New Mountain Finance Corporation · NASDAQ:NMFC
New Mountain Finance — Q4 2020 Earnings Presentation
36 slides from New Mountain Finance's earnings presentation, Feb 25, 2021
Slide 1: Q4 2020 Earnings Presentation
Q4 2020 Earnings Presentation February 25, 2021
Slide 2: Important Notices and Safe Harbor Statement
Important Notices and Safe Harbor Statement This presentation contains forward looking statements, which are not guarantees of future performance, conditions or results, and involve substantial risks and uncertainties, including the impact of COVID-19 and related changes in base interest rates and s
Slide 3: Management Participants
Management Participants Steven B. Klinsky Chairman of the Board of Directors Robert A. Hamwee Chief Executive Officer and Director John R. Kline President, Chief Operating Officer, and Director Shiraz Y. Kajee Chief Financial Officer 3
Slide 4: Chairman’s Overview
Chairman’s Overview ▪ We believe our portfolio continues to be well positioned as a result of our defensive growth investment strategy, which focuses on acyclical, recurring, and predictable business models with long term viability, even in a recessionary environment – Since our November 5, 2020 ear
Slide 5: Key Highlights
Key Highlights Financial Highlights Quarter Ended 12/31/2019 3/31/2020 6/30/2020 9/30/2020 12/31/2020 Adjusted NII Per Share(1) $0.36 $0.35 $0.30 $0.30 $0.30 NAV Per Share $13.26 $11.14 $11.63 $12.24 $12.62 Dividends Per Share $0.34 $0.34 $0.30 $0.30 $0.30 Share Count - End of Period (mm) 96.8 96.8
Slide 6: Review of NMFC
Review of NMFC Overview Strategy ▪ Founded in October 2008 to apply New Mountain Capital, ▪ NMFC’s mandate is to primarily target businesses in the L.L.C.’s (“NMC” or “New Mountain”) private equity middle market that, consistent with New Mountain’s private strengths to attractive risk-reward opportu
Slide 7: Assessment of COVID-19 Exposure
Assessment of COVID-19 Exposure ▪ Throughout Q4 2020, New Mountain’s investment team has maintained its dialogue with companies and sponsors; we have re-rated each company based on those conversations ▪ As a reminder, in order to monitor COVID risk to the portfolio, we had assigned each portfolio co
Slide 8: Summary of Changes in Portfolio
Summary of Changes in Portfolio(1) ▪ Overall portfolio has improved from a Risk Rating standpoint in Q4 2020 from Q3 2020 – As of Q4, 87% of the portfolio is characterized as Green (modestly up from 82% in Q3) – Red Risk Rated companies remained unchanged – 33% of Q3 Orange Risk Rated companies impr
Slide 9: Risk Rating Migration from Q3 2020
NMFC Portfolio – Risk Rating Migration from Q3 2020 (FMV as of 12/31/20) ($ in millions) Overall Company Strength (A = Best; C = Worst) C Unitek $72 $145 / 4 B Retail Healthcare $61 / 2 Business Services $47 / 1 Engineering & Consulting $37 / 1 A ** Excludes Green to Green Migration ** Tier 4 Tier 3
Slide 10: Risk Ratings – Overall Company Strength vs. COVID Exposure
Risk Ratings – Overall Company Strength vs. COVID Exposure (FMV as of 12/31/20) ($ in millions) $28 / 1 $98 / 3 $149 / 3 $65 / 4 Overall Company Strength (A = Best; C = Worst) Permian $29 1 C National HME $28 UniTek $72. . Benevis $98. . Education Products $20 / 1 PPVA $21 . Marketing Services $30 /
Slide 11: NAV Recovery Progress
NAV Recovery Progress ($ in millions, except per share data) Impact of Assets Recovering to Par Remaining Recovery Cumulative NAV / Share: $13.09 $13.26 NAV Impact: $45.3m $16.4m $13.26 $0.17 $0.47 $12.62 Q4 NAV Recovery $0.38 Q3 NAV $0.61 Recovery Q2 NAV $0.49 Recovery 3/31/20 $11.14 NAV 12/31/20 N
Slide 12: Edmentum Investment Update
Edmentum Investment Update ▪ Edmentum, Inc. (“Edmentum” or the “Company”) is a leading provider of K-12 online learning programs ▪ In 2012, NMFC invested ~$31 million in Edmentum’s second lien term loan to support the merger of Plato Learning with Archipelago Learning – Softness in the business bega
Slide 13: Leverage Migration
Leverage Migration ($ in millions) 9/30/20 12/31/20 Statutory Debt: Statutory Debt: $1,506.5 $7.9 $1,514.4 NAV: NAV: $1,184.8 $37.1 $1,221.9 Primarily driven by ÷ Sources market value recovery Uses ÷ Debt Drawn $7.9 Q4 Settled Originations $73.3 Q4 DDTL Draws, Net Statutory Q4 Repayments 90.0 Repa
Slide 14: Credit Market Conditions
Credit Market Conditions ▪ Credit market conditions steadily improved throughout the course of the year ▪ Deal volume in our core direct lending market is starting to pick back up after a seasonally slow period in January ▪ Secondary trading levels in corporate credit have returned to pre-COVID leve
Slide 15: Credit Market Conditions – Interest Rates
Credit Market Conditions – Interest Rates Floating vs. Fixed Investments Debt (Aggregate par value of $2,518 million as of 12/31/2020) (1) ($1,814 million drawn as of 12/31/2020) Fixed 6% Fixed(2) Floating 53% 47% Floating 94% Impact of Changing Rates(3) Estimated % Change in Interest Income Illustr
Slide 16: Credit Performance
Credit Performance ($ in millions) Cumulative Since Inception(1) As of 12/31/2020 (October 2008 – December 31, 2020) Cost / FMV / # Portfolio Co’s Cost / # Portfolio Co’s Investments $3,013 / $2,965 / 104 $8,108 / 293 of which of which Internal Watch List $245 / $138 / 10 $600 / 19 (3 or 4 Rating)(2
Slide 17: Credit Performance
Credit Performance (2) (2) (2) NMFC Leverage Ratio NMFC Leverage Ratio NMFC Leverage Ratio Variance Variance Variance (1) (1) (1) Company (Vintage) Purchase Current + / (-) Company (Vintage) Purchase Current + / (-) Company (Vintage) Purchase Current + / (-) Company A (2019) 7.4x 5.1x 2.3x Company A
Slide 18: Performance Since IPO
Performance Since IPO(1) ($ in millions) IPO - 12/31/2011(2) 2012 2013 2014 2015 2016 2017 2018 2019 YTD 2020 Regular Dividend $26.6 $46.6 $59.8 $71.4 $81.1 $88.8 $100.9 $103.4 $117.4 $120.1 Cumulative Regular Dividend 26.6 73.2 133.0 204.3 285.4 374.2 475.1 578.5 695.9 816.0 (3) (3) (3) (3) (3) Adj
Slide 19: NMFC Relative Return Performance – Indexed Total Return
NMFC Relative Return Performance – Indexed Total Return May 19, 2011 (IPO) – February 19, 2021 Indexed Total Return 370.0 CAGR (IPO to 2/19/2021) S&P 255.4% 350.0 NMFC 9.5% 330.0 S&P 500 13.9% S&P 500 Financials 12.1% 310.0 CS High Yield Index 6.2% S&P Fin 205.4% BDC Index 3.4% 290.0 270.0 250.0 NMF
Slide 20: NMFC Cumulative Total Return Performance Versus Peers
NMFC Cumulative Total Return Performance Versus Peers(1) May 19, 2011 (IPO) – February 19, 2021 168.8% 142.5% 117.0% 102.6% 81.7% 49.3% 28.1% 27.0% (1.2%) (2.1%) (66.6%) Peer A ARCC NMFC Peer B Peer C Peer D Peer E Peer F Peer G Peer H Peer I Peer J Source: Capital IQ 1 Peers include publicly-traded
Slide 21: Q4 2020 Originations
Q4 2020 Originations Portfolio Originations(1) ($ in millions) YTM at Purchase(4) Amount Tranche Date(2) Name Industry ($’s Invested) Size Type of Investment Advance Rate(3) Unlevered Levered Subordinated $11.4 $21 N/A 17.7% 17.7% Healthcare Debt 10/6/20 Benevis Services $2.9 N/A Common Shares N/A N
Slide 22: Origination Activity Since Quarter End
Origination Activity Since Quarter End (Through 2/19/2021) Portfolio Originations(1) ($ in millions) YTM at Purchase(4) Amount Tranche Date(2) Name Industry ($’s Invested) Size Type of Investment Advance Rate(3) Unlevered Levered Investment Membership 1/7/21 NMFC SLP III $10.0 N/A N/A 11.5% 11.5% Fu
Slide 23: Q4 2020 Investment Activity Roll
Q4 2020 Investment Activity Roll YTM at Cost(1) / Purchase(2) 9.7% 8.6% 8.6% 8.8% 8.6% 9/30/2020 9/30/2020 Q4 Originations Q4 Sales / 12/31/2020 Repayments PF for change in LIBOR Curve Cost ($mm)(3) $2,993.8 $2,993.8 $183.7 $151.8 $3,013.2 1 Assumes that investments are purchased at cost and held un
Slide 24: Portfolio Mix (By Fair Value as of 12/31/2020)
Portfolio Mix (By Fair Value as of 12/31/2020) By Industry(1) Specialty Chemicals & Materials Distribution & Logistics Types of Services Types of Healthcare 2% 3% Other(2) Insurance Tech-Enabled Marketing Federal Services 4% Services Healthcare 6% Services 12% 3% Data & 4% Net Lease Analytics 5% 7%
Slide 25: Portfolio Concentration (By Fair Value as of 12/31/2020)
Portfolio Concentration (By Fair Value as of 12/31/2020) Portfolio Names By Fair Value SLP III 4.1% Benevis 3.3% Edmentum 3.3% insightsoftware 3.0% SLP II 2.7% Top 15 portfolio PhyNet 2.6% companies(1) represent $1,082.8 million, or EAB Global 2.5% 36.5%, of consolidated UniTek 2.4% investments Asso
Slide 26: Balance Sheet Highlights
Balance Sheet Highlights Quarter Ended ($ in millions, except per share data) 12/31/2019 3/31/2020 6/30/2020 9/30/2020 12/31/2020 Assets Portfolio $3,171.3 $3,002.3 $2,837.5 $2,907.7 $2,964.5 Cash & Equivalents 48.6 22.1 56.2 68.7 79.0 (1) Other Assets 46.2 79.1 49.9 56.1 54.0 Total Assets $3,266.1
Slide 27: Historical NAV / Share and Leverage Trends
Historical NAV / Share and Leverage Trends NAV / Share $16.00 $14.87 $14.44 $15.00 $14.43 $14.24 $14.08 $13.69 $14.07 $13.83 $13.87 $14.00 Q4 2020 $14.38 $14.06 $13.83 $13.63 $13.23 $13.00 $13.60 $13.22 $13.46 $13.26 $13.08 $12.62 $12.00 $11.00 NAV per Share (as Reported) NAV + Cumulative Special Di
Slide 28: Income Statement Highlights (Quarterly)
Income Statement Highlights (Quarterly) Quarter Ended ($ in millions, except per share data) 12/31/2019 3/31/2020 6/30/2020 9/30/2020 12/31/2020 Investment Income Interest income $58.4 $61.3 $53.4 $49.7 $48.9 Dividend income 14.1 13.9 12.0 12.4 12.7 Other income 4.8 2.0 2.3 3.2 6.2 Total investment
Slide 29: Income Statement Highlights (Annual)
Income Statement Highlights (Annual) Year Ended – Adjusted ($ in millions, except per share data) 12/31/2018 12/31/2019 12/31/2020 Investment Income Interest income $159.9 $212.4 $213.3 Dividend income 52.7 52.6 51.0 Other income 15.8 14.0 13.7 Total investment income $228.4 $279.0 $278.0 Expenses M
Slide 30: Investment Income Detail
Investment Income Detail Quarter Ended ($ in millions) 12/31/2019 3/31/2020 6/30/2020 9/30/2020 12/31/2020 Investment Income Build Cash Interest and Dividend Income $52.8 $54.0 $45.5 $43.2 $41.4 (1) SLP and Net Lease Income 9.6 9.2 8.4 8.8 8.6 Recurring Cash Investment Income $62.4 $63.2 $53.9 $52.0
Slide 31: Dividend Summary and Coverage
Dividend Summary and Coverage We believe our Q1 2021 NII will be approximately $0.30 per share. Our board of directors has declared a first quarter dividend of $0.30 per share. 104% 103% 102% 102% 100% 99% 99% 100% 100% 98% $1.71 $0.37 $1.48 $1.48 $0.12 $0.12 $1.34 $1.36 $1.36 $1.36 $1.36 $1.36 $1.3
Slide 32: Diversified Leverage Profile
Diversified Leverage Profile (As of 12/31/2020, Amount Outstanding $ in millions) / Facility Size Interest Rate Maturity Wells Fargo Credit Facility $450 / $745 Broadly syndicated 1st lien loans(1): L + 2.00% September 2023 (Wells Fargo / Raymond James / State Street / CIT All other: L + 2.50% (0.00
Slide 33: Leverage Maturity Schedule
Leverage Maturity Schedule (As of 12/31/2020, $ in millions, based on total facility size) Floating vs. Fixed Debt Outstanding Mix $1,418 As of 12/31/2020 Fixed 52.6% Floating 47.4% $201 $745 Fully repaid $90m $52m 5.75% Series 2016 Unsecured Notes to Unsecured Notes be fully redeemed on on 2/16/202
Slide 34: Corporate Information
Corporate Information Board of Directors Senior Management Fiscal Year End Inside Directors Steven B. Klinsky Adam B. Weinstein December 31 Steven B. Klinsky (Chairman) Chairman of the Board of Directors EVP, Chief Administrative Officer & Director Robert A. Hamwee Independent Auditor John R. Kline
Slide 35: Appendix A: NMFC Income Reconciliation
Appendix A: NMFC Income Reconciliation (in millions, except per share data) Year Ended (unaudited) IPO - 12/31/11 12/31/12 12/31/13 12/31/14 12/31/15 12/31/16 12/31/17 12/31/18 12/31/19 12/31/20 GAAP net investment income ("NII") $28.5 $45.2 $63.7 $80.3 $82.5 $88.1 $102.2 $106.0 $117.2 $117.3 Non-co
Slide 36: New Mountain Finance Corporation
NIM|E NEW MOUNTAIN FINANCE CORPORATION