New Mountain Finance Corporation · NASDAQ:NMFC
New Mountain Finance — Q4 2014 Earnings Presentation
39 slides from New Mountain Finance's earnings presentation, Mar 3, 2015
Slide 1: Q4 2014 Earnings Presentation
Q4 2014 Earnings Presentation March 3, 2015
Slide 2: Important Notice and Safe Harbor Statement
Important Notice and Safe Harbor Statement This presentation contains forward looking statements that involve substantial risks and uncertainties. All forward-looking statements included in this presentation are made only as of the date hereof and are subject to change without notice. Actual outcome
Slide 3: Management Participants
Management Participants Steven B. Klinsky Chairman of the Board of Directors Robert A. Hamwee Chief Executive Officer, President and Director David M. Cordova Chief Financial Officer and Treasurer 3
Slide 4: Q4 2014 Highlights
Q4 2014 Highlights ▪ Q4 Adjusted Net Investment Income (“NII”) of $0.34 per weighted average share, versus guidance of $0.33 to $0.35 – Q4 regular dividend of $0.34 per share paid on December 30, 2014 ▪ December 31, 2014 book value of $13.83 per share, a decrease of $0.50 per share from the Septembe
Slide 5: Key Highlights
Key Highlights Financial Highlights Quarter Ended 12/31/2013 3/31/2014 6/30/2014 9/30/2014 12/31/2014 Pro Forma Adjusted NII Per Share(1) $0.34 $0.37 $0.36 $0.35 $0.34 NAV Per Share $14.38 $14.53 $14.65 $14.33 $13.83 Dividends Per Share(2) $0.34 $0.34 $0.34 $0.46 $0.34 Share Count - End of Period (m
Slide 6: Review of NMFC
Review of NMFC Overview Public Float Market Cap History ($ in millions) ▪ Founded in October 2008 to apply New Mountain $866 Capital, L.L.C.’s (“NMC” or “New Mountain”) private equity strengths to attractive risk-reward opportunities in $680 the U.S. debt markets – Externally managed Business Develo
Slide 7: NMFC Strategy
NMFC Strategy ▪ Externally managed by an affiliate of New Mountain, a leading private equity firm with ~$15 billion of assets under management(1), approximately 100 staff members, and a consistent focus on “defensive growth” business building and deep fundamental research ▪ NMFC’s mandate is to prim
Slide 8: NMFC Relative Return Performance – Indexed Total Return
NMFC Relative Return Performance – Indexed Total Return May 19, 2011 (IPO) – February 25, 2015 Indexed Total Return 175.0 170.0 S&P 70.6% 165.0 S&P Fin 65.0% 160.0 NMFC 59.9% 155.0 150.0 145.0 140.0 135.0 130.0 HY 28.7% 125.0 120.0 BDCs 19.8% 115.0 110.0 105.0 100.0 95.0 CAGR (IPO to 2/25/2015) NMFC
Slide 9: NMFC Cumulative Total Return Performance Versus Peers
NMFC Cumulative Total Return Performance Versus Peers(1) May 19, 2011 (IPO) – February 25, 2015 59.9% 51.3% 41.9% 32.4% 29.6% 21.5% 21.2% 18.3% 12.5% 3.2% (13.8%) NMFC Peer A Peer B Peer C Peer D Peer E Peer F Peer G Peer H Peer I Peer J Source: Capital IQ 1 NMFC priced its initial public offering o
Slide 10: Management and Shareholder Interests Aligned
Management and Shareholder Interests Aligned Fee Structure ▪ Base management fee – 1.75% on gross assets less 1) borrowings under the old SLF Credit Facility and 2) cash Intention is to charge a fee only on the equity invested in lower yielding assets (primarily lower levered 1st lien assets) – In
Slide 11: NMFC Return Attribution
NMFC Return Attribution ($ per Share) $6.72 $2.17 $1.44 $0.46 $0.61 $1.80 $0.32 $0.37 $0.93 $0.12 $0.12 $0.38 $4.92 $1.34 $1.36 $1.36 $0.86 ($0.25) ($0.48) ($0.55) Cumulative IPO to 12/31/2011(1) 2012 2013 2014 (IPO to 12/31/2014)(1) Regular Dividends Special Dividend ∆ in Book Value Trading Multipl
Slide 12: Credit Market Conditions
Credit Market Conditions ▪ Credit spreads have broadly widened since our last call – Primarily driven by intense volatility in the financial markets – Energy complex weakness – Moderate fund outflows ▪ With limited exceptions, smaller deals continue to be priced at a premium ▪ NMFC works to be well
Slide 13: Credit Market Conditions – Interest Rates
Credit Market Conditions – Interest Rates Floating vs. Fixed Assets Liabilities (Aggregate par value of $1,445.7 million as of 12/31/2014)(1) ($670.6 million drawn as of 12/31/2014) Fixed Fixed(3) 15% 23% Floating – No Floor Floating – Floor(2) (1-Month Libor) 85% 77% Impact of Changing Rates(4) Est
Slide 14: Credit Performance
Credit Performance ($ in millions) Cumulative Since Inception(1) As of 12/31/2014 (October 2008 – December 31, 2014) Cost / FMV Cost / # Portfolio Co’s Investments $1,476 / $1,455 $3,102 / 151 of which of which Internal Watch List (3 or 4 Rating)(2) $89 / $58 $102 / 5 of which of which Non-Accrual(3
Slide 15: Credit Performance – Non-70% Advance Rate Assets
Credit Performance – Non-70% Advance Rate Assets (2) NMFC Leverage Ratio Variance (1) Portfolio Company At Purchase Current Positive / (Negative) Company A 5.9x 5.7x 0.3x Company B 4.9x 4.6x 0.3x Company C 7.7x 7.7x - Company D 6.1x 5.5x 0.5x Company E 4.9x 4.6x 0.4x Company F 5.0x 4.7x 0.3x Company
Slide 16: Credit Performance – 70% Advance Rate Assets
Credit Performance – 70% Advance Rate Assets (2) NMFC Leverage Ratio Variance (1) Portfolio Company At Purchase Current Positive / (Negative) Company AI 3.7x 3.4x 0.4x Company AJ 3.4x 3.1x 0.2x Company AK 3.1x 3.0x 0.1x Company AL 3.6x 3.6x (0.1x) Company AM 2.3x 2.2x 0.0x Company AN 3.8x 4.9x (1.1x
Slide 17: Portfolio Update Since Quarter End
Portfolio Update Since Quarter End On December 31, 2014, Edmentum, Inc. released a very weak FY2015 budget and indicated that financial covenants would be violated in upcoming quarters − All parties are organizing and preparing for some type of restructuring − NMFC owns $31.2 million of the 2nd li
Slide 18: NMFC’s Energy Initiative
NMFC’s Energy Initiative ▪ NMFC’s strategic alliance with Five States(1) is a new initiative to pursue defensive, lower-middle market energy investments – Relationship with Five States arose out of New Mountain’s “deep dive” into the Energy sector beginning nearly 3 years ago ▪ Five States is a Dall
Slide 19: Performance Since IPO
Performance Since IPO ($ in millions) IPO - 2014 (1) 12/31/2011 2012 2013 3/31/2014 6/30/2014 9/30/2014 12/31/2014 Regular Dividend $26.6 $46.6 $59.8 $16.3 $17.7 $17.7 $19.7 Cumulative Regular Dividend 26.6 73.2 133.0 149.2 166.9 184.6 204.3 (2) (2) Adj. NII 26.5 46.1 62.1 17.6 18.5 18.1 19.2 Cumula
Slide 20: Change in Unrealized Appreciation / (Depreciation) Detail
Change in Unrealized Appreciation / (Depreciation) Detail ($ in millions) For Quarter Ended Component 12/31/2014 Commentary Broad Market Movement ($12.8) Market weakness led to overall decline in the marks for our portfolio investments generally Energy Market Movement (10.1) Decline in oil price
Slide 21: NMFC’s Energy Portfolio Companies
NMFC’s Energy Portfolio Companies Security – Par, Mark, and FMV Name (As of 12/31/2014) Description NMFC Perspective Tenawa 1st Lien Large-scale natural gas processing Spread based business Par: $40.0 million plant that straddles a major pipeline Attractive structure and loan to value Mark
Slide 22: Q4 Originations
Q4 Originations Portfolio Originations(1) YTM at Purchase(4) ($ in millions) Amount Type of Advance Date(2) Name Industry ($’s Invested) Tranche Size Investment Rate(3) Unlevered Levered Investment in Membership 10/9/2014 NMFC SLP I $7.8 N/A N/A 12.3% 12.3% Fund Interest $5.9 / $829 / 1st Lien / 70%
Slide 23: Annual Originations and Repayments
Annual Originations and Repayments ($ in millions, unaudited) 2011 Cumulative (IPO(1) – 12/31/2011) 2012 2013 2014 (IPO(1) – 12/31/2014) Total Originations $379.3 $673.2 $529.7 $741.5 $2,323.7 Repayments ($86.5) ($299.6) ($395.3) ($267.5) ($1,048.9) Net Originations $292.8 $373.6 $134.4 $474.0 $1,27
Slide 24: Origination Activity Since Quarter End
Origination Activity Since Quarter End (Through 2/25/2015) ($ in millions) Portfolio Originations(1) YTM at Purchase(4) Amount Type of Advance Date(2) Name Industry ($’s Invested) Tranche Size Investment Rate(3) Unlevered Levered 1/30/2015 Software $29.3 $194 2nd Lien 25% 12.1% 14.9% Distribution &
Slide 25: Q4 2014 Originations and Repayments
Q4 2014 Originations and Repayments Originations by Type(1) Sales / Repayments by Type(1) Preferred Common Equity Equity Subordinated <1% Debt Second 7% 1% 70% Advance Rate Lien Debt 70% Advance Rate (2) (2) First Lien Debt First Lien Debt 35% 33% 40% 43% 3% Second SLP Lien Debt 11% 27% Non-70% Adva
Slide 26: Q4 2014 Investment Activity Roll
Q4 2014 Investment Activity Roll YTM at Cost(1) / Purchase(2) 10.7% 10.8% 10.7% 10.5% 9.7% 9/30/2014 9/30/2014 Q4 Originations Q4 Sales / 12/31/2014 PF for Change Repayments in LIBOR Curve Cost ($mm)(3) $1,339.6 $1,339.6 $225.7 $93.1 $1,475.9 1 Assumes that investments are purchased at adjusted cost
Slide 27: Portfolio Mix (By Fair Value as of 12/31/2014)
Portfolio Mix (By Fair Value as of 12/31/2014) By Industry Other(1) Media 4% 4% Business Svcs Distribution & Logistics 18% 7% Energy Services Consumer Svcs 8% 22% 4% Industrial Svcs <1% Federal Services 9% Software 20% HC IT - <1% Healthcare 9% Education HC Products - 1% 17% HC Services - 8% By Type
Slide 28: Portfolio Concentration (By Fair Value as of 12/31/2014)
Portfolio Concentration (By Fair Value as of 12/31/2014) Portfolio Names By Fair Value Global Knowledge 3.5% Ascend Learning 3.0% Tibco 3.0% Tenawa 2.9% Deltek 2.8% Kronos 2.7% Top 15 portfolio McGraw-Hill companies Global 2.6% represent $575.5 Tolt 2.5% 57 Other million, or 39.6%, Crowley 2.5% Port
Slide 29: Balance Sheet Highlights
Balance Sheet Highlights Quarter Ended ($ in millions, except per unit/share data) 12/31/2013 3/31/2014 6/30/2014 9/30/2014 12/31/2014 Assets Portfolio $1,115.7 $1,180.2 $1,310.9 $1,353.7 $1,454.7 (1) Cash & Equivalents 15.0 13.3 21.7 19.6 23.4 (2) Other Assets 17.1 25.9 25.5 24.8 36.8 Total Assets
Slide 30: Historical NAV / Share and Leverage Trends
Historical NAV / Share and Leverage Trends NAV / Share $15.14 $15.20 $15.02 $14.94 $14.81 $14.87 $14.80 $14.68 $14.69 $14.43 $14.44 $14.33 $14.65 $14.40 $14.53 $14.06 $14.38 $14.31 $14.32 $14.32 $14.33 $14.00 $13.83 $14.08 $14.10 $14.06 (2) $13.60 $13.98 (1) $13.82 $13.83 NAV per Share (as Reported)
Slide 31: Income Statement Highlights (Quarterly)
Income Statement Highlights (Quarterly) (1) Quarter Ended - Pro Forma Adjusted ($ in millions, except per unit/share data) 12/31/2013 3/31/2014 6/30/2014 9/30/2014 12/31/2014 Investment Income Interest income $27.4 $28.1 $31.6 $32.3 $34.0 Dividend income 0.0 1.9 1.3 0.5 0.8 Other income 0.9 0.7 0.8
Slide 32: Income Statement Highlights (Annually)
Income Statement Highlights (Annually) (1) Year Ended - Pro Forma Adjusted ($ in millions, except per unit/share data) 12/31/2012 12/31/2013 12/31/2014 Investment Income Interest income $80.2 $106.1 $126.0 Dividend income 0.8 0.2 4.5 Other income 1.3 2.9 5.4 Total investment income $82.3 $109.1 $135
Slide 33: Investment Income Detail
Investment Income Detail (1) Quarter Ended - Pro Forma Adjusted ($ in millions) 12/31/2013 3/31/2014 6/30/2014 9/30/2014 12/31/2014 Investment Income Build Cash interest $24.3 $26.3 $28.4 $29.1 $31.1 Non-cash interest 1.0 0.8 0.6 1.6 1.6 Amortization of purchase discounts (premiums) and fees 0.7 0.7
Slide 34: Dividend Summary and Coverage
Dividend Summary and Coverage We believe our Q1 2015 Adjusted NII will be in the $0.33 to $0.35 per share range. Our board of directors has declared a first quarter dividend of $0.34 per share. $0.80 114% 120% 108% 103% 103% 105% 101% 102% $0.70 100% 99% 99% 100% 100% 98% 98% 95% 100% $0.60 $0.57 80
Slide 35: Diversified Leverage Profile
Diversified Leverage Profile (As of 12/31/2014, Amount Outstanding $ in millions) / Facility Size Interest Rate Maturity New Holdings Credit Facility $468 / $495 Broadly syndicated 1st lien loans(1): L + 2.00% December 2019 (Wells Fargo) All other: L + 2.75% (No LIBOR floor) NMFC Credit Facility $50
Slide 36: Corporate Information
Corporate Information Board of Directors Senior Management Fiscal Year End Inside Directors Steven B. Klinsky Adam B. Weinstein December 31 Steven B. Klinsky (Chairman) Chairman of the Board of Directors EVP, Chief Administration Officer Robert A. Hamwee and Director Adam B. Weinstein Robert A. Hamw
Slide 37: New Mountain Finance Corporation
NIM|F NEw MOUNTAIN FINANCE CORPORATION
Slide 38: Appendix A: NMFC Pro-Forma Adjusted NII Reconciliation
Appendix A: NMFC Pro-Forma Adjusted NII Reconciliation ($ in millions except per share data) Three months ended Year ended (4) 12/31/2014 12/31/2014 Per Weighted Per Weighted Average Average Amount Share Amount Share GAAP net investment income ("NII") $25.9 $0.46 $80.1 $1.54 Non-cash capital gains i
Slide 39: Appendix B: Structure Chart
Appendix B: Structure Chart Public Concurrent Shareholders Private Placement New Mountain Finance Investments New Mountain Corporation NMFC Credit Facility Finance SBIC, (“NMFC”) Convertible Notes L.P. 100% Investments SBA-Guaranteed Debentures New Mountain Finance Holdings, L.L.C. (“NMFH”) Investme