portfolio turnover

N/A—Not applicable.

10.10%  
8.64%  

9.53%  
9.07%  

10.67%  
5.59%  

15.23%  
1.59%  

10.44%
0.72%

8.13%  
$

688,516 

8.55%  
$

569,939 

4.99%  

1.59%  

0.72%

420,502 

$ 241,927 

$ 239,441 

184,124 

214,317 

$

$

133,600 

181,395 

$

$

61,561 

133,825 

$

$

68,343 

$

65,014 

27,672 

N/A 

$

$

$

  44,021,920 

  34,011,738 

  30,919,629(b)

257.73%  
40.52%  

235.31%  
52.02%  

242.56%  
42.13%  

N/A 
307.43%  
76.69%  

N/A 
407.98%
57.50%

(a)

For the years ended December 31, 2013 and December 31, 2012, 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 respective year. 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. For the year ended December 31, 2011, total return is calculated in two parts: (1) from the opening of
the ﬁrst day of the year to NMFC's IPO date, total return is calculated based on net income over weighted average net assets
and (2) from NMFC's IPO date to the last day of the year, total return is calculated assuming a purchase at net asset value on
NMFC's IPO date and a sale at net asset value on the last day of the year. 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. For the years
ended December 31, 2010 and December 31, 2009, total return is the ratio of net income compared to capital, adjusted for
capital contributions and distributions. 

(b)

Weighted average common membership units outstanding presented from May 19, 2011 to December 31, 2011, as the fund
became unitized on May 19, 2011, the IPO date.

68

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 (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 13. Financial Highlights (Continued)

  Years ended December 31,

2013

2012

May 19, 2011
(commencement of
operations) to
December 31,
2011

Per unit data for the Operating Company(a):
Net asset value, January 1, 2013, January 1, 2012 and May 19,

2011(b), respectively
Net investment income
Net realized and unrealized gains (losses)        
Dividends from net investment income

Net increase (decrease) in net assets resulting from operations
Net asset value, December 31, 2013, December 31, 2012 and

$

$ 14.06 
1.45 
0.35 
(1.48)
0.32 

$ 13.60 
1.33 
0.84 
(1.71)
0.46 

December 31, 2011, respectively

$ 14.38 

$ 14.06 

$

14.08 
0.78 
(0.40)
(0.86)
(0.48)

13.60 

(a)

(b)

Per unit data is based on weighted average common membership units outstanding. 

Data presented from May 19, 2011 to December 31, 2011 as the fund became unitized on May 19, 2011, the IPO date.

69

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 (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Note 13. Financial Highlights (Continued)

        The following information sets forth the ﬁnancial highlights for NMFC for the year ended December 31, 2013, December 31, 2012 and the
period May 19, 2011 to December 31, 2011. The ratios to average net assets have been annualized for the period May 19, 2011 to December 31,
2011.

Per share data(a):
Net asset value, January 1, 2013, January 1, 2012 and

May 19, 2011(b), respectively

$

14.06 

$

13.60 

$

13.50 

Years ended December 31,

2013

2012

May 19, 2011
(commencement of
operations) to
December 31,
2011

Net increase (decrease) in net assets resulting from

operations allocated from New Mountain Finance
Holdings, L.L.C.:
Net investment income
Net realized and unrealized gains (losses)

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

Dividends declared
Net asset value, December 31, 2013, December 31,

2012 and December 31, 2011, respectively
Per share market value, December 31, 2013,

December 31, 2012 and December 31, 2011,
respectively

Total return based on market value(c)
Total return based on net asset value(d)
Shares outstanding at end of period
Average weighted shares outstanding for the period
Average net assets for the period
Ratio to average net assets(e):

Total expenses allocated from New Mountain

Finance Holdings, L.L.C. 

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

1.45 
0.35 
1.80 

— 
(1.48)

1.33 
0.84 
2.17 

— 
(1.71)

$

$

14.38 

$

14.06 

$

15.04 
$
11.62%  
13.27%  

14.90 
$
24.84%  
16.61%  

0.78 
(0.40)
0.38 

0.58 
(0.86)

13.60 

13.41 
4.16%
2.82%

  45,224,755 
  35,092,722 
502,822 
$

  24,326,251 
  14,860,838 
196,312 
$

$

10,697,691 
10,697,691 
147,766 

8.13%  

8.55%  

10.10%  

9.53%  

5.79%

9.08%

(a)

(b)

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. 

Data presented from May 19, 2011 to December 31, 2011 as the fund became unitized on May 19, 2011, the IPO date.

70

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 (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 13. Financial Highlights (Continued)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
 
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
 
 
 
(c)

(d)

(e)

For the years ended December 31, 2013, December 31, 2012 and for the period May 19, 2011 to December 31, 2011, total
return is calculated assuming a purchase of common stock at the opening of the ﬁrst day of the years ended 2013 and 2012,
and assuming a purchase of common stock at IPO, respectively, and a sale on the closing of the last day of the respective year.
Dividends and distributions, if any, are assumed for purposes of this calculation, to be reinvested at prices obtained under
NMFC's dividend reinvestment plan. 

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. 

Ratio to average net assets for the years ended December 31, 2013 and December 31, 2012 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.

        The following information sets forth the ﬁnancial highlights for AIV Holdings for the year ended December 31, 2013, December 31, 2012 and
the period May 19, 2011 to December 31, 2011. The ratios to average net assets have been annualized for the period May 19, 2011 to December 31,
2011.

Years ended
December 31,

2013

2012

May 19, 2011
(commencement of
operations) to
December 31,
2011

Total return based on net asset value(a)
Average net assets for the period
Ratio to average net assets(b):

Total expenses allocated from New Mountain Finance

Holdings, L.L.C. 

Net investment income allocated from New Mountain

Finance Holdings, L.L.C. 

7.69%  

18.04%  
$

$ 270,081 

$ 127,334 

(5.44)%

279,323 

8.13%  

8.55%  

10.10%  

9.53%  

5.79%

9.08%

(a)

(b)

For the years ended December 31, 2013, December 31, 2012 and for the period May 19, 2011 to December 31, 2011, 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 business 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. 

Ratio to average net assets for the years ended December 31, 2013 and December 31, 2012 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.

71

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 (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 14. Selected Quarterly Financial Data (unaudited)

        The below selected quarterly ﬁnancial data is for the Operating Company.

(in thousands except for per unit data)

Total Net Realized
Gains and
Net Changes in
Unrealized
Appreciation

Net Increase
(Decrease) in

 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
 
 
 
Investment Income
Per
Unit

Net Investment
Income

Total

Per
Unit

Total

Quarter Ended
December 31, 2013   $ 28,645  $
September 30, 2013  
June 30, 2013
March 31, 2013

  25,793 
  35,156 
  25,318 

0.60  $ 15,848  $
0.57 
0.82 
0.62 

  12,659 
  23,543 
  11,627 

December 31, 2012   $ 24,713  $
September 30, 2012  
June 30, 2012
March 31, 2012

  21,752 
  20,299 
  19,022 

0.65  $ 13,522  $
0.60 
0.66 
0.62 

  10,136 
  11,646 
9,913 

(Depreciation)
of Investments

Capital Resulting
from Operations

Total

3,213  $
7,819 
(8,719)  
12,934 

Per
Unit

0.07  $
0.17 
(0.21)  
0.32 

Total
19,061  $
20,478 
14,824 
24,561 

3,478  $

12,109 

(561)  

13,754 

0.09  $
0.34 
(0.02)  
0.45 

17,000  $
22,245 
11,085 
23,667 

Per
Unit

0.40 
0.46 
0.34 
0.60 

0.45 
0.62 
0.36 
0.77 

0.33  $
0.29 
0.55 
0.28 

0.36  $
0.28 
0.38 
0.32 

December 31, 2011   $ 17,127  $
September 30, 2011  
June 30, 2011
March 31, 2011

  15,069 
  13,116 
  11,212 

9,540  $

0.55  $
0.49 
0.42 
N/A 

  10,002 
9,554 
9,429 

0.31  $
0.32 
0.31 
N/A 

8,317  $
(21,255)  
(899)  
6,990 

0.27  $
(0.68)  
(0.03)  
N/A 

17,857  $
(11,253)  
8,655 
16,419 

0.58 
(0.36)
0.28 
N/A 

December 31, 2010   $
September 30, 2010  
June 30, 2010
March 31, 2010

9,820 
  13,881 
8,597 
9,077 

December 31, 2009   $
September 30, 2009  
June 30, 2009
March 31, 2009

7,617 
6,148 
5,092 
2,910 

N/A  $
N/A 
N/A 
N/A 

8,335 
  13,145 
7,777 
8,208 

N/A  $
N/A 
N/A 
N/A 

6,617 
6,030 
4,877 
2,883 

N/A  $
N/A 
N/A 
N/A 

N/A  $
N/A 
N/A 
N/A 

7,978 
5,560 
(5,349)  
18,138 

1,617 
33,709 
42,562 
27,385 

N/A  $
N/A 
N/A 
N/A 

N/A  $
N/A 
N/A 
N/A 

16,313 
18,705 
2,428 
26,346 

8,234 
39,739 
47,439 
30,268 

N/A 
N/A 
N/A 
N/A 

N/A 
N/A 
N/A 
N/A 

N/A—Not applicable, as the Operating Company was not unitized until May 19, 2011.

72

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 (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 14. Selected Quarterly Financial Data (unaudited) (Continued)

        The below selected quarterly ﬁnancial data is for NMFC.

(in thousands except for per share data)

Net Investment
Income allocated
from the Operating
Company

Total Net Realized
and Unrealized Gains
(Losses)

Net Increase
(Decrease) in Net
Assets Resulting from
Operations

Total

  Per Share

Total

  Per Share

Quarter Ended
December 31, 2013
September 30, 2013
June 30, 2013
March 31, 2013

  Per Share

Total
  $ 14,826  $
  10,803 
  17,674 
7,218 

0.33  $
0.29 
0.55 
0.28 

3,119  $
6,664 
(6,682)  
8,298 

0.07  $ 17,945  $
  17,467 
0.17 
(0.21)   10,992 
  15,516 
0.33 

December 31, 2012
September 30, 2012

  $

7,759  $
4,574 

0.36  $
0.28 

2,047  $
5,381 

0.09  $
0.34 

9,806  $
9,955 

0.40 
0.46 
0.34 
0.61 

0.45 
0.62 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
June 30, 2012
March 31, 2012

4,029 
3,430 

0.38 
0.32 

(194)  
4,758 

(0.02)  
0.45 

3,835 
8,188 

December 31, 2011
September 30, 2011
June 30, 2011
March 31, 2011

  $

3,301  $
3,460 
1,584 
N/A 

0.31  $
0.32 
0.15 
N/A 

2,877  $
(7,353)  
6,462 
N/A 

0.27  $
(0.68)  
0.60 
N/A 

6,178  $
(3,893)  
8,046 
N/A 

0.36 
0.77 

0.58 
(0.36)
0.75 
N/A 

N/A—Not applicable, as NMFC did not commence operations until May 19, 2011.

73

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 (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 14. Selected Quarterly Financial Data (unaudited) (Continued)

        The below selected quarterly ﬁnancial data is for AIV Holdings.

(in thousands)

Quarter Ended
December 31, 2013
September 30, 2013
June 30, 2013
March 31, 2013

December 31, 2012
September 30, 2012
June 30, 2012
March 31, 2012

December 31, 2011
September 30, 2011
June 30, 2011
March 31, 2011

Net Investment
Income allocated
from the Operating
Company

Total Net Realized
and Unrealized Gains
(Losses)

Net Increase
(Decrease) in Net
Assets Resulting from
Operations

  $

  $

  $

1,022  $
1,855 
5,869 
4,409 

5,764  $
5,562 
7,617 
6,483 

6,240  $
6,542 
2,994 
N/A 

(1,614) $
1,156 
(3,078)  
2,991 

1,431  $
8,630 
(367)  
8,995 

5,439  $
(13,902)  
(5,755)  
N/A 

(592)
3,011 
2,791 
7,400 

7,195 
14,192 
7,250 
15,478 

11,679 
(7,360)
(2,761)
N/A 

N/A—Not applicable, as AIV Holdings did not commence operations until May 19, 2011.

Note 15. Recent Accounting Standards Updates

        In June 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2013-08, Financial
Services—Investment Companies (Topic 946)—Amendments to the Scope, Measurement and Disclosure Requirements ("ASU 2013-08"), which
contains new guidance on assessing whether an entity is an investment company, requiring non-controlling ownership interests in investment
companies to be measured at fair value and requiring certain additional disclosures. ASU 2013-08 is effective for interim and annual periods
beginning after December 15, 2013. The adoption of ASU 2013-08 is not expected to have a material impact on the Companies' ﬁnancial
statements.

Note 16. Subsequent Events

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
        On January 27, 2014, NMFC announced that the U.S. Small Business Administration ("SBA") issued a "green light" letter inviting NMFC to
continue its application process to obtain a license to form and operate a Small Business Investment Company ("SBIC") subsidiary. If approved, a
SBIC license would provide NMFC with an incremental source of attractive long-term capital.

        Receipt of a green light letter from the SBA does not assure an applicant that the SBA will ultimately issue an SBIC license, and NMFC has
received no assurance or indication from the SBA

74

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 (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 16. Subsequent Events (Continued)

that it will receive a SBIC license, or of the timeframe in which it would receive a license, should one ultimately be granted.

        On February 3, 2014, NMFC completed an underwritten secondary public offering of 2,325,000 shares of its common stock on behalf of a
selling stockholder, AIV Holdings, at a public offering price of $14.70 per share. In connection with the underwritten secondary public offering, the
underwriters purchased an additional 346,938 shares of NMFC's common stock from AIV Holdings with the exercise of the overallotment option to
purchase up to an additional 346,938 shares of 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 did not bear any expenses in connection with this offering. The offering expenses were
borne by the selling stockholder, AIV Holdings. As of February 3, 2014, AIV Holdings no longer owns any units of the Operating Company and
NMFC owns 100.0% of the outstanding units of the Operating Company. As a result, the Companies' current organizational structure may be
(cid:2)(cid:3)(cid:4)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:10)(cid:3)(cid:11)(cid:10)(cid:7)(cid:12)(cid:13)(cid:6)(cid:4)(cid:12)(cid:14)(cid:8)(cid:9)(cid:10)(cid:12)(cid:15)(cid:10)(cid:16)(cid:17)(cid:8)(cid:10)(cid:18)(cid:19)(cid:16)(cid:19)(cid:11)(cid:8)(cid:20)

(cid:10)(cid:10)(cid:10)(cid:10)(cid:10)(cid:10)(cid:10)(cid:10)(cid:21)(cid:15)(cid:10)(cid:22)(cid:5)(cid:11)(cid:2)(cid:17)(cid:10)(cid:23)(cid:24)(cid:10)(cid:25)(cid:26)(cid:27)(cid:23)(cid:24)(cid:10)(cid:16)(cid:17)(cid:8)(cid:10)(cid:21)(cid:6)(cid:8)(cid:11)(cid:5)(cid:16)(cid:12)(cid:15)(cid:28)(cid:10)(cid:29)(cid:3)(cid:13)(cid:6)(cid:5)(cid:15)(cid:30)(cid:31)(cid:7)(cid:10) (cid:3)(cid:5)(cid:11)(cid:9)(cid:10)(cid:3)(cid:18)(cid:10)(cid:9)(cid:12)(cid:11)(cid:8)(cid:2)(cid:16)(cid:3)(cid:11)(cid:7)(cid:24)(cid:10)(cid:5)(cid:15)(cid:9)(cid:10)(cid:7)(cid:19) (cid:7)(cid:8)!(cid:19)(cid:8)(cid:15)(cid:16)(cid:4)(cid:30)(cid:10)"(cid:22)#(cid:29)(cid:31)(cid:7)(cid:10) (cid:3)(cid:5)(cid:11)(cid:9)(cid:10)(cid:3)(cid:18)(cid:10)(cid:9)(cid:12)(cid:11)(cid:8)(cid:2)(cid:16)(cid:3)(cid:11)(cid:7)(cid:24)(cid:10)(cid:9)(cid:8)(cid:2)(cid:4)(cid:5)(cid:11)(cid:8)(cid:9)(cid:10)(cid:5)(cid:10)(cid:14)(cid:11)(cid:7)(cid:16)(cid:10)!(cid:19)(cid:5)(cid:11)(cid:16)(cid:8)(cid:11)(cid:10)(cid:25)(cid:26)(cid:27)(cid:23)
distribution of $0.34 per unit/share payable on March 31, 2014 to holders of record as of March 17, 2014.

75

QuickLinks

EXHIBIT 99.1
TABLE OF CONTENTS
New Mountain Finance Holdings, L.L.C Consolidated Statements of Operations (in thousands) (unaudited)
New Mountain Finance Holdings, L.L.C Consolidated Statements of Cash Flows (in thousands) (unaudited)
(Back To Top )