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TABLE OF CONTENTS PROSPECTUS SUPPLEMENT
INDEX TO FINANCIAL STATEMENTS
TABLE OF CONTENTS
TABLE OF CONTENTS 4

Table of Contents


Filed Pursuant to Rule 497
Securities Act File No. 333-213195

This preliminary prospectus supplement relates to an effective registration statement under the Securities Act of 1933, as amended, but the information in this preliminary prospectus supplement is not complete and may be changed. This preliminary prospectus supplement and the accompanying prospectus are not an offer to sell and are not soliciting an offer to buy these securities in any jurisdiction where the offer and sale is not permitted.

Subject to Completion, Dated April 3, 2017

PRELIMINARY PROSPECTUS SUPPLEMENT
(to Prospectus dated October 7, 2016)

5,000,000 Shares


New Mountain Finance Corporation

Common Stock



           We are a Delaware corporation that was originally incorporated on June 29, 2010. We are a closed-end, non-diversified management investment company that has elected to be regulated as a business development company under the Investment Company Act of 1940, as amended. Our 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, our investments may also include equity interests. Our 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.

           The investments that we invest in are almost entirely rated below investment grade or may be unrated, which are often referred to as "leveraged loans", "high yield" or "junk" debt investments, and may be considered "high risk" or speculative compared to debt investments that are rated investment grade. 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 our net asset value and income distributions. Our investments are also primarily floating rate debt investments that contain interest reset provisions that may make it more difficult for borrowers to make debt repayments to us if interest rates rise. In addition, some of our 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. Our debt investments may also lose significant market value before a default occurs. Furthermore, an active trading market may not exist for these securities. This illiquidity may make it more difficult to value our investments.

           We are offering for sale 5,000,000 shares of our common stock. We have granted the underwriters a 30-day option to purchase up to 750,000 additional shares of our common stock at the public offering price, less underwriting discounts and commissions.

           Our common stock is listed on the New York Stock Exchange under the symbol "NMFC". On March 31, 2017, the last reported sales price on the New York Stock Exchange for our common stock was $14.90 per share, and the net asset value per share of our common stock on December 31, 2016 (the last date prior to the date of this prospectus supplement on which we determined our net asset value per share) was $13.46.

           An investment in our common stock is very risky and highly speculative. Shares of closed-end investment companies, including business development companies, frequently trade at a discount to their net asset value. In addition, the companies in which we invest in are subject to special risks. See "Risk Factors" beginning on page S-24 of this prospectus supplement and beginning on page 30 of the accompanying prospectus to read about factors you should consider, including the risk of leverage, before investing in our common stock.

           This prospectus supplement and the accompanying prospectus contain important information about us that a prospective investor should know before investing in our common stock. Please read this prospectus supplement and the accompanying prospectus before investing and keep it for future reference. We file annual, quarterly and current reports, proxy statements and other information with the United States Securities and Exchange Commission (http://www.sec.gov), which are available free of charge by contacting us by mail at 787 Seventh Avenue, 48th Floor, New York, New York 10019 or on our website at http://www.newmountainfinance.com. Information contained on our website is not incorporated by reference into this prospectus supplement and the accompanying prospectus, and you should not consider that information to be part of this prospectus supplement and the accompanying prospectus.



           Neither the United States Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities, or determined if this prospectus supplement or the accompanying prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

    Per Share     Total(1)  

Public Offering Price

  $                 $                

Sales Load (Underwriting Discounts and Commissions)(2)(3)

  $                 $                

Proceeds to us (before expenses)(1)

  $                 $                

(1)
To the extent that the underwriters sell more than 5,000,000 shares of our common stock, the underwriters have the option to purchase up to an additional 750,000 shares of our common stock at the public offering price, less the sales load, within 30 days of the date of this prospectus supplement. If the underwriters exercise this option in full, the total public offering price, sales load and proceeds to us and will be $             , $             and $             , respectively. See "Underwriting".

(2)
See "Underwriting" for details of compensation to be received by the underwriters.

(3)
We will incur approximately $0.3 million of estimated expenses in connection with this offering.

           The underwriters expect to deliver the shares against payment in New York, New York on or about                      , 2017.



Joint-Lead Bookrunners

Wells Fargo Securities

 

Morgan Stanley

 

Goldman, Sachs & Co.

 

Keefe, Bruyette & Woods
                    
A Stifel Company
Lead Manager

Baird
Co-Managers

Janney Montgomery Scott

 

 

 

Oppenheimer & Co.



Prospectus Supplement dated                          , 2017


Table of Contents


TABLE OF CONTENTS

PROSPECTUS SUPPLEMENT

ABOUT THIS PROSPECTUS SUPPLEMENT

    S-iii  

PROSPECTUS SUPPLEMENT SUMMARY

    S-1  

THE OFFERING

    S-10  

FEES AND EXPENSES

    S-15  

SELECTED FINANCIAL AND OTHER DATA

    S-18  

SELECTED QUARTERLY FINANCIAL DATA

    S-23  

RISK FACTORS

    S-24  

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

    S-31  

CAPITALIZATION

    S-33  

USE OF PROCEEDS

    S-34  

PRICE RANGE OF COMMON STOCK AND DISTRIBUTIONS

    S-35  

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

    S-38  

SENIOR SECURITIES

    S-76  

UNDERWRITING

    S-78  

LEGAL MATTERS

    S-82  

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

    S-82  

AVAILABLE INFORMATION

    S-82  

INDEX TO FINANCIAL STATEMENTS

    F-1  


PROSPECTUS

ABOUT THIS PROSPECTUS

    ii  

PROSPECTUS SUMMARY

    1  

THE OFFERING

    12  

FEES AND EXPENSES

    17  

SELECTED FINANCIAL AND OTHER DATA

    20  

SELECTED QUARTERLY FINANCIAL DATA

    25  

DESCRIPTION OF RESTRUCTURING

    26  

RISK FACTORS

    30  

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

    64  

USE OF PROCEEDS

    66  

PRICE RANGE OF COMMON STOCK AND DISTRIBUTIONS

    67  

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

    70  

SENIOR SECURITIES

    108  

BUSINESS

    110  

PORTFOLIO COMPANIES

    126  

MANAGEMENT

    133  

PORTFOLIO MANAGEMENT

    143  

INVESTMENT MANAGEMENT AGREEMENT

    145  

ADMINISTRATION AGREEMENT

    153  

LICENSE AGREEMENT

    153  

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    154  

CONTROL PERSONS AND PRINCIPAL STOCKHOLDERS

    156  

DETERMINATION OF NET ASSET VALUE

    158  

DIVIDEND REINVESTMENT PLAN

    161  

DESCRIPTION OF SECURITIES

    163  

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DESCRIPTION OF CAPITAL STOCK

    163  

DESCRIPTION OF PREFERRED STOCK

    168  

DESCRIPTION OF SUBSCRIPTION RIGHTS

    169  

DESCRIPTION OF WARRANTS

    171  

DESCRIPTION OF DEBT SECURITIES

    173  

MATERIAL FEDERAL INCOME TAX CONSIDERATIONS

    189  

REGULATION

    200  

PLAN OF DISTRIBUTION

    207  

SAFEKEEPING AGENT, TRANSFER AND DISTRIBUTION PAYING AGENT AND REGISTRAR

    210  

BROKERAGE ALLOCATION AND OTHER PRACTICES

    210  

LEGAL MATTERS

    210  

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

    210  

AVAILABLE INFORMATION

    211  

PRIVACY NOTICE

    211  

INDEX TO FINANCIAL STATEMENTS

    F-1  

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ABOUT THIS PROSPECTUS SUPPLEMENT

          You should rely only on the information contained in this prospectus supplement and the accompanying prospectus. Neither we nor the underwriters have authorized any other person to provide you with different information from that contained in this prospectus supplement or the accompanying prospectus. If anyone provides you with different or inconsistent information, you should not rely on it. This prospectus supplement and the accompanying prospectus do not constitute an offer to sell, or a solicitation of an offer to buy, any shares of our common stock by any person in any jurisdiction where it is unlawful for that person to make such an offer or solicitation or to any person in any jurisdiction to whom it is unlawful to make such an offer or solicitation. The information contained in this prospectus supplement and the accompanying prospectus is complete and accurate only as of their respective dates, regardless of the time of their delivery or sale of our common stock. This prospectus supplement supersedes the accompanying prospectus to the extent it contains information different from or additional to the information in that prospectus.

          This document is in two parts. The first part is this prospectus supplement, which describes the terms of this offering of common stock and also adds to and updates information contained in the accompanying prospectus. The second part is the accompanying prospectus, which gives more general information and disclosure. To the extent the information contained in this prospectus supplement differs from the information contained in the accompanying prospectus, the information in this prospectus supplement shall control. Please carefully read this prospectus supplement and the accompanying prospectus together with any exhibits and the additional information described under "Available Information" and in the "Prospectus Supplement Summary", "Prospectus Summary" and "Risk Factors" sections of this prospectus supplement and the accompanying prospectus before you make an investment decision. Unless otherwise indicated, all information included in this prospectus supplement assumes no exercise by the underwriters of their option to purchase up to an additional 750,000 shares of our common stock.

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PROSPECTUS SUPPLEMENT SUMMARY

          This summary highlights some of the information in this prospectus supplement and the accompanying prospectus. It may not contain all the information that is important to you. For a more complete understanding, we encourage you to read this entire prospectus supplement and the accompanying prospectus and the documents to which we have referred in this prospectus supplement, together with the accompanying prospectus, including the risks set forth under "Risk Factors" and the other information included in this prospectus supplement and the accompanying prospectus.

          In this prospectus supplement, unless the context otherwise requires, references to:

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          For the periods prior to and as of December 31, 2013, all financial information provided in this prospectus supplement and the accompanying prospectus reflect our organizational structure prior to the restructuring on May 8, 2014 described under "Description of Restructuring" in the accompanying prospectus, where NMF Holdings functioned as the operating company.


Overview

          We are a Delaware corporation that was originally incorporated on June 29, 2010 and completed our initial public offering ("IPO") on May 19, 2011. We are 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, we are obligated to comply with certain regulatory requirements. We have elected to be treated, and intend 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").

          The Investment Adviser is a wholly-owned subsidiary 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 of approximately $15.0 billion, which includes total assets held by us. New Mountain Capital focuses on investing in defensive growth companies across its private equity, public equity and credit investment vehicles. The Investment Adviser manages our day-to-day operations and provides us with investment advisory and management services. The Administrator, a wholly-owned subsidiary of New Mountain Capital, provides the administrative services necessary to conduct our day-to-day operations.

          Our wholly-owned subsidiary, NMF Holdings, is a Delaware limited liability company whose assets are used to secure NMF Holdings' credit facility. For additional information about our organizational structure prior to May 8, 2014, see "Description of Restructuring" in the accompanying prospectus. NMF Ancora Holdings Inc. ("NMF Ancora"), NMF QID NGL Holdings, Inc. ("NMF QID") and NMF YP Holdings Inc. ("NMF YP"), our wholly-owned subsidiaries, 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). We consolidate our tax blocker corporations for accounting purposes. The tax blocker corporations are not consolidated for income tax purposes and may incur income tax expense as a result of their ownership of the portfolio companies. Additionally, our wholly-owned subsidiary, New Mountain Finance Servicing, L.L.C. ("NMF Servicing"), serves as the administrative agent on certain investment transactions. SBIC LP, and its general partner, SBIC GP, were organized in Delaware as a limited partnership and limited liability company, respectively. SBIC LP and SBIC GP are our consolidated wholly-owned direct and indirect subsidiaries. SBIC LP received a license from the United States ("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").

          Our 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, our investments may also

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include equity interests. Our 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 us, SBIC LP's investment objective is to generate current income and capital appreciation under our investment criteria. However, SBIC LP's investments must be in SBA eligible companies. Our portfolio may be concentrated in a limited number of industries. As of December 31, 2016, our top five industry concentrations were business services, software, consumer services, investment fund and education.

          The investments that we invest in are almost entirely rated below investment grade or may be unrated, which are often referred to as "leveraged loans", "high yield" or "junk" debt investments, and may be considered "high risk" or speculative compared to debt investments that are rated investment grade. 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 our net asset value and income distributions. Our investments are also primarily floating rate debt investments that contain interest reset provisions that may make it more difficult for borrowers to make debt repayments to us if interest rates rise. In addition, some of our 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. Our debt investments may also lose significant market value before a default occurs. Furthermore, an active trading market may not exist for these securities. This illiquidity may make it more difficult to value our investments.

          As of December 31, 2016, our net asset value was $938.6 million and our portfolio had a fair value of approximately $1,558.8 million in 78 portfolio companies, with a weighted average yield to maturity at cost ("Yield to Maturity at Cost") of approximately 11.1%. This Yield to Maturity at Cost calculation assumes that all investments, including secured collateralized agreements, not on non-accrual are purchased at cost on the quarter end date 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. 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 our portfolio or other factors.


Recent Developments

SBA Green Light Letter

          On January 12, 2017, the SBA issued a "green light" letter inviting us to continue our application process to obtain a second license to form and operate a second SBIC subsidiary. If approved, the additional SBIC license would provide us 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 we have received no assurance or indication from the SBA that we will receive an additional SBIC license or of the timeframe in which we would receive an additional license, should one ultimately be granted.

Distribution

          On February 23, 2017, our board of directors declared a first quarter 2017 distribution of $0.34 per share, which was paid on March 31, 2017 to holders of record as of March 17, 2017.

Appointment/Departure of Directors

          On March 13, 2017, our board of directors appointed Rome G. Arnold III as a Class III Director, whose term expires concurrent with the 2017 annual meeting of our stockholders.

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Additionally, Mr. Arnold was appointed to our audit committee, valuation committee, nominating and corporate governance committee and compensation committee. Mr. Arnold has replaced David R. Malpass, who resigned from our board of directors as of March 13, 2017. Mr. Malpass' resignation was not due to any disagreement with the Company.

          Since January 2017, Mr. Arnold, 61, has served as a Senior Advisor at Rose and Co., a financial-technology startup company with a focus on digital media. From January 2012 through August 2016, Mr. Arnold was a Managing Director at UBS Securities in their Energy Group serving as the Head of Oil Field Services. In addition, Mr. Arnold currently serves as a director of Forbes Energy Services Ltd., an independent oilfield services contractor. Mr. Arnold received his B.A., cum laude, in Psychology and History of Art from Yale College. He received his M.B.A. from Harvard Business School, with High Distinction (Baker Scholar). Mr. Arnold brings his vast experience in investment banking and energy focus to our board of directors.

Preliminary Estimates of Net Asset Value and Net Investment Income

          Set forth below is a preliminary estimate of our net asset value per share as of March 31, 2017 and a preliminary estimate of our net investment income per share range for the three months ended March 31, 2017. The following estimates are not a comprehensive statement of our financial condition or results for the period from December 31, 2016 through March 31, 2017. We advise you that our actual results for the three months ended March 31, 2017 may differ materially from these estimates, which are given only as of the date of this prospectus supplement, as a result of the completion of our financial closing procedures, final adjustments and other developments, including changes in interest rates, changes in the businesses to whom we have made loans or market and industry fluctuations, which may arise between now and the time that our financial results for the three months ended March 31, 2017 are finalized. This information is inherently uncertain.

          As of the date of this prospectus supplement, we currently expect that our net investment income per share was between $0.33 and $0.34 for the three months ended March 31, 2017.

          As of the date of this prospectus supplement, we estimate that our net asset value per share as of March 31, 2017 was approximately $13.50 to $13.60.

          The preliminary financial estimates provided herein have been prepared by, and are the responsibility of, management. Neither Deloitte & Touche LLP, our independent registered public accounting firm, nor any other independent accountants have audited, reviewed, compiled, or performed any procedures with respect to the accompanying preliminary financial data. Accordingly, Deloitte & Touche LLP does not express an opinion or any form of assurance with respect thereto and assumes no responsibility for, and disclaims any association with, this information.


The Investment Adviser

          The Investment Adviser, a wholly-owned subsidiary of New Mountain Capital, manages our day-to-day operations and provides us 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 our investments and monitoring and servicing our investments. We currently do not have, and do not intend to have, any employees. As of March 31, 2017, the Investment Adviser was supported by over 120 staff members of New Mountain Capital, including approximately 75 investment professionals.

          The Investment Adviser is managed by a five member investment committee (the "Investment Committee"), which is responsible for approving purchases and sales of our investments above $10.0 million in aggregate by issuer. The Investment Committee currently consists of Steven B.

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Klinsky, Robert A. Hamwee, Adam B. Weinstein and John R. Kline. The fifth and final member of the Investment Committee will consist of a New Mountain Capital Managing Director who will hold the position on the Investment Committee on an annual rotating basis. Beginning in August 2016, Mathew J. Lori was appointed to the Investment Committee for a one year term. In addition, our executive officers and certain investment professionals of the Investment Adviser are invited to all Investment Committee meetings. Purchases and dispositions below $10.0 million may be approved by our 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.


Competitive Advantages

          We believe that we have the following competitive advantages over other capital providers to middle market companies:

Proven and Differentiated Investment Style With Areas of Deep Industry Knowledge

          In making its investment decisions, the Investment Adviser applies New Mountain Capital's long-standing, consistent investment approach that has been in place since its founding more than 15 years ago. We focus on companies in defensive growth niches of the middle market space where we believe few debt funds have built equivalent research and operational size and scale.

          We benefit directly from New Mountain Capital's private equity investment strategy that seeks to identify attractive investment sectors from the top down and then works to become a well positioned investor in these sectors. New Mountain Capital focuses on companies and industries with sustainable strengths in all economic cycles, particularly ones that are defensive in nature, that have secular tailwinds and can maintain pricing power in the midst of a recessionary and/or inflationary environment. New Mountain Capital focuses on companies within sectors in which it has significant expertise (examples include software, education, niche healthcare, business services, federal services and distribution & logistics) while typically avoiding investments in companies with products or services that serve markets that are highly cyclical, have the potential for long-term decline, are overly-dependent on consumer demand or are commodity-like in nature.

          In making its investment decisions, the Investment Adviser has adopted the approach of New Mountain Capital, which is based on three primary investment principles:

Experienced Management Team and Established Platform

          The Investment Adviser's team members have extensive experience in the leveraged lending space. Steven B. Klinsky, New Mountain Capital's Founder, Chief Executive Officer and Managing Director and Chairman of our board of directors, was a general partner of Forstmann Little & Co., a manager of debt and equity funds totaling multiple billions of dollars in the 1980s and 1990s. He was also a co-founder of Goldman, Sachs & Co.'s Leverage Buyout Group in the period from 1981 to 1984. Robert A. Hamwee, our Chief Executive Officer and Managing Director of New Mountain Capital, was formerly President of GSC Group, Inc. ("GSC"), where he was the portfolio manager of

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GSC's distressed debt funds and led the development of GSC's CLOs. John R. Kline, our President and Chief Operating Officer and Managing Director of New Mountain Capital, worked at GSC as an investment analyst and trader for GSC's control distressed and corporate credit funds and at Goldman, Sachs & Co. in the Credit Risk Management and Advisory Group.

          Many of the debt investments that we have made to date have been in the same companies with which New Mountain Capital has already conducted months of intensive acquisition due diligence related to potential private equity investments. We believe that private equity underwriting due diligence is usually more robust than typical due diligence for loan underwriting. In its underwriting of debt investments, the Investment Adviser is able to utilize the research and hands-on operating experience that New Mountain Capital's private equity underwriting teams possess regarding the individual companies and industries. Business and industry due diligence is led by a team of investment professionals of the Investment Adviser that generally consists of three to seven individuals, typically based on their relevant company and/or industry specific knowledge. Additionally, the Investment Adviser is also able to utilize its relationships with operating management teams and other private equity sponsors. We believe this differentiates us from many of our competitors.

Significant Sourcing Capabilities and Relationships

          We believe the Investment Adviser's ability to source attractive investment opportunities is greatly aided by both New Mountain Capital's historical and current reviews of private equity opportunities in the business segments we target. To date, a significant majority of the investments that we have made are in the debt of companies and industry sectors that were first identified and reviewed in connection with New Mountain Capital's private equity efforts, and the majority of our current pipeline reflects this as well. Furthermore, the Investment Adviser's investment professionals have deep and longstanding relationships in both the private equity sponsor community and the lending/agency community which they have and will continue to utilize to generate investment opportunities.

Risk Management through Various Cycles

          New Mountain Capital has emphasized tight control of risk since its inception and long before the recent global financial distress began. To date, New Mountain Capital has never experienced a bankruptcy of any of its portfolio companies in its private equity efforts. The Investment Adviser seeks to emphasize tight control of risk with our investments in several important ways, consistent with New Mountain Capital's historical approach. In particular, the Investment Adviser:

Access to Non Mark to Market, Seasoned Leverage Facility

          The amount available under the Holdings Credit Facility is generally not subject to reduction as a result of mark to market fluctuations in our portfolio investments. None of our credit facilities mature prior to June 2019. For a detailed discussion of our credit facilities, see "Management's Discussion and Analysis of Financial Conditions and Results of Operations — Liquidity and Capital Resources" in this prospectus supplement.

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Market Opportunity

          We believe that the size of the market for investments that we target, coupled with the demands of middle market companies for flexible sources of capital at competitive terms and rates, create an attractive investment environment for us.


Operating and Regulatory Structure

          We are a closed-end, non-diversified management investment company that has elected to be regulated as a BDC under the 1940 Act and are required to maintain an asset coverage ratio, as defined in the 1940 Act, of at least 200.0%. We include the assets and liabilities of our consolidated subsidiaries for purposes of satisfying the requirements under the 1940 Act. See "Regulation" in the accompanying prospectus.

          We have elected to be treated, and intend to comply with the requirements to continue to qualify annually, as a RIC under Subchapter M of the Code. See "Material Federal Income Tax Considerations" in the accompanying prospectus. As a RIC, we generally will not be subject to corporate-level U.S. federal income taxes on any net ordinary income or capital gains that we timely distribute to our stockholders as dividends if it meets certain source-of-income, distribution and

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asset diversification requirements. We intend to distribute to our stockholders substantially all of our annual taxable income except that we may retain certain net capital gains for reinvestment.


Risks

          An investment in our securities involves risk, including the risk of leverage and the risk that our operating policies and strategies may change without prior notice to our stockholders or prior stockholder approval. See "Risk Factors" and the other information included in this prospectus supplement and the accompanying prospectus for a discussion of factors you should carefully consider before deciding to invest in our securities. The value of our assets, as well as the market price of our securities, will fluctuate. Our investments may be risky, and you may lose all or part of your investment. Investing in us involves other risks, including the following:

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Company Information

          Our administrative and executive offices are located at 787 Seventh Avenue, 48th Floor, New York, New York 10019, and our telephone number is (212) 720-0300. We maintain a website at http://www.newmountainfinance.com. Information contained on our website is not incorporated by reference into this prospectus supplement or the accompanying prospectus, and you should not consider information contained on our website to be part of this prospectus supplement or the accompanying prospectus.


Presentation of Historical Financial Information and Market Data

Historical Financial Information

          Unless otherwise indicated, historical references contained in this prospectus supplement and the accompanying prospectus for periods prior to and as of December 31, 2013 in "Selected Financial and Other Data", "Selected Quarterly Data", "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Senior Securities" relate to NMF Holdings. The consolidated financial statements of New Mountain Finance Holdings, L.L.C., formerly known as New Mountain Guardian (Leveraged), L.L.C., and New Mountain Guardian Partners, L.P. are NMF Holdings' historical consolidated financial statements.

Market Data

          Statistical and market data used in this prospectus supplement and the accompanying prospectus has been obtained from governmental and independent industry sources and publications. We have not independently verified the data obtained from these sources, and we cannot assure you of the accuracy or completeness of the data. Forward-looking information obtained from these sources is subject to the same qualifications and the additional uncertainties regarding the other forward-looking statements contained in this prospectus supplement and accompanying prospectus. See "Cautionary Statement Regarding Forward-Looking Statements" in this prospectus supplement and the accompanying prospectus.

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THE OFFERING

Common Stock Offered

  We are offering 5,000,000 shares of our common stock. To the extent that the underwriters sell more than 5,000,000 shares of our common stock, the underwriters have the option to purchase up to an additional 750,000 shares of our common stock at the initial public offering price, less the underwriting discounts and commissions (sales load), within 30 days of the date of this prospectus supplement.

Shares of Our Common Stock Currently Outstanding

 

69,821,693 shares.

Shares of Our Common Stock Outstanding After This Offering

 

74,821,693 shares, excluding 750,000 shares of common stock issuable pursuant to the option to purchase additional shares granted to the underwriters. This amount does not include any shares which may be issuable upon conversion of existing securities.

Use of Proceeds

 

Our net proceeds from this offering will be approximately $             million, after deducting $             million of sales load and estimated offering expenses of approximately $0.3 million payable by us. If the underwriters' option to purchase additional shares is exercised in full, our net proceeds from this offering will be approximately $             million, after deducting $             million of sales load and estimated offering expenses of approximately $0.3 million payable by us. We intend to use the net proceeds from this offering primarily for new investments in portfolio companies in accordance with our investment objective and strategies described in this prospectus supplement and the accompanying prospectus. We may also use a portion of the net proceeds from the sale of shares of our common stock sold in this offering for other general corporate purposes, including to temporarily repay indebtedness (which will be subject to reborrowing), and other working capital requirements. We are continuously identifying, reviewing and, to the extent consistent with our investment objective, funding new investments. As a result, we typically raise capital as we deem appropriate to fund such new investments. We expect that it will take up to three months for us to substantially invest the net proceeds of this offering, depending on the availability of attractive opportunities and market conditions. However, we can offer no assurance that we will be able to achieve this goal. Proceeds not immediately used for new investments or the temporary repayment of debt will be invested primarily in cash, cash equivalents, U.S. government securities and other high-quality investments that mature in one year or less from the date of the investment. These temporary investments are expected to provide a lower net return than we hope to achieve from our target investments and, accordingly, may result in lower distributions, if any, during such period. See "Use of Proceeds" in this prospectus supplement.

New York Stock Exchange Symbol

 

"NMFC"

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Investment Advisory Fees

 

We pay the Investment Adviser a fee for its services under an investment advisory and management agreement (the "Investment Management Agreement") consisting of two components — a base management fee and an incentive fee. Pursuant to the Investment Management Agreement, the base management fee is calculated at an annual rate of 1.75% of our gross assets, which equals our total assets on the Consolidated Statements of Assets and Liabilities, less (i) the borrowings under 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 our gross assets, which equals our total assets, as determined in accordance with accounting principles generally accepted in the United States of America ("GAAP"), less the 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. We have not invested, and currently do not invest, in derivatives. To the extent we invest in derivatives in the future, we will use the actual value of the derivatives, as reported on our Consolidated Statements of Assets and Liabilities, for purposes of calculating our base management fee. Since our IPO, the base management fee calculation has deducted the borrowings under the SLF Credit Facility. The SLF Credit Facility had historically consisted of primarily lower yielding assets at higher advance rates. As part of an amendment to our 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. Post credit facility merger and to be consistent with the methodology since our IPO, the Investment Adviser will continue to 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 Adviser cannot recoup management fees that the Investment Adviser has previously waived. The incentive fee consists of two parts. The first part is calculated and payable quarterly in arrears and equals 20.0% of our "Pre-Incentive Fee Adjusted Net Investment Income" for the immediately preceding quarter, subject to a "preferred return", or "hurdle", and a "catch-up" feature each as described in the Investment Management Agreement. 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 our "Adjusted Realized Capital Gains", if any, on a cumulative basis from inception through the end of the 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 each as described in the Investment Management Agreement. See "Investment Management Agreement" in the accompanying prospectus.

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Administrator

 

The Administrator serves as our administrator and arranges our office space and provides us with office equipment and administrative services. The Administrator performs, or oversees the performance of, our financial records, prepares reports to our stockholders and reports filed by us with the SEC, monitors the payment of our expenses, and oversees the performance of administrative and professional services rendered to us by others. We reimburse the Administrator for our allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations to us under an administration agreement, as amended and restated (the "Administration Agreement"). For the year ended December 31, 2016, we incurred approximately $1.6 million of indirect administrative expenses, of which $0.7 million of indirect administrative expenses were waived by the Administrator. The Administrator cannot recoup any expenses that the Administrator has previously waived. For the year ended December 31, 2016, we reimbursed our Administrator approximately $0.9 million, which represents approximately 0.1% of our gross assets on an annual basis. See "Administration Agreement" in the accompanying prospectus.

Distributions

 

We intend to pay quarterly distributions to our stockholders out of assets legally available for distribution. The quarterly distributions, if any, will be determined by our board of directors. The distributions we pay to our stockholders in a year may exceed our taxable income for that year and, accordingly, a portion of such distributions may constitute a return of capital, which is a return of a portion of a shareholder's original investment in our common stock, for U.S. federal income tax purposes. Generally, a return of capital will reduce an investor's basis in our stock for U.S. federal income tax purposes, which will result in a higher tax liability when the stock is sold. The specific tax characteristics of our distributions will be reported to stockholders after the end of the calendar year. See "Price Range of Common Stock and Distributions" in this prospectus supplement and the accompanying prospectus.

Taxation of NMFC

 

We have elected to be treated, and intend to comply with the requirements to continue to qualify annually, as a RIC under Subchapter M of the Code. As a RIC, we generally will not pay corporate-level U.S. federal income taxes on any net ordinary income or capital gains that are timely distributed to our stockholders as dividends. To maintain our RIC status, we must meet specified source-of-income and asset diversification requirements and distribute annually to our stockholders at least 90.0% of our net ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any. See "Price Range of Common Stock and Distributions" in this prospectus supplement and in the accompanying prospectus and "Material Federal Income Tax Considerations" in the accompanying prospectus.

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Dividend Reinvestment Plan

 

We have adopted an "opt out" dividend reinvestment plan for our stockholders. As a result, if we declare a distribution, then your cash distributions will be automatically reinvested in additional shares of our common stock, unless you specifically "opt out" of the dividend reinvestment plan so as to receive cash distributions. Stockholders who receive distributions in the form of stock will be subject to the same U.S. federal income tax consequences as stockholders who elect to receive their distributions in cash. We will use only newly issued shares to implement the plan if the price at which newly issued shares are to be credited is equal to or greater than 110.0% of the last determined net asset value of our shares. We reserve the right to either issue new shares or purchase shares of our common stock in the open market in connection with our implementation of the plan if the price at which newly issued shares are to be credited to stockholders' accounts does not exceed 110.0% of the last determined net asset value of the shares. See "Dividend Reinvestment Plan" in the accompanying prospectus.

Trading at a Discount

 

Shares of closed-end investment companies frequently trade at a discount to their net asset value. The possibility that our common stock may trade at a discount to our net asset value per share is separate and distinct from the risk that our net asset value per share may decline. We cannot predict whether our common stock will trade above, at or below net asset value.

License Agreement

 

We have entered into a royalty-free license agreement with New Mountain Capital, pursuant to which New Mountain Capital has agreed to grant us a non-exclusive license to use the names "New Mountain" and "New Mountain Finance". See "License Agreement" in the accompanying prospectus.

Leverage

 

We expect to continue to use leverage to make investments. As a result, we may continue to be exposed to the risks of leverage, which include that leverage may be considered a speculative investment technique. The use of leverage magnifies the potential for gain and loss on amounts we invest and therefore, indirectly, increases the risks associated with investing in shares of our common stock. See "Risk Factors" in this prospectus supplement and the accompanying prospectus.

Anti-Takeover Provisions

 

Our board of directors is divided into three classes of directors serving staggered three-year terms. This structure is intended to provide us with a greater likelihood of continuity of management, which may be necessary for us to realize the full value of our investments. A staggered board of directors also may serve to deter hostile takeovers or proxy contests, as may certain other measures that we may adopt. These measures may delay, defer or prevent a transaction or a change in control that might otherwise be in the best interests of our stockholders. See "Description of Capital Stock — Delaware Law and Certain Certificate of Incorporation and Bylaw Provisions; Anti-Takeover Measures" in the accompanying prospectus.

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Available Information

 

We have filed with the SEC a registration statement on Form N-2 together with all amendments and related exhibits under the Securities Act of 1933, as amended (the "Securities Act"). The registration statement contains additional information about us and the shares of common stock being offered by this prospectus supplement and the accompanying prospectus.

 

We are required to file annual, quarterly and current reports, proxy statements and other information with the SEC under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). This information is available at the SEC's public reference room at 100 F Street, NE, Washington, District of Columbia 20549 and on the SEC's website at http://www.sec.gov. The public may obtain information on the operation of the SEC's public reference room by calling the SEC at 1-800-SEC-0330. This information is also available free of charge by contacting us at New Mountain Finance Corporation, 787 Seventh Avenue, 48th Floor, New York, New York 10019, by telephone at (212) 720-0300, or on our website at http://www.newmountainfinance.com. Information contained on our website or on the SEC's website about us is not incorporated into this prospectus supplement and the accompanying prospectus and you should not consider information contained on our website or on the SEC's website to be part of this prospectus supplement and the accompanying prospectus.

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FEES AND EXPENSES

          The following table is intended to assist you in understanding the costs and expenses that you will bear directly or indirectly. We caution you that some of the percentages indicated in the table below are estimates and may vary. Except where the context suggests otherwise, whenever this prospectus supplement and the accompanying prospectus contains a reference to fees or expenses paid by "you", "NMFC", or "us" or that "we", "NMFC", or the "Company" will pay fees or expenses, we will pay such fees and expenses out of our net assets and, consequently, you will indirectly bear such fees or expenses as an investor in us. However, you will not be required to deliver any money or otherwise bear personal liability or responsibility for such fees or expenses.

Stockholder transaction expenses:

       

Sales load borne by us (as a percentage of offering price)

             % (1)

Offering expenses borne by us (as a percentage of offering price)

             % (2)

Dividend reinvestment plan fees

    N/A (3)

Total stockholder transaction expenses (as a percentage of offering price)

              %

Annual expenses (as a percentage of net assets attributable to common stock):

       

Base management fees

    2.94% (4)

Incentive fees payable under the Investment Management Agreement

    2.17% (5)

Interest payments on borrowed funds

    2.74% (6)

Other expenses

    0.74% (7)

Acquired fund fees and expenses

    0.48% (8)

Total annual expenses

    9.07% (9)


Example

          The following example, required by the SEC, demonstrates the projected dollar amount of total cumulative expenses that would be incurred over various periods with respect to a hypothetical investment in our common stock. In calculating the following expense amounts, we have assumed that our borrowings and annual operating expenses would remain at the levels set forth in the table above. See Note 6 below for additional information regarding certain assumptions regarding our level of leverage.

    1 Year     3 Years     5 Years     10 Years
 

You would pay the following expenses on a $1,000 investment, assuming a 5.0% annual return

  $             $             $             $            

          The example should not be considered a representation of future expenses, and actual expenses may be greater or less than those shown.

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          While the example assumes, as required by the applicable rules of the SEC, a 5.0% annual return, our performance will vary and may result in a return greater or less than 5.0%. The incentive fee under the Investment Management Agreement, which, assuming a 5.0% annual return, would either not be payable or would have an insignificant impact on the expense amounts shown above, is not included in the above example. The above illustration assumes that we will not realize any capital gains (computed net of all realized capital losses and unrealized capital depreciation) in any of the indicated time periods. If we achieve sufficient returns on our investments, including through the realization of capital gains, to trigger an incentive fee of a material amount, our expenses and returns to our investors would be higher. For example, if we assumed that we received our 5.0% annual return completely in the form of net realized capital gains on our investments, computed net of all cumulative unrealized depreciation on our investments, the projected dollar amount of total cumulative expenses set forth in the above illustration would be as follows:

    1 Year     3 Years     5 Years     10 Years
 

You would pay the following expenses on a $1,000 investment, assuming a 5.0% annual return

  $             $             $             $            

          The example assumes a sales load borne by us of         %. In addition, while the examples assume reinvestment of all distributions at net asset value, participants in our dividend reinvestment plan will receive a number of shares of our common stock determined by dividing the total dollar amount of the distribution payable to a participant by the market price per share of our common stock at the close of trading on the dividend payment date. The market price per share of our common stock may be at, above or below net asset value. See "Dividend Reinvestment Plan" in the accompanying prospectus for additional information regarding the dividend reinvestment plan.


(1)
Represents the sales load to be paid by us with respect to the shares of common stock to be sold by us in this offering for which the calculation is adjusted. There is no guaranty that there will be any sales of our common stock pursuant to this prospectus supplement or the accompanying prospectus.

(2)
The offering expenses of this offering are estimated to be approximately $0.3 million.

(3)
The de minimis expenses of the dividend reinvestment plan are included in "other expenses".

(4)
The base management fee under the Investment Management Agreement is based on an annual rate of 1.75% of our average gross assets for the two most recent quarters, which equals our total assets on the Consolidated Statements of Assets and Liabilities, less (i) the borrowings under the SLF Credit Facility and (ii) cash and cash equivalents. We have not invested, and currently do not invest, in derivatives. To the extent we invest in derivatives in the future, we will use the actual value of the derivatives, as reported on our Consolidated Statements of Assets and Liabilities, for purposes of calculating our base management fee. Since our IPO, the base management fee calculation has deducted the borrowings under the SLF Credit Facility. The SLF Credit Facility had historically consisted of primarily lower yielding assets at higher advance rates. As part of an amendment to our 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. Post credit facility merger and to be consistent with the methodology since our IPO, the Investment Adviser will continue to 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 Adviser cannot recoup management fees that the Investment Adviser has previously waived. The base management fee reflected in the table above is based on the year ended December 31, 2016 and is calculated without deducting any management fees waived. The annual base management fee after deducting the management fee waiver as a percentage of net assets would be 2.42% based on the year ended December 31, 2016. See "Investment Management Agreement" in the accompanying prospectus.

(5)
Assumes that annual incentive fees earned by the Investment Adviser remain consistent with the incentive fees earned by the Investment Adviser during the year ended December 31, 2016 and includes accrued capital gains incentive fee. These accrued capital gains incentive fees would be paid by us if we ceased operations on December 31, 2016 and liquidated our investments at the December 31, 2016 valuation. As we cannot predict whether we will meet the thresholds for incentive fees under the Investment Management Agreement, the incentive fees paid in subsequent periods, if any, may be substantially different than the fees incurred during the year ended December 31, 2016. For

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(6)
We may borrow funds from time to time to make investments to the extent we determine that additional capital would allow us to take advantage of additional investment opportunities or if the economic situation is otherwise conducive to doing so. The costs associated with these borrowings are indirectly borne by our stockholders. As of December 31, 2016, we had $333.5 million, $10.0 million, $155.3 million, $90.0 million and $121.7 million of indebtedness outstanding under the Holdings Credit Facility, the NMFC Credit Facility, the Convertible Notes, the Unsecured Notes and the SBA-guaranteed debentures, respectively. For purposes of this calculation, we have assumed the December 31, 2016 amounts outstanding under the credit facilities, the Convertible Notes, the Unsecured Notes and the SBA-guaranteed debentures, and have computed interest expense using an assumed interest rate of 3.3% for the Holdings Credit Facility, 3.3% for the NMFC Credit Facility, 5.0% for the Convertible Notes, 5.313% for the Unsecured Notes and 3.2% for the SBA-guaranteed debentures, which were the rates payable as of December 31, 2016. See "Senior Securities" in this prospectus supplement and the accompanying prospectus.

(7)
"Other expenses" include our overhead expenses, including payments by us under the Administration Agreement based on the allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations to us under the Administration Agreement. Pursuant to the Administration Agreement, the Administrator may, in its own discretion, submit to us for reimbursement some or all of the expenses that the Administrator has incurred on our behalf during any quarterly period. As a result, the amount of expenses for which we 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 us for reimbursement in the future. However, it is expected that the Administrator will continue to support part of our expense burden 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. This expense ratio is calculated without deducting any expenses waived or reimbursed by the Administrator. Assuming the expenses waived or reimbursed by the Administrator at December 31, 2016, the annual expense ratio after deducting the expenses waived or reimbursed by the Administrator as a percentage of net assets would be 0.67%. For the year ended December 31, 2016, we reimbursed our Administrator approximately $0.7 million, which represents approximately 0.09% of our net assets on an annualized basis. See "Administration Agreement" in the accompanying prospectus.

(8)
The holders of shares of our common stock indirectly bear the expenses of our investment in NMFC Senior Loan Program I, LLC ("SLP I") and NMFC Senior Loan Program II, LLC ("SLP II"). No management fee is charged on our investment in SLP I in connection with the administrative services provided to SLP I. As SLP II is structured as a private joint venture, no management fees are paid by SLP II. Future expenses for SLP I and SLP II may be substantially higher or lower because certain expenses may fluctuate over time.

(9)
The holders of shares of our common stock indirectly bear the cost associated with our annual expenses.

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SELECTED FINANCIAL AND OTHER DATA

          The selected financial data should be read in conjunction with the respective consolidated financial statements and related consolidated notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in this prospectus supplement and the accompanying prospectus. Financial information for the years ended December 31, 2016, December 31, 2015, December 31, 2014, December 31, 2013 and December 31, 2012 has been derived from the Predecessor Operating Company's and our financial statements and the related notes thereto that were audited by Deloitte & Touche LLP, an independent registered public accounting firm. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Senior Securities" in this prospectus supplement and the accompanying prospectus for more information.

          The below selected financial and other data is for NMFC.

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          (in thousands except shares and per share data)

    Years Ended December 31,
 

New Mountain Finance Corporation
  2016     2015     2014     2013     2012    

Statement of Operations Data:

                               

Investment income

  $ 168,084   $ 153,855   $ 91,923   $   $  

Investment income allocated from NMF Holdings

            43,678     90,876     37,511  

Net expenses

    79,976     71,360     34,727          

Net expenses allocated from NMF Holdings

            20,808     40,355     17,719  

Net investment income

    88,108     82,495     80,066     50,521     19,792  

Net realized (losses) gains on investments

    (16,717 )   (12,789 )   357          

Net realized and unrealized gains (losses) allocated from NMF Holdings

            9,508     11,443     12,087  

Net change in unrealized appreciation (depreciation) of investments

    40,131     (35,272 )   (43,863 )        

Net change in unrealized (depreciation) appreciation of securities purchased under collateralized agreements to resell

    (486 )   (296 )            

Net change in unrealized (depreciation) appreciation of investment in NMF Holdings

                (44 )   (95 )

Benefit (provision) for taxes

    642     (1,183 )   (493 )        

Net increase in net assets resulting from operations

    111,678     32,955     45,575     61,920     31,784  

Per share data:

                               

Net asset value

  $ 13.46   $ 13.08   $ 13.83   $ 14.38   $ 14.06  

Net increase in net assets resulting from operations (basic)

    1.72     0.55     0.88     1.76     2.14  

Net increase in net assets resulting from operations (diluted)(1)

    1.60     0.55     0.86     1.76     2.14  

Distributions declared(2)

    1.36     1.36     1.48     1.48     1.71  

Balance sheet data:

                               

Total assets(3)

  $ 1,656,018   $ 1,588,146   $ 1,500,868   $ 650,107   $ 345,331  

Holdings Credit Facility

    333,513     419,313     468,108     N/A     N/A  

Convertible Notes

    155,523     115,000     115,000     N/A     N/A  

SBA-guaranteed debentures

    121,745     117,745     37,500     N/A     N/A  

Unsecured Notes

    90,000             N/A     N/A  

NMFC Credit Facility

    10,000     90,000     50,000     N/A     N/A  

Total net assets

    938,562     836,908     802,170     650,107     341,926  

Other data:

                               

Total return based on market value(4)

    19.68 %   (4.00 )%   9.66 %   11.62 %   24.84 %

Total return based on net asset value(5)

    13.98 %   4.32 %   6.56 %   13.27 %   16.61 %

Number of portfolio companies at period end

    78     75     71     N/A     N/A  

Total new investments for the period(6)

  $ 558,068   $ 612,737   $ 720,871     N/A     N/A  

Investment sales and repayments for the period(6)

  $ 547,078   $ 483,936   $ 384,568     N/A     N/A  

Weighted average Yield to Maturity at Cost on debt portfolio at period end (unaudited)(7)

    11.1 %   10.7 %   10.7 %   N/A     N/A  

Weighted average shares outstanding for the period (basic)

    64,918,191     59,715,290     51,846,164     35,092,722     14,860,838  

Weighted average shares outstanding for the period (diluted)

    72,863,387     66,968,089     56,157,835     35,092,722     14,860,838  

Portfolio turnover(6)

    36.07 %   33.93 %   29.51 %   N/A     N/A  

(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, 2015, there was anti-dilution. For the years ended December 31, 2016 and 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.

(2)
Distributions declared in the year ended December 31, 2014 include a $0.12 per share special dividend related to realized capital gains attributable to NMF Holdings' warrant investments in Learning Care Group (US), Inc. Distributions declared in the year ended December 31, 2013 include a $0.12 per share special dividend related to a distribution received attributable to NMF Holdings' investment in YP Equity Investors LLC. Distributions declared in the year ended December 31, 2012 include a $0.23 per share 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

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(3)
On January 1, 2016, we adopted Accounting Standard Update No. 2015-03, Interest — Imputation of Interest Subtopic 835-30 — Simplifying the Presentation of Debt Issuance Costs ("ASU 2015-03"). Upon adoption, we revised our presentation of deferred financing costs from an asset to a liability, which is a direct deduction to our debt on the Consolidated Statements of Assets and Liabilities. In addition, as of December 31, 2015 and December 31, 2014, we retrospectively revised our presentation of $14.0 million and $14.1 million, respectively, of deferred financing costs that were previously presented as an asset, which resulted in a decrease to total assets and total liabilities as of December 31, 2015 and December 31, 2014. For the years ended December 31, 2013 and December 31, 2012, NMFC was a holding company with no direct operations of its own and its sole asset was its ownership in the Predecessor Operating Company and as such ASU 2015-03 did not apply to NMFC.

(4)
Total return is calculated assuming a purchase of common stock at the opening of the first day of the period and a sale on the closing of the last business 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 our dividend reinvestment plan.

(5)
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.

(6)
For the year ended December 31, 2014, amounts include our investment activity and the investment activity of the Predecessor Operating Company.

(7)
The weighted average Yield to Maturity at Cost calculation assumes that all investments, including secured collateralized agreements, not on non-accrual are purchased at cost on the respective period ends and held until their respective maturities with no prepayments or losses and exited at par at maturity.

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          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.

    Years Ended
December 31,
 

New Mountain Finance Holdings, L.L.C.
  2013     2012    

Statement of Operations Data:

             

Total investment income

  $ 114,912   $ 85,786  

Net expenses

    51,235     40,569  

Net investment income

    63,677     45,217  

Net realized and unrealized gains (losses)

    15,247     28,779  

Net increase in net assets resulting from operations

    78,924     73,996  

Per unit data:

             

Net asset value

  $ 14.38   $ 14.06  

Net increase in net assets resulting from operations (basic and diluted)

    1.79     2.18  

Distributions declared(1)

    1.48     1.71  

Balance sheet data:

             

Total assets

  $ 1,147,841   $ 1,025,564  

Holdings Credit Facility

    221,849     206,938  

SLF Credit Facility

    214,668     214,262  

Total net assets

    688,516     569,939  

Other data:

             

Total return at net asset value(2)

    13.27 %   16.61 %

Number of portfolio companies at period end

    59     63  

Total new investments for the period

  $ 529,307   $ 673,218  

Investment sales and repayments for the period

  $ 426,561   $ 423,874  

Weighted average Yield to Maturity at Cost on debt portfolio at period end (unaudited)(3)

    11.0 %   10.3 %

Weighted average Yield to Maturity on debt portfolio at period end (unaudited)(4)

    10.6 %   10.1 %

Weighted average common membership units outstanding for the period

    44,021,920     34,011,738  

Portfolio turnover

    40.52 %   52.02 %

(1)
Distributions 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. Distributions 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 payments on the distributions 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)
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. 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.

(3)
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

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(4)
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.

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SELECTED QUARTERLY FINANCIAL DATA

          The selected quarterly financial data should be read in conjunction with our respective consolidated financial statements and related consolidated notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in this prospectus supplement and the accompanying prospectus. The following table sets forth certain quarterly financial data for each of the quarters for the fiscal years ended December 31, 2016 and December 31, 2015. This data is derived from our unaudited financial statements. Results for any quarter are not necessarily indicative of results for the full year or for any future quarter. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Senior Securities" included in this prospectus supplement and the accompanying prospectus for more information.

          The below selected quarterly financial data is for NMFC.

    Total Investment
Income
    Net Investment
Income
    Total Net Realized
Gains (Losses) and
Net Changes in
Unrealized
Appreciation
(Depreciation) of
Investments(1)
    Net Increase
(Decrease)
in Net Assets
Resulting from
Operations
 

Quarter Ended
  Total     Per Share     Total     Per Share     Total     Per Share     Total     Per Share    

December 31, 2016

  $ 43,784   $ 0.64   $ 22,980   $ 0.34   $ 10,875   $ 0.16   $ 33,855   $ 0.50  

September 30, 2016

    41,834     0.66     21,729     0.34     3,350     0.05     25,079     0.39  

June 30, 2016

    41,490     0.65     21,832     0.34     22,861     0.36     44,693     0.70  

March 31, 2016

    40,976     0.64     21,567     0.34     (13,516 )   (0.21 )   8,051     0.13  

December 31, 2015

 
$

41,967
 
$

0.66
 
$

22,521
 
$

0.35
 
$

(42,548

)

$

(0.66

)

$

(20,027

)

$

(0.31

)

September 30, 2015

    37,447     0.64     20,659     0.35     (10,855 )   (0.18 )   9,804     0.17  

June 30, 2015

    37,905     0.65     20,253     0.35     11         20,264     0.35  

March 31, 2015

    36,536     0.63     19,062     0.33     3,852     0.07     22,914     0.40  

(1)
Includes securities purchased under collateralized agreements to resell, benefit (provision) for taxes and the accretive effect of common stock issuances per share, if applicable.

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RISK FACTORS

          Investing in our securities involves a number of significant risks. In addition to the other information contained in this prospectus supplement and the accompanying prospectus, you should consider carefully the following risks before making an investment in our securities. The risks set out below are not the only risks we face and you should read the risks set out in "Risk Factors" beginning on page 30 of the accompanying prospectus. Additional risks and uncertainties not presently known to us or not presently deemed material by us might also impair our operations and performance. 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 our common stock could decline and you may lose all or part of your investment.

RISKS RELATED TO OUR BUSINESS AND STRUCTURE

Further downgrades of the U.S. credit rating, impending automatic spending cuts or another government shutdown could negatively impact our liquidity, financial condition and earnings.

          Recent U.S. debt ceiling and budget deficit concerns have increased the possibility of additional credit-rating downgrades and economic slowdowns, or a recession in the U.S. The federal debt limit was previously suspended since November 2, 2015, but the limit was reinstated on March 16, 2017. If legislation increasing the debt ceiling is not enacted, as needed, and the debt ceiling is reached, the U.S. federal government may stop or delay making payments on its obligations, which could negatively impact the U.S. economy and our portfolio companies. Multiple factors relating to the international operations of some of our portfolio companies and to particular countries in which they operate could negatively impact their business, financial condition and results of operations. In addition, disagreement over the federal budget has caused the U.S. federal government to shut down for periods of time. Continued adverse political and economic conditions could have a material adverse effect on our business, financial condition and results of operations.

Global economic, political and market conditions may adversely affect our business, results of operations and financial condition, including our revenue growth and profitability.

          The current worldwide financial market situation, as well as various social and political tensions in the U.S. and around the world, may contribute to increased market volatility, may have long-term effects on the U.S. and worldwide financial markets, and may cause economic uncertainties or deterioration in the U.S. and worldwide. Since 2010, several European Union ("EU") countries, including Greece, Ireland, Italy, Spain, and Portugal, have faced budget issues, some of which may have negative long-term effects for the economies of those countries and other EU countries. There is continued concern about national-level support for the Euro and the accompanying coordination of fiscal and wage policy among European Economic and Monetary Union member countries. In June 2016, the United Kingdom ("U.K.") held a referendum in which voters approved an exit from the EU ("Brexit"), and, accordingly, on February 1, 2017, the U.K. Parliament voted in favor of allowing the U.K. government to begin the formal process of Brexit. Brexit created political and economic uncertainty and instability in the global markets (including currency and credit markets), and especially in the U.K. and the EU, and this uncertainty and instability may last indefinitely. In addition, the fiscal policy of foreign nations, such as Russia and China, may have a severe impact on the worldwide and U.S. financial markets. We cannot predict the effects of these or similar events in the future on the U.S. economy and securities markets or on our investments. We monitor developments and seek to manage our investments in a manner consistent with achieving our investment objective, but there can be no assurance that we will be successful in doing so.

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          As a result of the 2016 U.S. election, the Republican Party currently controls both the executive and legislative branches of government, which increases the likelihood that legislation may be adopted that could significantly affect the regulation of U.S. financial markets. Areas subject to potential change, amendment or repeal include the Dodd-Frank Act and the authority of the Federal Reserve and the Financial Stability Oversight Council. The U.S. may also potentially withdraw from or renegotiate various trade agreements and take other actions that would change current trade policies of the U.S. We cannot predict which, if any, of these actions will be taken or, if taken, their effect on the financial stability of the U.S. Such actions could have a significant adverse effect on our business, financial condition and results of operations. We cannot predict the effects of these or similar events in the future on the U.S. economy and securities markets or on our investments. We monitor developments and seek to manage our investments in a manner consistent with achieving our investment objective, but there can be no assurance that we will be successful in doing so.

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

          We depend on the investment judgment, skill and relationships of the investment professionals of the Investment Adviser, particularly Steven B. Klinsky, Robert A. Hamwee and John R. Kline, as well as other key personnel to identify, evaluate, negotiate, structure, execute, monitor and service our investments. The Investment Adviser, as an affiliate of New Mountain Capital, is supported by New Mountain Capital's team, which as of March 31, 2017 consisted of over 120 staff members of New Mountain Capital and its affiliates to fulfill its obligations to us 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. Our 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 our ability to achieve our investment objective.

          The Investment Committee, which provides oversight over our 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 our ability to achieve our 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 our 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.

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

          We borrow money as part of our 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 to continue to use leverage to finance our investments, through senior securities issued by banks and other lenders. Lenders of these senior securities have fixed dollar claims on our assets that are superior to claims of our common stockholders. If the value of our assets decreases, leveraging would cause our net asset value to decline more sharply than it otherwise would have had it not leveraged. Similarly, any decrease in our income would cause our

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net income to decline more sharply than it would have had it not borrowed. Such a decline could adversely affect our ability to make common stock dividend payments. In addition, because our investments may be illiquid, we may be unable to dispose of them or to do so at a favorable price in the event we need to do so if we are unable to refinance any indebtedness upon maturity and, as a result, we may suffer losses. Leverage is generally considered a speculative investment technique.

          Our ability to service any debt that we incur depends largely on our 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 our interests and the interests of our common stockholders. In addition, holders of our common stock will, indirectly, bear the burden of any increase in our expenses as a result of leverage, including any increase in the management fee payable to the Investment Adviser.

          At December 31, 2016, we had $333.5 million, $10.0 million, $155.3 million, $90.0 million and $121.7 million of indebtedness outstanding under the Holdings Credit Facility, the NMFC Credit Facility, the Convertible Notes, the Unsecured Notes and the SBA-guaranteed debentures, respectively. The Holdings Credit Facility, NMFC Credit Facility and the SBA-guaranteed debentures had weighted average interest rates of 2.8%, 3.0% and 3.1%, respectively, for the year ended December 31, 2016. The interest rate on the Convertible Notes is 5.0% per annum and the interest rate on the Unsecured Notes is 5.313% per annum. In order for us to cover our annual interest payments on our outstanding indebtedness at December 31, 2016, we must achieve annual returns on our December 31, 2016 total assets of at least 1.6%.

          Illustration.    The following table illustrates the effect of leverage on returns from an investment in our common stock assuming various annual returns, net of expenses and adjusted for unsettled securities purchased. The calculations in the table below are hypothetical. Actual returns may be higher or lower than those appearing below. The calculation assumes (i) $1,656.0 million in total assets, (ii) a weighted average cost of borrowings of 3.6%, which assumes the weighted average interest rates as of December 31, 2016 for the Holdings Credit Facility, the NMFC Credit Facility and the SBA-guaranteed debentures and the interest rate as of December 31, 2016 for the Convertible Notes and Unsecured Notes, (iii) $710.5 million in debt outstanding and (iv) $938.6 million in net assets.


Assumed Return on Our Portfolio
(net of expenses)

  (10.0)%     (5.0)%     0%     5.0%     10.0%    

Corresponding return to stockholder

    (20.4 )%   (11.6 )%   (2.8 )%   6.1 %   14.9 %

Our ability to enter into transactions involving derivatives and financial commitment transactions may be limited.

          The SEC has proposed a new rule under the 1940 Act that would govern the use of derivatives (defined to include any swap, security-based swap, futures contract, forward contract, option or any similar instrument) as well as financial commitment transactions (defined to include reverse repurchase agreements, short sale borrowings and any firm or standby commitment agreement or similar agreement) by BDCs. Under the proposed rule, a BDC would be required to comply with one of two alternative portfolio limitations and manage the risks associated with derivatives transactions and financial commitment transactions by segregating certain assets. Furthermore, a BDC that engages in more than a limited amount of derivatives transactions or that

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uses complex derivatives would be required to establish a formalized derivatives risk management program. If the SEC adopts this rule in the form proposed, our ability to enter into transactions involving such instruments may be hindered, which could have an adverse effect on our business, financial condition and results of operations.

RISKS RELATED TO OUR OPERATIONS

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

          Our 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 our 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 us and such other funds. Although the investment professionals will endeavor to allocate investment opportunities in a fair and equitable manner, it is possible that we 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 us. When these investment professionals identify an investment, they may be forced to choose which investment fund should make the investment.

          While we may co-invest with investment entities managed by the Investment Adviser or its affiliates to the extent permitted by the 1940 Act and the rules and regulations thereunder, the 1940 Act imposes significant limits on co-investment. As a result, on September 12, 2016, we, the Investment Adviser and certain affiliates of the Investment Adviser applied for exemptive relief from the SEC under the 1940 Act, which, if granted, would allow additional latitude to co-invest. However, there is no assurance when, or even if, we will obtain such relief. In the event the SEC does not grant us relief, we will be limited in our ability to invest in certain portfolio companies in which the Investment Adviser or any of its affiliates are investing or are invested. Even if we are able to obtain exemptive relief, we will be unable to participate in certain transactions originated by our Investment Adviser or its affiliates prior to receipt of such relief.

          If the Investment Adviser forms other affiliates in the future, we may co-invest on a concurrent basis with such other affiliates, subject to compliance with applicable regulations and regulatory guidance or an exemptive order from the SEC and our allocation procedures. In addition, we pay management and incentive fees to the Investment Adviser and reimburse the Investment Adviser for certain expenses it incurs. As a result, investors in our common stock invest in us on a "gross" basis and receive distributions on a "net" basis after our 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.

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Regulations governing the operations of BDCs will affect our ability to raise additional equity capital as well as our 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.

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

          We may issue debt securities, preferred stock, and we 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 us to issue senior securities in amounts such that our asset coverage, as defined in the 1940 Act, equals at least 200.0% after each issuance of senior securities. As a result of our SEC exemptive relief, we are permitted to exclude our SBA-guaranteed debentures from the definition of senior securities in the 200.0% asset coverage ratio we are required to maintain under the 1940 Act. If our asset coverage ratio is not at least 200.0%, we would be unable to issue senior securities, and if we 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), we would be unable to make distributions to our stockholders. However, at December 31, 2016, our only senior securities outstanding were indebtedness under the Holdings Credit Facility, NMFC Credit Facility, Convertible Notes and Unsecured Notes. Therefore, at December 31, 2016, we would not have been precluded from paying distributions. If the value of our assets declines, we may be unable to satisfy this test. If that happens, we may be required to liquidate a portion of our investments and repay a portion of our 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, 2016. The Holdings Credit Facility had $333.5 million in debt outstanding as of December 31, 2016. The NMFC Credit Facility matures on June 4, 2019 and permits borrowings of $122.5 million as of December 31, 2016. The NMFC Credit Facility had $10.0 million in debt outstanding as of December 31, 2016. The Convertible Notes mature on June 15, 2019. The Convertible Notes had $155.3 million in debt outstanding as of December 31, 2016. The Unsecured Notes mature on May 15, 2021. The Unsecured Notes had $90.0 million in debt outstanding as of December 31, 2016. The SBA-guaranteed debentures have ten year maturities and will begin to mature on March 1, 2025. As of December 31, 2016, $121.7 million of SBA-guaranteed debentures were outstanding.

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

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          We may also obtain capital through the issuance of additional equity capital. As a BDC, we generally are not able to issue or sell our common stock at a price below net asset value per share. If our common stock trades at a discount to our net asset value per share, this restriction could adversely affect our ability to raise equity capital. We may, however, sell our common stock, or warrants, options or rights to acquire our common stock, at a price below our net asset value per share of the common stock if our board of directors and independent directors determine that such sale is in our best interests and the best interests of our stockholders, and our stockholders approve such sale. In any such case, the price at which our securities are to be issued and sold may not be less than a price that, in the determination of our board of directors, closely approximates the market value of such securities (less any underwriting commission or discount). If we raise additional funds by issuing more shares of our common stock, or if we issue senior securities convertible into, or exchangeable for, our common stock, the percentage ownership of our stockholders may decline and you may experience dilution.

Changes in laws or regulations governing our operations may adversely affect our business or cause us to alter our 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. Our 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 we are permitted to make, and your interests as stockholders potentially with retroactive effect. In addition, any changes to the laws and regulations governing our operations relating to permitted investments may cause us to alter our investment strategy in order to avail ourselves of new or different opportunities. These changes could result in material changes to our strategies which may result in our 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.

          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 our operations, cash flows or financial condition, impose additional costs on us, intensify the regulatory supervision of us or otherwise adversely affect our business.

The effect of global climate change may impact the operations of our portfolio companies.

          There may be evidence of global climate change. Climate change creates physical and financial risk and some of our 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 our 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 our portfolio companies' financial condition, through decreased revenues. Extreme weather conditions in general require more system

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backup, adding to costs, and can contribute to increased system stresses, including service interruptions.

          In December 2015 the United Nations, of which the U.S. is a member, adopted a climate accord (the "Paris Agreement") with the long-term goal of limiting global warming and the short-term goal of significantly reducing greenhouse gas emissions. The U.S. subsequently ratified the Paris Agreement, and it entered into force on November 4, 2016. As a result, our portfolio companies, particularly those operating in the energy sector, may be subject to new or strengthened regulations or legislation which could increase their operating costs and/or decrease their revenues.

RISKS RELATING TO OUR INVESTMENTS

Our portfolio may be concentrated in a limited number of industries, which may subject us to a risk of significant loss if there is a downturn in a particular industry in which a number of our investments are concentrated.

          Our portfolio may be concentrated in a limited number of industries. For example, as of December 31, 2016, our investments in the business services and the software industries represented approximately 29.6% and 27.0%, respectively, of the fair value of our portfolio. A downturn in any particular industry in which we are invested could significantly impact the portfolio companies operating in that industry, and accordingly, the aggregate returns that we realize from our investment in such portfolio companies.

          Specifically, 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. In addition, 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. If an industry in which we have significant investments suffers from adverse business or economic conditions, as these industries have to varying degrees, a material portion of our investment portfolio could be affected adversely, which, in turn, could adversely affect our financial position and results of operations.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

          This prospectus supplement and the accompanying prospectus contain forward-looking statements that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about us, our current and prospective portfolio investments, our industry, our beliefs, and our assumptions. Words such as "anticipate", "believe", "continue", "could", "estimate", "expect", "intend", "may", "plan", "potential", "project", "seek", "should", "target", "will", "would" or variations of these words and similar expressions are intended to identify forward-looking statements. The forward-looking statements contained in this prospectus supplement and the accompanying prospectus involve risks and uncertainties, including statements as to:

          These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements, including without limitation:

          Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be inaccurate. Important assumptions include our ability to originate new loans and investments, certain margins and levels

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of profitability and the availability of additional capital. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this prospectus supplement or the accompanying prospectus should not be regarded as a representation by us that our plans and objectives will be achieved. These risks and uncertainties include those described or identified in "Risk Factors" and elsewhere in this prospectus supplement and the accompanying prospectus. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this prospectus supplement. However, we will update this prospectus supplement to reflect any material changes to the information contained herein. The forward-looking statements and projections contained in this prospectus supplement are excluded from the safe harbor protection provided by Section 27A of the Securities Act.

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CAPITALIZATION

          The following table sets forth our capitalization as of December 31, 2016:

          You should read this table together with "Use of Proceeds" and the financial statements and related notes thereto included elsewhere in this prospectus supplement.

    Actual     As Adjusted
(unaudited)
 

    (in thousands)  

Assets:

             

Cash and cash equivalents

  $ 45,928   $    

Investments at fair value

    1,558,817        

Other assets

    51,273        

Total assets

  $ 1,656,018   $    

Liabilities:

             

Net borrowings

  $ 696,740   $    

Other liabilities

    20,716        

Total liabilities

  $ 717,456   $    

Net assets

  $ 938,562   $    

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, 69,755,387 shares issued and 69,717,814 shares outstanding

    698        

Paid in capital in excess of par

    1,001,862        

Treasury stock at cost, 37,573 shares held, respectively

    (460 )      

Accumulated undistributed net investment income

    2,073        

Accumulated undistributed net realized losses on investments

    (36,947 )      

Net unrealized (depreciation) appreciation (net of provision for taxes)

    (28,664 )      

Total net assets

    938,562        

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USE OF PROCEEDS

          We estimate that we will receive net proceeds from the sale of the 5,000,000 shares of our common stock in this offering of approximately $              million, after deducting underwriting discounts and commissions of approximately $              million and estimated offering expenses of approximately $0.3 million payable by us. If the underwriters' option to purchase additional shares is exercised in full, our net proceeds from this offering will be approximately $              million, after deducting underwriting discounts and commissions of approximately $              million and estimated offering expenses of approximately $0.3 million payable by us.

          We intend to use the net proceeds from this offering primarily for new investments in portfolio companies in accordance with our investment objective and strategies described in this prospectus supplement and the accompanying prospectus. We may also use a portion of the net proceeds from the sale of shares of our common stock sold in this offering for other general corporate purposes, including to temporarily repay indebtedness (which will be subject to reborrowing), and other working capital requirements. We are continuously identifying, reviewing and, to the extent consistent with our investment objective, funding new investments. As a result, we typically raise capital as we deem appropriate to fund such new investments.

          We expect that it will take up to three months for us to substantially invest the net proceeds from this offering, depending on the availability of attractive opportunities and market conditions. However, we can offer no assurance that we will be able to achieve this goal.

          Proceeds not immediately used for new investments or the temporary repayment of debt will be invested primarily in cash, cash equivalents, U.S. government securities and other high-quality investments that mature in one year or less from the date of investment. These temporary investments are expected to provide a lower net return than we hope to achieve from our target investments and, accordingly, may result in lower distributions, if any, during such period.

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PRICE RANGE OF COMMON STOCK AND DISTRIBUTIONS

          Our common stock is traded on the New York Stock Exchange ("NYSE") under the symbol "NMFC". The following table sets forth, for each fiscal quarter during the last two fiscal years and the current fiscal year to date, the net asset value ("NAV") per share of our common stock, the high and low closing sale price for our common stock, the closing sale price as a percentage of NAV and the quarterly distributions per share.

   


NAV
 

Closing Sales
Price(2)
 
    Premium
(Discount) of
High Closing
Sales to
    Premium
(Discount) of
Low Closing
Sales to
   

Declared
Distributions
 

Fiscal Year Ended
  Per Share(1)     High     Low     NAV(3)     NAV(3)     Per Share(4)(5)    

December 31, 2017

                                     

First Quarter

      * $ 14.90   $ 14.00       *     * $ 0.34  

December 31, 2016

                                     

Fourth Quarter

  $ 13.46   $ 14.30   $ 13.20     6.24 %   (1.93 )% $ 0.34  

Third Quarter

  $ 13.28   $ 14.28   $ 13.11     7.53 %   (1.28 )% $ 0.34  

Second Quarter

  $ 13.23   $ 12.90   $ 12.10     (2.49 )%   (8.54 )% $ 0.34  

First Quarter

  $ 12.87   $ 12.96   $ 11.09     0.70 %   (13.83 )% $ 0.34  

December 31, 2015

                                     

Fourth Quarter

  $ 13.08   $ 14.17   $ 12.15     8.33 %   (7.11 )% $ 0.34  

Third Quarter

  $ 13.73   $ 14.94   $ 13.34     8.81 %   (2.84 )% $ 0.34  

Second Quarter

  $ 13.90   $ 15.14   $ 14.49     8.92 %   4.24 % $ 0.34  

First Quarter

  $ 13.89   $ 15.06   $ 14.30     8.42 %   2.95 % $ 0.34  

(1)
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 closing sales prices. The NAVs shown are based on outstanding shares at the end of each period.

(2)
Closing sales price is determined as the high or low closing sales price noted within the respective quarter, not adjusted for distributions.

(3)
Calculated as of the respective high or low closing sales price divided by the quarter end NAV.

(4)
Represents the distributions declared or paid for the specified quarter.

(5)
Tax characteristics of all distributions paid are reported to stockholders on Form 1099 after the end of the calendar year. For the years ended December 31, 2016 and December 31, 2015, total distributions were $88.8 million and $81.0 million, respectively, of which the distributions were comprised of approximately 89.46% and 99.96%, respectively, of ordinary income, 0.00% and 0.00%, respectively, of long-term capital gains and approximately 10.54% and 0.04%, respectively, of a return of capital.

*
Not determinable at the time of filing.

          On March 31, 2017, the last reported sales price of our common stock was $14.90 per share. As of March 31, 2017, we had approximately 17 stockholders of record and approximately one beneficial owner whose shares are held in the names of brokers, dealers, funds, trusts and clearing agencies.

          Shares of BDCs may trade at a market price that is less than the value of the net assets attributable to those shares. The possibility that our shares of common stock will trade at a discount from NAV or at premiums that are unsustainable over the long term are separate and distinct from the risk that our NAV will decrease. Since our initial public offering on May 19, 2011, our shares of common stock have traded at times at both a discount and a premium to the net assets attributable to those shares. As of March 31, 2017, our shares of common stock traded at a premium of

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approximately 10.7% of the NAV attributable to those shares as of December 31, 2016. It is not possible to predict whether the shares offered hereby will trade at, above, or below NAV.

          We intend to pay quarterly distributions to our stockholders in amounts sufficient to maintain our status as a RIC. We intend to distribute approximately our 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 our taxable income on an annual basis, except that we may retain certain net capital gains for reinvestment. The distributions we pay to our stockholders in a year may exceed our taxable income for that year and, accordingly, a portion of such distributions may constitute a return of capital, which is a return of a portion of a stockholders original investment in our common stock, for U.S. federal tax purposes. Generally, a return of capital will reduce an investor's basis in our stock for U.S. federal income tax purposes, which will result in a higher tax liability when the stock is sold. The specific tax characteristics of our distributions will be reported to stockholders after the end of the calendar year.

          We apply the following in implementing the dividend reinvestment plan. If the price at which newly issued shares are to be credited to stockholders' accounts is equal to or greater than 110.0% of the last determined NAV of the shares, we will use only newly issued shares to implement the 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 our 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 ask 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, we 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 our 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 our stockholders have been tabulated.

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          The following table reflects the cash distributions, including dividends and returns of capital, if any, per share that have been declared by our board of directors for the two most recent fiscal years and the current fiscal year to date:

Date Declared
  Record Date    Payment Date    Amount   

February 23, 2017

  March 17, 2017   March 31, 2017   $ 0.34  

          $ 0.34  

November 4, 2016

  December 15, 2016   December 29, 2016   $ 0.34  

August 2, 2016

  September 16, 2016   September 30, 2016     0.34  

May 3, 2016

  June 16, 2016   June 30, 2016     0.34  

February 22, 2016

  March 17, 2016   March 31, 2016     0.34  

          $ 1.36  

November 3, 2015

  December 16, 2015   December 30, 2015   $ 0.34  

August 4, 2015

  September 16, 2015   September 30, 2015     0.34  

May 5, 2015

  June 16, 2015   June 30, 2015     0.34  

February 23, 2015

  March 17, 2015   March 31, 2015     0.34  

          $ 1.36  

          Tax characteristics of all distributions paid are reported to stockholders on Form 1099 after the end of the calendar year. For the years ended December 31, 2016 and December 31, 2015, total distributions were $88.8 million and $81.0 million, respectively, of which the distributions were comprised of approximately 89.46% and 99.96%, respectively, of ordinary income, 0.00% and 0.00%, respectively, of long-term capital gains and approximately 10.54% and 0.04%, respectively, of a return of capital. Future quarterly distributions, if any, will be determined by our board of directors.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

          The information contained in this section should be read in conjunction with the Selected Financial and Other Data and our Financial Statements and notes thereto appearing elsewhere in this prospectus supplement. For the periods prior to and as of May 8, 2014, all financial information provided in this section reflects our organizational structure prior to the restructuring on May 8, 2014 described under "Description of Restructuring" in the accompanying prospectus, where NMF Holdings functioned as the operating company. In addition to historical information, the following discussion and other parts of this prospectus supplement and the accompanying prospectus contain forward-looking information that involves risks and uncertainties. Our actual results could differ materially from those anticipated by such forward-looking information due to the factors discussed under "Risk Factors" and "Cautionary Statement Regarding Forward-Looking Statements" appearing elsewhere in this prospectus supplement and the accompanying prospectus.


Overview

          We are a Delaware corporation that was originally incorporated on June 29, 2010 and completed our IPO on May 19, 2011. We are a closed-end, non-diversified management investment company that has elected to be regulated as a BDC under the 1940 Act. As such, we are obligated to comply with certain regulatory requirements. We have elected to be treated, and intend to comply with the requirements to continue to qualify annually, as a RIC under Subchapter M of the Code. NMFC is also registered as an investment adviser under the Advisers Act.

          The Investment Adviser is a wholly-owned subsidiary 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 of approximately $15.0 billion, which includes total assets held by us. New Mountain Capital focuses on investing in defensive growth companies across its private equity, public equity and credit investment vehicles. The Investment Adviser manages our day-to-day operations and provides us with investment advisory and management services. The Administrator, a wholly-owned subsidiary of New Mountain Capital, provides the administrative services necessary to conduct our day-to-day operations.

          Our wholly-owned subsidiary, NMF Holdings, is a Delaware limited liability company whose assets are used to secure NMF Holdings' credit facility. For additional information about our organizational structure prior to May 8, 2014, see "— Historical Structure". NMF Ancora, NMF QID and NMF YP, our wholly-owned subsidiaries, 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). We consolidate our tax blocker corporations for accounting purposes. The tax blocker corporations are not consolidated for income tax purposes and may incur income tax expense as a result of their ownership of the portfolio companies. Additionally, our wholly-owned subsidiary, NMF Servicing, serves as the administrative agent on certain investment transactions. SBIC LP and its general partner, SBIC GP, were organized in Delaware as a limited partnership and limited liability company, respectively. SBIC LP and SBIC GP are our consolidated wholly-owned direct and indirect subsidiaries. SBIC LP received a license from the SBA to operate as a SBIC under Section 301(c) of the 1958 Act.

          Our 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, our 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

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capital needs, (iv) high returns on assets and (v) niche market dominance. Similar to us, SBIC LP's investment objective is to generate current income and capital appreciation under our investment criteria. However, SBIC LP's investments must be in SBA eligible companies. Our portfolio may be concentrated in a limited number of industries. As of December 31, 2016, our top five industry concentrations were business services, software, consumer services, investment fund and education.

          The investments that we invest in are almost entirely rated below investment grade or may be unrated, which are often referred to as "leveraged loans", "high yield" or "junk" debt investments, and may be considered "high risk" or speculative compared to debt investments that are rated investment grade. 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 our net asset value and income distributions. Our investments are also primarily floating rate debt investments that contain interest reset provisions that may make it more difficult for borrowers to make debt repayments to us if interest rates rise. In addition, some of our 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. Our debt investments may also lose significant market value before a default occurs. Furthermore, an active trading market may not exist for these securities. This illiquidity may make it more difficult to value our investments.

          As of December 31, 2016, our net asset value was $938.6 million and our portfolio had a fair value of approximately $1,558.8 million in 78 portfolio companies, with a weighted average Yield to Maturity at Cost of approximately 11.1%.

Historical Structure

          On May 19, 2011, we priced our 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, we sold an additional 2,172,000 shares of our common stock to certain executives and employees of, and other individuals affiliated with, New Mountain Capital in a 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 our IPO and through a series of transactions, NMF Holdings acquired all of the operations of the Predecessor Entities, including all of the assets and liabilities related to such operations. NMF Holdings, formerly known as New Mountain Guardian (Leveraged), L.L.C., was originally formed as a subsidiary of 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".

          Until May 8, 2014, NMF Holdings was externally managed by the Investment Adviser 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 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.

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          Prior to December 18, 2014, NMF SLF was a Delaware limited liability company. NMF SLF was a wholly-owned subsidiary of NMF Holdings and thus our wholly-owned indirect subsidiary. NMF SLF was bankruptcy-remote and non-recourse to us. As part of an amendment to our existing credit facilities with Wells Fargo Bank, National Association, NMF SLF merged with and into NMF Holdings on December 18, 2014. See "— Borrowings" for additional information about our borrowings.

          Since our IPO, and through December 31, 2016, we raised approximately $533.1 million in net proceeds from additional offerings of common stock and issued shares of common stock valued at approximately $288.4 million on behalf of AIV Holdings for exchanged units. We acquired from NMF Holdings units of NMF Holdings equal to the number of shares of our common stock sold in additional offerings. With the completion of the final secondary offering on February 3, 2014, we owned 100.0% of the units of NMF Holdings, which became our wholly-owned subsidiary.


Recent Developments

          On January 12, 2017, the SBA issued a "green light" letter inviting us to continue our application process to obtain a second license to form and operate a second SBIC subsidiary. If approved, the additional SBIC license would provide us 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 we have received no assurance or indication from the SBA that we will receive an additional SBIC license, or of the timeframe in which we would receive an additional license, should one ultimately be granted.

          On February 23, 2017, our board of directors declared a first quarter 2017 distribution of $0.34 per share payable on March 31, 2017 to holders of record as of March 17, 2017.


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

          We consolidate our wholly-owned direct and indirect subsidiaries: NMF Holdings, NMF Servicing, SBIC LP, SBIC GP, NMF Ancora, NMF QID and NMF YP. Previously, we consolidated our wholly-owned indirect subsidiary NMF SLF until it merged with and into NMF Holdings on December 18, 2014. See "— Borrowings" for additional information on our credit facilities. We are 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 did not consolidate the Predecessor Operating Company. Prior to the restructuring, NMFC applied investment company master-feeder financial statement presentation, as described in ASC 946, to its interest in the Predecessor Operating Company. NMFC 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 with a clearer depiction of their investment in the master fund.

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Valuation and Leveling of Portfolio Investments

          At all times consistent with GAAP and the 1940 Act, we conduct a valuation of assets, which impacts our net asset value.

          We value our assets on a quarterly basis, or more frequently if required under the 1940 Act. In all cases, our board of directors is ultimately and solely responsible for determining the fair value of our 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 our portfolio investments require a fair value determination. Security transactions are accounted for on a trade date basis. Our quarterly valuation procedures are set forth in more detail below:

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          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 a commitment 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 our 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 we have 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"), we, to the extent that we hold such investments, do not adjust the quoted price for these investments, even in situations where we hold 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:

          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 and unobservable. 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 and unobservable inputs.

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          The inputs into the determination of fair value require significant judgment or estimation by management and consideration of factors specific to each investment. 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 period in which the reclassifications occur.

          The following table summarizes the levels in the fair value hierarchy that our portfolio investments fall into as of December 31, 2016:

(in thousands)

  Total     Level I     Level II     Level III    

First lien

  $ 700,580   $   $ 169,979   $ 530,601  

Second lien

    604,203         280,026     324,177  

Subordinated

    66,559         41,906     24,653  

Equity and other

    187,475     28         187,447  

Total investments

  $ 1,558,817   $ 28   $ 491,911   $ 1,066,878  

          We generally use the following framework when determining the fair value of investments where there are little, if any, market activity or observable pricing inputs. We typically determine the fair value of our 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 our due diligence process, we evaluate the overall performance and financial stability of the portfolio company. Post investment, we analyze 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. We also attempt 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 our original investment thesis. This analysis is specific to each portfolio company. We leverage the knowledge gained from our original due diligence process, augmented by this subsequent monitoring, to continually refine our outlook for each of our portfolio companies and ultimately form the valuation of our investment in each portfolio company. When an external event such as a purchase transaction, public offering or subsequent sale occurs, we will consider the pricing indicated by the external event to corroborate the private valuation.

          For debt investments, we may employ the Market Based Approach (as described below) to assess the total enterprise value of the portfolio company, in order to evaluate the enterprise value coverage of our debt investment. For equity investments or in cases where the Market Based Approach implies a lack of enterprise value coverage for the debt investment, we may additionally employ a discounted cash flow analysis based on the free cash flows of the portfolio company to assess the total enterprise value.

          After enterprise value coverage is demonstrated for our debt investments through the method(s) above, the Income Based Approach (as described below) may be employed to estimate the fair value of the investment.

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          Market Based Approach:    We may estimate the total enterprise value of each portfolio company by utilizing market value cash flow (EBITDA) multiples of publicly traded comparable companies and comparable transactions. We consider numerous factors when selecting the appropriate companies whose trading multiples are used to value our portfolio companies. These factors include, but are not limited to, the type of organization, similarity to the business being valued, and relevant risk factors, as well as size, profitability and growth expectations. We 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 the enterprise value of the portfolio company. Significant increases or decreases in the EBITDA multiple will result in an increase or decrease in enterprise value, which may result in an increase or decrease in the fair value estimate of the investment. In applying the market based approach as of December 31, 2016, we used the relevant EBITDA multiple ranges set forth in the table below to determine the enterprise value of our portfolio companies. We believe these were reasonable ranges in light of current comparable company trading levels and the specific portfolio companies involved.

          Income Based Approach:    We 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, 2016, we used the discount ranges set forth in the table below to value investments in our portfolio companies.

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          The unobservable inputs used in the fair value measurement of our Level III investments as of December 31, 2016 were as follows:

    Fair Value                            

    as of           Range    

(in thousands)
Type
  December 31,
2016
 
  Approach     Unobservable Input     Low     High     Weighted
Average
 
 

First lien

  $ 417,464   Market & income approach   EBITDA multiple     2.0x     15.0x     10.2x  

            Revenue multiple     0.5x     8.0x     3.0x  

            Discount rate     7.2 %   12.3 %   9.7 %

    86,801   Market quote   Broker quote     N/A     N/A     N/A  

    26,336   Other   N/A(1)     N/A     N/A     N/A  

Second lien

    191,419   Market & income approach   EBITDA multiple     5.3x     16.0x     11.7x  

            Discount rate     8.7 %   13.0 %   11.3 %

    96,315   Market quote   Broker quote     N/A     N/A     N/A  

    36,443   Other   N/A(1)     N/A     N/A     N/A  

Subordinated

    24,653   Market & income approach   EBITDA multiple     4.5x     8.5x     7.1x  

            Revenue multiple     0.5x     1.0x     0.8x  

            Discount rate     8.7 %   15.8 %   13.6 %

Equity and other

    158,947   Market & income approach   EBITDA multiple     2.5x     13.0x     5.9x  

            Revenue multiple     0.5x     1.0x     0.8x  

            Discount rate     8.0 %   18.9 %   14.5 %

    1,498   Black Scholes analysis   Expected life in years     8.8     9.3     9.1  

            Volatility     32.2 %   43.8 %   36.4 %

            Discount rate     2.5 %   2.5 %   2.5 %

    2   Market quote   Broker quote     N/A     N/A     N/A  

    27,000   Other   N/A(1)     N/A     N/A     N/A  

  $ 1,066,878                            

(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

          NMFC Senior Loan Program I LLC ("SLP I") was formed as a Delaware limited liability company on May 27, 2014 and commenced operations on June 10, 2014. SLP I is a portfolio company held by us. 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 "SLP I Agreement") and will continue in existence until June 10, 2019, subject to earlier termination pursuant to certain terms of the SLP I Agreement. The term may be extended for up to one year pursuant to certain terms of the SLP I Agreement. SLP I has a three year re-investment period. SLP I invests in senior secured loans issued by companies within our core industry verticals. These investments are typically broadly syndicated first lien loans.

          SLP I is capitalized with $93.0 million of capital commitments and $275.0 million of debt from a revolving credit facility and is managed by us. Our 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, 2016, SLP I had total investments with an aggregate fair value of approximately $348.7 million, debt outstanding of $256.5 million and capital that had been called and funded of $93.0 million. As of December 31, 2015, SLP I had total investments with an aggregate fair value of approximately $349.7 million, debt outstanding of $267.6 million and capital

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that had been called and funded of $93.0 million. Our investment in SLP I is disclosed on our Consolidated Schedules of Investments as of December 31, 2016 and December 31, 2015.

          We, as an investment adviser registered under the Advisers Act, act as the collateral manager to SLP I and are entitled to receive a management fee for our investment management services provided to SLP I. As a result, SLP I is classified as our affiliate. No management fee is charged on our investment in SLP I in connection with the administrative services provided to SLP I. For the years ended December 31, 2016, December 31, 2015 and December 31, 2014, we earned approximately $1.2 million, $1.2 million and $0.5 million, respectively, in management fees related to SLP I which is included in other income. As of December 31, 2016 and December 31, 2015, approximately $0.3 million and $0.3 million, respectively, of management fees related to SLP I was included in receivable from affiliates. For the years ended December 31, 2016, December 31, 2015 and December 31, 2014, we earned approximately $3.7 million, $3.6 million and $1.1 million, respectively, of dividend income related to SLP I, which is included in dividend income. As of December 31, 2016 and December 31, 2015, approximately $0.9 million and $0.9 million, respectively, of dividend income related to SLP I was included in interest and dividend receivable.

NMFC Senior Loan Program II LLC

          NMFC Senior Loan Program II LLC ("SLP II") was formed as a Delaware limited liability company on March 9, 2016 and commenced operations on April 12, 2016. SLP II is structured as a private joint venture investment fund between us and SkyKnight Income, LLC ("SkyKnight") and operates under a limited liability company agreement (the "SLP II Agreement"). The purpose of the joint venture is to invest primarily in senior secured loans issued by portfolio companies within our core industry verticals. These investments are typically broadly syndicated first lien loans. All investment decisions must be unanimously approved by the board of managers of SLP II, which has equal representation from us and SkyKnight. SLP II has a three year investment period and will continue in existence until April 12, 2021. The term may be extended for up to one year pursuant to certain terms of the SLP II Agreement.

          SLP II is capitalized with equity contributions which are called from its members, on a pro-rata basis based on their equity commitments, as transactions are completed. Any decision by SLP II to call down on capital commitments requires approval by the board of managers of SLP II. We and SkyKnight have committed to provide $79.4 million and $20.6 million of equity to SLP II, respectively. As of December 31, 2016, we and SkyKnight have contributed $71.5 million and $18.5 million, respectively. Our investment in SLP II is disclosed on our Consolidated Schedule of Investments as of December 31, 2016.

          On April 12, 2016, SLP II closed its $275.0 million revolving credit facility with Wells Fargo Bank, National Association which matures on April 12, 2021 and bears interest at a rate of LIBOR plus 1.75% per annum. As of December 31, 2016, SLP II had total investments with an aggregate fair value of approximately $361.7 million and debt outstanding under its credit facility of $250.0 million.

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          The following table is a listing of the individual loans in SLP II's portfolio as of December 31, 2016:

Portfolio Company and Type
of Investment
  Industry     Interest Rate(1)     Maturity
Date
 
  Principal
Amount or
Par Value
 
  Cost     Fair
Value(2)
 
 

                (in thousands)     (in thousands)     (in thousands)  

First lien:

                               

ADG, LLC

  Healthcare Services   5.75% (L + 4.75%)   9/28/2023   $ 17,207   $ 17,040   $ 17,121  

AssuredPartners, Inc. 

  Business Services   5.25% (L + 4.25%)   10/21/2022     11,862     11,847     12,058  

Beaver-Visitec International Holdings, Inc. 

  Healthcare Products   6.00% (L + 5.00%)   8/21/2023     14,962     14,819     14,963  

Coinstar, LLC

  Consumer Services   5.25% (L + 4.25%)   9/27/2023     4,987     4,963     5,054  

Cvent, Inc. 

  Software   6.00% (L + 5.00%)   11/29/2023     10,000     9,901     10,125  

DigiCert Holdings, Inc. 

  Software   6.00% (L + 5.00%)   10/21/2021     14,900     14,814     14,881  

Eiger Acquisition B.V. (Eiger Co-Borrower, LLC)

  Software   6.25% (L + 5.25%)   2/18/2022     10,507     10,350     10,402  

Emerald 2 Limited

  Business Services   5.00% (L + 4.00%)   5/14/2021     1,277     1,206     1,174  

Engility Corporation (fka TASC, Inc.)

  Federal Services   5.81% (Base + 4.72%)   8/14/2023     13,860     13,793     14,080  

Evo Payments International, LLC

  Business Services   6.00% (L + 5.00%)   12/22/2023     17,500     17,413     17,602  

Explorer Holdings, Inc. 

  Healthcare Services   6.00% (L + 5.00%)   5/2/2023     4,975     4,929     5,028  

Globallogic Holdings Inc. 

  Business Services   5.50% (L + 4.50%)   6/20/2022     10,000     9,900     10,013  

GOBP Holdings Inc. 

  Retail   5.00% (L + 4.00%)   10/21/2021     14,955     14,816     14,985  

Hyperion Insurance Group Limited

  Business Services   5.50% (L + 4.50%)   4/29/2022     14,401     14,179     14,476  

J.D. Power and Associates

  Business Services   5.25% (L + 4.25%)   9/7/2023     9,975     9,927     10,075  

Kronos Incorporated

  Software   5.00% (L + 4.00%)   11/1/2023     10,000     9,951     10,105  

Masergy Holdings, Inc. 

  Business Services   5.50% (L + 4.50%)   12/15/2023     7,500     7,463     7,563  

McGraw-Hill Global Education Holdings, LLC

  Education   5.00% (L + 4.00%)   5/4/2022     9,950     9,905     9,971  

Ministry Brands, LLC

  Software   6.00% (L + 5.00%)   12/2/2022     7,846     7,807     7,807  

Mister Car Wash Holdings, Inc. 

  Consumer Services   5.25% (L + 4.25%)   8/20/2021     8,312     8,250     8,354  

Navex Global, Inc. 

  Software   5.99% (L + 4.75%)   11/19/2021     14,933     14,718     14,858  

nThrive, Inc. (fka Precyse Acquisition Corp.)

  Healthcare Services   6.50% (L + 5.50%)   10/20/2022     9,950     9,813     10,083  

Poseidon Intermediate, LLC

  Software   5.25% (L + 4.25%)   8/15/2022     14,962     14,962     15,055  

Quest Software US Holdings Inc. 

  Software   7.00% (L + 6.00%)   10/31/2022     10,000     9,853     10,153  

Rocket Software, Inc. 

  Software   5.25% (L + 4.25%)   10/14/2023     14,962     14,817     15,129  

SolarWinds Holdings, Inc. 

  Software   5.50% (L + 4.50%)   2/3/2023     14,688     14,697     14,852  

TTM Technologies, Inc. 

  Business Products   5.25% (L + 4.25%)   5/31/2021     13,548     13,444     13,599  

Vencore, Inc. (fka SI Organization, Inc., The)

  Federal Services   5.75% (L + 4.75%)   11/23/2019     10,801     10,780     10,942  

Vision Solutions, Inc. 

  Software   7.50% (Base + 6.50%)   6/16/2022     9,938     9,845     9,919  

Vivid Seats LLC

  Business Services   6.75% (L + 5.75%)   10/12/2022     4,000     3,922     3,985  

WD Wolverine Holdings, LLC

  Healthcare Services   6.50% (L + 5.50%)   10/17/2023     10,200     9,900     9,894  

Zywave, Inc. 

  Software   6.00% (L + 5.00%)   11/17/2022     17,500     17,414     17,413  

              $ 360,458   $ 357,438   $ 361,719  

(1)
All interest is payable in cash unless otherwise indicated. A majority of the variable rate debt investments bear interest at a rate that may be determined by reference to the LIBOR (L), the Prime Rate (P) and the alternative base rate (Base). For each investment, the current interest rate provided reflects the rate in effect as of December 31, 2016.

(2)
Represents the fair value in accordance with ASC 820. Our board of directors does not determine the fair value of the investments held by SLP II.

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          Below is certain summarized financial information for SLP II as of December 31, 2016 and for the year ended December 31, 2016:

  December 31, 2016  

  (in thousands)

Selected Balance Sheet Information:

   

Investments at fair value (cost of $357,438)

  $361,719

Receivable from unsettled securities sold

  1,007

Cash and other assets

  10,138

Total assets

  $372,864

Credit facility

  $249,960

Deferred financing costs

  (2,565)

Payable for unsettled securities purchased

  24,862

Distribution payable

  3,000

Other liabilities

  3,350

Total liabilities

  278,607

Members' capital

 
$94,257

Total liabilities and members' capital

  $372,864

 

  Year Ended
December 31,
2016(1)
 

  (in thousands)

Selected Statement of Operations Information:

   

Interest income

  $7,463

Other income

  572

Total investment income

  8,035

Interest and other financing expenses

  3,558

Other expenses

  650

Total expenses

  4,208

Net investment income

  3,827

Net realized gains on investments

 
599

Net change in unrealized appreciation (depreciation) of investments

  4,281

Net increase in members' capital

  $8,707

(1)
For the year ended December 31, 2016, amounts reported relate to the period from April 12, 2016 (commencement of operations) to December 31, 2016.

          For the year ended December 31, 2016, we earned approximately $3.5 million of dividend income related to SLP II, which is included in dividend income. As of December 31, 2016, approximately $2.4 million of dividend income related to SLP II was included in interest and dividend receivable.

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          We have determined that SLP II is an investment company under ASC 946; however, in accordance with such guidance we will generally not consolidate our investment in a company other than a wholly-owned investment company subsidiary. Furthermore, Accounting Standards Codification Topic 810, Consolidation, concludes that in a joint venture where both members have equal decision making authority, it is not appropriate for one member to consolidate the joint venture since neither has control. Accordingly, we do not consolidate SLP II.

New Mountain Net Lease Corporation

          New Mountain Net Lease Corporation ("NMNLC") was formed as a Maryland corporation on April 18, 2016 and commenced operations on August 12, 2016. NMNLC was formed to acquire commercial real properties that are subject to "triple net" leases and to qualify as a real estate investment trust, or REIT, within the meaning of Section 856(a) of the Code. As of December 31, 2016, NMNLC had assets of approximately $75.5 million and non-recourse asset level debt outstanding of approximately $47.9 million. We have contributed $27.0 million to NMNLC as of December 31, 2016. Our investment in NMNLC is disclosed on our Consolidated Schedule of Investments as of December 31, 2016.

          Below is certain summarized property information for NMNLC as of December 31, 2016:

Tenant
  Lease
Expiration
Date
 
  Location     Total
Square Feet
 
  Equity as of
December 31,
2016
 
 

            (in thousands)     (in thousands)  

A.P. Plasman, Inc. 

  9/30/2031   Ontario, Canada     436   $ 7,294  

Plasman Corp, LLC / A-Brite LP

  9/30/2033   Fort Payne, AL     261     5,132  

      Cleveland, OH              

FMH Conveyors, LLC

  10/31/2031   Jonesboro, AR     195     5,136  

J.R. Automation Technologies, LLC

  1/31/2031   Holland, MI     88     2,061  

Kirlin Group, LLC

  6/30/2029   Rockville, MD     95     7,547  

                $ 27,170  

          For the year ended December 31, 2016, we earned approximately $0.5 million of dividend income related to NMNLC, which is included in dividend income. For the year ended December 31, 2016, New Mountain Capital reimbursed NMNLC approximately $0.2 million in non-recurring organizational expenses incurred in connection with the formation and organization of NMNLC. As of December 31, 2016, approximately $0.5 million of dividend income related to NMNLC was included in interest and dividend receivable.

Collateralized agreements or repurchase financings

          We follow 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, 2016 and December 31, 2015, we held one collateralized agreement to resell with a cost basis of $30.0 million and $30.0 million, respectively, and a carrying value of $29.2 million and $29.7 million, respectively, and collateralized by a second lien bond in Northstar GOM Holdings Group LLC with a fair value of $29.2 million and $29.7 million, respectively. The collateralized agreement to resell is guaranteed by a private hedge fund with the most recently reported assets under management of approximately $690.0 million and assets under management

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of approximately $716.6 million as of December 31, 2015. Pursuant to the terms of the collateralized agreement, the private hedge fund is obligated to repurchase the collateral from us at the par value of the collateralized agreement once called upon by us or if the private hedge fund's total assets under management fall below the agreed upon thresholds. The collateralized agreement was called upon by us but the counterparty failed to repurchase the collateral at its par value in accordance with the terms of the collateralized agreement. As of December 31, 2016, litigation is on-going in the state of New York and the Cayman Islands to resolve this matter. The collateralized agreement earned interest at a weighted average rate of 16.0% and 15.0% per annum as of December 31, 2016 and December 31, 2015, respectively.

Revenue Recognition

          Sales and paydowns of investments:    Realized gains and losses on investments are determined on the specific identification method.

          Interest and dividend 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. We have loans and certain preferred equity investments in the portfolio that contain a payment-in-kind ("PIK") interest or dividend provision. PIK interest and dividends are accrued and recorded as income at the contractual rates, if deemed collectible. The PIK interest and dividends are added to the principal or share balances on the capitalization dates and generally due at maturity or when redeemed by the issuer.

          Dividend income on common equity is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies. Dividend income on preferred securities is recorded as dividend income on an accrual basis to the extent that such amounts are deemed collectible.

          Non-accrual income:    Investments are placed on non-accrual status when principal or interest payments are past due for 30 days or more and when there is reasonable doubt that principal or interest will be collected. Accrued cash and un-capitalized PIK interest or dividends are reversed when an investment is placed on non-accrual status. Previously capitalized PIK interest or dividends are not reversed when an investment is placed on non-accrual status. Interest or dividend payments received on non-accrual investments may be recognized as income or applied to principal depending upon management's judgment of the ultimate outcome. Non-accrual investments are restored to accrual status when past due principal and interest is paid and, in management's judgment, are likely to remain current.

          Other income:    Other income represents delayed compensation, consent or amendment fees, revolver fees, structuring fees, upfront 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. We 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 for providing such commitments. Structuring fees and upfront fees are recognized as income when earned, usually when paid at the closing of the investment, and are non-refundable.

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          Prior to the Restructuring, our 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 us based on our pro-rata interest in the net assets of the Predecessor Operating Company. This was recorded on our Statements of Operations. Realized gains and losses are recorded upon sales of our 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. We used the proceeds from our IPO and Concurrent Private Placement to purchase units in the Predecessor Operating Company at $13.75 per unit (our 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, we experienced immediate unrealized appreciation on our investment.

          All expenses were paid and recorded by the Predecessor Operating Company. Expenses were allocated to us 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. We recorded our portion of the offering costs as a direct reduction to net assets and the cost of our investment in the Predecessor Operating Company.

Monitoring of Portfolio Investments

          We monitor the performance and financial trends of our portfolio companies on at least a quarterly basis. We attempt to identify any developments within the portfolio company, the industry or the macroeconomic environment that may alter any material element of our original investment strategy.

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

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          The following table shows the distribution of our investments on the 1 to 4 investment rating scale at fair value as of December 31, 2016:

(in millions)

    As of December 31, 2016
 

Investment Rating
  Par Value(1)     Percent     Fair Value     Percent    

Investment Rating 1

  $ 136.7     9.1 % $ 136.9     8.8 %

Investment Rating 2

    1,278.0     84.7 %   1,399.7     89.8 %

Investment Rating 3

    20.5     1.4 %   12.6     0.8 %

Investment Rating 4

    72.7     4.8 %   9.6     0.6 %

  $ 1,507.9     100.0 % $ 1,558.8     100.0 %

(1)
Excludes shares and warrants.

          As of December 31, 2016, all investments in our portfolio had an Investment Rating of 1 or 2 with the exception of four portfolio companies. As of December 31, 2016, two portfolio companies had an Investment Rating of 3 and three portfolio companies had an Investment Rating of 4, which includes a portfolio company that had a portion of our investment included in Investment Rating of 3 and a portion included in Investment Rating of 4.

          During the fourth quarter of 2016, we placed a portion of our first lien position in Sierra Hamilton LLC / Sierra Hamilton Finance, Inc. ("Sierra") on non-accrual status due to its ongoing restructuring. As of December 31, 2016, the portion of Sierra first lien placed on non-accrual status represented an aggregate cost basis of $8.2 million, an aggregate fair value of $5.3 million and total unearned interest income of $0.6 million for the year then ended.

          During the third quarter of 2016, we placed our entire second lien position in Transtar Holding Company ("Transtar") on non-accrual status due to its ongoing restructuring. As of December 31, 2016, our investment in Transtar had an aggregate cost basis of $31.2 million, an aggregate fair value of $3.9 million and total unearned interest income of approximately $4.0 million for the year then ended.

          During the third quarter of 2016, we received notice that there would be no recovery of the outstanding principal and interest owed on our two super priority first lien positions in ATI Acquisition Company ("ATI"). As of June 30, 2016, our first lien positions in ATI had an aggregate cost of $1.5 million and an aggregate fair value of $0 and no unearned interest income for the period then ended. We wrote off our first lien positions in ATI and recognized an aggregate realized loss of $1.5 million during the three months ended September 30, 2016. As of December 31, 2016, our preferred shares and warrants in Ancora Acquisition LLC, which were received as a result of our first lien positions in ATI, had an aggregate cost basis of $0.1 million and an aggregate fair value of $0.4 million.

          During the second quarter of 2016, we placed a portion of our first lien position in Permian Tank & Manufacturing, Inc. ("Permian") on non-accrual status due to its ongoing restructuring. As of September 30, 2016, our investment in Permian had an aggregate cost basis of $24.4 million, an aggregate fair value of $7.1 million and total unearned interest income of $1.3 million for the nine months then ended. In October 2016, Permian completed a restructuring which resulted in a material modification of the original terms and an extinguishment of our original investment in Permain. Prior to the extinguishment in October 2016, our original investment in Permian had an aggregate cost of $25.0 million, an aggregate fair value of $7.1 million and total unearned interest income of $1.4 million for the year ended December 31, 2016. The extinguishment resulted in a realized loss of $17.9 million. Post restructuring, our investments in Permian have been restored to full accrual status. As of December 31, 2016, our investments in Permian have an aggregate cost basis of $9.0 million and an aggregate fair value of $11.2 million.

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Portfolio and Investment Activity

          The fair value of our investments was approximately $1,558.8 million in 78 portfolio companies at December 31, 2016, approximately $1,512.2 million in 75 portfolio companies at December 31, 2015 and approximately $1,424.7 million in 71 portfolio companies at December 31, 2014.

          The following table shows our portfolio and investment activity for the years ended December 31, 2016, December 31, 2015 and December 31, 2014 :

    Years Ended
December 31,
 

(in millions)

  2016     2015     2014(1)    

New investments in 43, 36 and 43 portfolio companies, respectively

  $ 558.1   $ 612.7   $ 720.9  

Debt repayments in existing portfolio companies

    479.5     400.8     267.5  

Sales of securities in 10, 15 and 14 portfolio companies, respectively

    67.6     83.1     117.0  

Change in unrealized appreciation on 71, 23 and 20 portfolio companies, respectively

    76.5     44.7     21.2  

Change in unrealized depreciation on 24, 70 and 60 portfolio companies, respectively

    (36.4 )   (79.9 )   (63.9 )

(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 our investment activity from May 8, 2014 through December 31, 2014.

          At December 31, 2016 and December 31, 2015, our weighted average Yield to Maturity at Cost was approximately 11.1% and 10.7%, respectively.


Recent Accounting Standards Updates

          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. We adopted ASU 2014-15 and the adoption did not have an impact on our consolidated financial statements and disclosures.

          In February 2015, the FASB issued Accounting Standards Update No. 2015-02, Consolidation Topic 810 — Amendments to the Consolidation Analysis ("ASU 2015-02"), which modifies the consolidation analysis in determining if limited partnerships or similar type entities fall under the variable interest model or voting interest model, particularly those that have fee arrangements and related party relationships. ASU 2015-02 was effective for all public entities for interim and annual reporting periods beginning after December 15, 2015. Earlier adoption is permitted. On January 1, 2016, we adopted ASU 2015-02. The adoption did not have an impact on our consolidated financial statements and disclosures.

          In April 2015, the FASB issued Accounting Standards Update No. 2015-03, Interest — Imputation of Interest Subtopic 835-30 — Simplifying the Presentation of Debt Issuance Costs ("ASU 2015-03"), which changed the presentation of debt issuance costs in financial statements. Under ASU 2015-03, an entity presents such costs on the statement of assets and liabilities as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs is reported as interest expense. The new standard was effective for all public entities for interim and annual reporting periods beginning after December 15, 2015. Earlier adoption is permitted. On January 1, 2016, we adopted ASU 2015-03. Upon adoption, we revised our presentation of deferred

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financing costs from an asset to a liability, which is a direct deduction to our debt on the Consolidated Statements of Assets and Liabilities. In addition, we retrospectively revised our presentation of $13,992 of deferred financing costs that were previously presented as an asset as of December 31, 2015, which resulted in a decrease to total assets and total liabilities as of December 31, 2015.

          In January 2016, the FASB issued Accounting Standards Update No. 2016-01, Financial Instruments — Overall Subtopic 825-10 — Recognition and Measurement of Financial Assets and Financial Liabilities ("ASU 2016-01"). ASU 2016-01 amends certain aspects of recognition, measurement, presentation and disclosure of financial assets and liabilities. ASU 2016-01 is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The new guidance must be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair values (including disclosure requirements) should be applied prospectively to equity investments that exist as of the date of adoption of ASU 2016-01. We are in the process of evaluating the impact that this guidance will have on our consolidated financial statements and disclosures.


Results of Operations

          Under GAAP, our 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. We track 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.

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          The following table for the year ended December 31, 2016 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)

  Year Ended
December 31, 2016
 
  Stepped-up
Cost Basis
Adjustments
 
  Incentive Fee
Adjustments(1)
 
  Adjusted
Year Ended
December 31, 2016
 
 

Investment income

                         

Interest income

  $ 147,425   $ (65 ) $   $ 147,360  

Dividend income

    11,200             11,200  

Other income

    9,459             9,459  

Total investment income(2)

    168,084     (65 )       168,019  

Total expenses pre-incentive fee(3)

    57,965             57,965  

Pre-Incentive Fee Net Investment Income

    110,119     (65 )       110,054  

Incentive fee

    22,011             22,011  

Post-Incentive Fee Net Investment Income

    88,108     (65 )       88,043  

Net realized losses on investments(4)

    (16,717 )   (151 )       (16,868 )

Net change in unrealized appreciation (depreciation) of investments(4)

    40,131     216         40,347  

Net change in unrealized (depreciation) appreciation of securities purchased under collateralized agreements to resell

    (486 )           (486 )

Benefit for taxes

    642             642  

Capital gains incentive fees

                 

Net increase in net assets resulting from operations

  $ 111,678               $ 111,678  

(1)
For the year ended December 31, 2016, we incurred total incentive fees of $22.0 million, of which none was related to the capital gains incentive fee accrual on a hypothetical liquidation basis.

(2)
Includes income from non-controlled/non-affiliated investments, non-controlled/affiliated investments and controlled investments.

(3)
Includes expense waivers and reimbursements of $0.7 million and management fee waivers of $4.8 million.

(4)
Includes net realized gains and losses on investments and net change in unrealized (depreciation) appreciation of investments from non-controlled/non-affiliated investments, non-controlled/affiliated investments and controlled investments.

          For the year ended December 31, 2016, we had an approximately $0.1 million adjustment to interest income for amortization, a decrease of approximately $0.2 million to net realized losses and an increase of approximately $0.2 million to net change in unrealized appreciation (depreciation) to adjust for the stepped-up cost basis of the transferred investments as discussed above. For the year ended December 31, 2016, total adjusted investment income of $168.0 million consisted of approximately $135.2 million in cash interest from investments, approximately $4.3 million in PIK interest from investments, approximately $4.9 million in prepayment fees, net amortization of purchase premiums and discounts of approximately $3.0 million, approximately $8.0 million in cash dividends from investments, $3.2 million in PIK dividends from investments and approximately $9.4 million in other income. Our Adjusted Net Investment Income was $88.0 million for the year ended December 31, 2016.

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          In accordance with GAAP, for the year ended December 31, 2016, we did not have an accrual for 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 the 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, 2016, no actual capital gains incentive fee was owed under the Investment Management Agreement, as cumulative net Adjusted Realized Gains did not exceed cumulative Adjusted Unrealized Depreciation.

          The following table for the year ended December 31, 2015 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)

    Year Ended
December 31,
2015
    Stepped-up
Cost Basis
Adjustments
    Incentive
Fee
Adjustments(1)
    Adjusted
Year Ended
December 31,
2015
 

Investment income

                         

Interest income

  $ 140,074   $ (131 ) $   $ 139,943  

Dividend income

    5,771             5,771  

Other income

    8,010             8,010  

Total investment income(2)

    153,855     (131 )       153,724  

Total expenses pre-incentive fee(3)

    50,769             50,769  

Pre-Incentive Fee Net Investment Income

    103,086     (131 )       102,955  

Incentive fee

    20,591             20,591  

Post-Incentive Fee Net Investment Income

    82,495     (131 )       82,364  

Net realized losses on investments(4)

    (12,789 )   (78 )       (12,867 )

Net change in unrealized (depreciation) appreciation of investments(4)

    (35,272 )   209         (35,063 )

Net change in unrealized (depreciation) appreciation of securities purchased under collateralized agreements to resell

    (296 )           (296 )

Provision for taxes

    (1,183 )           (1,183 )

Capital gains incentive fees

                 

Net increase in net assets resulting from operations

  $ 32,955               $ 32,955  

(1)
For the year ended December 31, 2015, we incurred total incentive fees of $20.6 million, of which none was related to the capital gains incentive fee accrual on a hypothetical liquidation basis.

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(2)
Includes income from non-controlled/non-affiliated investments, non-controlled/affiliated investments and controlled investments.

(3)
Includes expense waivers and reimbursements of $0.7 million and management fee waivers of $5.2 million.

(4)
Includes net realized gains and losses on investments net change in unrealized (depreciation) appreciation of investments from non-controlled/non-affiliated investments, non-controlled/affiliated investments and controlled investments.

          For the year ended December 31, 2015, we had a $0.1 million adjustment to interest income for amortization, a decrease of $0.1 million to net realized losses and an increase of $0.2 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, 2015, total adjusted investment income of $153.7 million consisted of approximately $130.0 million in cash interest from investments, approximately $3.9 million in PIK interest from investments, approximately $3.6 million in prepayment fees, net amortization of purchase premiums and discounts of approximately $2.4 million, approximately $3.2 million in dividend income, $2.6 million in PIK dividends from investments and approximately $8.0 million in other income. Our Adjusted Net Investment Income was $82.4 million for the year ended December 31, 2015.

          In accordance with GAAP, for the year ended December 31, 2015, we did not have an accrual for 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, 2015, no actual capital gains incentive fee was owed under the Investment Management Agreement, as cumulative net Adjusted Realized Gains did not exceed cumulative Adjusted Unrealized Depreciation.

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          The following table 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)

    Year Ended
December 31,
2014
    Stepped-up
Cost Basis
Adjustments
    Incentive
Fee
Adjustments(1)
    Adjusted
Year Ended
December 31,
2014
 

Investment income

                         

Interest income

  $ 85,123   $ (193 ) $   $ 84,930  

Dividend income

    2,309             2,309  

Other income

    4,491             4,491  

Investment income allocated from NMF Holdings

                         

Interest income

    40,515             40,515  

Dividend income

    2,368             2,368  

Other income

    795             795  

Total investment income(2)

    135,601     (193 )       135,408  

Total expenses pre-incentive fee(3)

    43,766             43,766  

Pre-Incentive Fee Net Investment Income

    91,835     (193 )       91,642  

Incentive fee

    11,769         6,549     18,318  

Post-Incentive Fee Net Investment Income

    80,066     (193 )   (6,549 )   73,324  

Net realized gains (losses) on investments

    357     (456 )       (99 )

Net realized gains on investments allocated from NMF Holdings

    8,568               8,568  

Net change in unrealized (depreciation) appreciation of investments(4)

    (43,863 )   649         (43,214 )

Net change in unrealized appreciation (depreciation) of investments allocated from NMF Holdings

    940             940  

Provision for taxes

    (493 )           (493 )

Capital gains incentive fees

            6,549     6,549  

Net increase in net assets resulting from operations

  $ 45,575               $ 45,575  

(1)
For the year ended December 31, 2014, we 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.

(2)
Includes income from non-controlled/non-affiliated investments and non-controlled/affiliated investments.

(3)
Includes expense waivers and reimbursements of $1.1 million and management fee waivers of $0.7 million.

(4)
Includes net change in unrealized (depreciation) appreciation of investments from non-controlled/non-affiliated investments and non-controlled/affiliated investments.

          For the year ended December 31, 2014, we 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

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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 of approximately $2.5 million, approximately $4.6 million in dividend income and approximately $5.3 million in other income. Our 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, we decreased our 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, as cumulative net Adjusted Realized Gains did not exceed cumulative Adjusted Unrealized Depreciation.

Results of Operations for the Years Ended December 31, 2016, December 31, 2015 and December 31, 2014

Revenue

    Years Ended December 31,
 

(in thousands)

    2016     2015     2014
 

Interest income

  $ 147,425   $ 140,074   $ 85,123  

Interest income allocated from the Predecessor Operating Company

            40,515  

Total interest income

    147,425     140,074     125,638  

Dividend income

    11,200     5,771     2,309  

Dividend income allocated from the Predecessor Operating Company

            2,368  

Total dividend income

    11,200     5,771     4,677  

Other income

    9,459     8,010     4,491  

Other income allocated from the Predecessor Operating Company

            795  

Total other income

    9,459     8,010     5,286  

Total investment income

  $ 168,084   $ 153,855   $ 135,601  

          Our total investment income increased by approximately $14.2 million for the year ended December 31, 2016 as compared to the year ended December 31, 2015. The 9% increase in total investment income primarily results from an increase in interest income of approximately $7.4 million from the year ended December 31, 2015 to the year ended December 31, 2016, which is attributable to larger invested balances and prepayment fees received associated with the early repayments of nine different portfolio companies held as of December 31, 2015. Our larger invested balances were driven by the proceeds from the October 2016 primary offering of our common stock, our May 2016 and September 2016 unsecured notes issuances and our September 2016

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convertible notes issuance, as well as our use of leverage from our revolving credit facilities and SBA-guaranteed debentures to originate new investments. The increase in dividend income of approximately $5.4 million during the year ended December 31, 2016 as compared to the year ended December 31, 2015 was primarily attributable to distributions from our investments in SLP I, SLP II and NMNLC and PIK dividend income from an equity position. The increase in other income, which represents fees that are generally non-recurring in nature, of approximately $1.4 million during the year ended December 31, 2016 as compared to the year ended December 31, 2015 was primarily attributable to structuring, upfront, amendment, consent and commitment fees received from 28 different portfolio companies and management fees from a non-controlled/affiliated portfolio company and a controlled portfolio company.

          Our total investment income increased by approximately $18.3 million for the year ended December 31, 2015 as compared to the year ended December 31, 2014. The 13% increase in total investment income primarily results from an increase in interest income of approximately $14.4 million from the year ended December 31, 2014 to the year ended December 31, 2015, which is attributable to larger invested balances and prepayment fees received associated with the early repayments or partial repayments of nine different portfolio companies held as of December 31, 2014. Our larger invested balances were driven by the proceeds from the September 2015 primary offering of our common stock, our use of leverage from our revolving credit facilities, SBA-guaranteed debentures and the deployment of the June 2014 proceeds from the issuance of $115.0 million of convertible notes to originate new investments. The increase in dividend income of approximately $1.1 million during the year ended December 31, 2015 as compared to the year ended December 31, 2014 was primarily attributable to distributions from our investment in SLP I and PIK dividends income from an equity position. The increase in other income, which represents fees that are generally non-recurring in nature, of approximately $2.7 million during the year ended December 31, 2015 as compared to the year ended December 31, 2014 was primarily attributable to structuring, upfront, amendment and consent fees received from 22 different portfolio companies, commitment fees received from three bridge facilities and management fees from a non-controlled/affiliated portfolio company.

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Operating Expenses

    Years Ended December 31,
 

(in thousands)

    2016     2015     2014
 

Management fee

  $ 27,551   $ 25,858   $ 13,593  

Management fee allocated from Predecessor Operating Company

            5,983  

Less: management fee waiver

    (4,824 )   (5,219 )   (686 )

Total management fee

    22,727     20,639     18,890  

Incentive fee

    22,011     20,591     12,070  

Incentive fee allocated from Predecessor Operating Company

            6,248  

Total incentive fee

    22,011     20,591     18,318  

Capital gains incentive fee(1)

            (8,573 )

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

            2,024  

Total capital gains incentive fee(1)

            (6,549 )

Interest and other financing expenses

    28,452     23,374     13,269  

Interest and other financing expenses allocated from Predecessor Operating Company

            4,764  

Total interest and other financing expenses

    28,452     23,374     18,033  

Professional fees

    3,087     3,214     2,390  

Professional fees allocated from Predecessor Operating Company

              1,238  

Total professional fees

    3,087     3,214     3,628  

Administrative fees

    2,683     2,450     1,470  

Administrative expenses allocated from Predecessor Operating Company

            761  

Total administrative expenses

    2,683     2,450     2,231  

Other general and administrative expenses

    1,589     1,665     1,138  

Other general and administrative expenses allocated from Predecessor Operating Company

            555  

Total other general and administrative expenses

    1,589     1,665     1,693  

Total expenses

    80,549     71,933     56,244  

Less: expenses waived and reimbursed

    (725 )   (733 )   (1,145 )

Net expenses before income taxes

    79,824     71,200     55,099  

Income tax expense

    152     160     436  

Net expenses after income taxes

  $ 79,976   $ 71,360   $ 55,535  

(1)
Capital gains incentive fee accrual assumes a hypothetical liquidation basis.

          Our total net operating expenses increased by approximately $8.6 million for the year ended December 31, 2016 as compared to the year ended December 31, 2015. Our management fee increased by approximately $2.1 million, net of a management fee waiver, and incentive fees increased by approximately $1.4 million for the year ended December 31, 2016 as compared to the year ended December 31, 2015. The increase in management fee and incentive fee from the year ended December 31, 2015 to the year ended December 31, 2016 was attributable to larger invested balances, driven by the proceeds from the October 2016 primary offering of our common stock, our May 2016 and September 2016 unsecured notes issuances and our September 2016 convertible notes issuance and our use of leverage from our revolving credit facilities and SBA-guaranteed

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debentures to originate new investments. No capital gains incentive fee was accrued for the year ended December 31, 2016.

          Interest and other financing expenses increased by approximately $5.1 million during the year ended December 31, 2016, primarily due to our issuance of our unsecured notes and additional issuance of our convertible notes and higher drawn balances on our SBA-guaranteed debentures and NMFC Credit Facility (as defined below). Our total professional fees, total administrative expenses, net of expenses waived and reimbursed, and total other general and administrative expenses remained relatively flat for the year ended December 31, 2016 as compared to the year ended December 31, 2015.

          Our total net operating expenses increased by approximately $15.8 million for the year ended December 31, 2015 as compared to the year ended December 31, 2014. Our management fee increased by approximately $1.7 million, net of a management fee waiver, and incentive fees increased by approximately $2.3 million for the year ended December 31, 2015 as compared to the year ended December 31, 2014. The increase in management fee and incentive fee from the year ended December 31, 2014 to the year ended December 31, 2015 was attributable to larger invested balances, driven by the proceeds from the September 2015 primary offering of our common stock, our use of leverage from our revolving credit facilities, SBA-guaranteed debentures and the deployment of the June 2014 Proceeds from the issuance of $115.0 million of convertible notes to originate new investments. No capital gains incentive fee was accrued for the year ended December 31, 2015.

          Interest and other financing expenses increased by approximately $5.3 million during the year ended December 31, 2015, primarily due to our issuance of $115.0 million of convertible notes, the closing of the NMFC Credit Facility (as defined below) during the second quarter of 2014 and the drawing on SBA-guaranteed debentures beginning in the fourth quarter of 2014. Our total professional fees, total administrative expenses and total other general and administrative expenses marginally decreased by approximately $0.2 million for the year ended December 31, 2015 as compared to the year ended December 31, 2014. Our expenses waived and reimbursed decreased by approximately $0.4 million for the year ended December 31, 2015 as compared to the year ended December 31, 2014 due to the expiration of the expense cap on March 31, 2014.

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

    Years Ended December 31,
 

(in thousands)

    2016     2015     2014
 

Net realized (losses) gains on investments

  $ (16,717 ) $ (12,789 ) $ 357  

Net realized gains on investments allocated from Predecessor Operating Company

            8,568  

Total realized (losses) gains on investments

    (16,717 )   (12,789 )   8,925  

Net change in unrealized appreciation (depreciation) of investments

    40,131     (35,272 )   (43,863 )

Net change in unrealized appreciation (depreciation) of investments allocated from Predecessor Operating Company

            940  

Total change in unrealized appreciation (depreciation) of investments

    40,131     (35,272 )   (42,923 )

Net change in unrealized (depreciation) appreciation of securities purchased under collateralized agreements to resell

    (486 )   (296 )    

Benefit (provision) for taxes

    642     (1,183 )   (493 )

Total net realized gains (losses) and net change in unrealized appreciation (depreciation) of investments

  $ 23,570   $ (49,540 ) $ (34,491 )

          Our net realized losses and unrealized gains resulted in a net gain of approximately $23.6 million for the year ended December 31, 2016 compared to the net realized and unrealized losses resulting in a net loss of approximately $49.5 million for the same period in 2015. 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 gain for the year ended December 31, 2016 was primarily driven by the overall increase in the market prices of our investments during the period and sales or repayments of investments with fair values in excess of December 31, 2015 valuations, resulting in net realized gains being greater than the reversal of the cumulative net unrealized gains for those investments. The net gain was offset by a $17.9 million realized loss on an investment resulting from the modification of terms on a portfolio company that was accounted for as an extinguishment. The benefit for income taxes was primarily attributable to three equity investments that are held in our three tax blocker corporations as of December 31, 2016.

          The net loss of approximately $49.5 million for the year ended December 31, 2015 compared to the net realized gains and unrealized losses resulting in a net loss of approximately $34.5 million for the same period in 2014. 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, 2015 was primarily driven by the overall decrease in the market prices of our investments during the period and $29.7 million of realized losses on investments resulting from the modification of terms on three portfolio companies that were accounted for as extinguishments. These losses were partially offset by sales or repayments of investments with fair values in excess of December 31, 2014 valuations, resulting in net realized gains being greater than the reversal of the cumulative net unrealized gains for those investments which included the sale of two portfolio companies resulting in realized gains of approximately $14.2 million. The provision for income taxes was primarily attributable to three equity investments that are held in our three tax blocker corporations as of December 31, 2015.

          The net loss for the year ended December 31, 2014 was primarily driven by the overall decrease in the market prices of our 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 NMF Holdings' warrant investments in one portfolio company and sales or repayments of

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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 in a tax blocker corporation as of December 31, 2014.


Liquidity and Capital Resources

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

          Since our IPO, and through December 31, 2016, we raised approximately $533.1 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. We acquired from the Predecessor Operating Company units of the Predecessor Operating Company equal to the number of shares of our common stock sold in the additional offerings.

          On October 28, 2016, we completed a public offering of 5,750,000 shares of common stock (including 750,000 shares of common stock that were issued pursuant to the full exercise of the option granted to the underwriters to purchase additional shares) at a public offering price of $13.50 per share. The Investment Adviser paid all of the underwriters' sales load and an additional supplemental payment of $0.25 per share, which reflects the difference between the public offering price of $13.50 per share and the net proceeds of $13.75 per share. All payments made by the Investment Adviser are not subject to reimbursement by us. We received net proceeds from this offering of approximately $79.1 million.

          Our 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 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, 2016, December 31, 2015 and December 31, 2014, we had cash and cash equivalents of approximately $45.9 million, $30.1 million and $23.4 million, respectively. Our cash provided by (used in) operating activities during the years ended December 31, 2016, December 31, 2015 and December 31, 2014, was approximately $60.5 million, $(63.3) million and $(289.6) million, respectively. We expect that all current liquidity needs will be met with cash flows from operations and other activities.

Borrowings

          Holdings Credit Facility — On December 18, 2014 we entered into the Second Amended and Restated Loan and Security Agreement (the "Holdings Credit Facility"), among us, 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 SLF merged with and into NMF Holdings. The Holdings Credit Facility effectively amended and restated the Predecessor

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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 permitted to borrow up to 25.0%, 45.0% or 70.0% of the purchase price of pledged assets, subject to approval by Wells Fargo Securities, LLC. The Holdings Credit Facility is non-recourse to us 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 our 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 us 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.

          Effective January 1, 2016, the Holdings Credit Facility bears interest at a rate of LIBOR plus 1.75% per annum for Broadly Syndicated Loans (as defined in the Loan and Security Agreement) and LIBOR plus 2.50% per annum for all other investments. Previously, the Holdings Credit Facility bore interest at a rate of 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.

          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, respectively, 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 us 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 our 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 us 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 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).

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          The following table summarizes the interest expense, non-usage fees and amortization of financing costs incurred, together, on the Holdings Credit Facility and the Predecessor Holdings Credit Facility for the years ended December 31, 2016, December 31, 2015 and December 31, 2014.

    Years Ended
December 31,
 

(in millions)

    2016     2015     2014
 

Interest expense

  $ 9.5   $ 10.5   $ 7.1  

Non-usage fee

  $ 0.8   $ 0.5   $ 0.2  

Amortization of financing costs

  $ 1.6   $ 1.6   $ 0.9  

Weighted average interest rate

    2.8 %   2.6 %   2.9 %

Effective interest rate

    3.5 %   3.2 %   3.4 %

Average debt outstanding

  $ 341.1   $ 394.9   $ 244.6  

          As of December 31, 2016, December 31, 2015 and December 31, 2014, the outstanding balance on the Holdings Credit Facility was $333.5 million, $419.3 million and $468.1 million, respectively, and NMF Holdings was in compliance with the applicable covenants in 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, 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 was set to 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 us 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 our 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 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).

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          The following table summarizes the interest expense, non-usage fees and amortization of financing costs incurred on the SLF Credit Facility for the years ended December 31, 2016, December 31, 2015 and December 31, 2014.

    Years Ended
December 31,
 

(in millions)

    2016(1)     2015(1)     2014(2)
 

Interest expense

  $   $   $ 4.5  

Non-usage fee

  $   $   $ (3)

Amortization of financing costs

  $   $   $ 0.8  

Weighted average interest rate

    %   %   2.2 %

Effective interest rate

    %   %   2.6 %

Average debt outstanding

  $   $   $ 209.3  

(1)
Not applicable, as the SLF Credit Facility merged with and into the Holdings Credit Facility on December 18, 2014.

(2)
For the year ended December 31, 2014, amounts reported relate to the period from January 1, 2014 to December 17, 2014 (date of merger).

(3)
For the year ended December 31, 2014, the total non-usage fee was less than $50 thousand.

          As of December 31, 2014, the SLF Credit Facility had merged with the Holdings Credit Facility.

          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 us as the Borrower, Goldman Sachs Bank USA as the Administrative Agent and Collateral Agent, and Goldman Sachs Bank USA, Morgan Stanley Bank, N.A. and Stifel Bank & Trust 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 of our domestic subsidiaries and proceeds from the NMFC Credit Facility may be used for general corporate purposes, including the funding of portfolio investments.

          As of December 31, 2016, the maximum amount of revolving borrowings available under the NMFC Credit Facility was $122.5 million. We are 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 our 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 generally bears 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% per annum (as defined in the Senior Secured Revolving Credit Agreement).

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          The following table summarizes the interest expense, non-usage fees and amortization of financing costs incurred on the NMFC Credit Facility for the years ended December 31, 2016, December 31, 2015 and December 31, 2014.

    Years Ended
December 31,
 

(in millions)

    2016     2015     2014(1)
 

Interest expense

  $ 2.0   $ 1.7   $ 0.2  

Non-usage fee

  $ 0.2   $ 0.1   $ 0.1  

Amortization of financing costs

  $ 0.4   $ 0.4   $ 0.1  

Weighted average interest rate

    3.0 %   2.7 %   2.7 %

Effective interest rate

    3.8 %   3.5 %   3.4 %

Average debt outstanding

  $ 66.9   $ 60.5   $ 11.2  

(1)
For the year ended December 31, 2014, amounts reported relate to the period from June 4, 2014 (commencement of the NMFC Credit Facility) to December 31, 2014.

          As of December 31, 2016, December 31, 2015 and December 31, 2014, the outstanding balance on the NMFC Credit Facility was $10.0 million, $90.0 million and $50.0 million, respectively, and NMFC was in compliance with the applicable covenants in the NMFC Credit Facility on such dates.

          Convertible Notes — On June 3, 2014, we closed a private offering of $115.0 million aggregate principal amount of 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. As of the first anniversary, June 3, 2015, of the Convertible Notes, the restrictions under Rule 144A under the Securities Act were removed, allowing the Convertible Notes to be eligible and freely tradable without restrictions for resale pursuant to Rule 144(b)(1) under the Securities Act. On September 30, 2016, the Company closed a public offering of an additional $40.3 million aggregate principal amount of the Convertible Notes. These additional Convertible Notes constitute a further issuance of, rank equally in right of payment with, and form a single series with the $115.0 million aggregate principal amount of Convertible Notes that the Company issued on June 3, 2014.

          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, which commenced on December 15, 2014. The Convertible Notes will mature on June 15, 2019 unless earlier converted or repurchased at the holder's option.

          The following table summarizes certain key terms related to the convertible features of our Convertible Notes as of December 31, 2016.

  December 31,
2016
 
 

Initial conversion premium

    12.5 %

Initial conversion rate(1)

    62.7746  

Initial conversion price

  $ 15.93  

Conversion premium at December 31, 2016

    11.7 %

Conversion rate at December 31, 2016(1)(2)

    63.2794  

Conversion price at December 31, 2016(2)(3)

  $ 15.80  

Last conversion price calculation date

    June 3, 2016  

(1)
Conversion rates denominated in shares of common stock per $1.0 thousand principal amount of the Convertible Notes converted.

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(2)
Represents conversion rate and conversion price, as applicable, taking into account certain de minimis adjustments that will be made on the conversion date.

(3)
The conversion price in effect at December 31, 2016 was calculated on the last anniversary of the issuance and will be calculated again on the next anniversary, unless the exercise price shall have changed by more than 1.0% before the anniversary.

          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 $14.05 per share. In no event will the total number of shares of common stock issuable upon conversion exceed 71.1893 per $1.0 thousand principal amount of the Convertible Notes. We have 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 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 we later secure) 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.

          We 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, holders of the Convertible Notes may require us 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 us to provide financial information to the holders of the Convertible Note and the Trustee if we cease 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.

          The following table summarizes the interest expense and amortization of financing costs incurred on the Convertible Notes for the years ended December 31, 2016, December 31, 2015 and December 31, 2014.

    Years Ended December 31,
 

(in millions)

    2016     2015     2014(1)
 

Interest expense

  $ 6.3   $ 5.8   $ 3.3  

Amortization of financing costs

  $ 0.9   $ 0.7   $ 0.4  

Amortization of premium

  $ (2) $   $  

Effective interest rate

    5.7 %   5.6 %   5.6 %

Average debt outstanding

  $ 125.2   $ 115.0   $ 115.0  

(1)
For the year ended December 31, 2014, amounts reported relate to the period from June 3, 2014 (commencement of the Convertible Notes) to December 31, 2014.

(2)
For the year ended December 31, 2016, the total amortization of premium was less than $50 thousand.

          As of December 31, 2016, December 31, 2015 and December 31, 2014, the outstanding balance on the Convertible Notes was $155.3 million, $115.0 million and $115.0 million, respectively, and NMFC was in compliance with the terms of the Indenture on such dates.

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          Unsecured Notes — On May 6, 2016, we issued $50.0 million in aggregate principal amount of five-year unsecured notes that mature on May 15, 2021 (the "Unsecured Notes"), pursuant to a note purchase agreement, dated May 4, 2016, to an institutional investor in a private placement. On September 30, 2016, we entered into an amended and restated note purchase agreement (the "NPA") and issued an additional $40.0 million in aggregate principal amount of Unsecured Notes to institutional investors in a private placement. The NPA provides for future issuances of Unsecured Notes in separate series or tranches. The Unsecured Notes are equal in priority with our other unsecured indebtedness, including our Convertible Notes.

          The Unsecured Notes bear interest at an annual rate of 5.313%, payable semi-annually on May 15 and November 15 of each year, which commenced on November 15, 2016. This interest rate is subject to increase in the event that: (i) subject to certain exceptions, the Unsecured Notes or we cease to have an investment grade rating or (ii) the aggregate amount of our unsecured debt falls below $150.0 million. In each such event, we have the option to offer to prepay the Unsecured Notes at par, in which case holders of the Unsecured Notes who accept the offer would not receive the increased interest rate. In addition, we are obligated to offer to prepay the Unsecured Notes at par if the Investment Adviser, or an affiliate thereof, ceases to be our investment adviser or if certain change in control events occur with respect to the Investment Adviser.

          The NPA contains customary terms and conditions for unsecured notes issued in a private placement, including, without limitation, an option to offer to prepay all or a portion of the Unsecured Notes at par (plus a make-whole amount, if applicable), affirmative and negative covenants such as information reporting, maintenance of our status as a BDC under the 1940 Act and a RIC under the Internal Revenue Code, minimum stockholders' equity, minimum asset coverage ratio, and prohibitions on certain fundamental changes or any subsidiary guarantor, as well as customary events of default with customary cure and notice, including, without limitation, nonpayment, misrepresentation in a material respect, breach of covenant, cross-default under our other indebtedness or certain significant subsidiaries, certain judgments and orders, and certain events of bankruptcy.

          The following table summarizes the interest expense and amortization of financing costs incurred on the Unsecured Notes for the years ended December 31, 2016, December 31, 2015 and December 31, 2014.

    Years Ended December 31,
 

(in millions)

    2016(1)     2015(2)     2014(2)
 

Interest expense

  $ 2.3   $   $  

Amortization of financing costs

  $ 0.2   $   $  

Effective interest rate

    5.8 %   %   %

Average debt outstanding

  $ 65.5   $   $  

(1)
For the year ended December 31, 2016, amounts reported relate to the period from May 6, 2016 (issuance of the Unsecured Notes) to December 31, 2016.

(2)
Not applicable, as the Unsecured Notes were issued on May 6, 2016.

          As of December 31, 2016, the outstanding balance on the Unsecured Notes was $90.0 million and we were in compliance with the terms of the NPA.

          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.

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SBA-guaranteed debentures are non-recourse to us, 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 our 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 for a single licensee 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, 2016 and December 31, 2015, SBIC LP had regulatory capital of approximately $75.0 million and $72.4 million, respectively, and SBA-guaranteed debentures outstanding of $121.7 million and $117.7 million, respectively. The SBA-guaranteed debentures incur upfront fees of 3.425%, which consists of a 1.00% commitment fee and a 2.425% issuance discount, which are amortized over the life of the SBA-guaranteed debentures. The following table summarizes our SBA-guaranteed debentures as of December 31, 2016.

(in millions)
Issuance Date
  Maturity
Date
 
  Debenture
Amount
 
  Interest
Rate
 
  SBA Annual
Charge
 
 

Fixed SBA-guaranteed debentures:

                       

March 25, 2015

  March 1, 2025   $ 37.5     2.517 %   0.355 %

September 23, 2015

  September 1, 2025     37.5     2.829 %   0.355 %

September 23, 2015

  September 1, 2025     28.8     2.829 %   0.742 %

March 23, 2016

  March 1, 2026     13.9     2.507 %   0.742 %

September 21, 2016

  September 1, 2026     4.0     2.051 %   0.742 %

Total SBA-guaranteed debentures

      $ 121.7              

          Prior to pooling, the SBA-guaranteed debentures bear interest at an interim floating rate of LIBOR plus 0.30%. Once pooled, which occurs in March and September each year, the SBA-guaranteed debentures bear interest at a fixed rate that is set to the current 10-year treasury rate plus a spread at each pooling date.

          The following table summarizes the interest expense and amortization of financing costs incurred on the SBA-guaranteed debentures for the years ended December 31, 2016, December 31, 2015 and December 31, 2014.

  Years ended December 31,    

(in millions)

    2016     2015     2014(1)
 

Interest expense

  $ 3.8   $ 1.7   $ (2)

Amortization of financing costs

  $ 0.4   $ 0.2   $ (2)

Weighted average interest rate

    3.1 %   2.4 %   0.9 %

Effective interest rate

    3.5 %   2.7 %   1.3 %

Average debt outstanding

  $ 119.8   $ 71.9   $ 29.2  

(1)
For the year ended December 31, 2014, amounts reported relate to the period from August 1, 2014 (receipt of the SBIC license) to December 31, 2014. The initial SBA-guaranteed debenture borrowing occurred on November 17, 2014.

(2)
For the year ended December 31, 2014, the total interest expense and amortization of financing costs were less than $50 thousand.

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          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 us. 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, 2016, December 31, 2015 and December 31, 2014, SBIC LP was in compliance with SBA regulatory requirements.

Off-Balance Sheet Arrangements

          We may become a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of our 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, 2016 and December 31, 2015, we had outstanding commitments to third parties to fund investments totaling $44.3 million and $26.3 million, respectively, under various undrawn revolving credit facilities, delayed draw commitments or other future funding commitments.

          We 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, 2016 and December 31, 2015, we had commitment letters to purchase investments in aggregate par amount of $14.8 million and $0, respectively. As of December 31, 2016 and December 31, 2015, we had not entered into any bridge financing commitments which could require funding in the future.

          As of December 31, 2016 and December 31, 2015, we had unfunded commitments related to our equity investment in SLP II of $7.9 million and $0, respectively, which may be funded at our discretion.

Contractual Obligations

          A summary of our significant contractual payment obligations as of December 31, 2016 is as follows:

    Contractual Obligations Payments Due by Period
 

(in millions)

    Total     Less than
1 Year
    1 - 3
Years
    3 - 5
Years
    More than
5 Years
 

Holdings Credit Facility(1)

  $ 333.5   $   $ 333.5   $   $  

Convertible Notes(2)

    155.3         155.3          

SBA-guaranteed debentures(3)

    121.7                 121.7  

Unsecured Notes(4)

    90.0             90.0      

NMFC Credit Facility(5)

    10.0         10.0          

Total Contractual Obligations

  $ 710.5   $   $ 498.8   $ 90.0   $ 121.7  

(1)
Under the terms of the $495.0 million Holdings Credit Facility, all outstanding borrowings under that facility ($333.5 million as of December 31, 2016) must be repaid on or before December 18, 2019. As of December 31, 2016, there was approximately $161.5 million of possible capacity remaining under the Holdings Credit Facility.

(2)
The $155.3 million Convertible Notes will mature on June 15, 2019 unless earlier converted or repurchased at the holder's option.

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(3)
Our SBA-guaranteed debentures will begin to mature on March 1, 2025.

(4)
The $90.0 million Unsecured Notes will mature on May 15, 2021 unless earlier repurchased.

(5)
Under the terms of the $122.5 million NMFC Credit Facility, all outstanding borrowings under that facility ($10.0 million as of December 31, 2016) must be repaid on or before June 4, 2019. As of December 31, 2016, there was approximately $112.5 million of possible capacity remaining under the NMFC Credit Facility.

          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 us 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 our 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

          Distributions declared and paid to stockholders for the year ended December 31, 2016 totaled $88.8 million.

          The following table reflects cash distributions, including dividends and returns of capital, if any, per share that have been declared by our board of directors for the years ended December 31, 2016 and December 31, 2015:

Fiscal Year Ended
  Date Declared     Record Date     Payment Date     Per Share
Amount
 
 

December 31, 2016

                   

Fourth Quarter

  November 4, 2016   December 15, 2016   December 29, 2016   $ 0.34  

Third Quarter

  August 2, 2016   September 16, 2016   September 30, 2016     0.34  

Second Quarter

  May 3, 2016   June 16, 2016   June 30, 2016     0.34  

First Quarter

  February 22, 2016   March 17, 2016   March 31, 2016     0.34  

              $ 1.36  

December 31, 2015

 

 

 

 

 

 

   
 
 

Fourth Quarter

  November 3, 2015   December 16, 2015   December 30, 2015   $ 0.34  

Third Quarter

  August 4, 2015   September 16, 2015   September 30, 2015     0.34  

Second Quarter

  May 5, 2015   June 16, 2015   June 30, 2015     0.34  

First Quarter

  February 23, 2015   March 17, 2015   March 31, 2015     0.34  

              $ 1.36  

          Tax characteristics of all distributions paid are reported to stockholders on Form 1099 after the end of the calendar year. For the years ended December 31, 2016 and December 31, 2015, total distributions were $88.8 million and $81.0 million, respectively, of which the distributions were comprised of approximately 89.46% and 99.96%, respectively, of ordinary income, 0.00% and 0.00%, respectively, of long-term capital gains and approximately 10.54% and 0.04%, respectively,

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of a return of capital. Future quarterly distributions, if any, will be determined by our board of directors.

          We intend to pay quarterly distributions to our stockholders in amounts sufficient to maintain our status as a RIC. We intend to distribute approximately all of our Adjusted Net Investment Income on a quarterly basis and substantially all of our taxable income on an annual basis, except that we may retain certain net capital gains for reinvestment.

          We maintain an "opt out" dividend reinvestment plan on behalf of our common stockholders, pursuant to which each of our stockholders' cash distributions will be automatically reinvested in additional shares of common stock, unless the stockholder elects to receive cash.


Related Parties

          We have entered into a number of business relationships with affiliated or related parties, including the following:

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          In addition, we have adopted a formal code of ethics that governs the conduct of our 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, to our investment mandates. The Investment Adviser and its affiliates may determine that an investment is appropriate for us 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. On September 12, 2016, we filed an exemptive application with the SEC to permit us to co-invest with funds or entities managed by the Investment Adviser or its affiliates in certain negotiated transactions where co-investing would otherwise be prohibited under the 1940 Act. Any such order, if granted by the SEC, will be subject to certain terms and conditions. Furthermore, there is no assurance when, or if, this application for exemptive relief will be granted by the SEC.

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SENIOR SECURITIES

          Information about our senior securities as of December 31, 2016, December 31, 2015 and December 31, 2014 and information about NMF Holdings' senior securities as of December 31, 2013, 2012, 2011, 2010 and 2009 are shown in the following table. The report of Deloitte & Touche LLP, an independent registered public accounting firm, on the senior securities table as of December 31, 2016, 2015, 2014, 2013, 2012, 2011, 2010 and 2009 is attached, or incorporated by reference, as an exhibit to the registration statement of which this prospectus supplement and accompanying prospectus are a part.

Class and Year(1)
  Total Amount
Outstanding Exclusive
of Treasury Securities(2)
(in millions)
 
  Asset
Coverage
Per Unit(3)
 
  Involuntary
Liquidating
Preference
Per Unit(4)
 
  Average
Market
Value
Per Unit(5)
 
 

December 31, 2016

                         

Holdings Credit Facility

  $ 333.5   $ 2,593   $     N/A  

Convertible Notes

    155.3     2,593         N/A  

Unsecured Notes

    90.0     2,593         N/A  

NMFC Credit Facility

    10.0     2,593         N/A  

December 31, 2015

                         

Holdings Credit Facility

    419.3     2,341         N/A  

Convertible Notes

    115.0     2,341         N/A  

NMFC Credit Facility

    90.0     2,341         N/A  

December 31, 2014

                         

Holdings Credit Facility

    468.1     2,267         N/A  

Convertible Notes

    115.0     2,267         N/A  

NMFC Credit Facility

    50.0     2,267         N/A  

December 31, 2013

                         

Holdings Credit Facility

    221.8     2,577         N/A  

SLF Credit Facility

    214.7     2,577         N/A  

December 31, 2012

                         

Holdings Credit Facility

    206.9     2,353         N/A  

SLF Credit Facility

    214.3     2,353         N/A  

December 31, 2011

                         

Holdings Credit Facility

    129.0     2,426         N/A  

SLF Credit Facility

    165.9     2,426         N/A  

December 31, 2010(6)

                         

Holdings Credit Facility

    59.7     3,074         N/A  

SLF Credit Facility

    56.9     3,074         N/A  

December 31, 2009(6)

                         

Holdings Credit Facility

    77.7     4,080         N/A  

(1)
We have excluded our SBA-guaranteed debentures from this table as a result of the SEC exemptive relief that permits us to exclude such debentures from the definition of senior securities in the 200.0% asset coverage ratio we are required to maintain under the 1940 Act. At December 31, 2016, December 31, 2015 and December 31, 2014, we had $121.7 million, $117.7 million and $37.5 million, respectively, in SBA-guaranteed debentures outstanding. At December 31, 2013, 2012, 2011, 2010 and 2009, we had no outstanding SBA-guaranteed debentures. Total asset coverage per unit including the SBA-guaranteed debentures as of December 31, 2016, December 31, 2015 and December 31, 2014 is $2,320, $2,128 and $2,196, respectively, and unchanged for the prior years.

(2)
Total amount of each class of senior securities outstanding at the end of the period presented.

(3)
Asset coverage per unit is the ratio of the carrying value of our total assets, less all liabilities excluding indebtedness represented by senior securities in this table, to the aggregate amount of senior securities representing indebtedness.

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(4)
The amount to which such class of senior security would be entitled upon the voluntary liquidation of the issuer in preference to any security junior to it. The "—" in this column indicates that the SEC expressly does not require this information to be disclosed for certain types of senior securities.

(5)
Not applicable because the senior securities are not registered for public trading.

(6)
Prior to NMFC's IPO on May 19, 2011, these credit facilities existed at the Predecessor Entities.

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UNDERWRITING

          We and the underwriters named below have entered into an underwriting agreement with respect to the shares being offered. Subject to certain conditions, each underwriter has severally agreed to purchase the number of shares indicated in the following table. Wells Fargo Securities, LLC, Morgan Stanley & Co. LLC and Goldman, Sachs & Co. are the representatives of the underwriters.

Underwriter
    Number
of Shares
 

Wells Fargo Securities, LLC

       

Morgan Stanley & Co. LLC

       

Goldman, Sachs & Co. 

       

Keefe, Bruyette & Woods, Inc. 

       

Robert W. Baird & Co. Incorporated

       

Janney Montgomery Scott LLC

       

Oppenheimer & Co. Inc. 

       

Total

    5,000,000  

          The underwriters are committed to take and pay for all of the shares being offered, if any are taken, other than the shares covered by the option described below unless and until this option is exercised.

          If the underwriters sell more shares than the total number set forth in the table above, the underwriters have an option to buy up to an additional 750,000 shares from us. They may exercise that option for 30 days. If any shares are purchased pursuant to this option, the underwriters will severally purchase shares in approximately the same proportion as set forth in the table above.

          The following table shows the per share and total underwriting discounts and commissions (sales load) to be paid to the underwriters. Such amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase 750,000 additional shares.

    Sales Load by Us
 

    No Exercise     Full Exercise
 

Per Share

  $                 $                

Total

  $                 $                

          Because the Financial Industry Regulatory Authority, or FINRA, views the common stock offered hereby as interests in a direct participation program, the offering is being made in compliance with the requirements of FINRA Rule 2310. Investor suitability with respect to the common stock should be judged similarly to suitability with respect to other securities that are listed for trading on a national securities exchange.

          In the ordinary course of their various business activities, the underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investment and securities activities may involve securities and instruments of the issuer. The underwriters and their respective affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.

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          Shares sold by the underwriters to the public will initially be offered at the public offering price set forth on the cover of this prospectus supplement. Any shares sold by the underwriters to securities dealers may be sold at a discount of up to $       per share from the public offering price. If all the shares are not sold at the initial offering price, the representatives may change the public offering price and the other selling terms. The offering of the shares by the underwriters is subject to receipt and acceptance and subject to the underwriters' right to reject any order in whole or in part.

          We, each of our officers and directors and each of the members of the Investment Adviser's investment committee have agreed with the underwriters, subject to certain exceptions, not to dispose of or hedge any shares of our common stock or securities convertible into or exchangeable for shares of our common stock during the period from the date of this prospectus supplement continuing through the date 45 days after the date of this prospectus supplement, except with the prior written consent of Wells Fargo Securities, LLC, Morgan Stanley & Co. LLC and Goldman, Sachs & Co.

          Our common stock is listed on the New York Stock Exchange under the symbol "NMFC".

          In connection with the offering, the underwriters may purchase and sell shares of common stock in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in the offering. "Covered" short sales are sales made in an amount not greater than the underwriters' option to purchase additional shares from us in the offering. The underwriters may close out any covered short position by either exercising their option to purchase additional shares or purchasing shares in the open market. In determining the source of shares to close out the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase additional shares pursuant to the option granted to them. "Naked" short sales are any sales in excess of such option. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of various bids for or purchases of common stock made by the underwriters in the open market prior to the completion of the offering.

          The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of such underwriter in stabilizing or short covering transactions.

          Purchases to cover a short position and stabilizing transactions, as well as other purchases by the underwriters for their own account, may have the effect of preventing or retarding a decline in the market price of the company's stock, and together with the imposition of the penalty bid, may stabilize, maintain or otherwise affect the market price of the common stock. As a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued at any time. These transactions may be effected on the New York Stock Exchange, in the over-the-counter market or otherwise.

          The underwriters do not expect sales to discretionary accounts to exceed five percent of the total number of shares offered.

          We estimate that the offering expenses that will be borne by us in connection with the sale of shares of our common stock offered by us in this offering will be approximately $0.3 million.

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          We have agreed to indemnify the several underwriters against certain liabilities, including liabilities under the Securities Act.

          The underwriters and their respective affiliates are full-service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. Certain of the underwriters and their respective affiliates may, from time to time, perform various financial advisory and investment banking services for us, for which they will receive customary fees and expenses. In addition, an affiliate of Wells Fargo Securities, LLC is a lender under the Holdings Credit Facility and affiliates of Goldman, Sachs & Co., Morgan Stanley & Co. LLC and Keefe, Bruyette & Woods, Inc. are lenders under the NMFC Credit Facility. Certain directly or indirectly held registered broker dealers, investment advisors, and bank subsidiaries of Wells Fargo & Company, an affiliate of Wells Fargo Securities, LLC an underwriter in this offering, hold approximately 8.7% of our common stock.

          In the ordinary course of their various business activities, the underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers and such investment and securities activities may involve securities and/or instruments of the issuer. The underwriters and their respective affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.

          We intend to use the net proceeds from the sale of shares of our common stock sold in this offering primarily for new investments in portfolio companies in accordance with our investment objective and strategies described in this prospectus supplement and the accompanying prospectus. We may also use a portion of the net proceeds from the sale of shares of our common stock sold in this offering for other general corporate purposes, including to temporarily repay indebtedness (which will be subject to reborrowing), and other working capital needs. Affiliates of Wells Fargo Securities, LLC are lenders under the Holdings Credit Facility and affiliates of Goldman, Sachs & Co., Morgan Stanley & Co. LLC and Keefe, Bruyette & Woods, Inc. are lenders under the NMFC Credit Facility. Accordingly, affiliates of Wells Fargo Securities, LLC, Morgan Stanley & Co. LLC, Goldman, Sachs & Co. and Keefe, Bruyette & Woods, Inc. may receive more than 5.0% of the net proceeds of this offering to the extent such proceeds are used to temporarily repay outstanding indebtedness under the Holdings Credit Facility or the NMFC Credit Facility.

          The principal business address of Wells Fargo Securities, LLC is 550 South Tryon Street, Charlotte, North Carolina 28202, the principal business address of Morgan Stanley & Co. LLC is 1585 Broadway, New York, New York 10036, and the principal business address of Goldman, Sachs & Co. is 200 West Street, New York, New York 10282.

          Each of the underwriters may arrange to sell common shares offered hereby in certain jurisdictions outside the United States, either directly or through affiliates, where they are permitted to do so. In that regard, Wells Fargo Securities, LLC may arrange to sell shares in certain jurisdictions through an affiliate, Wells Fargo Securities International Limited, or WFSIL. WFSIL is a wholly-owned indirect subsidiary of Wells Fargo & Company and an affiliate of Wells Fargo Securities, LLC. WFSIL is a United Kingdom incorporated investment firm regulated by the Financial Conduct Authority. Wells Fargo Securities is the trade name for certain corporate and investment banking services of Wells Fargo & Company and its affiliates, including Wells Fargo Securities, LLC and WFSIL.

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Hong Kong

          The shares may not be offered or sold in Hong Kong by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32 of the Laws of Hong Kong) ("Companies (Winding Up and Miscellaneous Provisions) Ordinance") or which do not constitute an invitation to the public within the meaning of the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) ("Securities and Futures Ordinance"), or (ii) to "professional investors" as defined in the Securities and Futures Ordinance and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a "prospectus" as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance, and no advertisement, invitation or document relating to the shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to "professional investors" in Hong Kong as defined in the Securities and Futures Ordinance and any rules made thereunder.

Singapore

          This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor (as defined under Section 4A of the Securities and Futures Act, Chapter 289 of Singapore (the "SFA")) under Section 274 of the SFA, (ii) to a relevant person (as defined in Section 275(2) of the SFA) pursuant to Section 275(1) of the SFA, or any person pursuant to Section 275(1A) of the SFA, and in accordance with the conditions specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA, in each case subject to conditions set forth in the SFA.

          Where the shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor, the securities (as defined in Section 239(1) of the SFA) of that corporation shall not be transferable for 6 months after that corporation has acquired the shares under Section 275 of the SFA except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person (as defined in Section 275(2) of the SFA), (2) where such transfer arises from an offer in that corporation's securities pursuant to Section 275(1A) of the SFA, (3) where no consideration is or will be given for the transfer, (4) where the transfer is by operation of law, (5) as specified in Section 276(7) of the SFA, or (6) as specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore ("Regulation 32").

          Where the shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is a trust (where the trustee is not an accredited investor (as defined in Section 4A of the SFA)) whose sole purpose is to hold investments and each beneficiary of the trust is an accredited investor, the beneficiaries' rights and interest (howsoever described) in that trust shall not be transferable for 6 months after that trust has acquired the shares under Section 275 of the SFA except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person (as defined in Section 275(2) of the SFA), (2) where such transfer arises from an offer that is made on

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terms that such rights or interest are acquired at a consideration of not less than S$200,000 (or its equivalent in a foreign currency) for each transaction (whether such amount is to be paid for in cash or by exchange of securities or other assets), (3) where no consideration is or will be given for the transfer, (4) where the transfer is by operation of law, (5) as specified in Section 276(7) of the SFA, or (6) as specified in Regulation 32.

LEGAL MATTERS

          Certain legal matters regarding the shares of common stock offered hereby will be passed upon for us by Eversheds Sutherland (US) LLP, Washington, District of Columbia. Certain legal matters in connection with the shares of common stock offered hereby will be passed upon for the underwriters by Fried, Frank, Harris, Shriver & Jacobson LLP, New York, New York. Fried, Frank, Harris, Shriver & Jacobson LLP represents New Mountain Capital, L.L.C. and its portfolio companies from time to time in the ordinary course of business.

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

          The consolidated financial statements and the related information included in the Senior Securities table and the effectiveness of internal control over financial reporting, included in this prospectus supplement and the accompanying prospectus, have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their reports appearing herein and elsewhere in the registration statement. Such financial statements and information included in the Senior Securities table have been so included in reliance upon the reports of such firm, given their authority as experts in accounting and auditing.

          The principal business address of Deloitte & Touche LLP is 30 Rockefeller Center Plaza, New York, New York 10112.

AVAILABLE INFORMATION

          We have filed with the SEC a registration statement on Form N-2, together with all amendments and related exhibits, under the Securities Act, with respect to the shares of common stock offered by this prospectus supplement and the accompanying prospectus. The registration statement contains additional information about us and the shares of common stock being offered by this prospectus supplement and the accompanying prospectus.

          We are required to file with or submit to the SEC annual, quarterly and current reports, proxy statements and other information meeting the informational requirements of the Exchange Act. You may inspect and copy these reports, proxy statements and other information, as well as the registration statement and related exhibits and schedules, at the Public Reference Room of the SEC at 100 F Street, N.E., Washington, District of Columbia 20549. You may obtain information on the operation of the Public Reference Room 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, which are available on the SEC's website at http://www.sec.gov. Copies of these reports, proxy and information statements and other information may be obtained, after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov, or by writing the SEC's Public Reference Section, 100 F Street, N.E., Washington, District of Columbia 20549. This information will also be available free of charge by contacting us at 787 Seventh Avenue, 48th Floor, New York, New York 10019, by telephone at (212) 720-0300, or on our website at http://www.newmountainfinance.com. Information contained on our website or on the SEC's website about us is not incorporated into this prospectus supplement and the accompanying prospectus and you should not consider information contained on our website or on the SEC's website to be part of this prospectus supplement and the accompanying prospectus.

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INDEX TO FINANCIAL STATEMENTS

    PAGE  

AUDITED FINANCIAL STATEMENTS

       

Report of Independent Registered Public Accounting Firm

    F-2  

New Mountain Finance Corporation

       

Consolidated Statements of Assets and Liabilities as of December 31, 2016 and December 31, 2015

    F-3  

Consolidated Statements of Operations for the years ended December 31, 2016, December 31, 2015 and December 31, 2014

    F-4  

Consolidated Statements of Changes in Net Assets for the years ended December 31, 2016, December 31, 2015 and December 31, 2014

    F-5  

Consolidated Statements of Cash Flows for the years ended December 31, 2016, December 31, 2015 and December 31, 2014

    F-6  

Consolidated Schedule of Investments as of December 31, 2016

    F-7  

Consolidated Schedule of Investments as of December 31, 2015

    F-18  

Notes to the Consolidated Financial Statements of New Mountain Finance Corporation

    F-29  

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LOGO

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
New Mountain Finance Corporation

          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, 2016 and 2015, and the related consolidated statements of operations, changes in net assets, and cash flows for each of the three years in the period ended December 31, 2016 and the consolidated financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Company's management. 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). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. 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, 2016 and 2015, by correspondence with the custodian, loan agents and borrowers; where replies were not received we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.

          In our opinion, such consolidated financial statements and consolidated financial highlights referred to above present fairly, in all material respects, the financial position of New Mountain Finance Corporation and subsidiaries as of December 31, 2016 and 2015, and the results of their operations, changes in their net assets, and their cash flows for each of the three years in the period ended December 31, 2016 and the financial highlights for each of the five years in the period then ended in conformity with accounting principles generally accepted in the United States of America.

          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, 2016, 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 February 28, 2017, expressed an unqualified opinion on the Company's internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP

New York, New York
February 28, 2017

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New Mountain Finance Corporation

Consolidated Statements of Assets and Liabilities

(in thousands, except shares and per share data)

    December 31,
2016
    December 31,
2015
 

Assets

             

Investments at fair value

             

Non-controlled/non-affiliated investments (cost of $1,379,603 and $1,438,415, respectively)

  $ 1,346,556   $ 1,377,515  

Non-controlled/affiliated investments (cost of $54,996 and $89,047, respectively)

    57,440     87,287  

Controlled investments (cost of $140,579 and $41,254, respectively)

    154,821     47,422  

Total investments at fair value (cost of $1,575,178 and $1,568,716, respectively)

    1,558,817     1,512,224  

Securities purchased under collateralized agreements to resell (cost of $30,000 and $30,000, respectively)

    29,218     29,704  

Cash and cash equivalents

    45,928     30,102  

Interest and dividend receivable

    17,833     13,832  

Receivable from unsettled securities sold

    990      

Receivable from affiliates

    346     360  

Other assets

    2,886     1,924  

Total assets

  $ 1,656,018   $ 1,588,146  

Liabilities

             

Borrowings

             

Holdings Credit Facility

  $ 333,513   $ 419,313  

Convertible Notes

    155,523     115,000  

SBA-guaranteed debentures

    121,745     117,745  

Unsecured Notes

    90,000      

NMFC Credit Facility

    10,000     90,000  

Deferred financing costs (net of accumulated amortization of $12,279 and $8,822, respectively)

    (14,041 )   (13,992 )

Net borrowings

    696,740     728,066  

Management fee payable

    5,852     5,466  

Incentive fee payable

    5,745     5,622  

Interest payable

    3,172     2,343  

Payable for unsettled securities purchased

    2,740     5,441  

Deferred tax liability

    1,034     1,676  

Payable to affiliates

    136     564  

Other liabilities

    2,037     2,060  

Total liabilities

    717,456     751,238  

Commitments and contingencies (See Note 9)

             

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, 69,755,387 and 64,005,387 shares issued, respectively, and 69,717,814 and 64,005,387 shares outstanding, respectively

    698     640  

Paid in capital in excess of par

    1,001,862     899,713  

Treasury stock at cost, 37,573 and 0 shares held, respectively

    (460 )    

Accumulated undistributed net investment income

    2,073     4,164  

Accumulated undistributed net realized (losses) gains on investments

    (36,947 )   1,342  

Net unrealized (depreciation) appreciation (net of provision for taxes of $1,034 and $1,676, respectively)

    (28,664 )   (68,951 )

Total net assets

  $ 938,562   $ 836,908  

Total liabilities and net assets

  $ 1,656,018   $ 1,588,146  

Number of shares outstanding

    69,717,814     64,005,387  

Net asset value per share

  $ 13.46   $ 13.08  

   

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

F-3


Table of Contents


New Mountain Finance Corporation

Consolidated Statements of Operations

(in thousands, except shares and per share data)

    Years Ended December 31,
 

    2016     2015     2014
 

Investment income(1)

                   

From non-controlled/non-affiliated investments:

                   

Interest income

  $ 140,983   $ 132,665   $ 85,123  

Dividend income

    220     (407 )   1,243  

Other income

    7,708     5,996     4,023  

From non-controlled/affiliated investments:

                   

Interest income

    4,538     5,402      

Dividend income

    3,884     3,619     1,066  

Other income

    1,193     1,965     468  

From controlled investments:

                   

Interest income

    1,904     2,007      

Dividend income

    7,096     2,559      

Other income

    558     49      

Investment income allocated from New Mountain Finance Holdings, L.L.C.(2)

                   

Interest income

            40,515  

Dividend income

            2,368  

Other income

            795  

Total investment income

    168,084     153,855     135,601  

Expenses

                   

Incentive fee(1)

    22,011     20,591     12,070  

Capital gains incentive fee(1)

            (8,573 )

Total incentive fees(1)

    22,011     20,591     3,497  

Management fee(1)

    27,551     25,858     13,593  

Interest and other financing expenses(1)

    28,452     23,374     13,269  

Professional fees(1)

    3,087     3,214     2,390  

Administrative expenses(1)

    2,683     2,450     1,470  

Other general and administrative expenses(1)

    1,589     1,665     1,138  

Net expenses allocated from New Mountain Finance Holdings, L.L.C.(2)              

            20,808  

Total expenses

    85,373     77,152     56,165  

Less: management fee waived (see Note 5)(1)

    (4,824 )   (5,219 )   (686 )

Less: expenses waived and reimbursed (see Note 5)(1)

    (725 )   (733 )   (380 )

Net expenses

    79,824     71,200     55,099  

Net investment income before income taxes

    88,260     82,655     80,502  

Income tax expense(1)

    152     160     436  

Net investment income

    88,108     82,495     80,066  

Net realized (losses) gains:

                   

Non-controlled/non-affiliated investments(1)

    (16,717 )   (12,789 )   357  

Investments allocated from New Mountain Finance Holdings, L.L.C.(2)              

            8,568  

Net change in unrealized appreciation (depreciation):

                   

Non-controlled/non-affiliated investments(1)

    30,742     (40,807 )   (43,324 )

Non-controlled/affiliated investments(1)

    1,315     (633 )   (539 )

Controlled investments(1)

    8,074     6,168      

Securities purchased under collateralized agreements to resell(1)

    (486 )   (296 )    

Investments allocated from New Mountain Finance Holdings, L.L.C.(2)              

            940  

Benefit (provision) for taxes(1)

    642     (1,183 )   (493 )

Net realized and unrealized gains (losses)

    23,570     (49,540 )   (34,491 )

Net increase in net assets resulting from operations

  $ 111,678   $ 32,955   $ 45,575  

Basic earnings per share

  $ 1.72   $ 0.55   $ 0.88  

Weighted average shares of common stock outstanding — basic (See Note 12)

    64,918,191     59,715,290     51,846,164  

Diluted earnings per share

  $ 1.60   $ 0.55   $ 0.86  

Weighted average shares of common stock outstanding — diluted (See Note 12)

    72,863,387     66,968,089     56,157,835  

Distributions declared and paid per share

  $ 1.36   $ 1.36   $ 1.48  

(1)
For the year ended December 31, 2014, the amounts reported relate to the period from May 8, 2014 to December 31, 2014.

(2)
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.

F-4


Table of Contents


New Mountain Finance Corporation

Consolidated Statements of Changes in Net Assets

(in thousands, except share data)

    Years Ended December 31,
 

    2016     2015     2014
 

Increase (decrease) in net assets resulting from operations:

                   

Net investment income(1)

  $ 88,108   $ 82,495   $ 57,196  

Net investment income allocated from New Mountain Finance Holdings, L.L.C.(2)

            22,870  

Net realized (losses) gains on investments(1)

    (16,717 )   (12,789 )   357  

Net realized gains on investments allocated from New Mountain Finance Holdings, L.L.C.(2)

            8,568  

Net change in unrealized appreciation (depreciation) of investments(1)

    40,131     (35,272 )   (43,863 )

Net change in unrealized (depreciation) appreciation of securities purchased under collateralized agreements to resell(1)

    (486 )   (296 )    

Net change in unrealized appreciation (depreciation) of investments allocated from New Mountain Finance Holdings, L.L.C.(2)

            940  

Benefit (provision) for taxes(1)

    642     (1,183 )   (493 )

Net increase in net assets resulting from operations

    111,678     32,955     45,575  

Capital transactions

                   

Net proceeds from shares sold

    79,063     79,415     141,157  

Deferred offering costs allocated from New Mountain Finance Holdings, L.L.C.(2)

            (250 )

Deferred offering costs(1)

    (328 )   (285 )   (476 )

Value of shares issued for exchanged units

            38,840  

Distributions declared to stockholders from net investment income

    (88,764 )   (81,002 )   (71,365 )

Distributions declared to stockholders from net realized gains

            (6,247 )

Reinvestment of distributions

    2,953     3,655     4,829  

Repurchase of shares under repurchase program

    (2,948 )        

Total net (decrease) increase in net assets resulting from capital transactions

    (10,024 )   1,783     106,488  

Net increase in net assets

    101,654     34,738     152,063  

Net assets at the beginning of the period

    836,908     802,170     650,107  

Net assets at the end of the period(3)

  $ 938,562   $ 836,908   $ 802,170  

Capital share activity

                   

Shares sold

    5,750,000     5,750,000     9,775,000  

Shares issued for exchanged units

            2,671,938  

Shares issued from reinvestment of distributions

        257,497     326,197  

Shares reissued from repurchase program in connection with reinvestment of distributions

    210,926          

Shares repurchased under repurchase program

    (248,499 )        

Net increase in shares outstanding

    5,712,427     6,007,497     12,773,135  

(1)
For the year ended December 31, 2014, the amounts reported relate to the period from May 8, 2014 to December 31, 2014.

(2)
For the year ended December 31, 2014, the amounts reported relate to the period from January 1, 2014 to May 7, 2014.

(3)
For the years ended December 31, 2016, December 31, 2015 and December 31, 2014, includes accumulated undistributed net investment income of $2,073, $4,164 and $2,530, respectively.

   

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

F-5


Table of Contents


New Mountain Finance Corporation

Consolidated Statements of Cash Flows

(in thousands)

    Years Ended December 31,
 

    2016     2015     2014
 

Cash flows from operating activities

                   

Net increase in net assets resulting from operations

  $ 111,678   $ 32,955   $ 45,575  

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)

            (22,870 )

Net realized losses (gains) on investments(1)

    16,717     12,789     (357 )

Net realized gains on investments allocated from New Mountain Finance Holdings, L.L.C.(2)

            (8,568 )

Net change in unrealized (appreciation) depreciation of investments(1)

    (40,131 )   35,272     43,863  

Net change in unrealized depreciation (appreciation) of securities purchased under collateralized agreements to resell

    486     296      

Net change in unrealized (appreciation) depreciation of investments allocated from New Mountain Finance Holdings, L.L.C.(2)

            (940 )

Amortization of purchase discount(1)

    (3,096 )   (2,511 )   (1,721 )

Amortization of deferred financing costs(1)

    3,457     2,955     1,713  

Amortization of premium on Convertible Notes(1)

    (28 )        

Non-cash investment income(1)

    (7,644 )   (5,978 )   (3,479 )

(Increase) decrease in operating assets:

                   

Cash and cash equivalents from New Mountain Finance Holdings, L.L.C.(3)

            957  

Purchase of investments and delayed draw facilities(1)

    (557,897 )   (609,667 )   (529,540 )

Proceeds from sales and paydowns of investments(1)

    547,078     483,936     261,747  

Cash received for purchase of undrawn portion of revolving credit or delayed draw facilities(1)

    177     157     29  

Cash paid for purchase of drawn portion of revolving credit facilities(1)

    (348 )   (3,227 )   (2,548 )

Cash paid for drawn revolvers(1)

    (11,651 )   (4,376 )    

Cash repayments on drawn revolvers(1)

    10,202     6,052     380  

Cash paid for securities purchased under collateralized agreements to resell(1)

            (30,000 )

Interest and dividend receivable(1)

    (4,001 )   (2,088 )   (207 )

Receivable from affiliates(1)

    14     130     (106 )

Receivable from unsettled securities sold(1)

    (990 )   8,912     (8,912 )

Other assets(1)

    (1,080 )   (156 )   196  

Purchase of investment in New Mountain Finance Holdings, L.L.C.(2)

            (58,644 )

Distributions from New Mountain Finance Holdings, L.L.C.(2)

            15,247  

Increase (decrease) in operating liabilities(1):

                   

Incentive fee payable

    123     819     (1,522 )

Management fee payable

    386     322     (911 )

Payable for unsettled securities purchased

    (2,701 )   (21,019 )   17,054  

Interest payable

    829     991     1,259  

Deferred tax liability

    (642 )   1,183     493  

Payable to affiliates

    (428 )   (258 )   589  

Capital gains incentive fee payable

            (8,573 )

Other liabilities

    (2 )   (836 )   225  

Net cash flows provided by (used in) operating activities

    60,508     (63,347 )   (289,571 )

Cash flows from financing activities

                   

Net proceeds from shares sold

    79,063     79,415     141,157  

Distributions paid

    (85,811 )   (77,347 )   (72,783 )

Offering costs paid(1)

    (261 )   (325 )   (478 )

Proceeds from Holdings Credit Facility(1)

    177,600     400,355     384,721  

Repayment of Holdings Credit Facility(1)

    (263,400 )   (449,150 )   (314,400 )

Proceeds from Convertible Notes(1)

    40,552         115,000  

Proceeds from SBA-guaranteed debentures(1)

    4,000     80,245     37,500  

Proceeds from Unsecured Notes

    90,000          

Proceeds from NMFC Credit Facility(1)

    166,500     148,800     72,000  

Repayment of NMFC Credit Facility(1)

    (246,500 )   (108,800 )   (22,000 )

Proceeds from SLF Credit Facility(1)

            21,255  

Repayment of SLF Credit Facility(1)

            (37,700 )

Deferred financing costs paid(1)

    (3,477 )   (3,189 )   (11,256 )

Repurchase of shares under repurchase program

    (2,948 )        

Net cash flows (provided by) used in financing activities

    (44,682 )   70,004     313,016  

Net increase in cash and cash equivalents

    15,826     6,657     23,445  

Cash and cash equivalents at the beginning of the period

    30,102     23,445      

Cash and cash equivalents at the end of the period

  $ 45,928   $ 30,102   $ 23,445  

Supplemental disclosure of cash flow information

                   

Cash interest paid

  $ 23,768   $ 18,683   $ 9,924  

Income taxes paid

    85     217     437  

Non-cash operating activities:

                   

Non-cash activity on investments

  $ 7,186   $ 60,652   $  

Non-cash financing activities:

                   

Value of shares reissued from repurchase program in connection with dividend reinvestment plan

  $ 2,953   $   $  

Value of shares issued in connection with dividend reinvestment plan

        3,655     4,829  

Accrual for offering costs(1)

    598     638     516  

Accrual for deferred financing costs(1)

    99     81     375  

Deferred offering costs allocated from New Mountain Finance Holdings, L.L.C(2)

            (250 )

SLF Credit Facility merger with the Holdings Credit Facility(1)

            198,555  

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

            38,840  

(1)
For the year ended December 31, 2014, the amounts reported relate to the period from May 8, 2014 to December 31, 2014.

(2)
For the year ended December 31, 2014, the amounts reported relate to the period from January 1, 2014 to May 7, 2014.

(3)
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.

F-6


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments

December 31, 2016

(in thousands, except shares)

Portfolio Company, Location and Industry(1)
  Type of Investment     Interest Rate(9)     Maturity/
Expiration
Date
 
  Principal
Amount,
Par Value
or Shares
 
  Cost     Fair
Value
 
  Percent
of Net
Assets
 
 

Non-Controlled/Non-Affiliated Investments

                                     

Funded Debt Investments — Australia

                                     

Project Sunshine IV Pty Ltd**

                                     

Media

  First lien(2)   8.00% (L + 7.00%/M)   9/23/2019   $ 6,012   $ 5,992   $ 6,005     0.64 %

Total Funded Debt Investments — Australia

              $ 6,012   $ 5,992   $ 6,005     0.64 %

Funded Debt Investments — Luxembourg

                                     

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

                                     

Software

  Second lien(2)   10.50% (L + 9.25%/Q)   7/30/2020   $ 24,630   $ 24,362   $ 18,103        

  Second lien(3)   10.50% (L + 9.25%/Q)   7/30/2020     8,204     8,332     6,030        

                32,834     32,694     24,133     2.57 %

Total Funded Debt Investments — Luxembourg

              $ 32,834   $ 32,694   $ 24,133     2.57 %

Funded Debt Investments — Netherlands

                                     

Eiger Acquisition B.V. (Eiger Co-Borrower, LLC)**

                                     

Software

  Second lien(3)   10.13% (L + 9.13%/Q)   2/17/2023   $ 10,000   $ 9,371   $ 9,799     1.04 %

Total Funded Debt Investments — Netherlands

              $ 10,000   $ 9,371   $ 9,799     1.04 %

Funded Debt Investments — United Kingdom

                                     

Air Newco LLC**

                                     

Software

  Second lien(3)   10.50% (L + 9.50%/Q)   1/31/2023   $ 32,500   $ 31,814   $ 29,514     3.14 %

Total Funded Debt Investments — United Kingdom

              $ 32,500   $ 31,814   $ 29,514     3.14 %

Funded Debt Investments — United States

                                     

TIBCO Software Inc.

                                     

Software

  First lien(2)   6.50% (L + 5.50%/M)   12/4/2020   $ 29,475   $ 28,444   $ 29,634        

  Subordinated(3)   11.38%/S   12/1/2021     15,000     14,659     15,038        

                44,475     43,103     44,672     4.76 %

Navex Global, Inc.

                                     

Software

  First lien(4)   5.99% (L + 4.75%/Q)   11/19/2021     4,563     4,530     4,540        

  First lien(2)   5.99% (L + 4.75%/Q)   11/19/2021     2,583     2,563     2,570        

  Second lien(4)   10.31% (L + 8.75%/Q)   11/18/2022     18,187     17,984     17,823        

  Second lien(3)   10.31% (L + 8.75%/Q)   11/18/2022     19,813     19,282     19,417        

                45,146     44,359     44,350     4.73 %

Hill International, Inc.

                                     

Business Services

  First lien(2)   7.75% (L + 6.75%/Q)   9/28/2020     41,544     41,150     41,543     4.43 %

AssuredPartners, Inc.

                                     

Business Services

  Second lien(3)   10.00% (L + 9.00%/M)   10/20/2023     20,200     19,480     20,394        

  Second lien(2)   10.00% (L + 9.00%/M)   10/20/2023     20,000     19,282     20,192        

                40,200     38,762     40,586     4.32 %

Tenawa Resource Holdings LLC(13)

                                     

Tenawa Resource Management LLC

                                     

Energy

  First lien(3)   10.50% (Base + 8.00%/Q)   5/12/2019     40,000     39,903     39,825     4.24 %

Kronos Incorporated

                                     

Software

  Second lien(2)   9.25% (L + 8.25%/Q)   11/1/2024     36,000     35,458     37,159     3.96 %

PetVet Care Centers LLC

                                     

Consumer Services

  Second lien(3)   10.25% (L + 9.25%/Q)   6/17/2021     24,000     23,820     24,240        

  Second lien(3)   10.50% (L + 9.50%/Q)   6/17/2021     6,500     6,444     6,565        

  Second lien(3)   9.50% (L + 8.50%/Q)   6/17/2021     6,000     5,910     5,910        

                36,500     36,174     36,715     3.91 %

   

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

F-7


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2016

(in thousands, except shares)

Portfolio Company, Location and Industry(1)
  Type of Investment     Interest Rate(9)     Maturity/
Expiration
Date
 
  Principal
Amount,
Par Value
or Shares
 
  Cost     Fair
Value
 
  Percent
of Net
Assets
 
 

Ascend Learning, LLC

                                     

Education

  Second lien(3)   9.50% (L + 8.50%/Q)   11/30/2020   $ 35,227   $ 34,895   $ 34,963     3.73 %

Weston Solutions, Inc.

                                     

Business Services

  First lien(2)   10.50% (L + 9.50%/M)   12/31/2020     34,821     34,821     34,821     3.71 %

Redbox Automated Retail, LLC

                                     

Consumer Services

  First lien(2)   8.50% (L + 7.50%/Q)   9/27/2021     33,469     32,987     32,601     3.47 %

Valet Waste Holdings, Inc.

                                     

Business Services

  First lien(2)   8.00% (L + 7.00%/Q)   9/24/2021     29,625     29,320     29,625        

  First lien(3)(11) — Drawn   8.00% (L + 7.00%/Q)   9/24/2021     2,250     2,222     2,250        

                31,875     31,542     31,875     3.40 %

VetCor Professional Practices LLC

                                     

Consumer Services

  First lien(4)   7.25% (L + 6.25%/Q)   4/20/2021     19,306     19,159     19,306        

  First lien(2)   7.25% (L + 6.25%/Q)   4/20/2021     7,793     7,652     7,793        

  First lien(4)   7.25% (L + 6.25%/Q)   4/20/2021     2,677     2,655     2,677        

  First lien(4)(11) — Drawn   7.25% (L + 6.25%/Q)   4/20/2021     373     365     373        

                30,149     29,831     30,149     3.21 %

Integro Parent Inc.

                                     

Business Services

  First lien(2)   6.75% (L + 5.75%/Q)   10/31/2022     19,806     19,463     19,607        

  Second lien(3)   10.25% (L + 9.25%/Q)   10/30/2023     10,000     9,910     9,750        

                29,806     29,373     29,357     3.13 %

ProQuest LLC

                                     

Business Services

  Second lien(3)   10.00% (L + 9.00%/M)   12/15/2022     28,700     28,188     28,700     3.06 %

CRGT Inc.

                                     

Federal Services

  First lien(2)   7.50% (L + 6.50%/M)   12/19/2020     27,409     27,252     27,478     2.93 %

Evo Payments International, LLC

                                     

Business Services

  First lien(2)   6.00% (L + 5.00%/M)   12/22/2023     2,500     2,487     2,515        

  Second lien(2)   10.00% (L + 9.00%/M)   12/23/2024     25,000     24,813     24,813        

                27,500     27,300     27,328     2.91 %

Severin Acquisition, LLC

                                     

Software

  Second lien(4)   9.75% (L + 8.75%/Q)   7/29/2022     15,000     14,873     15,000        

  Second lien(4)   9.75% (L + 8.75%/Q)   7/29/2022     4,154     4,118     4,154        

  Second lien(4)   10.25% (L + 9.25%/Q)   7/29/2022     3,273     3,243     3,305        

  Second lien(3)   10.00% (L + 9.00%/Q)   7/29/2022     2,361     2,338     2,384        

  Second lien(3)   10.25% (L + 9.25%/Q)   7/29/2022     1,825     1,807     1,843        

  Second lien(4)   10.25% (L + 9.25%/Q)   7/29/2022     300     297     303        

                26,913     26,676     26,989     2.88 %

Marketo, Inc.

                                     

Software

  First lien(3)   10.50% (L + 9.50%/Q)   8/16/2021     26,820     26,442     26,418     2.81 %

Ansira Holdings, Inc.

                                     

Business Services

  First lien(2)   7.50% (L + 6.50%/Q)   12/20/2022     26,182     26,051     26,051     2.78 %

Pelican Products, Inc.

                                     

Business Products

  Second lien(3)   9.25% (L + 8.25%/Q)   4/9/2021     15,500     15,506     15,170        

  Second lien(2)   9.25% (L + 8.25%/Q)   4/9/2021     10,000     10,107     9,788        

                25,500     25,613     24,958     2.66 %

DigiCert Holdings, Inc.

                                     

Software

  First lien(2)   6.00% (L + 5.00%/Q)   10/21/2021     24,750     24,134     24,719     2.63 %

nThrive, Inc. (fka Precyse Acquisition Corp.)

                                     

Healthcare Services

  Second lien(2)   10.75% (L + 9.75%/M)   4/20/2023     25,000     24,593     24,711     2.63 %

AAC Holding Corp.

                                     

Education

  First lien(2)   8.25% (L + 7.25%/M)   9/30/2020     23,918     23,637     23,918     2.55 %

Ryan, LLC

                                     

Business Services

  First lien(2)   6.75% (L + 5.75%/M)   8/7/2020     23,927     23,656     23,785     2.53 %

EN Engineering, LLC

                                     

Business Services

  First lien(2)   7.00% (L + 6.00%/Q)   6/30/2021     21,107     20,940     21,107        

  First lien(2)   7.78% (Base + 5.55%/Q)   6/30/2021     2,189     2,170     2,189        

                23,296     23,110     23,296     2.48 %

   

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

F-8


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2016

(in thousands, except shares)


Portfolio Company, Location and Industry(1)
  Type of Investment     Interest Rate(9)     Maturity/
Expiration
Date
 
  Principal
Amount,
Par Value
or Shares
 
  Cost     Fair
Value
 
  Percent
of Net
Assets
 
 

TWDiamondback Holdings Corp.(15)

                                     

Diamondback Drugs of Delaware, L.L.C. (TWDiamondback II Holdings LLC)

                                     

Distribution & Logistics

  First lien(4)   9.75% (L + 8.75%/Q)   11/19/2019   $ 19,895   $ 19,895   $ 19,895        

  First lien(3)   9.75% (L + 8.75%/Q)   11/19/2019     2,158     2,158     2,158        

  First lien(4)   9.75% (L + 8.75%/Q)   11/19/2019     605     605     605        

                22,658     22,658     22,658     2.41 %

Vision Solutions, Inc.

                                     

Software

  First lien(2)   7.50% (Base + 6.50%/Q)   6/16/2022     22,359     22,153     22,317     2.38 %

KeyPoint Government Solutions, Inc.

                                     

Federal Services

  First lien(2)   7.75% (L + 6.50%/Q)   11/13/2017     22,411     22,312     22,299     2.38 %

TW-NHME Holdings Corp.(20)

                                     

National HME, Inc.

                                     

Healthcare Services

  Second lien(4)   10.25% (L + 9.25%/Q)   7/14/2022     21,500     21,268     21,500        

  Second lien(3)   10.25% (L + 9.25%/Q)   7/14/2022     500     494     500        

                22,000     21,762     22,000     2.34 %

IT'SUGAR LLC

                                     

Retail

  First lien(4)   10.50% (L + 9.50%/Q)   10/23/2019     20,790     20,189     20,467     2.18 %

First American Payment Systems, L.P.

                                     

Business Services

  Second lien(2)   10.75% (L + 9.50%/M)   4/12/2019     18,643     18,483     18,643     1.99 %

DCA Investment Holding, LLC

                                     

Healthcare Services

  First lien(2)   6.25% (L + 5.25%/Q)   7/2/2021     17,632     17,493     17,632        

  First lien(3)(11) — Drawn   8.00% (P + 4.25%/Q)   7/2/2021     752     744     752        

                18,384     18,237     18,384     1.96 %

AgKnowledge Holdings Company, Inc.

                                     

Business Services

  Second lien(2)   9.25% (L + 8.25%/M)   7/23/2020     18,500     18,379     18,046     1.92 %

Project Alpha Intermediate Holding, Inc.

                                     

Software

  First lien(2)   9.25% (L + 8.25%/M)   8/22/2022     17,955     17,784     17,775     1.89 %

iPipeline, Inc. (Internet Pipeline, Inc.)

                                     

Software

  First lien(4)   8.25% (L + 7.25%/Q)   8/4/2022     17,775     17,626     17,775     1.89 %

Sierra Hamilton LLC / Sierra Hamilton Finance, Inc.

                                     

Energy

  First lien(2)   12.25%/S(8)   12/15/2018     25,000     25,000     16,012        

  First lien(3)   12.25%/S(8)   12/15/2018     2,660     2,231     1,704        

                27,660     27,231     17,716     1.89 %

Greenway Health, LLC (fka Vitera Healthcare Solutions, LLC)

                                     

Software

  First lien(2)   6.00% (L + 5.00%/Q)   11/4/2020     1,891     1,880     1,865        

  Second lien(2)   9.25% (L + 8.25%/Q)   11/4/2021     14,000     13,448     13,650        

                15,891     15,328     15,515     1.65 %

YP Holdings LLC / Print Media Holdings LLC(12)

                                     

YP LLC / Print Media LLC

                                     

Media

  First lien(2)   12.25% (L + 11.00%/M)   6/4/2018     15,267     15,197     15,191     1.62 %

Netsmart Inc. / Netsmart Technologies, Inc.

                                     

Healthcare Information Technology

  Second lien(2)   10.50% (L + 9.50%/Q)   10/19/2023     15,000     14,648     14,944     1.59 %

Cvent, Inc.

                                     

Software

  First lien(3)   6.00% (L + 5.00%/Q)   11/29/2023     5,000     4,963     5,064        

  Second lien(3)   11.00% (L + 10.00%/Q)   5/29/2024     10,000     9,851     9,850        

                15,000     14,814     14,914     1.59 %

   

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

F-9


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2016

(in thousands, except shares)


Portfolio Company, Location and Industry(1)
  Type of Investment     Interest Rate(9)     Maturity/
Expiration
Date
 
  Principal
Amount,
Par Value
or Shares
 
  Cost     Fair
Value
 
  Percent
of Net
Assets
 
 

Amerijet Holdings, Inc.

                                     

Distribution & Logistics

  First lien(4)   9.00% (L + 8.00%/M)   7/15/2021   $ 12,536   $ 12,449   $ 12,442        

  First lien(4)   9.00% (L + 8.00%/M)   7/15/2021     2,089     2,075     2,074        

                14,625     14,524     14,516     1.55 %

SW Holdings, LLC

                                     

Business Services

  Second lien(4)   9.75% (L + 8.75%/Q)   12/30/2021     14,265     14,147     14,265     1.52 %

Poseidon Intermediate, LLC

                                     

Software

  Second lien(2)   9.50% (L + 8.50%/Q)   8/15/2023     13,000     12,829     13,000     1.39 %

Zywave, Inc.

                                     

Software

  Second lien(4)   10.00% (L + 9.00%/Q)   11/17/2023     11,000     10,918     10,918     1.16 %

Aricent Technologies

                                     

Business Services

  Second lien(2)   9.50% (L + 8.50%/Q)   4/14/2022     12,500     12,316     10,719     1.14 %

QC McKissock Investment, LLC(14)

                                     

McKissock, LLC

                                     

Education

  First lien(2)   7.50% (L + 6.50%/Q)   8/5/2019     6,463     6,421     6,463        

  First lien(2)   7.50% (L + 6.50%/Q)   8/5/2019     3,081     3,064     3,081        

  First lien(2)   7.50% (L + 6.50%/Q)   8/5/2019     994     988     994        

                10,538     10,473     10,538     1.12 %

Quest Software US Holdings Inc.

                                     

Software

  First lien(2)   7.00% (L + 6.00%/Q)   10/31/2022     10,000     9,854     10,152     1.08 %

Masergy Holdings, Inc.

                                     

Business Services

  Second lien(2)   9.50% (L + 8.50%/Q)   12/16/2024     10,000     9,938     10,000     1.07 %

PowerPlan Holdings, Inc.

                                     

Software

  Second lien(2)   10.00% (L + 9.00%/M)   2/23/2023     10,000     9,916     10,000     1.07 %

FR Arsenal Holdings II Corp.

                                     

Business Services

  First lien(2)   8.25% (L + 7.25%/Q)   9/8/2022     9,975     9,879     9,875     1.05 %

American Tire Distributors, Inc.

                                     

Distribution & Logistics

  Subordinated(3)   10.25%/S   3/1/2022     9,700     9,523     9,353     1.00 %

Harley Marine Services, Inc.

                                     

Distribution & Logistics

  Second lien(2)   10.50% (L + 9.25%/Q)   12/20/2019     9,000     8,897     8,640     0.92 %

Ministry Brands, LLC

                                     

Software

  First lien(3)(11) — Drawn   6.00% (L + 5.00%/Q)   12/2/2022     350     348     348        

  Second lien(3)   10.25% (L + 9.25%/Q)   6/2/2023     7,840     7,782     7,781        

                8,190     8,130     8,129     0.87 %

Lonestar Intermediate Super Holdings, LLC

                                     

Business Services

  Subordinated(3)   10.00% (L + 9.00%/M)   8/31/2021     7,000     6,934     7,210     0.77 %

J.D. Power and Associates

                                     

Business Services

  Second lien(3)   9.50% (L + 8.50%/Q)   9/7/2024     7,000     6,898     7,035     0.75 %

Confie Seguros Holding II Co.

                                     

Consumer Services

  Second lien(2)   10.25% (L + 9.00%/M)   5/8/2019     6,957     6,952     6,919     0.74 %

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

                                     

Federal Services

  First lien(2)   9.00% (L + 7.50%/Q)   4/21/2017     6,396     6,389     6,300     0.67 %

Solera LLC / Solera Finance, Inc.

                                     

Software

  Subordinated(3)   10.50%/S   3/1/2024     5,000     4,768     5,650     0.60 %

VF Holding Corp.

                                     

Software

  Second lien(3)   10.00% (L + 9.00%/Q)   6/28/2024     5,000     4,952     4,950     0.53 %

ADG, LLC

                                     

Healthcare Services

  Second lien(3)   10.00% (L + 9.00%/Q)   3/28/2024     5,000     4,926     4,925     0.53 %

Vencore, Inc. (fka The SI Organization Inc.)

                                     

Federal Services

  Second lien(3)   9.75% (L + 8.75%/Q)   5/23/2020     4,000     3,928     4,039     0.43 %

Transtar Holding Company

                                     

Distribution & Logistics

  Second lien(3)   13.50% (P + 9.75%/Q)(8)   10/9/2019     36,112     3,155     2,167        

  Second lien(2)   13.50% (P + 9.75%/Q)(8)   10/9/2019     28,300     28,011     1,698        

                64,412     31,166     3,865     0.41 %

   

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

F-10


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2016

(in thousands, except shares)


Portfolio Company, Location and Industry(1)
  Type of Investment     Interest Rate(9)     Maturity/
Expiration
Date
 
  Principal
Amount,
Par Value
or Shares
 
  Cost     Fair
Value
 
  Percent
of Net
Assets
 
 

York Risk Services Holding Corp.

                                     

Business Services

  Subordinated(3)   8.50%/S   10/1/2022   $ 3,000   $ 3,000   $ 2,520     0.27 %

Ensemble S Merger Sub, Inc.

                                     

Software

  Subordinated(3)   9.00%/S   9/30/2023     2,000     1,939     2,135     0.23 %

Education Management Corporation(19)

                                     

Education Management II LLC

                                     

Education

  First lien(2)   5.50% (L + 4.50%/Q)   7/2/2020     250     239     61        

  First lien(3)   5.50% (L + 4.50%/Q)   7/2/2020     141     136     35        

  First lien(2)   8.50% (L + 1.00% + 6.50% PIK/Q)*   7/2/2020     467     416     22        

  First lien(3)   8.50% (L + 1.00% + 6.50% PIK/Q)*   7/2/2020     263     235     12        

                1,121     1,026     130     0.01 %

Total Funded Debt Investments — United States

              $ 1,339,099   $ 1,290,033   $ 1,261,394     134.41 %

Total Funded Debt Investments

              $ 1,420,445   $ 1,369,904   $ 1,330,845     141.80 %

Equity — United States

                                     

Tenawa Resource Holdings LLC(13)

                                     

QID NGL LLC

                                     

Energy

  Ordinary shares(7)         5,290,997   $ 5,291   $ 6,434     0.69 %

TWDiamondback Holdings Corp.(15)

                                     

Distribution & Logistics

  Preferred shares(4)         200     2,000     2,664     0.28 %

TW-NHME Holdings Corp.(20)

                                     

Healthcare Services

  Preferred shares(4)         100     1,000     1,497        

  Preferred shares(4)         16     158     236        

  Preferred shares(4)         6     68     91        

                      1,226     1,824     0.19 %

Ancora Acquisition LLC

                                     

Education

  Preferred shares(6)         372     83     393     0.04 %

Education Management Corporation(19)

                                     

Education

  Preferred shares(2)         3,331     200     1        

  Preferred shares(3)         1,879     113     1        

  Ordinary shares(2)         2,994,065     100     18        

  Ordinary shares(3)         1,688,976     56     10        

                      469     30     %

Total Shares — United States

                    $ 9,069   $ 11,345     1.20 %

Warrants — United States

                                     

YP Holdings LLC / Print Media Holdings LLC(12)

                                     

YP Equity Investors LLC

                                     

Media

  Warrants(5)     5/8/2022     5   $   $ 2,966     0.32 %

IT'SUGAR LLC

                                     

Retail

  Warrants(3)     10/23/2025     94,672     817     549     0.06 %

ASP LCG Holdings, Inc.

                                     

Education

  Warrants(3)     5/5/2026     622     37     949     0.10 %

Ancora Acquisition LLC

                                     

Education

  Warrants(6)     8/12/2020     20             %

Total Warrants — United States

                    $ 854   $ 4,464     0.48 %

Total Funded Investments

                    $ 1,379,827   $ 1,346,654     143.48 %

   

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

F-11


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2016

(in thousands, except shares)


Portfolio Company, Location and Industry(1)
  Type of Investment     Interest Rate(9)     Maturity/
Expiration
Date
 
  Principal
Amount,
Par Value
or Shares
 
  Cost     Fair
Value
 
  Percent
of Net
Assets
 
 

Unfunded Debt Investments — United States

                                     

Mister Car Wash Holdings, Inc.

                                     

Consumer Services

  First lien(3)(11) — Undrawn     12/14/2017   $ 1,667   $ (13 ) $ 8     %

DCA Investment Holding, LLC

                                     

Healthcare Services

  First lien(3)(11) — Undrawn     7/2/2021     1,348     (13 )       %

iPipeline, Inc. (Internet Pipeline, Inc.)

                                     

Software

  First lien(3)(11) — Undrawn     8/4/2021     1,000     (10 )       %

Valet Waste Holdings, Inc.

                                     

Business Services

  First lien(3)(11) — Undrawn     9/24/2021     1,500     (19 )       %

VetCor Professional Practices LLC

                                     

Consumer Services

  First lien(3)(11) — Undrawn     4/20/2021     2,700     (27 )          

  First lien(4)(11) — Undrawn     3/30/2018     127     (3 )          

  First lien(2)(11) — Undrawn     6/22/2018     1,644     (33 )          

                4,471     (63 )       %

Weston Solutions, Inc.

                                     

Business Services

  First lien(3)(11) — Undrawn     12/31/2020     10,000             %

Zywave, Inc.

                                     

Software

  First lien(3)(11) — Undrawn     11/17/2022     2,000     (15 )   (15 )   %

Ansira Holdings, Inc.

                                     

Business Services

  First lien(3)(11) — Undrawn     12/20/2018     3,818     (19 )   (19 )   %

Marketo, Inc.

                                     

Software

  First lien(3)(11) — Undrawn     8/16/2021     1,788     (27 )   (27 )   %

Ministry Brands, LLC

                                     

Software

  First lien(3)(11) — Undrawn     12/2/2022     650     (3 )   (3 )      

  First lien(3)(11) — Undrawn     12/2/2017     5,169     (26 )   (26 )      

  Second lien(3)(11) — Undrawn     12/2/2017     2,160     (16 )   (16 )      

                7,979     (45 )   (45 )   (0.01 )%

Total Unfunded Debt Investments — United States

              $ 35,571     (224 ) $ (98 )   (0.01 )%

Total Non-Controlled/Non-Affiliated Investments

                    $ 1,379,603   $ 1,346,556     143.47 %

Non-Controlled/Affiliated Investments(21)

                                     

Funded Debt Investments — United States

                                     

Edmentum Ultimate Holdings, LLC(16)

                                     

Education

  Subordinated(3)   8.50% PIK/Q*   6/9/2020   $ 4,124   $ 4,118   $ 4,124        

  Subordinated(2)   10.00% PIK/Q*   6/9/2020     15,163     15,163     12,814        

  Subordinated(3)   10.00% PIK/Q*   6/9/2020     3,730     3,730     3,152        

                23,017     23,011     20,090     2.14 %

Permian Holdco 1, Inc.(10)

                                     

Permian Holdco 2, Inc.

                                     

Energy

  Subordinated(3)   14.00% PIK/Q*   10/15/2021     1,749     1,749     1,749     0.19 %

Total Funded Debt Investments — United States

              $ 24,766   $ 24,760   $ 21,839     2.33 %

   

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

F-12


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2016

(in thousands, except shares)

Portfolio Company, Location and Industry(1)
  Type of Investment     Interest Rate(9)     Maturity/
Expiration
Date
 
  Principal
Amount,
Par Value
or Shares
 
  Cost     Fair
Value
 
  Percent
of Net
Assets
 
 

Equity — United States

                                     

NMFC Senior Loan Program I LLC**

                                     

Investment Fund

  Membership interest(3)           $ 23,000   $ 23,000     2.45 %

Permian Holdco 1, Inc.(10)

                                     

Energy

  Preferred shares(3)(17)         1,394,237     5,866     7,668        

  Ordinary shares(3)         1,366,452     1,350     1,776        

                      7,216     9,444     1.00 %

Edmentum Ultimate Holdings, LLC(16)

                                     

Education

  Ordinary shares(3)         123,968     11     1,693        

  Ordinary shares(2)         107,143     9     1,464        

                      20     3,157     0.34 %

Total Shares — United States

                    $ 30,236   $ 35,601     3.79 %

Unfunded Debt Investments — United States

                                     

Edmentum Ultimate Holdings, LLC(16)

                                     

Edmentum, Inc. (fka Plato, Inc.) (Archipelago Learning, Inc.)

                                     

Education

  Second lien(3)(11) — Undrawn     6/9/2020   $ 4,881   $   $     %

Permian Holdco 1, Inc.(10)

                                     

Permian Holdco 2, Inc.

                                     

Energy

  Subordinated(3)(11) — Undrawn     10/15/2021     1,025             %

Total Unfunded Debt Investments — United States

              $ 5,906   $   $     %

Total Non-Controlled/Affiliated Investments

                    $ 54,996   $ 57,440     6.12 %

Controlled Investments(22)

                                     

Funded Debt Investments — United States

                                     

UniTek Global Services, Inc.

                                     

Business Services

  First lien(2)   8.50% (L + 7.50%/Q)   1/13/2019   $ 10,846   $ 10,846   $ 11,063        

  First lien(2)   9.50% (L + 7.50% + 1.00% PIK/Q)*   1/13/2019     4,784     4,784     4,879        

  Subordinated(2)   15.00% PIK/Q*   7/13/2019     1,726     1,726     1,760        

  Subordinated(3)   15.00% PIK/Q*   7/13/2019     1,032     1,032     1,054        

                18,388     18,388     18,756     2.00 %

Total Funded Debt Investments — United States

              $ 18,388   $ 18,388   $ 18,756     2.00 %

Equity — United States

                                     

NMFC Senior Loan Program II LLC**

                                     

Investment Fund

  Membership interest(3)           $ 71,460   $ 71,460     7.61 %

UniTek Global Services, Inc.

                                     

Business Services

  Preferred shares(2)(18)         19,048,426     16,668     17,207        

  Preferred shares(3)(18)         5,264,079     4,606     4,755        

  Ordinary shares(2)         2,096,477     1,925     12,256        

  Ordinary shares(3)         579,366     532     3,387        

                      23,731     37,605     4.01 %

New Mountain Net Lease Corporation

                                     

Net Lease

  Ordinary shares(3)         270,000     27,000     27,000     2.88 %

Total Shares — United States

                    $ 122,191   $ 136,065     14.50 %

Total Funded Investments

                    $ 140,579   $ 154,821     16.50 %

   

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

F-13


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2016

(in thousands, except shares)

Portfolio Company, Location and Industry(1)
  Type of Investment     Interest Rate(9)     Maturity/
Expiration
Date
 
  Principal
Amount,
Par Value
or Shares
 
  Cost     Fair
Value
 
  Percent
of Net
Assets
 
 

Unfunded Debt Investments — United States

                                     

UniTek Global Services, Inc.

                                     

Business Services

  First lien(3)(11) — Undrawn     1/13/2019   $ 2,048   $   $        

  First lien(3)(11) — Undrawn     1/13/2019     758                

                2,806             %

Total Unfunded Debt Investments — United States

              $ 2,806   $   $     %

Total Controlled Investments

                    $ 140,579   $ 154,821     16.50 %

Total Investments

                    $ 1,575,178   $ 1,558,817     166.09 %

(1)
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.

(2)
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.

(3)
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, Morgan Stanley Bank, N.A. and Stifel Bank & Trust as Lenders. See Note 7. Borrowings, for details.

(4)
Investment is held in New Mountain Finance SBIC, L.P.

(5)
Investment is held in NMF YP Holdings, Inc.

(6)
Investment is held in NMF Ancora Holdings, Inc.

(7)
Investment is held in NMF QID NGL Holdings, Inc.

(8)
Investment or a portion of the investment is on non-accrual status. See Note 3. Investments, for details.

(9)
All interest is payable in cash unless otherwise indicated. A majority of the variable rate debt investments bear interest at a rate that may be determined by reference to the London Interbank Offered Rate (L), the Prime Rate (P) and the alternative base rate (Base) and which resets monthly (M), quarterly (Q), semi-annually (S) or annually (A). For each investment the current interest rate provided reflects the rate in effect as of December 31, 2016.

(10)
The Company holds preferred and common equity in Permian Holdco 1, Inc., as well as subordinated notes in Permian Holdco 2, Inc., a wholly-owned subsidiary of Permian Holdco 1, Inc.

(11)
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.

(12)
The Company holds investments in three related entities of YP Holdings LLC/Print Media 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 and Print Media LLC, wholly-owned subsidiaries of YP Holdings LLC and Print Media Holdings LLC, respectively.

   

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

F-14


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2016

(in thousands, except shares)

(13)
The Company holds investments in two related entities of Tenawa Resource Holdings LLC. The Company holds 4.77% 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.

(14)
The Company holds investments in QC McKissock Investment, LLC and one related entity of QC McKissock Investment, LLC. The Company holds a first lien term loan in QC McKissock Investment, LLC (which at closing represented 71.1% of the ownership in the Series A common units of McKissock Investment Holdings, LLC) and holds a first lien term loan and a delayed draw term loan in McKissock, LLC, a wholly-owned subsidiary of McKissock Investment Holdings, LLC.

(15)
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.

(16)
The Company holds investments in Edmentum Ultimate Holdings, LLC and its related entities. The Company holds subordinated notes and ordinary equity in Edmentum Ultimate Holdings, LLC and holds a second lien revolver in Edmentum, Inc. and Archipelago Learning, Inc., which are wholly-owned subsidiaries of Edmentum Ultimate Holdings, LLC.

(17)
The Company holds preferred equity in Permian Holdco 1, Inc. that is entitled to receive cumulative preferential dividends at a rate of 12.0% per annum payable in additional shares.

(18)
The Company holds preferred equity in UniTek Global Services, Inc. that is entitled to receive cumulative preferential dividends at a rate of 13.5% per annum payable in additional shares.

(19)
The Company holds investments in Education Management Corporation and one related entity of Education Management Corporation. The Company holds series A-1 convertible preferred stock and common stock in Education Management Corporation and holds a tranche A first lien term loan and a tranche B first lien term loan in Education Management II LLC, which is an indirect subsidiary of Education Management Corporation.

(20)
The Company holds an equity investment in TW-NHME Holdings Corp., as well as a second lien term loan investment in National HME, Inc., a wholly-owned subsidiary of TW-NHME Holdings Corp.

(21)
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. Fair value as of December 31, 2015 and December 31, 2016 along with transactions during the year ended December 31, 2016 in which the issuer was a non-controlled/affiliated investment is as follows:

Portfolio Company(1)
  Fair
Value at
December 31,
2015
 
  Gross
Additions(A)
 
  Gross
Redemptions(B)
 
  Net
Realized
Gains
(Losses)
 
  Net
Change In
Unrealized
Appreciation
(Depreciation)
 
  Fair
Value at
December 31,
2016
 
  Interest
Income
 
  Dividend
Income
 
  Other
Income
 
 

Edmentum Ultimate Holdings, LLC/Edmentum Inc. 

  $ 22,782   $ 6,147   $ (4,002 ) $   $ (1,680 ) $ 23,247   $ 2,254   $   $  

NMFC Senior Loan Program I LLC

    21,914                 1,086     23,000         3,728     1,163  

Permian Holdco 1, Inc. / Permian Holdco 2, Inc. 

        8,965             2,228     11,193     41     156     5  

Tenawa Resource Holdings LLC

    42,591     16     (42,288 )       (319 )       2,243         25  

Total Non-Controlled/Affiliated Investments

  $ 87,287   $ 15,128   $ (46,290 ) $   $ 1,315   $ 57,440   $ 4,538   $ 3,884   $ 1,193  

(A)
Gross additions include increases in the cost basis of investments resulting from new portfolio investments, payment-in-kind ("PIK") interest or dividends, the amortization of discounts, reorganizations or restructurings and the movement at fair value of an existing portfolio company into this category from a different category.

   

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

F-15


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2016

(in thousands, except shares)

(B)
Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, reorganizations or restructurings and the movement of an existing portfolio company out of this category into a different category.
(22)
Denotes investments in which the Company is in "Control", as defined in the Investment Company Act of 1940, as amended, due to owning or holding the power to vote 25.0% or more of the outstanding voting securities of the investment. Fair value as of December 31, 2015 and December 31, 2016 along with transactions during the year ended December 31, 2016 in which the issuer was a controlled investment is as follows:

Portfolio Company(1)
  Fair
Value at
December 31,
2015
 
  Gross
Additions(A)
 
  Gross
Redemptions(B)
 
  Net
Realized
Gains
(Losses)
 
  Net
Change In
Unrealized
Appreciation
(Depreciation)
 
  Fair
Value at
December 31,
2016
 
  Interest
Income
 
  Dividend
Income
 
  Other
Income
 
 

New Mountain Net Lease Corporation

  $   $ 27,000   $   $   $   $ 27,000   $   $ 540   $  

NMFC Senior Loan Program II LLC

        71,460                 71,460         3,533      

UniTek Global Services, Inc. 

    47,422     3,464     (2,599 )       8,074     56,361     1,904     3,023     558  

Total Controlled Investments

  $ 47,422   $ 101,924   $ (2,599 ) $   $ 8,074   $ 154,821   $ 1,904   $ 7,096   $ 558  

(A)
Gross additions include increases in the cost basis of investments resulting from new portfolio investments, PIK interest or dividends, the amortization of discounts, reorganizations or restructurings and the movement at fair value of an existing portfolio company into this category from a different category.

(B)
Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, reorganizations or restructurings and the movement of an existing portfolio company out of this category into a different category.
*
All or a portion of interest contains PIK interest.

**
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. As of December 31, 2016, 9.9% of the Company's total assets were non-qualifying assets.

   

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

F-16


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2016

Investment Type
    December 31, 2016
Percent of Total
Investments at Fair Value
 

First lien

    44.94 %

Second lien

    38.76 %

Subordinated

    4.27 %

Equity and other

    12.03 %

Total investments

    100.00 %

 

Industry Type
    December 31, 2016
Percent of Total
Investments at Fair Value
 

Business Services

    29.64 %

Software

    27.00 %

Consumer Services

    6.82 %

Investment Fund

    6.06 %

Education

    6.04 %

Energy

    4.82 %

Healthcare Services

    4.61 %

Distribution & Logistics

    3.96 %

Federal Services

    3.86 %

Net Lease

    1.73 %

Business Products

    1.60 %

Media

    1.55 %

Retail

    1.35 %

Healthcare Information Technology

    0.96 %

Total investments

    100.00 %

 

Interest Rate Type
    December 31, 2016
Percent of Total
Investments at Fair Value
 

Floating rates

    93.16 %

Fixed rates

    6.84 %

Total investments

    100.00 %

   

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

F-17


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments

December 31, 2015

(in thousands, except shares)

Portfolio Company, Location and
Industry(1)
  Type of Investment     Interest Rate(10)     Maturity/
Expiration
Date
 
  Principal
Amount,
Par Value
or Shares
 
  Cost     Fair
Value
 
  Percent
of Net
Assets
 
 

Non-Controlled/Non-Affiliated Investments

                                     

Funded Debt Investments — Australia

                                     

Project Sunshine IV Pty Ltd**

                                     

Media

  First lien(2)   8.00% (L + 7.00%/M)   9/23/2019   $ 10,800   $ 10,752   $ 10,314     1.23 %

Total Funded Debt Investments — Australia

              $ 10,800   $ 10,752   $ 10,314     1.23 %

Funded Debt Investments — Luxembourg

                                     

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

                                     

Software

  Second lien(2)   10.50% (L + 9.25%/Q)   7/30/2020   $ 24,630   $ 24,339   $ 19,581        

  Second lien(3)   10.50% (L + 9.25%/Q)   7/30/2020     8,204     8,324     6,522        

                32,834     32,663     26,103     3.12 %

Total Funded Debt Investments — Luxembourg

              $ 32,834   $ 32,663   $ 26,103     3.12 %

Funded Debt Investments — Netherlands

                                     

Eiger Acquisition B.V. (Eiger Co-Borrower, LLC)**

                                     

Software

  Second lien(3)   10.13% (L + 9.13%/Q)   2/17/2023   $ 10,000   $ 9,303   $ 9,049     1.08 %

Total Funded Debt Investments — Netherlands

              $ 10,000   $ 9,303   $ 9,049     1.08 %

Funded Debt Investments — United Kingdom

                                     

Air Newco LLC**

                                     

Software

  Second lien(3)   10.50% (L + 9.50%/Q)   1/31/2023   $ 32,500   $ 31,736   $ 31,363     3.75 %

Total Funded Debt Investments — United Kingdom

              $ 32,500   $ 31,736   $ 31,363     3.75 %

Funded Debt Investments — United States

                                     

Deltek, Inc.

                                     

Software

  Second lien(3)   9.50% (L + 8.50%/Q)   6/26/2023   $ 21,000   $ 20,972   $ 20,948        

  Second lien(2)   9.50% (L + 8.50%/Q)   6/26/2023     20,000     19,619     19,950        

                41,000     40,591     40,898     4.89 %

TIBCO Software Inc.

                                     

Software

  First lien(2)   6.50% (L + 5.50%/M)   12/4/2020     29,775     28,508     27,021        

  Subordinated(3)   11.38%/S   12/1/2021     15,000     14,611     12,600        

                44,775     43,119     39,621     4.73 %

AssuredPartners, Inc.

                                     

Business Services

  Second lien(2)   10.00% (L + 9.00%/Q)   10/20/2023     20,000     19,212     19,600        

  Second lien(3)   10.00% (L + 9.00%/Q)   10/20/2023     20,000     19,212     19,600        

                40,000     38,424     39,200     4.68 %

Kronos Incorporated

                                     

Software

  Second lien(2)   9.75% (L + 8.50%/Q)   4/30/2020     32,641     32,443     32,546        

  Second lien(3)   9.75% (L + 8.50%/Q)   4/30/2020     5,000     4,961     4,985        

                37,641     37,404     37,531     4.48 %

Hill International, Inc.

                                     

Business Services

  First lien(2)   7.75% (L + 6.75%/Q)   9/28/2020     37,056     36,752     36,779     4.39 %

ProQuest LLC

                                     

Business Services

  Second lien(3)   10.00% (L + 9.00%/M)   12/15/2022     35,000     34,302     34,300     4.10 %

   

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

F-18


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2015

(in thousands, except shares)

Portfolio Company, Location and
Industry(1)
  Type of Investment     Interest Rate(10)     Maturity/
Expiration
Date
 
  Principal
Amount,
Par Value
or Shares
 
  Cost     Fair
Value
 
  Percent
of Net
Assets
 
 

Navex Global, Inc.

                                     

Software

  First lien(4)   5.75% (L + 4.75%/Q)   11/19/2021   $ 4,610   $ 4,570   $ 4,471        

  First lien(2)   5.75% (L + 4.75%/Q)   11/19/2021     2,610     2,587     2,531        

  Second lien(4)   9.75% (L + 8.75%/Q)   11/18/2022     17,879     17,683     17,343        

  Second lien(3)   9.75% (L + 8.75%/Q)   11/18/2022     10,121     10,001     9,817        

                35,220     34,841     34,162     4.08 %

Ascend Learning, LLC

                                     

Education

  Second lien(3)   9.50% (L + 8.50%/Q)   11/30/2020     34,727     34,352     33,077     3.95 %

CRGT Inc.

                                     

Federal Services

  First lien(2)   7.50% (L + 6.50%/Q)   12/19/2020     33,261     33,030     32,928     3.93 %

Physio-Control International, Inc.

                                     

Healthcare Products

  Second lien(2)   10.00% (L + 9.00%/Q)   6/5/2023     30,000     29,426     27,451        

  Second lien(3)   10.00% (L + 9.00%/Q)   6/5/2023     4,000     3,703     3,660        

                34,000     33,129     31,111     3.72 %

Valet Waste Holdings, Inc.

                                     

Business Services

  First lien(2)   8.00% (L + 7.00%/Q)   9/24/2021     29,925     29,564     29,505        

  First lien(3)(11) — Drawn   8.00% (L + 7.00%/Q)   9/24/2021     1,500     1,481     1,479        

                31,425     31,045     30,984     3.70 %

Rocket Software, Inc.

                                     

Software

  Second lien(2)   10.25% (L + 8.75%/Q)   2/8/2019     30,875     30,781     30,759     3.68 %

TASC, Inc.

                                     

Federal Services

  First lien(2)   7.00% (L + 6.00%/Q)   5/22/2020     28,314     28,001     28,396        

  Second lien(3)   12.00%/Q   5/21/2021     2,000     1,964     2,062        

                30,314     29,965     30,458     3.64 %

Pittsburgh Glass Works, LLC(24)

                                     

Manufacturing

  First lien(2)   10.13% (L + 9.13%/M)   11/25/2021     30,000     29,852     29,850     3.57 %

Integro Parent Inc.

                                     

Business Services

  First lien(2)   6.75% (L + 5.75%/Q)   10/31/2022     17,370     17,029     16,980        

  First lien(2)   6.75% (L + 5.75%/M)   10/31/2022     2,630     2,578     2,570        

  Second lien(3)   10.25% (L + 9.25%/Q)   10/30/2023     10,000     9,901     9,625        

                30,000     29,508     29,175     3.49 %

CompassLearning, Inc.(15)

                                     

Education

  First lien(2)   8.00% (L + 6.75%/Q)   11/26/2018     30,000     29,531     28,471     3.40 %

Ryan, LLC

                                     

Business Services

  First lien(2)   6.75% (L + 5.75%/M)   8/7/2020     27,300     26,918     26,583     3.18 %

McGraw-Hill Global Education Holdings, LLC

                                     

Education

  First lien(2)(9)   9.75%/S   4/1/2021     24,500     24,378     26,093     3.12 %

KeyPoint Government Solutions, Inc.

                                     

Federal Services

  First lien(2)   7.75% (L + 6.50%/M)   11/13/2017     25,876     25,636     25,747     3.08 %

DigiCert Holdings, Inc.

                                     

Software

  First lien(2)   6.00% (L + 5.00%/Q)   10/21/2021     25,000     24,268     24,375     2.91 %

Pelican Products, Inc.

                                     

Business Products

  Second lien(3)   9.25% (L + 8.25%/Q)   4/9/2021     15,500     15,519     14,764        

  Second lien(2)   9.25% (L + 8.25%/Q)   4/9/2021     10,000     10,115     9,524        

                25,500     25,634     24,288     2.90 %

Confie Seguros Holding II Co.

                                     

Consumer Services

  Second lien(2)   10.25% (L + 9.00%/M)   5/8/2019     18,886     18,789     18,673        

  Second lien(3)   10.25% (L + 9.00%/M)   5/8/2019     5,571     5,648     5,508        

                24,457     24,437     24,181     2.89 %

   

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

F-19


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2015

(in thousands, except shares)

Portfolio Company, Location and
Industry(1)
  Type of Investment     Interest Rate(10)     Maturity/
Expiration
Date
 
  Principal
Amount,
Par Value
or Shares
 
  Cost     Fair
Value
 
  Percent
of Net
Assets
 
 

AAC Holding Corp.

                                     

Education

  First lien(2)   8.25% (L + 7.25%/M)   9/30/2020   $ 25,000   $ 24,640   $ 24,110     2.88 %

Transtar Holding Company

                                     

Distribution & Logistics

  Second lien(2)   10.00% (L + 8.75%/Q)   10/9/2019     28,300     27,974     23,630     2.82 %

PetVet Care Centers LLC

                                     

Consumer Services

  Second lien(3)   9.75% (L + 8.75%/Q)   6/17/2021     24,000     23,789     23,149     2.77 %

EN Engineering, L.L.C.

                                     

Business Services

  First lien(2)   7.00% (L + 6.00%/Q)   6/30/2021     21,321     21,121     20,554        

  First lien(2)(11) — Drawn   8.50% (P + 5.00%/Q)   6/30/2021     1,223     1,211     1,179        

                22,544     22,332     21,733     2.60 %

Aricent Technologies

                                     

Business Services

  Second lien(2)   9.50% (L + 8.50%/M)   4/14/2022     20,000     19,881     19,133        

  Second lien(3)   9.50% (L + 8.50%/M)   4/14/2022     2,550     2,558     2,440        

                22,550     22,439     21,573     2.58 %

McGraw-Hill School Education Holdings, LLC

                                     

Education

  First lien(2)   6.25% (L + 5.00%/M)   12/18/2019     21,560     21,408     21,237     2.54 %

VetCor Professional Practices LLC

                                     

Consumer Services

  First lien(4)   7.00% (L + 6.00%/Q)   4/20/2021     19,502     19,324     19,254        

  First lien(4)(11) — Drawn   7.00% (L + 6.00%/Q)   4/20/2021     1,753     1,736     1,731        

                21,255     21,060     20,985     2.51 %

IT'SUGAR LLC

                                     

Retail

  First lien(4)   10.50% (L + 9.50%/Q)   10/23/2019     21,000     20,215     20,183     2.41 %

Weston Solutions, Inc.

                                     

Business Services

  Subordinated(4)   16.00%/Q   7/3/2019     20,000     20,000     19,430     2.32 %

TWDiamondback Holdings Corp.(18)

                                     

Diamondback Drugs of Delaware, L.L.C.

                                     

(TWDiamondback II Holdings LLC)

                                     

Distribution & Logistics

  First lien(4)   9.75% (L + 8.75%/Q)   11/19/2019     19,895     19,895     19,117     2.28 %

Severin Acquisition, LLC

                                     

Software

  Second lien(4)   9.25% (L + 8.25%/Q)   7/29/2022     15,000     14,857     14,272        

  Second lien(4)   9.75% (L + 8.75%/Q)   7/29/2022     4,154     4,113     4,112        

                19,154     18,970     18,384     2.20 %

First American Payment Systems, L.P.

                                     

Business Services

  Second lien(2)   10.75% (L + 9.50%/M)   4/12/2019     18,643     18,423     18,362     2.20 %

DCA Investment Holding, LLC

                                     

Healthcare Services

  First lien(2)   6.25% (L + 5.25%/Q)   7/2/2021     17,811     17,645     17,632        

  First lien(3)(11) — Drawn   7.75% (P + 4.25%/Q)   7/2/2021     53     52     52        

                17,864     17,697     17,684     2.11 %

YP Holdings LLC / Print Media Holdings LLC(12)

                                     

YP LLC / Print Media LLC

                                     

Media

  First lien(2)   8.00% (L + 6.75%/M)   6/4/2018     18,320     18,182     17,679     2.11 %

iPipeline, Inc. (Internet Pipeline, Inc.)

                                     

Software

  First lien(4)   8.25% (L + 7.25%/Q)   8/4/2022     17,955     17,783     17,550     2.10 %

AgKnowledge Holdings Company, Inc.

                                     

Business Services

  Second lien(2)   9.25% (L + 8.25%/M)   7/23/2020     18,500     18,352     17,066     2.04 %

Vertafore, Inc.

                                     

Software

  Second lien(2)   9.75% (L + 8.25%/M)   10/27/2017     13,855     13,848     13,844        

  Second lien(3)   9.75% (L + 8.25%/M)   10/27/2017     2,000     2,016     1,999        

                15,855     15,864     15,843     1.89 %

   

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

F-20


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2015

(in thousands, except shares)

Portfolio Company, Location and
Industry(1)
  Type of Investment     Interest Rate(10)     Maturity/
Expiration
Date
 
  Principal
Amount,
Par Value
or Shares
 
  Cost     Fair
Value
 
  Percent
of Net
Assets
 
 

GSDM Holdings Corp.

                                     

Healthcare Services

  Subordinated(4)   10.00%/M   6/23/2020   $ 15,000   $ 14,880   $ 15,000     1.79 %

MailSouth, Inc. (d/b/a Mspark)

                                     

Media

  First lien(2)   6.75% (L + 5.00%/Q)   12/14/2016     14,998     14,736     14,586     1.74 %

TW-NHME Holdings Corp.(23)

                                     

National HME, Inc.

                                     

Healthcare Services

  Second lien(4)   10.25% (L + 9.25%/Q)   7/14/2022     14,000     13,833     13,825     1.65 %

Sierra Hamilton LLC / Sierra Hamilton Finance, Inc.

                                     

Energy

  First lien(2)   12.25%/S   12/15/2018     25,000     25,000     12,251        

  First lien(3)   12.25%/S   12/15/2018     2,660     2,064     1,302        

                27,660     27,064     13,553     1.62 %

Vision Solutions, Inc.

                                     

Software

  Second lien(2)   9.50% (L + 8.00%/M)   7/23/2017     14,000     13,978     12,740     1.52 %

SW Holdings, LLC

                                     

Business Services

  Second lien(4)   9.75% (L + 8.75%/Q)   12/30/2021     13,500     13,373     12,701     1.52 %

Poseidon Intermediate, LLC

                                     

Software

  Second lien(2)   9.50% (L + 8.50%/Q)   8/15/2023     13,000     12,811     12,427     1.49 %

American Tire Distributors, Inc.

                                     

Distribution & Logistics

  Subordinated(3)   10.25%/S   3/1/2022     13,000     12,798     11,960     1.43 %

PowerPlan Holdings, Inc.

                                     

Software

  Second lien(2)   10.75% (L + 9.75%/M)   2/23/2023     10,000     9,907     9,573     1.14 %

Permian Tank & Manufacturing, Inc.

                                     

Energy

  First lien(2)   10.50%/S   1/15/2018     24,357     24,493     9,377     1.12 %

TTM Technologies, Inc.**

                                     

Business Products

  First lien(2)   6.00% (L + 5.00%/Q)   5/31/2021     9,980     9,554     9,132     1.09 %

Smile Brands Group Inc.

                                     

Healthcare Services

  First lien(2)   9.00% (L + 6.25% +
1.50% PIK/Q)*
  8/16/2019     12,204     12,091     8,878     1.06 %

Harley Marine Services, Inc.

                                     

Distribution & Logistics

  Second lien(2)   10.50% (L + 9.25%/Q)   12/20/2019     9,000     8,868     8,865     1.06 %

QC McKissock Investment, LLC(17)

                                     

McKissock, LLC

                                     

Education

  First lien(2)   7.50% (L + 6.50%/Q)   8/5/2019     4,875     4,838     4,707        

  First lien(2)   7.50% (L + 6.50%/Q)   8/5/2019     3,148     3,124     3,039        

  First lien(2)(11) — Drawn   7.50% (L + 6.50%/Q)   8/5/2019     1,016     1,007     981        

                9,039     8,969     8,727     1.04 %

Greenway Health, LLC (fka Vitera Healthcare Solutions, LLC)

                                     

Software

  First lien(2)   6.00% (L + 5.00%/Q)   11/4/2020     1,960     1,946     1,877        

  Second lien(2)   9.25% (L + 8.25%/Q)   11/4/2021     7,000     6,917     6,720        

                8,960     8,863     8,597     1.03 %

Novitex Acquisition, LLC (fka ARSloane Acquisition, LLC)

                                     

Business Services

  First lien(2)   7.50% (L + 6.25%/Q)   7/7/2020     7,242     7,064     6,807     0.81 %

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

                                     

Federal Services

  First lien(2)   9.00% (L + 7.50%/M)   4/21/2017     6,859     6,828     6,344     0.76 %

Brock Holdings III, Inc.

                                     

Industrial Services

  Second lien(2)   10.00% (L + 8.25%/Q)   3/16/2018     7,000     6,953     5,443     0.65 %

Packaging Coordinators, Inc.(13)

                                     

Healthcare Products

  Second lien(3)   9.00% (L + 8.00%/Q)   8/1/2022     5,000     4,957     4,925     0.59 %

Immucor, Inc.

                                     

Healthcare Services

  Subordinated(2)(9)   11.13%/S   8/15/2019     5,000     4,963     4,575     0.55 %

   

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

F-21


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2015

(in thousands, except shares)

Portfolio Company, Location and
Industry(1)
  Type of Investment     Interest Rate(10)     Maturity/
Expiration
Date
 
  Principal
Amount,
Par Value
or Shares
 
  Cost     Fair
Value
 
  Percent
of Net
Assets
 
 

GCA Services Group, Inc.

                                     

Business Services

  Second lien(3)   9.25% (L + 8.00%/Q)   11/2/2020   $ 4,000   $ 3,973   $ 3,950     0.47 %

York Risk Services Holding Corp.

                                     

Business Services

  Subordinated(3)   8.50%/S   10/1/2022     3,000     3,000     2,471     0.30 %

Synarc-Biocore Holdings, LLC

                                     

Healthcare Services

  Second lien(3)   9.25% (L + 8.25%/Q)   3/10/2022     2,500     2,479     2,313     0.28 %

Ensemble S Merger Sub, Inc.

                                     

Software

  Subordinated(3)   9.00%/S   9/30/2023     2,000     1,933     1,940     0.23 %

Education Management Corporation(22)

                                     

Education Management II LLC

                                     

Education

  First lien(2)   5.50% (L + 4.50%/Q)   7/2/2020     250     238     69        

  First lien(3)   5.50% (L + 4.50%/Q)   7/2/2020     141     134     39        

  First lien(2)   8.50% (L + 1.00% +
6.50% PIK/Q)*
  7/2/2020     437     375     46        

  First lien(3)   8.50% (L + 1.00% +
6.50% PIK/Q)*
  7/2/2020     247     212     26        

                1,075     959     180     0.02 %

ATI Acquisition Company (fka Ability Acquisition, Inc.)(14)

                                     

Education

  First lien(2)   17.25% (P + 10.00% +
4.00% PIK/Q)(8)*
  6/30/2012 —
Past Due
    1,665     1,434            

  First lien(2)   17.25% (P + 10.00% +
4.00% PIK/Q)(8)*
  6/30/2012 —
Past Due
    103     94            

                1,768     1,528         %

Total Funded Debt Investments — United States

              $ 1,314,464   $ 1,297,775   $ 1,237,175     147.83 %

Total Funded Debt Investments

              $ 1,400,598   $ 1,382,229   $ 1,314,004     157.01 %

Equity — United Kingdom

                                     

Packaging Coordinators, Inc.(13)

                                     

PCI Pharma Holdings UK Limited**

                                     

Healthcare Products

  Ordinary shares(2)         19,427   $ 578   $ 1,612     0.19 %

Total Shares — United Kingdom

                    $ 578   $ 1,612     0.19 %

Equity — United States

                                     

Crowley Holdings Preferred, LLC

                                     

Distribution & Logistics

  Preferred shares(3)(20)   12.00% (10.00% +
2.00% PIK/Q)*
      52,058   $ 51,518   $ 51,911     6.20 %

TWDiamondback Holdings Corp.(18)

                                     

Distribution & Logistics

  Preferred shares(4)         200     2,000     2,000     0.24 %

TW-NHME Holdings Corp.(23)

                                     

Healthcare Services

  Preferred shares(4)         100     1,000     1,000     0.12 %

Ancora Acquisition LLC(14)

                                     

Education

  Preferred shares(6)         372     83     393     0.05 %

Education Management Corporation(22)

                                     

Education

  Preferred shares(2)         3,331     200     10        

  Preferred shares(3)         1,879     113     5        

  Ordinary shares(2)         2,994,065     100     202        

  Ordinary shares(3)         1,688,976     56     114        

                      469     331     0.04 %

Total Shares — United States

                    $ 55,070   $ 55,635     6.65 %

Total Shares

                    $ 55,648   $ 57,247     6.84 %

   

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

F-22


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2015

(in thousands, except shares)

Portfolio Company, Location and
Industry(1)
  Type of Investment     Interest Rate(10)     Maturity/
Expiration
Date
 
  Principal
Amount,
Par Value
or Shares
 
  Cost     Fair
Value
 
  Percent
of Net
Assets
 
 

Warrants — United States

                                     

YP Holdings LLC / Print Media Holdings LLC(12)

                                     

YP Equity Investors, LLC

                                     

Media

  Warrants(5)     5/8/2022     5   $   $ 5,304     0.63 %

IT'SUGAR LLC

                                     

Retail

  Warrants(3)     10/23/2025     94,672     817     817     0.10 %

ASP LCG Holdings, Inc.

                                     

Education

  Warrants(3)     5/5/2026     622     37     610     0.07 %

Ancora Acquisition LLC(14)

                                     

Education

  Warrants(6)     8/12/2020     20             %

Total Warrants — United States

                    $ 854   $ 6,731     0.80 %

Total Funded Investments

                    $ 1,438,731   $ 1,377,982     164.65 %

Unfunded Debt Investments — United States

                                     

DCA Investment Holdings, LLC

                                     

Healthcare Services

  First lien(3)(11) — Undrawn     7/2/2021   $ 2,047   $ (20 ) $ (20 )   %

iPipeline, Inc. (Internet Pipeline, Inc.)

                                     

Software

  First lien(3)(11) — Undrawn     8/4/2021     1,000     (10 )   (23 )   %

Valet Waste Holdings, Inc.

                                     

Business Services

  First lien(3)(11) — Undrawn     9/24/2021     3,000     (38 )   (42 )   %

VetCor Professional Practices LLC

                                     

Consumer Services

  First lien(3)(11) — Undrawn     4/20/2021     2,700     (27 )   (34 )      

  First lien(4)(11) — Undrawn     4/20/2021     947     (9 )   (12 )      

                3,647     (36 )   (46 )   (0.01 )%

QC McKissock Investment, LLC(17)

                                     

McKissock, LLC

                                     

Education

  First lien(2)(11) — Undrawn     12/31/2015     1,862     (19 )   (64 )   (0.01 )%

MailSouth, Inc. (d/b/a Mspark)

                                     

Media

  First lien(3)(11) — Undrawn     12/14/2016     1,900     (181 )   (79 )   (0.01 )%

EN Engineering, L.L.C.

                                     

Business Services

  First lien(2)(11) — Undrawn     12/30/2016     2,348     (12 )   (85 )   (0.01 )%

TWDiamondback Holdings Corp.(18)

                                     

Diamondback Drugs of Delaware, L.L.C. (TWDiamondback II Holdings LLC)

                                     

Distribution & Logistics

  First lien(3)(11) — Undrawn     2/16/2016     2,158         (84 )      

  First lien(4)(11) — Undrawn     2/16/2016     605         (24 )      

                2,763         (108 )   (0.01 )%

Total Unfunded Debt Investments

              $ 18,567     (316 ) $ (467 )   (0.05 )%

Total Non-Controlled/Non-Affiliated Investments

                    $ 1,438,415   $ 1,377,515     164.60 %

   

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

F-23


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2015

(in thousands, except shares)

Portfolio Company, Location and
Industry(1)
  Type of Investment     Interest Rate(10)     Maturity/
Expiration
Date
 
  Principal
Amount,
Par Value
or Shares
 
  Cost     Fair
Value
 
  Percent
of Net
Assets
 
 

Non-Controlled/Affiliated Investments(25)

                                     

Funded Debt Investments — United States

                                     

Tenawa Resource Holdings LLC(16)

                                     

Tenawa Resource Management LLC

                                     

Energy

  First lien(3)   10.50% (Base + 8.00%/Q)   5/12/2019   $ 40,000   $ 39,869   $ 38,813     4.64 %

Edmentum Ultimate Holdings, LLC(19)

                                     

Education

  Subordinated(3)   8.50% PIK/Q*   6/9/2020     3,786     3,778     3,622        

  Subordinated(2)   10.00% PIK/Q*   6/9/2020     13,715     13,715     10,547        

  Subordinated(3)   10.00% PIK/Q*   6/9/2020     3,374     3,374     2,595        

                20,875     20,867     16,764     2.00 %

Total Funded Debt Investments — United States

              $ 60,875   $ 60,736   $ 55,577     6.64 %

Equity — United States

                                     

NMFC Senior Loan Program I LLC**

                                     

Investment Fund

  Membership interest(3)           $ 23,000   $ 21,914     2.62 %

Edmentum Ultimate Holdings, LLC(19)

                                     

Education

  Ordinary shares(3)         123,968     11     3,341        

  Ordinary shares(2)         107,143     9     2,888        

                      20     6,229     0.74 %

Tenawa Resource Holdings LLC(16)

                                     

QID NGL LLC

                                     

Energy

  Ordinary shares(7)         5,290,997     5,291     3,778     0.45 %

Total Shares — United States

                    $ 28,311   $ 31,921     3.81 %

Unfunded Debt Investments — United States

                                     

Edmentum Ultimate Holdings, LLC(19)

                                     

Edmentum, Inc. (fka Plato, Inc.) (Archipelago Learning, Inc.)

                                     

Education

  Second lien(3)(11) — Undrawn     6/9/2020   $ 4,881   $   $ (211 )   (0.02 )%

Total Unfunded Debt Investments

              $ 4,881   $   $ (211 )   (0.02 )%

Total Non-Controlled/Affiliated Investments

                    $ 89,047   $ 87,287     10.43 %

Controlled Investments(26)

                                     

Funded Debt Investments — United States

                                     

UniTek Global Services, Inc.

                                     

Business Services

  First lien(2)   8.50% (L + 7.50%/Q)   1/13/2019   $ 6,786   $ 6,786   $ 6,640        

  First lien(3)   8.50% (L + 7.50%/Q)   1/13/2019     4,060     4,060     3,973        

  First lien(3)   9.50% (L + 7.50% +
1.00% PIK/Q)*
  1/13/2019     7,323     7,323     7,257        

  Subordinated(2)   15.00% PIK/Q*   7/13/2019     1,487     1,487     1,417        

  Subordinated(3)   15.00% PIK/Q*   7/13/2019     890     890     848        

                20,546     20,546     20,135     2.40 %

Total Funded Debt Investments — United States

              $ 20,546   $ 20,546   $ 20,135     2.40 %

   

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

F-24


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2015

(in thousands, except shares)


Portfolio Company, Location and
Industry(1)
  Type of Investment     Interest Rate(10)     Maturity/
Expiration
Date
 
  Principal
Amount,
Par Value
or Shares
 
  Cost     Fair
Value
 
  Percent
of Net
Assets
 
 

Equity — United States

                                     

UniTek Global Services, Inc.

                                     

Business Services

  Preferred shares(2)(21)         16,680,037   $ 14,299   $ 13,870        

  Preferred shares(3)(21)         4,609,569     3,952     3,833        

  Ordinary shares(2)         2,096,477     1,925     7,528        

  Ordinary shares(3)         579,366     532     2,081        

                      20,708     27,312     3.26 %

Total Shares — United States

                    $ 20,708   $ 27,312     3.26 %

Total Funded Investments

                    $ 41,254   $ 47,447     5.66 %

Unfunded Debt Investments — United States

                                     

UniTek Global Services, Inc.

                                     

Business Services

  First lien(3)(11) — Undrawn     1/13/2019   $ 2,048   $   $ (18 )      

  First lien(3)(11) — Undrawn     1/13/2019     758         (7 )      

                2,806         (25 )   %

Total Unfunded Debt Investments

              $ 2,806   $   $ (25 )   %

Total Controlled Investments

                    $ 41,254   $ 47,422     5.66 %

Total Investments

                    $ 1,568,716   $ 1,512,224     180.69 %

(1)
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.

(2)
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.

(3)
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, Morgan Stanley Bank, N.A. and Stifel Bank & Trust as Lenders. See Note 7. Borrowings, for details.

(4)
Investment is held in New Mountain Finance SBIC, L.P.

(5)
Investment is held in NMF YP Holdings, Inc.

(6)
Investment is held in NMF Ancora Holdings, Inc.

(7)
Investment is held in NMF QID NGL Holdings, Inc.

(8)
Investment or a portion of the investment is on non-accrual status. See Note 3. Investments, for details.

(9)
Securities are registered under the Securities Act.

(10)
All interest is payable in cash unless otherwise indicated. A majority of the variable rate debt investments bear interest at a rate that may be determined by reference to the London Interbank Offered Rate (L), the Prime Rate (P) and the alternative base rate (Base) and which resets monthly (M), quarterly (Q), semi-annually (S) or annually (A). For each investment the current interest rate provided reflects the rate in effect as of December 31, 2015.

(11)
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 accompanying notes are an integral part of these consolidated financial statements.

F-25


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2015

(in thousands, except shares)

(12)
The Company holds investments in three related entities of YP Holdings LLC/Print Media 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 and Print Media LLC, wholly-owned subsidiaries of YP Holdings LLC and Print Media Holdings LLC, respectively.

(13)
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.

(14)
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.

(15)
The Company holds an investment in CompassLearning, Inc. that is structured as a first lien last out term loan.

(16)
The Company holds investments in two related entities of Tenawa Resource Holdings LLC. The Company holds 5.25% 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.

(17)
The Company holds investments in QC McKissock Investment, LLC and one related entity of QC McKissock Investment, LLC. The Company holds a first lien term loan in QC McKissock Investment, LLC (which at closing represented 71.1% of the ownership in the Series A common units of McKissock Investment Holdings, LLC) and holds a first lien term loan and a delayed draw term loan in McKissock, LLC, a wholly-owned subsidiary of McKissock Investment Holdings, LLC.

(18)
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.

(19)
The Company holds investments in Edmentum Ultimate Holdings, LLC and its related entities. The Company holds subordinated notes and ordinary equity in Edmentum Ultimate Holdings, LLC and holds a second lien revolver in Edmentum, Inc. and Archipelago Learning, Inc., which are wholly-owned subsidiaries of Edmentum Ultimate Holdings, LLC.

(20)
Total shares reported assumes shares issued for the capitalization of PIK interest. Actual shares owned total 50,000 as of December 31, 2015.

(21)
The Company holds preferred equity in UniTek Global Services, Inc. that is entitled to receive cumulative preferential dividends at a rate of 13.5% per annum payable in additional shares.

(22)
The Company holds investments in Education Management Corporation and one related entity of Education Management Corporation. The Company holds series A-1 convertible preferred stock and common stock in Education Management Corporation and holds a tranche A first lien term loan and a tranche B first lien term loan in Education Management II LLC, which is an indirect subsidiary of Education Management Corporation.

(23)
The Company holds an equity investment in TW-NHME Holdings Corp., as well as a second lien term loan investment in National HME, Inc., a wholly-owned subsidiary of TW-NHME Holdings Corp.

(24)
The Company holds an investment in Pittsburgh Glass Works, LLC that is structured as a first lien last out term loan.

   

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

F-26


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2015

(in thousands, except shares)

(25)
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. Fair value as of December 31, 2014 and December 31, 2015 along with transactions during the year ended December 31, 2015 in which the issuer was a non-controlled/affiliated investment is as follows:

Portfolio Company(1)
  Fair Value at
December 31,
2014
 
  Gross
Additions(A)
 
  Gross
Redemptions(B)
 
  Net
Realized
Gains
(Losses)
 
  Net Change In
Unrealized
Appreciation
(Depreciation)
 
  Fair Value at
December 31,
2015
 
  Interest
Income
 
  Dividend
Income
 
  Other
Income
 
 

Edmentum Ultimate Holdings, LLC/Edmentum Inc. 

  $   $ 23,937   $ (3,050 ) $   $ 1,895   $ 22,782   $ 1,171   $   $  

NMFC Senior Loan Program I LLC

    22,461                 (547 )   21,914         3,619     1,215  

Tenawa Resource Holdings LLC

        44,572             (1,981 )   42,591     4,231         750  

Total Non-Controlled/Affiliated Investments

  $ 22,461   $ 68,509   $ (3,050 ) $   $ (633 ) $ 87,287   $ 5,402   $ 3,619   $ 1,965  

(A)
Gross additions include increases in the cost basis of investments resulting from new portfolio investments, payment-in-kind ("PIK") interest or dividends, the amortization of discounts, reorganizations or restructurings and the movement at fair value of an existing portfolio company into this category from a different category.

(B)
Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, reorganizations or restructurings and the movement of an existing portfolio company out of this category into a different category.
(26)
Denotes investments in which the Company is in "Control", as defined in the Investment Company Act of 1940, as amended, due to owning or holding the power to vote 25.0% or more of the outstanding voting securities of the investment. Fair value as of December 31, 2014 and December 31, 2015 along with transactions during the year ended December 31, 2015 in which the issuer was a controlled investment is as follows:

Portfolio Company(1)
  Fair Value at
December 31,
2014
 
  Gross
Additions(A)
 
  Gross
Redemptions(B)
 
  Net
Realized
Gains
(Losses)
 
  Net Change In
Unrealized
Appreciation
(Depreciation)
 
  Fair Value at
December 31,
2015
 
  Interest
Income
 
  Dividend
Income
 
  Other
Income
 
 

UniTek Global Services, Inc. 

  $   $ 42,780   $ (1,526 ) $   $ 6,168   $ 47,422   $ 2,007   $ 2,559   $ 49  

Total Controlled Investments

  $   $ 42,780   $ (1,526 ) $   $ 6,168   $ 47,422   $ 2,007   $ 2,559   $ 49  

(A)
Gross additions include increases in the cost basis of investments resulting from new portfolio investments, PIK interest or dividends, the amortization of discounts, reorganizations or restructurings and the movement at fair value of an existing portfolio company into this category from a different category.

(B)
Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, reorganizations or restructurings and the movement of an existing portfolio company out of this category into a different category.
*
All or a portion of interest contains PIK interest.

**
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. As of December 31, 2015, 6.8% of the Company's total assets were non-qualifying assets.

   

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

F-27


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2015

Investment Type
    December 31, 2015
Percent of Total
Investments at Fair Value
 

First lien

    44.31 %

Second lien

    41.79 %

Subordinated

    5.75 %

Equity and other

    8.15 %

Total investments

    100.00 %

 

Industry Type
    December 31, 2015
Percent of Total
Investments at Fair Value
 

Software

    24.53 %

Business Services

    24.36 %

Education

    10.97 %

Distribution & Logistics

    7.76 %

Federal Services

    6.31 %

Consumer Services

    4.52 %

Energy

    4.33 %

Healthcare Services

    4.18 %

Media

    3.16 %

Healthcare Products

    2.49 %

Business Products

    2.21 %

Manufacturing

    1.98 %

Investment Fund

    1.45 %

Retail

    1.39 %

Industrial Services

    0.36 %

Total investments

    100.00 %

 

Interest Rate Type
    December 31, 2015
Percent of Total
Investments at Fair Value
 

Floating rates

    86.26 %

Fixed rates

    13.74 %

Total investments

    100.00 %

   

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

F-28


Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation

December 31, 2016

(in thousands, except share data)

Note 1. Formation and Business Purpose

New Mountain Finance Corporation

          New Mountain Finance Corporation ("NMFC" or the "Company") is a Delaware corporation that was originally incorporated on June 29, 2010 and completed its initial public offering ("IPO") on May 19, 2011. 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").

          New Mountain Finance Advisers BDC, L.L.C. (the "Investment Adviser") is a wholly-owned subsidiary of New Mountain Capital, L.L.C. ("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. New Mountain Capital focuses on investing in defensive growth companies across its private equity, public equity and credit investment vehicles. The Investment Adviser manages the Company's day-to-day operations and provides it with investment advisory and management services. New Mountain Finance Administration, L.L.C. (the "Administrator"), a wholly-owned subsidiary of New Mountain Capital, provides the administrative services necessary to conduct the Company's day-to-day operations.

          The Company's wholly-owned subsidiary, New Mountain Finance Holdings, L.L.C. ("NMF Holdings" or the "Predecessor Operating Company"), is a Delaware limited liability company whose assets are used to secure NMF Holdings' credit facility. For additional information about the Company's historical organizational structure prior to May 8, 2014, see "— Historical Structure". NMF Ancora Holdings Inc. ("NMF Ancora"), NMF QID NGL Holdings, Inc. ("NMF QID") and NMF YP Holdings Inc. ("NMF YP"), the Company's wholly-owned subsidiaries, 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). The Company consolidates its tax blocker corporations for accounting purposes. The 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 United States ("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 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

F-29


Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

Note 1. Formation and Business Purpose (Continued)

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 in SBA eligible companies. The Company's portfolio may be concentrated in a limited number of industries. As of December 31, 2016, the Company's top five industry concentrations were business services, software, consumer services, investment fund and education.

Historical Structure

          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 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, NMF Holdings acquired all of the operations of the Predecessor Entities, including all of the assets and liabilities related to such operations. 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".

          Until May 8, 2014, NMF Holdings was externally managed by the Investment Adviser 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 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.

          Until April 25, 2014, New Mountain Finance AIV Holdings Corporation ("AIV Holdings") was a Delaware corporation that was originally incorporated on March 11, 2011. 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.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

Note 1. Formation and Business Purpose (Continued)

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. AIV Holdings was dissolved on April 25, 2014.

          Prior to 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, 2016, NMFC raised approximately $533,103 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 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 interest 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

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

Note 1. Formation and Business Purpose (Continued)

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 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

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

Note 1. Formation and Business Purpose (Continued)

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.

          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.

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 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, NMF QID 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.

          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.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

Note 2. Summary of Significant Accounting Policies (Continued)

          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 are accounted for on a trade date basis. The Company's quarterly valuation procedures are set forth in more detail below:

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

Note 2. Summary of Significant Accounting Policies (Continued)

          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 a commitment 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.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

Note 2. Summary of Significant Accounting Policies (Continued)

          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, 2016 and December 31, 2015, the Company held one collateralized agreement to resell with a cost basis of $30,000 and $30,000, respectively, and a carrying value of $29,218 and $29,704, respectively, and collateralized by a second lien bond in Northstar GOM Holdings Group LLC with a fair value of $29,218 and $29,704, respectively. The collateralized agreement to resell is guaranteed by a private hedge fund with the most recently reported assets under management of approximately $690,000 and assets under management of approximately $716,590 as of December 31, 2015. Pursuant to the terms of the collateralized agreement, the private hedge fund is obligated to repurchase the collateral from the Company at the par value of the collateralized agreement once called upon by the Company or if the private hedge fund's total assets under management fall below the agreed upon thresholds. The collateralized agreement was called upon by the Company but the counterparty failed to repurchase the collateral at its par value in accordance with the terms of the collateralized agreement. As of December 31, 2016, litigation is on-going in the state of New York and the Cayman Islands to resolve this matter. The collateralized agreement earned interest at a weighted average rate of 16.0% and 15.0% per annum as of December 31, 2016 and December 31, 2015, respectively.

          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. The Company did not hold any cash equivalents as of December 31, 2016 and December 31, 2015.

Revenue recognition

          Sales and paydowns of investments:    Realized gains and losses on investments are determined on the specific identification method.

          Interest and dividend 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 and certain preferred equity investments in the portfolio that contain a payment-in-kind ("PIK") interest or dividend provision. PIK interest and dividends are accrued and recorded as income at the contractual rates, if deemed collectible. The PIK interest

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

Note 2. Summary of Significant Accounting Policies (Continued)

and dividends are added to the principal or share balances on the capitalization dates and are generally due at maturity or when redeemed by the issuer.

          Dividend income on common equity is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies. Dividend income on preferred securities is recorded as dividend income on an accrual basis to the extent that such amounts are deemed collectible.

          Non-accrual income:    Investments are placed on non-accrual status when principal or interest payments are past due for 30 days or more and when there is reasonable doubt that principal or interest will be collected. Accrued cash and un-capitalized PIK interest or dividends are reversed when an investment is placed on non-accrual status. Previously capitalized PIK interest or dividends are not reversed when an investment is placed on non-accrual status. Interest or dividend payments received on non-accrual investments may be recognized as income or applied to principal depending upon management's judgment of the ultimate outcome. Non-accrual investments are restored to accrual status when past due principal and interest is paid and, in management's judgment, are likely to remain current.

          Other income:    Other income represents delayed compensation, consent or amendment fees, revolver fees, structuring fees, upfront 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 and upfront 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 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

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

Note 2. Summary of Significant Accounting Policies (Continued)

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 over the stated life of the related borrowing. See Note 7. Borrowings, for details. On January 1, 2016, the Company adopted Accounting Standards Update No. 2015-03, Interest — Imputation of Interest Subtopic 835-30-Simplifying the Presentation of Debt Issuance Costs ("ASU 2015-03"). Upon adoption, the Company revised its presentation of deferred financing costs from an asset to a liability, which is a direct deduction to its debt on the Consolidated Statements of Assets and Liabilities. In addition, the Company retrospectively revised its presentation of $13,992 of deferred financing costs that were previously presented as an asset as of December 31, 2015, which resulted in a decrease to total assets and total liabilities as of December 31, 2015.

          Deferred offering costs — The Company's deferred offering costs consist of fees and expenses incurred in connection with equity offerings and the filing of shelf registration statements. Upon the issuance of shares, offering costs are charged as a direct reduction to net assets. Deferred offering costs are included in other assets on the Company's Consolidated Statements of Assets and Liabilities.

          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 and be subject to tax 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.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

Note 2. Summary of Significant Accounting Policies (Continued)

          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 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, 2016, the Company recognized a total income tax benefit of approximately $490 for the Company's consolidated subsidiaries. For the year ended December 31, 2016, the Company recorded current income tax expense of approximately $152 and deferred income tax benefit of approximately $642. For the year ended December 31, 2015, the Company recognized a total provision for income taxes of $1,343 for the Company's consolidated subsidiaries. For the year ended December 31, 2015, the Company recorded current income tax expense of approximately $160 and deferred income tax expense of approximately $1,183. For the year ended December 31, 2014, the Company recognized a total provision for income taxes of $929 for the Company's consolidated subsidiaries. For the year ended December 31, 2014, the Company recorded current income tax expense of approximately $436 and deferred income tax expense of approximately $493.

          As of December 31, 2016 and December 31, 2015, the Company had $1,034 and $1,676, 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. As of December 31, 2015, the Company had a deferred tax asset of $520 attributable to one of the Company's consolidated subsidiaries primarily related to net operating losses. The Company determined that it was more likely than not that the subsidiary would have insufficient taxable income to realize some portion or all of the deferred tax asset. As such, as of December 31, 2015, a full valuation allowance of $520 has been recorded against the deferred tax asset.

          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 uncertain income tax positions that do not meet the more likely than not threshold through December 31, 2016. The 2013 through 2016 tax years remain subject to examination by the U.S. federal, state, and local tax authorities.

          Distributions — 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

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

Note 2. Summary of Significant Accounting Policies (Continued)

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 equal to or 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 ask 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 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.

          Share repurchase program — On February 4, 2016, the Company's board of directors authorized a program for the purpose of repurchasing up to $50,000 worth of the Company's common stock. Under the repurchase program, the Company was permitted, but was not obligated to, repurchase its outstanding common stock in the open market from time to time provided that it complied with the Company's code of ethics and the guidelines specified in Rule 10b-18 of the Exchange Act, including certain price, market volume and timing constraints. In addition, any repurchases were conducted in accordance with the 1940 Act. On December 23, 2016, the Company's board of directors extended the Company's repurchase program and the Company expects the repurchase program to be in place until the earlier of December 31, 2017 or until $50,000 of its outstanding shares of common stock have been repurchased. During the year ended December 31, 2016, the Company repurchased a total of 248,499 shares of the Company's common stock in the open market for $2,948, including commissions paid.

          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

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

Note 2. Summary of Significant Accounting Policies (Continued)

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 year ended December 31, 2015, the Company adjusted accounting estimates related to the classification of dividend income for distributions received from three of the Company's equity investments. Based on updated tax projections received during the year ended December 31, 2015, the Company decreased dividend income by $533, which decreased the equity investments cost basis by $3 and increased the realized gain by $530 to agree to the tax treatment on the equity investments.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

Note 3. Investments

          At December 31, 2016, the Company's investments consisted of the following:

    Cost     Fair Value
 

First lien

  $ 706,140   $ 700,580  

Second lien

    638,347     604,203  

Subordinated

    68,341     66,559  

Equity and other

    162,350     187,475  

Total investments

  $ 1,575,178   $ 1,558,817  

    Cost     Fair Value
 

Business Services

  $ 446,008   $ 461,997  

Software

    424,965     420,896  

Consumer Services

    105,868     106,392  

Investment Fund

    94,460     94,460  

Education

    93,651     94,168  

Energy

    81,390     75,168  

Healthcare Services

    70,731     71,844  

Distribution & Logistics

    88,768     61,696  

Federal Services

    59,881     60,116  

Net Lease

    27,000     27,000  

Business Products

    25,613     24,958  

Media

    21,189     24,162  

Retail

    21,006     21,016  

Healthcare Information Technology

    14,648     14,944  

Total investments

    1,575,178     1,558,817  

          At December 31, 2015, the Company's investments consisted of the following:

    Cost     Fair Value
 

First lien

  $ 711,601   $ 670,023  

Second lien

    656,165     631,985  

Subordinated

    95,429     87,005  

Equity and other

    105,521     123,211  

Total investments

  $ 1,568,716   $ 1,512,224  

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Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

Note 3. Investments (Continued)

    Cost     Fair Value
 

Software

  $ 384,805   $ 370,892  

Business Services

    367,109     368,409  

Education

    167,222     165,947  

Distribution & Logistics

    123,053     117,375  

Federal Services

    95,459     95,477  

Consumer Services

    69,250     68,269  

Energy

    96,717     65,521  

Healthcare Services

    66,923     63,255  

Media

    43,489     47,804  

Healthcare Products

    38,664     37,648  

Business Products

    35,188     33,420  

Manufacturing

    29,852     29,850  

Investment Fund

    23,000     21,914  

Retail

    21,032     21,000  

Industrial Services

    6,953     5,443  

Total investments

  $ 1,568,716   $ 1,512,224  

          During the fourth quarter of 2016, the Company placed a portion of its first lien position in Sierra Hamilton LLC / Sierra Hamilton Finance, Inc. ("Sierra") on non-accrual status due to its ongoing restructuring. As of December 31, 2016, the portion of Sierra first lien placed on non-accrual status represented an aggregate cost basis of $8,169, an aggregate fair value of $5,315 and total unearned interest income of $553 for the year then ended.

          During the third quarter of 2016, the Company placed its entire second lien position in Transtar Holding Company ("Transtar") on non-accrual status due to its ongoing restructuring. As of December 31, 2016, the Company's investment in Transtar had an aggregate cost basis of $31,166, an aggregate fair value of $3,865 and total unearned interest income of $3,963 for the year then ended.

          During the second quarter of 2016, the Company placed a portion of its first lien position in Permian Tank & Manufacturing, Inc. ("Permian") on non-accrual status due to its ongoing restructuring. As of September 30, 2016, the Company's investment in Permian had an aggregate cost basis of $24,444, an aggregate fair value of $7,064 and total unearned interest income of $1,273 for the nine months then ended. In October 2016, Permian completed a restructuring which resulted in a material modification of the original terms and an extinguishment of the Company's original investment in Permain. Prior to the extinguishment in October 2016, the Company's original investment in Permian had an aggregate cost of $25,047, an aggregate fair value of $7,064 and total unearned interest income of $1,422 for the year ended December 31, 2016. The extinguishment resulted in a realized loss of $17,983. Post restructuring, the Company's investments in Permian have been restored to full accrual status. As of December 31, 2016, the

F-43


Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

Note 3. Investments (Continued)

Company's investments in Permian have an aggregate cost basis of $8,965 and an aggregate fair value of $11,193.

          During the third quarter of 2016, the Company received notice that there would be no recovery of the outstanding principal and interest owed on its two super priority first lien positions in ATI Acquisition Company ("ATI"). As of June 30, 2016, the Company's first lien positions in ATI had an aggregate cost of $1,528 and an aggregate fair value of $0 and no unearned interest income for the period then ended. The Company wrote off its first lien positions in ATI and recognized an aggregate realized loss of $1,528 during the three months ended September 30, 2016. As of December 31, 2016, the Company's preferred shares and warrants in Ancora Acquisition LLC, which were received as a result of the Company's first lien positions in ATI, had an aggregate cost basis of $83 and an aggregate fair value of $393.

          During the first quarter of 2015, the Company placed a portion of its second lien position in Edmentum, Inc. ("Edmentum") on non-accrual status due to its ongoing restructuring. As of March 31, 2015, the Company's investment in Edmentum had an aggregate cost basis of $30,771, an aggregate fair value of $15,575 and total unearned interest income of $438 for the three months then ended. In June 2015, Edmentum completed a restructuring which resulted in a material modification of the original terms and an extinguishment of the Company's original investment in Edmentum. Prior to the extinguishment in June 2015, the Company's original investment in Edmentum had an aggregate cost of $31,636, an aggregate fair value of $16,437 and total unearned interest income of $851 for the six months ended June 30, 2015. The extinguishment resulted in a realized loss of $15,199. Post restructuring, the Company's investments in Edmentum have been restored to full accrual status. As of December 31, 2016, the Company's investments in Edmentum have an aggregate cost basis of $23,031 and an aggregate fair value of $23,247.

          During the first quarter of 2015, the Company's first lien position in Education Management LLC ("EDMC") was non-income producing as a result of the portfolio company undergoing a restructuring. As of December 31, 2014, the Company's investment in EDMC had an aggregate cost basis of $2,987, an aggregate fair value of $1,376 and no unearned interest income for the three months then ended. In January 2015, EDMC completed a restructuring which resulted in a material modification of the original terms and an extinguishment of the Company's original investment in EDMC. Prior to the extinguishment in January 2015, the Company's original investment in EDMC had an aggregate cost of $2,987, an aggregate fair value of $1,376 and no unearned interest income for the period then ended. The extinguishment resulted in a realized loss of $1,611. Post restructuring, the Company's investments in EDMC are income producing. As of December 31, 2016, the Company's investments in EDMC have an aggregate cost basis of $1,495 and an aggregate fair value of $160.

          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 Company's investments in UniTek had an aggregate cost basis of $47,357, an aggregate fair value of $35,227 and total unearned interest income of $975 for the year then ended. In January 2015, UniTek

F-44


Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

Note 3. Investments (Continued)

emerged from "Pre-Packaged" Chapter 11 Bankruptcy and completed its restructuring. The restructuring resulted in a material modification of the original terms and an extinguishment of the Company's original investments in UniTek. Prior to the extinguishment in January 2015, the Company's original investments in UniTek had an aggregate cost of $52,902, an aggregate fair value of $40,137 and total unearned interest income of $68 for the period then ended. The extinguishment resulted in a realized loss of $12,765. Post restructuring, the Company's investments in UniTek have been restored to full accrual status. As of December 31, 2016, the Company's investments in UniTek have an aggregate cost basis of $42,119 and an aggregate fair value of $56,361.

          As of December 31, 2016, the Company had unfunded commitments on revolving credit facilities and bridge facilities of $27,915 and $0, respectively. As of December 31, 2016, the Company had unfunded commitments in the form of delayed draws or other future funding commitments of $16,368. The unfunded commitments on revolving credit facilities and delayed draws are disclosed on the Company's Consolidated Schedule of Investments as of December 31, 2016.

          As of December 31, 2015, the Company had unfunded commitments on revolving credit facilities and bridge facilities of $17,576 and $0, respectively. As of December 31, 2015, the Company had unfunded commitments in the form of delayed draws or other future funding commitments of $8,678. The unfunded commitments on revolving credit facilities and delayed draws are disclosed on the Company's Consolidated Schedule of Investments as of December 31, 2015.

NMFC Senior Loan Program I LLC

          NMFC Senior Loan Program I LLC ("SLP I") was formed as a Delaware limited liability company on May 27, 2014 and commenced operations on June 10, 2014. 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 "SLP I Agreement") and will continue in existence until June 10, 2019, subject to earlier termination pursuant to certain terms of the SLP I Agreement. The term may be extended for up to one year pursuant to certain terms of the SLP I Agreement. SLP I has a three year re-investment period. 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.

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Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

Note 3. Investments (Continued)

          SLP I is capitalized with $93,000 of capital commitments and $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, 2016, SLP I had total investments with an aggregate fair value of approximately $348,672, debt outstanding of $256,517 and capital that had been called and funded of $93,000. As of December 31, 2015, SLP I had total investments with an aggregate fair value of approximately $349,704, debt outstanding of $267,617 and capital that had been called and funded of $93,000. The Company's investment in SLP I is disclosed on the Company's Consolidated Schedules of Investments as of December 31, 2016 and December 31, 2015.

          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. No management fee is charged on the Company's investment in SLP I in connection with the administrative services provided to SLP I. For the years ended December 31, 2016, December 31, 2015 and December 31, 2014, the Company earned approximately $1,163, $1,215 and $468, respectively, in management fees related to SLP I which is included in other income. As of December 31, 2016 and December 31, 2015, approximately $286 and $311, respectively, of management fees related to SLP I was included in receivable from affiliates. For the years ended December 31, 2016, December 31, 2015 and December 31, 2014, the Company earned approximately $3,728, $3,619 and $1,066, respectively, of dividend income related to SLP I, which is included in dividend income. As of December 31, 2016 and December 31, 2015, approximately $861 and $918, respectively, of dividend income related to SLP I was included in interest and dividend receivable.

New Mountain Net Lease Corporation

          New Mountain Net Lease Corporation ("NMNLC") was formed as a Maryland corporation on April 18, 2016 and commenced operations on August 12, 2016. NMNLC was formed to acquire commercial real properties that are subject to "triple net" leases and to qualify as a real estate investment trust, or REIT, within the meaning of Section 856(a) of the Code. As of December 31, 2016, NMNLC had assets of approximately $75,544 and non-recourse asset level debt outstanding of approximately $47,936. The Company has contributed $27,000 to NMNLC as of December 31, 2016. The Company's investment in NMNLC is disclosed on the Company's Consolidated Schedule of Investments as of December 31, 2016.

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Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

Note 3. Investments (Continued)

          Below is certain summarized property information for NMNLC as of December 31, 2016:

Tenant
  Lease
Expiration
Date
 
  Location     Total
Square Feet
 
  Equity as of
December 31,
2016
 
 

A.P. Plasman, Inc. 

  9/30/2031   Ontario, Canada     436   $ 7,294  

Plasman Corp, LLC / A-Brite LP

  9/30/2033   Fort Payne, AL     261     5,132  

      Cleveland, OH              

FMH Conveyors, LLC

  10/31/2031   Jonesboro, AR     195     5,136  

J.R. Automation Technologies, LLC

  1/31/2031   Holland, MI     88     2,061  

Kirlin Group, LLC

  6/30/2029   Rockville, MD     95     7,547  

                $ 27,170  

          For the year ended December 31, 2016, the Company earned approximately $540 of dividend income related to NMNLC, which is included in dividend income. For the year ended December 31, 2016, New Mountain Capital reimbursed NMNLC approximately $189 in non-recurring organizational expenses incurred in connection with the formation and organization of NMNLC. As of December 31, 2016, approximately $540 of dividend income related to NMNLC was included in interest and dividend receivable.

Unconsolidated Significant Subsidiaries

          In accordance with Regulation S-X Rules 3-09 and 4-08(g), the Company evaluates its unconsolidated controlled portfolio companies as significant subsidiaries under the respective rules. As of December 31, 2016, the following portfolio companies were considered significant unconsolidated subsidiaries under Regulation S-X Rule 4-08(g). Based on the requirements under Regulation S-X Rule 4-08(g), the summarized consolidated financial information of these portfolio companies is shown below:

NMFC Senior Loan Program II LLC

          NMFC Senior Loan Program II LLC ("SLP II") was formed as a Delaware limited liability company on March 9, 2016 and commenced operations on April 12, 2016. SLP II is structured as a private joint venture investment fund between the Company and SkyKnight Income, LLC ("SkyKnight") and operates under a limited liability company agreement (the "SLP II Agreement"). The purpose of the joint venture is to invest primarily in senior secured loans issued by portfolio companies within the Company's core industry verticals. These investments are typically broadly syndicated first lien loans. All investment decisions must be unanimously approved by the board of managers of SLP II, which has equal representation from the Company and SkyKnight. SLP II has a three year investment period and will continue in existence until April 12, 2021. The term may be extended for up to one year pursuant to certain terms of the SLP II Agreement.

          SLP II is capitalized with equity contributions which are called from its members, on a pro-rata basis based on their equity commitments, as transactions are completed. Any decision by SLP II to

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Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

Note 3. Investments (Continued)

call down on capital commitments requires approval by the board of managers of SLP II. The Company and SkyKnight have committed to provide $79,400 and $20,600 of equity to SLP II, respectively. As of December 31, 2016 the Company and SkyKnight have contributed $71,460 and $18,540, respectively. The Company's investment in SLP II is disclosed on the Company's Consolidated Schedule of Investments as of December 31, 2016.

          On April 12, 2016, SLP II closed its $275,000 revolving credit facility with Wells Fargo Bank, National Association which matures on April 12, 2021 and bears interest at a rate of the London Interbank Offered Rate ("LIBOR") plus 1.75% per annum. As of December 31, 2016, SLP II had total investments with an aggregate fair value of approximately $361,719 and debt outstanding under its credit facility of $249,960.

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Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

Note 3. Investments (Continued)

          The following table is a listing of the individual loans in SLP II's portfolio as of December 31, 2016:

Portfolio Company and Type of Investment
  Industry     Interest
Rate(1)
 
  Maturity
Date
 
  Principal
Amount or
Par Value
 
  Cost     Fair
Value(2)
 
 

First lien:

                               

ADG, LLC

  Healthcare Services   5.75% (L + 4.75%)   9/28/2023   $ 17,207   $ 17,040   $ 17,121  

AssuredPartners, Inc. 

  Business Services   5.25% (L + 4.25%)   10/21/2022     11,862     11,847     12,058  

Beaver-Visitec International Holdings, Inc. 

  Healthcare Products   6.00% (L + 5.00%)   8/21/2023     14,962     14,819     14,963  

Coinstar, LLC

  Consumer Services   5.25% (L + 4.25%)   9/27/2023     4,987     4,963     5,054  

Cvent, Inc. 

  Software   6.00% (L + 5.00%)   11/29/2023     10,000     9,901     10,125  

DigiCert Holdings, Inc. 

  Software   6.00% (L + 5.00%)   10/21/2021     14,900     14,814     14,881  

Eiger Acquisition B.V. (Eiger Co-Borrower, LLC)

  Software   6.25% (L + 5.25%)   2/18/2022     10,507     10,350     10,402  

Emerald 2 Limited

  Business Services   5.00% (L + 4.00%)   5/14/2021     1,277     1,206     1,174  

Engility Corporation (fka TASC, Inc.)

  Federal Services   5.81% (Base + 4.72%)   8/14/2023     13,860     13,793     14,080  

Evo Payments International, LLC

  Business Services   6.00% (L + 5.00%)   12/22/2023     17,500     17,413     17,602  

Explorer Holdings, Inc. 

  Healthcare Services   6.00% (L + 5.00%)   5/2/2023     4,975     4,929     5,028  

Globallogic Holdings Inc. 

  Business Services   5.50% (L + 4.50%)   6/20/2022     10,000     9,900     10,013  

GOBP Holdings Inc. 

  Retail   5.00% (L + 4.00%)   10/21/2021     14,955     14,816     14,985  

Hyperion Insurance Group Limited

  Business Services   5.50% (L + 4.50%)   4/29/2022     14,401     14,179     14,476  

J.D. Power and Associates

  Business Services   5.25% (L + 4.25%)   9/7/2023     9,975     9,927     10,075  

Kronos Incorporated

  Software   5.00% (L + 4.00%)   11/1/2023     10,000     9,951     10,105  

Masergy Holdings, Inc. 

  Business Services   5.50% (L + 4.50%)   12/15/2023     7,500     7,463     7,563  

McGraw-Hill Global Education Holdings, LLC

  Education   5.00% (L + 4.00%)   5/4/2022     9,950     9,905     9,971  

Ministry Brands, LLC

  Software   6.00% (L + 5.00%)   12/2/2022     7,846     7,807     7,807  

Mister Car Wash Holdings, Inc. 

  Consumer Services   5.25% (L + 4.25%)   8/20/2021     8,312     8,250     8,354  

Navex Global, Inc. 

  Software   5.99% (L + 4.75%)   11/19/2021     14,933     14,718     14,858  

nThrive, Inc. (fka Precyse Acquisition Corp.)

  Healthcare Services   6.50% (L + 5.50%)   10/20/2022     9,950     9,813     10,083  

Poseidon Intermediate, LLC

  Software   5.25% (L + 4.25%)   8/15/2022     14,962     14,962     15,055  

Quest Software US Holdings Inc. 

  Software   7.00% (L + 6.00%)   10/31/2022     10,000     9,853     10,153  

Rocket Software, Inc. 

  Software   5.25% (L + 4.25%)   10/14/2023     14,962     14,817     15,129  

SolarWinds Holdings, Inc. 

  Software   5.50% (L + 4.50%)   2/3/2023     14,688     14,697     14,852  

TTM Technologies, Inc. 

  Business Products   5.25% (L + 4.25%)   5/31/2021     13,548     13,444     13,599  

Vencore, Inc. (fka SI Organization, Inc., The)

  Federal Services   5.75% (L + 4.75%)   11/23/2019     10,801     10,780     10,942  

Vision Solutions, Inc. 

  Software   7.50% (Base + 6.50%)   6/16/2022     9,938     9,845     9,919  

Vivid Seats LLC

  Business Services   6.75% (L + 5.75%)   10/12/2022     4,000     3,922     3,985  

WD Wolverine Holdings, LLC

  Healthcare Services   6.50% (L + 5.50%)   10/17/2023     10,200     9,900     9,894  

Zywave, Inc. 

  Software   6.00% (L + 5.00%)   11/17/2022     17,500     17,414     17,413  

              $ 360,458   $ 357,438   $ 361,719  

(1)
All interest is payable in cash unless otherwise indicated. A majority of the variable rate debt investments bear interest at a rate that may be determined by reference to the LIBOR (L), the Prime Rate (P) and the alternative base rate (Base). For each investment, the current interest rate provided reflects the rate in effect as of December 31, 2016.

(2)
Represents the fair value in accordance with Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures ("ASC 820"). The Company's board of directors does not determine the fair value of the investments held by SLP II.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

Note 3. Investments (Continued)

          Below is certain summarized financial information for SLP II as of December 31, 2016 and for the year ended December 31, 2016:

  December 31, 2016    

Selected Balance Sheet Information:

       

Investments at fair value (cost of $357,438)

  $ 361,719  

Receivable from unsettled securities sold

    1,007  

Cash and other assets

    10,138  

Total assets

  $ 372,864  

Credit facility

  $ 249,960  

Deferred financing costs

    (2,565 )

Payable for unsettled securities purchased

    24,862  

Distribution payable

    3,000  

Other liabilities

    3,350  

Total liabilities

    278,607  

Members' capital

 
$

94,257
 

Total liabilities and members' capital

  $ 372,864  

 

  Year Ended
December 31, 2016(1)
 
 

Selected Statement of Operations Information:

       

Interest income

  $ 7,463  

Other income

    572  

Total investment income

    8,035  

Interest and other financing expenses

    3,558  

Other expenses

    650  

Total expenses

    4,208  

Net investment income

    3,827  

Net realized gains on investments

   
599
 

Net change in unrealized appreciation (depreciation) of investments

    4,281  

Net increase in members' capital

  $ 8,707  

(1)
For the year ended December 31, 2016, amounts reported relate to the period from April 12, 2016 (commencement of operations) to December 31, 2016.

          For the year ended December 31, 2016, the Company earned approximately $3,533 of dividend income related to SLP II, which is included in dividend income. As of December 31, 2016,

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

Note 3. Investments (Continued)

approximately $2,382 of dividend income related to SLP II was included in interest and dividend receivable.

          The Company has determined that SLP II is an investment company under ASC 946, however, in accordance with such guidance the Company will generally not consolidate its investment in a company other than a wholly-owned investment company subsidiary. Furthermore, Accounting Standards Codification Topic 810, Consolidation, concludes that in a joint venture where both members have equal decision making authority, it is not appropriate for one member to consolidate the joint venture since neither has control. Accordingly, the Company does not consolidate SLP II.

UniTek Global Services, Inc.

          UniTek Global Services, Inc. ("UniTek") is a full service provider of technical services to customers in the wireless telecommunications, public safety, satellite television and broadband cable industries in the U.S. and Canada. UniTek's customers are primarily satellite television, broadband cable and other telecommunications companies, their contractors, and municipalities and related agencies. UniTek's customers utilize its services to build and maintain their infrastructure and networks and to provide residential and commercial fulfillment services, which is critical to their ability to deliver voice, video and data services to end users.

          Below is certain summarized financial information for UniTek:

Balance Sheet:

  December 31, 2016     December 31, 2015    

Current assets

  $ 94,499   $ 78,202  

Noncurrent assets

    114,116     125,241  

Total assets

  $ 208,615   $ 203,443  

Current liabilities

    47,105     36,167  

Noncurrent liabilities

    113,781     123,361  

Total liabilities

  $ 160,886   $ 159,528  

Total equity

  $ 47,729   $ 43,915  

 

    Years Ended December 31,
 

Summary of Operations:

  2016     2015     2014    

Net sales

  $ 286,748   $ 269,893   $ 334,139  

Cost of goods sold

    224,800     218,331     291,672  

Gross profit

    61,948     51,562     42,467  

Other expenses

    58,965     58,863     116,612  

Net income (loss) from continuing operations before extraordinary items

    2,983     (7,301 )   (74,145 )

Net income (loss)

  $ 2,983   $ (7,301 ) $ (74,145 )

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(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 fluctuate in value resulting in recognized realized gains or losses 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. 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:

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

Note 4. Fair Value (Continued)

          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 and unobservable. 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 and unobservable inputs.

          The inputs into the determination of fair value require significant judgment or estimation by management and consideration of factors specific to each investment. 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, 2016:

    Total     Level I     Level II     Level III
 

First lien

  $ 700,580   $   $ 169,979   $ 530,601  

Second lien

    604,203         280,026     324,177  

Subordinated

    66,559         41,906     24,653  

Equity and other

    187,475     28         187,447  

Total investments

  $ 1,558,817   $ 28   $ 491,911   $ 1,066,878  

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

Note 4. Fair Value (Continued)

          The following table summarizes the levels in the fair value hierarchy that the Company's portfolio investments fall into as of December 31, 2015:

    Total     Level I     Level II     Level III
 

First lien

  $ 670,023   $   $ 329,133   $ 340,890  

Second lien

    631,985         449,227     182,758  

Subordinated

    87,005         33,546     53,459  

Equity and other

    123,211     316     15     122,880  

Total investments

  $ 1,512,224   $ 316   $ 811,921   $ 699,987  

          The following table summarizes the changes in fair value of Level III portfolio investments for the year ended December 31, 2016, 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, 2016:

    Total     First
Lien
    Second
Lien
    Subordinated     Equity and
other
 

Fair value, December 31, 2015

  $ 699,987   $ 340,890   $ 182,758   $ 53,459   $ 122,880  

Total gains or losses included in earnings:

                               

Net realized gains (losses) on investments

    2,259     (482 )   113     119     2,509  

Net change in unrealized appreciation (depreciation) of investments

    9,491     16,016     (16,049 )   1,802     7,722  

Purchases, including capitalized PIK and revolver fundings(1)

    411,500     157,164     140,089     4,273     109,974  

Proceeds from sales and paydowns of investments(1)

    (203,431 )   (102,308 )   (10,469 )   (35,000 )   (55,654 )

Transfers into Level III(2)

    156,122     119,321     36,785         16  

Transfers out of Level III(2)

    (9,050 )       (9,050 )        

Fair value, December 31, 2016

  $ 1,066,878   $ 530,601   $ 324,177   $ 24,653   $ 187,447  

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

  $ 7,657   $ 13,205   $ (16,049 ) $ 1,351   $ 9,150  

(1)
Includes reorganizations and restructurings.

(2)
As of December 31, 2016, 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 period in which the reclassifications occurred.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except 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, 2015, 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, 2015:

    Total     First
Lien
    Second
Lien
    Subordinated     Equity and
other
 

Fair value, December 31, 2014

  $ 419,681   $ 169,180   $ 134,406   $ 35,470   $ 80,625  

Total gains or losses included in earnings:

                               

Net realized (losses) gains on investments

    (12,730 )   (10,895 )   (14,542 )       12,707  

Net change in unrealized appreciation(depreciation) of investments

    12,348     7,048     6,575     (4,797 )   3,522  

Purchases, including capitalized PIK and revolver fundings

    418,208     237,731     116,135     23,709     40,633  

Proceeds from sales and paydowns of investments

    (205,103 )   (84,346 )   (105,227 )   (923 )   (14,607 )

Transfers into Level III(1)(2)

    95,190     49,779     45,411          

Transfers out of Level III(1)

    (27,607 )   (27,607 )            

Fair value, December 31, 2015

  $ 699,987   $ 340,890   $ 182,758   $ 53,459   $ 122,880  

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:

  $ (999 ) $ (4,332 ) $ (7,384 ) $ (4,797 ) $ 15,514  

(1)
Includes reorganizations and restructurings.

(2)
As of December 31, 2015, 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.

          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, 2016 and December 31, 2015. Transfers into Level III occur as quotations obtained through pricing services are not deemed representative of fair value as of the balance sheet date and such assets are internally valued. As quotations obtained through pricing services are substantiated through additional market sources, investments are transferred out of Level III. In addition, transfers out of Level III and transfers into Level III occur based on the increase or decrease in the availability of certain observable inputs.

          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.

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Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

Note 4. Fair Value (Continued)

          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.

          For debt investments, the Company may employ the Market Based Approach (as described below) to assess the total enterprise value of the portfolio company, in order to evaluate the enterprise value coverage of the Company's debt investment. For equity investments or in cases where the Market Based Approach implies a lack of enterprise value coverage for the debt investment, the Company may additionally employ a discounted cash flow analysis based on the free cash flows of the portfolio company to assess the total enterprise value.

          After enterprise value coverage is demonstrated for the Company's debt investments through the method(s) above, the Income Based Approach (as described below) may be employed to estimate the fair value of the investment.

          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 and comparable transactions. 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, and 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 the enterprise value of the portfolio company. Significant increases or decreases in the EBITDA multiple will result in an increase or decrease in enterprise value, which

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Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

Note 4. Fair Value (Continued)

may result in an increase or decrease in the fair value estimate of the investment. In applying the market based approach as of December 31, 2016 and December 31, 2015, the Company used the relevant EBITDA multiple ranges set forth in the table below to determine the enterprise value of its portfolio companies. The Company believes this was a reasonable range in light of current comparable company trading levels and the specific portfolio 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, 2016 and December 31, 2015, the Company used the discount ranges set forth in the table below to value investments in its portfolio companies.

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Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

Note 4. Fair Value (Continued)

          The unobservable inputs used in the fair value measurement of the Company's Level III investments as of December 31, 2016 were as follows:

                  Range
 

Type
    Fair Value as of
December 31, 2016
  Approach   Unobservable Input     Low     High     Weighted
Average
 

First lien

  $ 417,464   Market & income approach   EBITDA multiple     2.0x     15.0x     10.2x  

            Revenue multiple     0.5x     8.0x     3.0x  

            Discount rate     7.2 %   12.3 %   9.7 %

    86,801   Market quote   Broker quote     N/A     N/A     N/A  

    26,336   Other   N/A(1)     N/A     N/A     N/A  

Second lien

    191,419   Market & income approach   EBITDA multiple     5.3x     16.0x     11.7x  

            Discount rate     8.7 %   13.0 %   11.3 %

    96,315   Market quote   Broker quote     N/A     N/A     N/A  

    36,443   Other   N/A(1)     N/A     N/A     N/A  

Subordinated

    24,653   Market & income approach   EBITDA multiple     4.5x     8.5x     7.1x  

            Revenue multiple     0.5x     1.0x     0.8x  

            Discount rate     8.7 %   15.8 %   13.6 %

Equity and other

    158,947   Market & income approach   EBITDA multiple     2.5x     13.0x     5.9x  

            Revenue multiple     0.5x     1.0x     0.8x  

            Discount rate     8.0 %   18.9 %   14.5 %

    1,498   Black Scholes analysis   Expected life in years     8.8     9.3     9.1  

            Volatility     32.2 %   43.8 %   36.4 %

            Discount rate     2.5 %   2.5 %   2.5 %

    2   Market quote   Broker quote     N/A     N/A     N/A  

    27,000   Other   N/A(1)     N/A     N/A     N/A  

  $ 1,066,878                            

(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.

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Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

Note 4. Fair Value (Continued)

          The unobservable inputs used in the fair value measurement of the Company's Level III investments as of December 31, 2015 were as follows:

                  Range
 

Type
    Fair Value as of
December 31, 2015
  Approach   Unobservable Input     Low     High     Weighted Average
 

First lien

  $ 292,507   Market & income approach   EBITDA multiple     4.5x     15.5x     10.0x  

            Discount rate     7.3 %   13.9 %   11.0 %

    30,719   Market quote   Broker quote     N/A     N/A     N/A  

    17,664   Other   N/A(1)     N/A     N/A     N/A  

Second lien

    88,977   Market & income approach   EBITDA multiple     6.5x     16.0x     12.3x  

            Discount rate     10.0 %   14.2 %   12.7 %

    41,544   Market quote   Broker quote     N/A     N/A     N/A  

    52,237   Other   N/A(1)     N/A     N/A     N/A  

Subordinated

    38,459   Market & income approach   EBITDA multiple     4.5x     9.0x     7.6x  

            Discount rate     10.0 %   19.4 %   17.7 %

    15,000   Other   N/A(1)     N/A     N/A     N/A  

Equity and other

    121,453   Market & income approach   EBITDA multiple     2.5x     12.0x     6.3x  

            Discount rate     8.0 %   21.3 %   14.6 %

    1,427   Black Scholes analysis   Expected life in years     9.8     10.3     10  

            Volatility     27.0 %   30.3 %   28.9 %

            Discount rate     2.1 %   2.1 %   2.1 %

  $ 699,987                            

(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, 2016, 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, 2016 based on a comparison of market interest rates for the Company's borrowings and similar entities. On September 30, 2016, additional Unsecured Notes (as defined in Note 7. Borrowings) were issued and, as such, the carrying value approximates fair value as of December 31, 2016. The fair value of the Holdings Credit Facility, NMFC Credit Facility, SBA-guaranteed debentures and Unsecured Notes are considered Level III. The fair value of the Convertible Notes (as defined in Note 7. Borrowings) as of December 31, 2016 was $159,034, 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, 2016 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.

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Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(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 and was most recently re-approved by the Company's board of directors on February 8, 2017. 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.

          Pursuant to the Investment Management Agreement, 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, less the 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 the IPO, the base management fee calculation has deducted the borrowings under the SLF Credit Facility. The SLF Credit Facility had historically consisted of primarily lower yielding assets at higher advance rates. As part of an amendment to the Company's existing credit facilities

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Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

Note 5. Agreements (Continued)

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). Post credit facility merger and to be consistent with the methodology since the IPO, the Investment Adviser will continue to 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, which as of December 31, 2016, December 31, 2015 and December 31, 2014 was approximately $297,323, $304,899 and $313,455, respectively. The Investment Adviser cannot recoup management fees that the Investment Adviser has previously waived. For the years ended December 31, 2016, December 31, 2015 and December 31, 2014, management fees waived were approximately $4,824, $5,219 and $686, respectively.

          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, upfront, 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, 2016), 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").

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Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

Note 5. Agreements (Continued)

          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:

          The second part of the incentive fee 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.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(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, 2016, December 31, 2015 and December 31, 2014.

    Years Ended December 31,
 

    2016     2015     2014
 

Management fee

  $ 27,551   $ 25,858   $ 13,593  

Management fee allocated from NMF Holdings

            5,983  

Less: management fee waiver

    (4,824 )   (5,219 )   (686 )

Total management fee

    22,727     20,639     18,890  

Incentive fee, excluding accrued capital gains incentive fees

  $ 22,011   $ 20,591   $ 12,070  

Incentive fee, excluding accrued capital gains incentive fees allocated from NMF Holdings

            6,248  

Total incentive fee

    22,011     20,591     18,318  

Accrued capital gains incentive fees(1)

  $   $   $ (8,573 )

Accrued capital gains incentive fees allocated from NMF Holdings(1)

            2,024  

Total accrued capital gains incentive fees

            (6,549 )

(1)
As of December 31, 2016, December 31, 2015 and 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.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

Note 5. Agreements (Continued)

          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.

          The following Consolidated Statement of Operations for the year ended December 31, 2016 is adjusted to reflect this step-up to fair market value.

  Year Ended
December 31,
2016
 
  Stepped-up
Cost Basis
Adjustments
 
  Adjusted
Year Ended
December 31,
2016
 
 

Investment income

                   

Interest income(1)

  $ 147,425   $ (65 ) $ 147,360  

Dividend income(2)

    11,200         11,200  

Other income

    9,459         9,459  

Total investment income(3)

    168,084     (65 )   168,019  

Total expenses pre-incentive fee(4)

    57,965         57,965  

Pre-Incentive Fee Net Investment Income

    110,119     (65 )   110,054  

Incentive fee(5)

    22,011         22,011  

Post-Incentive Fee Net Investment Income

    88,108     (65 )   88,043  

Net realized losses on investments(6)

    (16,717 )   (151 )   (16,868 )

Net change in unrealized appreciation (depreciation) of investments(6)

    40,131     216     40,347  

Net change in unrealized (depreciation) appreciation of securities purchased under collateralized agreements to resell

    (486 )       (486 )

Benefit for taxes

    642         642  

Net increase in net assets resulting from operations

  $ 111,678         $ 111,678  

(1)
Includes $4,270 in PIK interest from investments.

(2)
Includes $3,178 in PIK dividends from investments.

(3)
Includes income from non-controlled/non-affiliated investments, non-controlled/affiliated investments and controlled investments.

(4)
Includes expense waivers and reimbursements of $725 and management fee waivers of $4,824.

(5)
For the year ended December 31, 2016, the Company incurred total incentive fees of $22,011, of which none was related to the capital gains incentive fee accrual on a hypothetical liquidation basis.

(6)
Includes net realized gains and losses on investments and net change in unrealized (deprecation) appreciation of investments from non-controlled/non-affiliated investments, non-controlled/affiliated investments and controlled investments.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

Note 5. Agreements (Continued)

          The following Consolidated Statement of Operations for the year ended December 31, 2015 is adjusted to reflect this step-up to fair market value.

  Year Ended
December 31,
2015
 
  Stepped-up
Cost Basis
Adjustments
 
  Adjusted
Year Ended
December 31,
2015
 
 

Investment income

                   

Interest income(1)

  $ 140,074   $ (131 ) $ 139,943  

Dividend income(2)

    5,771         5,771  

Other income

    8,010         8,010  

Total investment income(3)

    153,855     (131 )   153,724  

Total expenses pre-incentive fee(4)

    50,769         50,769  

Pre-Incentive Fee Net Investment Income

    103,086     (131 )   102,955  

Incentive fee(5)

    20,591         20,591  

Post-Incentive Fee Net Investment Income

    82,495     (131 )   82,364  

Net realized losses on investments(6)

    (12,789 )   (78 )   (12,867 )

Net change in unrealized (depreciation) appreciation of investments(6)

    (35,272 )   209     (35,063 )

Net change in unrealized (depreciation) appreciation of securities purchased under collateralized agreements to resell

    (296 )       (296 )

Provision for taxes

    (1,183 )       (1,183 )

Net increase in net assets resulting from operations

  $ 32,955         $ 32,955  

(1)
Includes $3,942 in PIK interest from investments.

(2)
Includes $2,559 in PIK dividends from investments

(3)
Includes income from non-controlled/non-affiliated investments, non-controlled/affiliated investments and controlled investments.

(4)
Includes expense waivers and reimbursements of $733 and management fee waivers of $5,219.

(5)
For the year ended December 31, 2015, the Company incurred total incentive fees of $20,591, of which none was related to the capital gains incentive fee accrual on a hypothetical liquidation basis.

(6)
Includes net change in unrealized (depreciation) appreciation of investments from non-controlled/non-affiliated investments, non-controlled/affiliated investments and controlled investments.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

Note 5. Agreements (Continued)

          The following Consolidated Statement of Operations for the year ended December 31, 2014 is adjusted to reflect this step-up to fair market value.

    Year Ended
December 31,
2014
    Stepped-up
Cost Basis
Adjustments
    Adjusted
Year Ended
December 31,
2014
 

Investment income

                   

Interest income(1)

  $ 85,123   $ (193 ) $ 84,930  

Dividend income

    2,309         2,309  

Other income

    4,491         4,491  

Investment income allocated from NMF Holdings

                   

Interest income(1)

    40,515         40,515  

Dividend income

    2,368         2,368  

Other income

    795         795  

Total investment income(2)

    135,601     (193 )   135,408  

Total expenses pre-incentive fee(3)

    43,766         43,766  

Pre-Incentive Fee Net Investment Income

    91,835     (193 )   91,642  

Incentive fee(4)

    11,769         11,769  

Post-Incentive Fee Net Investment Income

    80,066     (193 )   79,873  

Net realized gains (losses) on investments

    357     (456 )   (99 )

Net realized gains on investment allocated from NMF Holdings

    8,568         8,568  

Net change in unrealized (depreciation) appreciation of investments(5)

    (43,863 )   649     (43,214 )

Net change in unrealized appreciation (depreciation) of investments allocated from NMF Holdings

    940         940  

Provision for taxes

    (493 )       (493 )

Net increase in net assets resulting from operations

  $ 45,575         $ 45,575  

(1)
Includes $4,644 in PIK interest from investments.

(2)
Includes income from non-controlled/non-affiliated investments.

(3)
Includes expense waivers and reimbursements of $1,145 and management fee waivers of $686.

(4)
For the year ended December 31, 2014, the Company and the 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.

(5)
Includes net change in unrealized (depreciation) appreciation of investments from non-controlled/non-affiliated and non-controlled/affiliated investments.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

Note 5. Agreements (Continued)

          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 $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 years ended December 31, 2016, December 31, 2015 and December 31, 2014, approximately $1,641, $1,431 and $1,395, respectively, of indirect administrative expenses were included in administrative expenses of which $725, $733 and $770, respectively, of indirect administrative expenses were waived by the Administrator. As of December 31, 2016 and December 31, 2015, $0 and $374, respectively, of indirect administrative expenses were included in payable to affiliates as the expenses were payable to the Administrator.

          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, 2016, December 31, 2015 and December 31, 2014:

    Years Ended
December 31,
 

    2016     2015     2014
 

Administrative expenses

  $ 725   $ 733   $ 380  

Administrative expenses allocated from NMF Holdings

            390  

Professional fees

             

Professional fees allocated from NMF Holdings

            375  

Total expense reimbursement

  $ 725   $ 733   $ 1,145  

          As of December 31, 2016, December 31, 2015 and December 31, 2014, no expense waivers and reimbursements were receivable from an affiliate.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

Note 5. Agreements (Continued)

          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" 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.

Note 6. Related Parties

          The Company has entered into a number of business relationships with affiliated or related parties.

          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.

          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 its 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, to the Company's investment mandates. 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

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

Note 6. Related Parties (Continued)

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. On September 12, 2016, the Company filed an exemptive application with the SEC to permit the Company to co-invest with funds or entities managed by the Investment Adviser or its affiliates in certain negotiated transactions where co-investing would otherwise be prohibited under the 1940 Act. Any such order, if granted by the SEC, will be subject to certain terms and conditions. Furthermore, there is no assurance when, or if, this application for exemptive relief will be granted by the SEC.

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 SLF 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 permitted to borrow up to 25.0%, 45.0% or 70.0% of the purchase price of pledged assets, subject to approval by 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.

          Effective January 1, 2016, the Holdings Credit Facility bears interest at a rate of LIBOR plus 1.75% per annum for Broadly Syndicated Loans (as defined in the Loan and Security Agreement) and LIBOR plus 2.50% per annum for all other investments. Previously, the Holdings Credit Facility bore interest at a rate of 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

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

Note 7. Borrowings (Continued)

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.

          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, respectively, 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 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, non-usage fees and amortization of financing costs incurred, together, on the Holdings Credit Facility and the Predecessor Holdings Credit Facility for the years ended December 31, 2016, December 31, 2015 and December 31, 2014.

    Years Ended December 31,
 

    2016     2015     2014
 

Interest expense

  $ 9,546   $ 10,512   $ 7,147  

Non-usage fee

  $ 772   $ 500   $ 243  

Amortization of financing costs

  $ 1,615   $ 1,612   $ 893  

Weighted average interest rate

    2.8 %   2.6 %   2.9 %

Effective interest rate

    3.5 %   3.2 %   3.4 %

Average debt outstanding

  $ 341,055   $ 394,945   $ 244,598  

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

Note 7. Borrowings (Continued)

          As of December 31, 2016, December 31, 2015 and December 31, 2014, the outstanding balance on the Holdings Credit Facility was $333,513, $419,313 and $468,108, respectively, and NMF Holdings was in compliance with the applicable covenants in 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, 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 was set to 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 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 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. 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).

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

Note 7. Borrowings (Continued)

          The following table summarizes the interest expense, non-usage fees and amortization of financing costs incurred on the SLF Credit Facility for the years ended December 31, 2016, December 31, 2015 and December 31, 2014.

    Years Ended December 31,
 

    2016(1)     2015(1)     2014(2)
 

Interest expense

  $   $   $ 4,549  

Non-usage fee

  $   $   $ 28  

Amortization of financing costs

  $   $   $ 846  

Weighted average interest rate

     — %    — %   2.2 %

Effective interest rate

     — %    — %   2.6 %

Average debt outstanding

  $   $   $ 209,333  

(1)
Not applicable, as the SLF Credit Facility merged with and into the Holdings Credit Facility on December 18, 2014.

(2)
For the year ended December 31, 2014, amounts reported relate to the period from January 1, 2014 to December 17, 2014 (date of merger).

          As of December 31, 2014, the SLF Credit Facility had merged with the Holdings Credit Facility..

          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, Goldman Sachs Bank USA as the Administrative Agent and Collateral Agent, and Goldman Sachs Bank USA, Morgan Stanley Bank, N.A. and Stifel Bank & Trust 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.

          As of December 31, 2016, the maximum amount of revolving borrowings available under the NMFC Credit Facility was $122,500. 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 generally bears 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% per annum (as defined in the Senior Secured Revolving Credit Agreement).

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

Note 7. Borrowings (Continued)

          The following table summarizes the interest expense, non-usage fees and amortization of financing costs incurred on the NMFC Credit Facility for the years ended December 31, 2016, December 31, 2015 and December 31, 2014.

    Years Ended December 31,
 

    2016     2015     2014(1)
 

Interest expense

  $ 2,011   $ 1,653   $ 175  

Non-usage fee

  $ 183   $ 104   $ 86  

Amortization of financing costs

  $ 378   $ 360   $ 121  

Weighted average interest rate

    3.0 %   2.7 %   2.7 %

Effective interest rate

    3.8 %   3.5 %   3.4 %

Average debt outstanding

  $ 66,876   $ 60,477   $ 11,227  

(1)
For the year ended December 31, 2014, amounts reported relate to the period from June 4, 2014 (commencement of the NMFC Credit Facility) to December 31, 2014.

          As of December 31, 2016, December 31, 2015 and December 31, 2014, the outstanding balance on the NMFC Credit Facility was $10,000, $90,000 and $50,000, respectively, 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 $115,000 aggregate principal amount of 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, as amended (the "Securities Act"). As of the first anniversary, June 3, 2015, of the Convertible Notes, the restrictions under Rule 144A under the Securities Act were removed, allowing the Convertible Notes to be eligible and freely tradable without restrictions for resale pursuant to Rule 144(b)(1) under the Securities Act. On September 30, 2016, the Company closed a public offering of an additional $40,250 aggregate principal amount of the Convertible Notes. These additional Convertible Notes constitute a further issuance of, rank equally in right of payment with, and form a single series with the $115,000 aggregate principal amount of Convertible Notes that the Company issued on June 3, 2014.

          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, which commenced on December 15, 2014. The Convertible Notes will mature on June 15, 2019 unless earlier converted or repurchased at the holder's option.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

Note 7. Borrowings (Continued)

          The following table summarizes certain key terms related to the convertible features of the Company's Convertible Notes as of December 31, 2016.

  December 31, 2016
 

Initial conversion premium

  12.5 %

Initial conversion rate(1)

  62.7746  

Initial conversion price

  $15.93  

Conversion premium at December 31, 2016

  11.7 %

Conversion rate at December 31, 2016(1)(2)

  63.2794  

Conversion price at December 31, 2016(2)(3)

  $15.80  

Last conversion price calculation date

  June 3, 2016  

(1)
Conversion rates denominated in shares of common stock per $1 principal amount of the Convertible Notes converted.

(2)
Represents conversion rate and conversion price, as applicable, taking into account certain de minimis adjustments that will be made on the conversion date.

(3)
The conversion price in effect at December 31, 2016 was calculated on the last anniversary of the issuance and will be calculated again on the next anniversary, unless the exercise price shall have changed by more than 1.0% before the anniversary.

          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 $14.05 per share. In no event will the total number of shares of common stock issuable upon conversion exceed 71.1893 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 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 reflected in Note 12. Earnings Per Share, the issuance is considered 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, 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.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

Note 7. Borrowings (Continued)

          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.

          The following table summarizes the interest expense and amortization of financing costs incurred on the Convertible Notes for the years ended December 31, 2016, December 31, 2015 and December 31, 2014.

    Years Ended December 31,
 

  2016     2015     2014(1)    

Interest expense

  $ 6,259   $ 5,750   $ 3,322  

Amortization of financing costs

  $ 859   $ 743   $ 432  

Amortization of premium

  $ (28 ) $   $  

Effective interest rate

    5.7 %   5.6 %   5.6 %

Average debt outstanding

  $ 125,227   $ 115,000   $ 115,000  

(1)
For the year ended December 31, 2014, amounts reported relate to the period from June 3, 2014 (issuance of the Convertible Notes) to December 31, 2014.

          As of December 31, 2016, December 31, 2015 and December 31, 2014, the outstanding balance on the Convertible Notes was $155,250, $115,000 and $115,000, respectively, and NMFC was in compliance with the terms of the Indenture on such dates.

          Unsecured Notes — On May 6, 2016, the Company issued $50,000 in aggregate principal amount of five-year unsecured notes that mature on May 15, 2021 (the "Unsecured Notes"), pursuant to a note purchase agreement, dated May 4, 2016, to an institutional investor in a private placement. On September 30, 2016, the Company entered into an amended and restated note purchase agreement (the "NPA") and issued an additional $40,000 in aggregate principal amount of Unsecured Notes to institutional investors in a private placement. The NPA provides for future issuances of Unsecured Notes in separate series or tranches. The Unsecured Notes are equal in priority with the Company's other unsecured indebtedness, including the Company's Convertible Notes.

          The Unsecured Notes bear interest at an annual rate of 5.313%, payable semi-annually on May 15 and November 15 of each year, which commenced on November 15, 2016. This interest rate is subject to increase in the event that: (i) subject to certain exceptions, the Unsecured Notes or the Company cease to have an investment grade rating or (ii) the aggregate amount of the Company's unsecured debt falls below $150,000. In each such event, the Company has the option to offer to prepay the Unsecured Notes at par, in which case holders of the Unsecured Notes who accept the offer would not receive the increased interest rate. In addition, the Company is obligated to offer to prepay the Unsecured Notes at par if the Investment Adviser, or an affiliate thereof, ceases to be the Company's investment adviser or if certain change in control events occur with respect to the Investment Adviser.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

Note 7. Borrowings (Continued)

          The NPA contains customary terms and conditions for unsecured notes issued in a private placement, including, without limitation, an option to offer to prepay all or a portion of the Unsecured Notes at par (plus a make-whole amount, if applicable), affirmative and negative covenants such as information reporting, maintenance of the Company's status as a BDC under the 1940 Act and a RIC under the Code, minimum stockholders' equity, minimum asset coverage ratio, and prohibitions on certain fundamental changes at the Company or any subsidiary guarantor, as well as customary events of default with customary cure and notice, including, without limitation, nonpayment, misrepresentation in a material respect, breach of covenant, cross-default under other indebtedness of the Company or certain significant subsidiaries, certain judgments and orders, and certain events of bankruptcy.

          The following table summarizes the interest expense and amortization of financing costs incurred on the Unsecured Notes for the years ended December 31, 2016, December 31, 2015 and December 31, 2014.

    Years Ended December 31,
 

    2016(1)     2015(2)     2014(2)
 

Interest expense

  $ 2,271   $   $  

Amortization of financing costs

  $ 202   $   $  

Effective interest rate

    5.8 %   %   %

Average debt outstanding

  $ 65,500   $   $  

(1)
For the year ended December 31, 2016, amounts reported relate to the period from May 6, 2016 (issuance of the Unsecured Notes) to December 31, 2016.

(2)
Not applicable, as the Unsecured Notes were issued on May 6, 2016.

          As of December 31, 2016, the outstanding balance on the Unsecured Notes was $90,000 and the Company was in compliance with the terms of the NPA.

          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 for a single licensee is $150,000 as long as the licensee has at least $75,000 in regulatory capital, receives a

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

Note 7. Borrowings (Continued)

capital commitment from the SBA and has been through an examination by the SBA subsequent to licensing.

          As of December 31, 2016 and December 31, 2015, SBIC LP had regulatory capital of approximately $75,000 and $72,402, respectively, and SBA-guaranteed debentures outstanding of $121,745 and $117,745, respectively. The SBA-guaranteed debentures incur upfront fees of 3.425%, which consists of a 1.00% commitment fee and a 2.425% issuance discount, which are amortized over the life of the SBA-guaranteed debentures.

          The following table summarizes the Company's SBA-guaranteed debentures as of December 31, 2016.


Issuance Date
  Maturity Date     Debenture
Amount
 
  Interest
Rate
 
  SBA Annual
Charge
 
 

Fixed SBA-guaranteed debentures:

                       

March 25, 2015

  March 1, 2025   $ 37,500     2.517 %   0.355 %

September 23, 2015

  September 1, 2025     37,500     2.829 %   0.355 %

September 23, 2015

  September 1, 2025     28,795     2.829 %   0.742 %

March 23, 2016

  March 1, 2026     13,950     2.507 %   0.742 %

September 21, 2016

  September 1, 2026     4,000     2.051 %   0.742 %

Total SBA-guaranteed debentures

      $ 121,745              

          Prior to pooling, the SBA-guaranteed debentures bear interest at an interim floating rate of LIBOR plus 0.30%. Once pooled, which occurs in March and September each year, the SBA-guaranteed debentures bear interest at a fixed rate that is set to the current 10-year treasury rate plus a spread at each pooling date.

          The following table summarizes the interest expense and amortization of financing costs incurred on the SBA-guaranteed debentures for the years ended December 31, 2016, December 31, 2015 and December 31, 2014.

    Years Ended December 31,
 

    2016     2015     2014(1)
 

Interest expense

  $ 3,758   $ 1,701   $ 34  

Amortization of financing costs

  $ 403   $ 240   $ 12  

Weighted average interest rate

    3.1 %   2.4 %   0.9 %

Effective interest rate

    3.5 %   2.7 %   1.3 %

Average debt outstanding

  $ 119,819   $ 71,921   $ 29,167  

(1)
For the year ended December 31, 2014, amounts reported relate to the period from August 1, 2014 (receipt of the SBIC license) to December 31, 2014. The initial SBA-guaranteed debenture borrowing occurred on November 17, 2014.

          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

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

Note 7. Borrowings (Continued)

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, 2016, December 31, 2015 and 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 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 and be subject to tax 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 will 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). In addition, the Company must offer to make available to all eligible portfolio companies managerial assistance.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

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, 2016, the Company had unfunded commitments on revolving credit facilities of $27,915, no outstanding bridge financing commitments and other future funding commitments of $16,368. As of December 31, 2015, the Company had unfunded commitments on revolving credit facilities of $17,576, no outstanding bridge financing commitments and other future funding commitments of $8,678. The unfunded commitments on revolving credit facilities and delayed draws are disclosed on the Company's respective Consolidated Schedules of Investments.

          The Company also has revolving borrowings available under the Holdings Credit Facility and the NMFC Credit Facility as of December 31, 2016 and December 31, 2015. See Note 7. Borrowings, for details.

          The Company may from time to time enter into financing commitment letters. As of December 31, 2016 and December 31, 2015, the Company had commitment letters to purchase investments in the aggregate par amount of $14,818 and $0, respectively, which could require funding in the future.

          As of December 31, 2016 and December 31, 2015, the Company had unfunded commitments related to an equity investment in SLP II of $7,940 and $0, respectively, which may be funded at the Company's discretion.

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, 2016, December 31, 2015 and December 31, 2014, the Company's reclassifications of amounts for book purposes arising from permanent book/tax differences related to return of capital distributions were as follows:

    Years Ended December 31,
 

    2016     2015     2014
 

Undistributed net investment income

  $ (1,435 ) $ 141   $ (6,171 )

Distributions in excess of net realized gains

    (21,572 )       6,397  

Additional paid-in-capital

    23,007     (141 )   (226 )

          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

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

Note 10. Distributions (Continued)

tax character of distributions paid by the Company for the years ended December 31, 2016, December 31, 2015 and December 31, 2014 were estimated to be as follows:

    Years Ended December 31,
 

    2016     2015     2014
 

Ordinary income (non-qualified)

  $ 79,415   $ 80,967   $ 73,968  

Ordinary income (qualified)

            664  

Capital gains

            2,754  

Return of capital

    9,349     35     226  

Total

  $ 88,764   $ 81,002   $ 77,612  

          As of December 31, 2016, December 31, 2015 and December 31, 2014, the costs of investments for the Company for tax purposes were $1,602,607, $1,587,189 and $1,474,075, respectively.

    December 31, 2016(1)     December 31, 2015(1)
 

Tax cost

  $ 1,602,607   $ 1,587,189  

Gross unrealized appreciation on investments

    42,335     40,294  

Gross unrealized depreciation on investments

    (56,907 )   (85,555 )

Total investments at fair value

  $ 1,588,035   $ 1,541,928  

(1)
Includes securities purchased under collateralized agreement to resell.

          At December 31, 2016, December 31, 2015 and December 31, 2014, 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.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

Note 10. Distributions (Continued)

          As of December 31, 2016, December 31, 2015 and December 31, 2014, the Company's components of accumulated earnings (deficit) on a tax basis were as follows:

    Years Ended December 31,
 

    2016     2015     2014
 

Accumulated capital gains (capital loss carryforwards)

  $ (39,517 ) $ (19,081 ) $  

Other temporary differences

    2,072     2,991     4,775  

Undistributed ordinary income

             

Unrealized (appreciation) depreciation

    (26,093 )   (57,424 )   (30,383 )(1)

Total

  $ (63,538 ) $ (73,514 ) $ (25,608 )

(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, 2016, the Company does not expect to incur any excise taxes. For the years ended December 31, 2015 and December 31, 2014, the Company did not incur any excise taxes.

          The following information is hereby provided with respect to distributions declared during the calendar years ended December 31, 2016, December 31, 2015 and December 31, 2014:

    Years Ended December 31,
 

(unaudited)

    2016     2015     2014
 

Distributions per share

  $ 1.36   $ 1.36   $ 1.48  

Ordinary dividends

    89.46 %   99.96 %   96.16 %

Long-term capital gains

    %   %   3.55 %

Qualified dividend income

    %   %   0.89 %

Dividends received deduction

    %   %   %

Interest-related dividends(1)

    89.78 %   90.71 %   89.11 %

Qualified short-term capital gains(1)

    %   %   0.47 %

Return of capital

    10.54 %   0.04 %   0.29 %

(1)
Represents the portion of the taxable ordinary dividends eligible for exemption from U.S. withholding tax for nonresident aliens and foreign corporations.

          Dividends and distributions that were reinvested through the Company's dividend reinvestment plan are treated, for tax purposes, as if they had been paid in cash. Therefore, stockholders who participated in the dividend reinvestment plan should also refer to the information as provided in the table above.

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Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

Note 11. Net Assets

          The table below illustrates the effect of certain transactions on the net asset accounts of the Company:

  Common Stock       Treasury     Paid in     Accumulated
Undistributed
Net
    Accumulated
Undistributed
Net
Realized
    Net
Unrealized
       

  Shares     Par
Amount
 
  Stock
at Cost
 
  Capital in
Excess of Par
 
  Investment
Income
 
  Gains
(Losses)
 
  Appreciation
(Depreciation)
 
  Total
Net Assets
 
 

Balance at December 31, 2013

    45,224,755   $ 452   $   $ 633,383   $   $ 5,056   $ 11,216   $ 650,107  

Issuances of common stock

    12,773,135     128         184,698                 184,826  

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

                (250 )               (250 )

Deferred offering costs

                (476 )               (476 )

Distributions declared

                    (71,365 )   (6,247 )       (77,612 )

Net increase in net assets resulting from operations

                    80,066     8,925     (43,416 )   45,575  

Tax reclassifications related to return of capital distributions (See Note 10)

                (226 )   (6,171 )   6,397          

Balance at December 31, 2014

    57,997,890   $ 580   $   $ 817,129   $ 2,530   $ 14,131   $ (32,200 ) $ 802,170  

Issuances of common stock

    6,007,497     60         83,010                 83,070  

Deferred offering costs

                (285 )               (285 )

Distributions declared

                    (81,002 )           (81,002 )

Net increase (decrease) in net assets resulting from operations

                    82,495     (12,789 )   (36,751 )   32,955  

Tax reclassifications related to return of capital distributions (See Note 10)

                (141 )   141              

Balance at December 31, 2015

    64,005,387   $ 640   $   $ 899,713   $ 4,164   $ 1,342   $ (68,951 ) $ 836,908  

Issuances of common stock

    5,750,000     58         79,005                 79,063  

Repurchases of common stock

    (248,499 )       (2,948 )                   (2,948 )

Reissuance of common stock

    210,926         2,488     465                 2,953  

Deferred offering costs

                (328 )               (328 )

Distributions declared

                    (88,764 )           (88,764 )

Net increase (decrease) in net assets resulting from operations

                    88,108     (16,717 )   40,287     111,678  

Tax reclassifications related to return of capital distributions (See Note 10)

                23,007     (1,435 )   (21,572 )        

Balance at December 31, 2016

    69,717,814   $ 698   $ (460 ) $ 1,001,862   $ 2,073   $ (36,947 ) $ (28,664 ) $ 938,562  

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

Note 12. Earnings Per Share

          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, 2016, December 31, 2015 and December 31, 2014:

    Years Ended December 31,
 

    2016     2015     2014
 

Earnings per share — basic

                   

Numerator for basic earnings per share:

  $ 111,678   $ 32,955   $ 45,575  

Denominator for basic weighted average share:

    64,918,191     59,715,290     51,846,164  

Basic earnings per share:

  $ 1.72   $ 0.55   $ 0.88  

Earnings per share — diluted(1)

                   

Numerator for increase in net assets per share

  $ 111,678   $ 32,955   $ 45,575  

Adjustment for interest on Convertible Notes and incentive fees, net

    5,007     4,600     2,658  

Numerator for diluted earnings per share:

  $ 116,685   $ 37,555   $ 48,233  

Denominator for basic weighted average share

    64,918,191     59,715,290     51,846,164  

Adjustment for dilutive effect of Convertible Notes

    7,945,196     7,252,799     4,311,671  

Denominator for diluted weighted average share

    72,863,387     66,968,089     56,157,835  

Diluted earnings per share

  $ 1.60   $ 0.55   $ 0.86  

(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, 2015, there was anti-dilution. For the years ended December 31, 2016 and December 31, 2014, there was no anti-dilution.

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Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(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, 2016, December 31, 2015, December 31, 2014, December 31, 2013 and December 31, 2012.

    Years Ended December 31,
 

    2016     2015     2014     2013     2012
 

Per share data(1):

                               

Net asset value at the beginning of the period

  $ 13.08   $ 13.83   $ 14.38   $ 14.06   $ 13.60  

Net investment income

    1.36     1.38     1.10          

Net realized and unrealized gains (losses)(2)

    0.38     (0.77 )   (0.80 )        

Net increase (decrease) in net assets resulting from operations allocated from NMF Holdings:

                               

Net investment income(3)

            0.44     1.45     1.33  

Net realized and unrealized gains (losses)(2)(3)

            0.19     0.35     0.84  

Total net increase

    1.74     0.61     0.93     1.80     2.17  

Distributions declared to stockholders from net investment income

    (1.36 )   (1.36 )   (1.36 )   (1.45 )   (1.28 )

Distributions declared to stockholders from net realized gains

            (0.12 )   (0.03 )   (0.43 )

Net asset value at the end of the period

  $ 13.46   $ 13.08   $ 13.83   $ 14.38   $ 14.06  

Per share market value at the end of the period

  $ 14.10   $ 13.02   $ 14.94   $ 15.04   $ 14.90  

Total return based on market value(4)

    19.68 %   (4.00 )%   9.66 %   11.62 %   24.84 %

Total return based on net asset value(5)

    13.98 %   4.32 %   6.56 %   13.27 %   16.61 %

Shares outstanding at end of period

    69,717,814     64,005,387     57,997,890     45,224,755     24,326,251  

Average weighted shares outstanding for the period

    64,918,191     59,715,290     51,846,164     35,092,722     14,860,838  

Average net assets for the period

  $ 863,193   $ 832,805   $ 749,732   $ 502,822   $ 196,312  

Ratio to average net assets(6):

                               

Net investment income

    10.21 %   9.91 %   10.68 %   10.10 %   9.53 %

Total expenses, before waivers/reimbursements

    9.91 %   9.28 %   7.65 %   8.53 %   9.61 %

Total expenses, net of waivers/reimbursements

    9.27 %   8.57 %   7.41 %   8.13 %   8.55 %

(1)
Per share data is based on weighted average shares outstanding for the respective period (except for distributions declared to stockholders which is based on actual rate per share).

(2)
Includes the accretive effect of common stock issuances per share, which for the years ended December 31, 2016, December 31, 2015, December 31, 2014, December 31, 2013 and December 31, 2012 were $0.02, $0.06, $0.05, $0.04 and $0.03, respectively.

(3)
For the years ended December 31, 2014, December 31, 2013 and December 31, 2012, 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.

(4)
Total return is calculated assuming a purchase of common stock at the opening of the first day of the period and a sale on the closing of the last business 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.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

Note 13. Financial Highlights (Continued)

(5)
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.

(6)
Ratio to average net assets for the years ended December 31, 2014, 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. 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, 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 years ended December 31, 2016, December 31, 2015 and December 31, 2014 and NMF Holdings for the years ended December 31, 2013 and December 31, 2012.

    NMFC
Years Ended
December 31,
    NMF Holdings
Years Ended
December 31,
 

    2016     2015     2014     2013     2012
 

Average debt outstanding — Holdings Credit Facility(1)

  $ 341,055   $ 394,945   $ 243,693   $ 184,124   $ 133,600  

Average debt outstanding — SLF Credit Facility(2)

            208,377     214,317     181,395  

Average debt outstanding — Convertible Notes(3)

    125,227     115,000     115,000          

Average debt outstanding — SBA-guaranteed debentures(4)

    119,819     71,921     29,167          

Average debt outstanding — Unsecured Notes(5)

    65,500                  

Average debt outstanding — NMFC Credit Facility(6)

    66,876     60,477     11,227          

Asset coverage ratio(7)

    259.34 %   234.05 %   226.70 %   257.73 %   235.31 %

Portfolio turnover(8)

    36.07 %   33.93 %   29.51 %   40.52 %   52.02 %

(1)
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.

(2)
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 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.

(3)
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.

(4)
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.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

Note 13. Financial Highlights (Continued)

(5)
For the year ended December 31, 2016, average debt outstanding represents the period from May 6, 2016 (issuance of the Unsecured Notes) to December 31, 2016.

(6)
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.

(7)
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.

(8)
For the year ended December 31, 2014, portfolio turnover represents the investment activity of the Predecessor Operating Company and the Company.

Note 14. Selected Quarterly Financial Data (unaudited)

          The below selected quarterly financial data is for the Company.

    Total Investment
Income
    Net Investment
Income
    Total Net Realized
Gains (Losses) and
Net Changes in
Unrealized
Appreciation
(Depreciation) of
Investments(1)
    Net Increase
(Decrease) in Net
Assets Resulting
from Operations
 

Quarter Ended
  Total     Per Share     Total     Per Share     Total     Per Share     Total     Per Share    

December 31, 2016

  $ 43,784   $ 0.64   $ 22,980   $ 0.34   $ 10,875   $ 0.16   $ 33,855   $ 0.50  

September 30, 2016

    41,834     0.66     21,729     0.34     3,350     0.05     25,079     0.39  

June 30, 2016

    41,490     0.65     21,832     0.34     22,861     0.36     44,693     0.70  

March 31, 2016

    40,976     0.64     21,567     0.34     (13,516 )   (0.21 )   8,051     0.13  

December 31, 2015

 
$

41,967
 
$

0.66
 
$

22,521
 
$

0.35
 
$

(42,548

)

$

(0.66

)

$

(20,027

)

$

(0.31

)

September 30, 2015

    37,447     0.64     20,659     0.35     (10,855 )   (0.18 )   9,804     0.17  

June 30, 2015

    37,905     0.65     20,253     0.35     11         20,264     0.35  

March 31, 2015

    36,536     0.63     19,062     0.33     3,852     0.07     22,914     0.40  

December 31, 2014

 
$

36,748
 
$

0.65
 
$

25,919
 
$

0.46
 
$

(34,865

)

$

(0.62

)

$

(8,946

)

$

(0.16

)

September 30, 2014

    34,706     0.67     20,800     0.40     (13,389 )   (0.26 )   7,411     0.14  

June 30, 2014

    33,708     0.65     17,289     0.34     6,373     0.12     23,662     0.46  

March 31, 2014

    30,439     0.65     16,058     0.34     7,390     0.16     23,448     0.50  

(1)
Includes securities purchased under collateralized agreements to resell, benefit (provision) for taxes and the accretive effect of common stock issuances per share, if applicable.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

Note 15. Recent Accounting Standards Updates

          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 Company adopted ASU 2014-15 and the adoption did not have an impact on the Company's consolidated financial statements and disclosures as of December 31, 2016.

          In February 2015, the FASB issued Accounting Standards Update No. 2015-02, Consolidation Topic 810 — Amendments to the Consolidation Analysis ("ASU 2015-02"), which modifies the consolidation analysis in determining if limited partnerships or similar type entities fall under the variable interest model or voting interest model, particularly those that have fee arrangements and related party relationships. ASU 2015-02 was effective for all public entities for interim and annual reporting periods beginning after December 15, 2015. On January 1, 2016, the Company adopted ASU 2015-02. The adoption did not have an impact on the Company's consolidated financial statements and disclosures.

          In April 2015, the FASB issued Accounting Standards Update No. 2015-03, Interest — Imputation of Interest Subtopic 835-30 — Simplifying the Presentation of Debt Issuance Costs ("ASU 2015-03"), which changes the presentation of debt issuance costs in financial statements. Under ASU 2015-03, an entity presents such costs on the statement of assets and liabilities as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs is reported as interest expense. The new standard was effective for all public entities for interim and annual reporting periods beginning after December 15, 2015. On January 1, 2016, the Company adopted ASU 2015-03. Upon adoption, the Company revised its presentation of deferred financing costs from an asset to a liability, which is a direct deduction to its debt on the Consolidated Statements of Assets and Liabilities. In addition, the Company retrospectively revised its presentation of $13,992 of deferred financing costs that were previously presented as an asset as of December 31, 2015, which resulted in a decrease to total assets and total liabilities as of December 31, 2015.

          In January 2016, the FASB issued Accounting Standards Update No. 2016-01, Financial Instruments — Overall Subtopic 825-10 — Recognition and Measurement of Financial Assets and Financial Liabilities ("ASU 2016-01"). ASU 2016-01 amends certain aspects of recognition, measurement, presentation and disclosure of financial assets and liabilities. ASU 2016-01 is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The new guidance must be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair values (including disclosure requirements) should be applied prospectively to equity investments that exist as of the date of adoption of ASU 2016-01. The Company is in the process of evaluating the impact that this guidance will have on the Company's consolidated financial statements and disclosures.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2016

(in thousands, except share data)

Note 16. Subsequent Events

          On January 12, 2017, the SBA issued a "green light" letter inviting the Company to continue its application process to obtain a second license to form and operate a second SBIC subsidiary. If approved, the additional SBIC license would provide the Company 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 the Company has received no assurance or indication from the SBA that it will receive an additional SBIC license, or of the timeframe in which it would receive an additional license, should one ultimately be granted.

          On February 23, 2017, the Company's board of directors declared a first quarter 2017 distribution of $0.34 per share payable on March 31, 2017 to holders of record as of March 17, 2017.

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PROSPECTUS

$250,000,000

New Mountain Finance Corporation

Common Stock
Preferred Stock
Subscription Rights
Warrants
Debt Securities



           New Mountain Finance Corporation ("NMFC", the "Company", "we", "us" and "our") is a Delaware corporation that was originally incorporated on June 29, 2010. We are a close-end, non-diversified management investment company that has elected to be regulated as a business development company under the Investment Company Act of 1940, as amended. Our 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, our investments may also include equity interests. Our 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.

           The investments that we invest in are almost entirely rated below investment grade or may be unrated, which are often referred to as "leveraged loans", "high yield" or "junk" debt investments, and may be considered "high risk" or speculative compared to debt investments that are rated investment grade. 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 our net asset value and income distributions. Our investments are also primarily floating rate debt investments that contain interest reset provisions that may make it more difficult for borrowers to make debt repayments to us if interest rates rise. In addition, some of our 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. Our debt investments may also lose significant market value before a default occurs. Furthermore, an active trading market may not exist for these securities. This illiquidity may make it more difficult to value our investments.

           We may offer, from time to time, in one or more offerings or series, up to $250,000,000 of common stock, preferred stock, subscription rights to purchase shares of common stock, debt securities or warrants, which we refer to, collectively, as the "securities". The preferred stock, subscription rights, debt securities and warrants offered hereby may be convertible or exchangeable into shares of common stock. The securities may be offered at prices and on terms to be described in one or more supplements to this prospectus.

           In the event we offer common stock, the offering price per share of our common stock less any underwriting discounts or commissions will generally not be less than the net asset value per share of our common stock at the time we make the offering. However, we may issue shares of our common stock pursuant to this prospectus at a price per share that is less than its net asset value per share (i) in connection with a rights offering to our existing stockholders, (ii) with the prior approval of the majority of our common stockholders or (iii) under such other circumstances as the United States Securities and Exchange Commission may permit.

           The securities may be offered directly to one or more purchasers, or through agents designated from time to time by us, or to or through underwriters or dealers. Each prospectus supplement relating to an offering will identify any agents or underwriters involved in the sale of the securities, and will disclose any applicable purchase price, fee, discount or commissions arrangement between us and our agents or underwriters or among our underwriters or the basis upon which such amount may be calculated. See "Plan of Distribution". We may not sell any of the securities through agents, underwriters or dealers without delivery of this prospectus and a prospectus supplement describing the method and terms of the offering of such securities.

           Our common stock is traded on the New York Stock Exchange under the symbol "NMFC". On October 4, 2016, the last reported sales price on the New York Stock Exchange for our common stock was $13.79 per share.



           An investment in our common stock is very risky and highly speculative. Shares of closed-end investment companies, including business development companies, frequently trade at a discount to their net asset value. In addition, the companies in which we invest are subject to special risks. See "Risk Factors" beginning on page 30 to read about factors you should consider, including the risk of leverage, before investing in our common stock.



           Neither the United States Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

           This prospectus may not be used to consummate sales of our securities unless accompanied by a prospectus supplement.

           Please read this prospectus and any accompanying prospectus supplements before investing and keep each for future reference. This prospectus and any accompanying prospectus supplements contain important information about us that a prospective investor ought to know before investing in our securities. We file annual, quarterly and current reports, proxy statements and other information with the United States Securities and Exchange Commission (http://www.sec.gov), which is available free of charge by contacting us by mail at 787 Seventh Avenue, 48th Floor, New York, New York 10019 or on our website at http://www.newmountainfinance.com.

   

October 7, 2016


Table of Contents

          You should rely only on the information contained in this prospectus and any accompanying prospectus supplement. We have not authorized any dealer, salesman or other person to give any information or to make any representation other than those contained in this prospectus or any prospectus supplement to this prospectus. You must not rely upon any information or representation not contained in this prospectus or any such supplements as if we had authorized it. This prospectus and any such supplements do not constitute an offer to sell or a solicitation of any offer to buy any security other than the registered securities to which they relate, nor do they constitute an offer to sell or a solicitation of an offer to buy any securities in any jurisdiction to any person to whom it is unlawful to make such an offer or solicitation in such jurisdiction. The information contained in this prospectus and any such supplements is accurate as of the dates on their covers. Our business, financial condition, results of operations and prospects may have changed since then.


TABLE OF CONTENTS

ABOUT THIS PROSPECTUS

    ii  

PROSPECTUS SUMMARY

    1  

THE OFFERING

    12  

FEES AND EXPENSES

    17  

SELECTED FINANCIAL AND OTHER DATA

    20  

SELECTED QUARTERLY FINANCIAL DATA

    25  

DESCRIPTION OF RESTRUCTURING

    26  

RISK FACTORS

    30  

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

    64  

USE OF PROCEEDS

    66  

PRICE RANGE OF COMMON STOCK AND DISTRIBUTIONS

    67  

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

    70  

SENIOR SECURITIES

    108  

BUSINESS

    110  

PORTFOLIO COMPANIES

    126  

MANAGEMENT

    133  

PORTFOLIO MANAGEMENT

    143  

INVESTMENT MANAGEMENT AGREEMENT

    145  

ADMINISTRATION AGREEMENT

    153  

LICENSE AGREEMENT

    153  

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    154  

CONTROL PERSONS AND PRINCIPAL STOCKHOLDERS

    156  

DETERMINATION OF NET ASSET VALUE

    158  

DIVIDEND REINVESTMENT PLAN

    161  

DESCRIPTION OF SECURITIES

    163  

DESCRIPTION OF CAPITAL STOCK

    163  

DESCRIPTION OF PREFERRED STOCK

    168  

DESCRIPTION OF SUBSCRIPTION RIGHTS

    169  

DESCRIPTION OF WARRANTS

    171  

DESCRIPTION OF DEBT SECURITIES

    173  

MATERIAL FEDERAL INCOME TAX CONSIDERATIONS

    189  

REGULATION

    200  

PLAN OF DISTRIBUTION

    207  

SAFEKEEPING AGENT, TRANSFER AND DISTRIBUTION PAYING AGENT AND REGISTRAR

    210  

BROKERAGE ALLOCATION AND OTHER PRACTICES

    210  

LEGAL MATTERS

    210  

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

    210  

AVAILABLE INFORMATION

    211  

PRIVACY NOTICE

    211  

INDEX TO FINANCIAL STATEMENTS

    F-1  

Table of Contents

ABOUT THIS PROSPECTUS

          This prospectus is part of a registration statement that we have filed with the United States Securities and Exchange Commission ("SEC"), using the "shelf" registration process. Under the shelf registration process, which constitutes a delayed offering in reliance on Rule 415 under the Securities Act of 1933, as amended (the "Securities Act"), we may offer, from time to time, in one or more offerings, up to $250,000,000 of common stock, preferred stock, subscription rights to purchase shares of common stock, debt securities or warrants, on terms to be determined at the time of the offering. The securities may be offered at prices and on terms described in one or more supplements to this prospectus. This prospectus provides you with a general description of our offerings of securities that we may conduct pursuant to this prospectus. Each time we use this prospectus to offer securities, we will provide a prospectus supplement that will contain specific information about the terms of that offering. A prospectus supplement may also add, update or change information contained in this prospectus.

          Please carefully read this prospectus and any such supplements together with any exhibits and the additional information described under "Available Information" and in the "Summary" and "Risk Factors" sections before you make an investment decision.

ii


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PROSPECTUS SUMMARY

          The following summary contains basic information about offerings pursuant to this prospectus. It may not contain all the information that is important to you. For a more complete understanding of offerings pursuant to this prospectus, we encourage you to read this entire prospectus and the documents to which we have referred in this prospectus, together with any accompanying prospectus supplements, including the risks set forth under the caption "Risk Factors" in this prospectus and any accompanying prospectus supplement and the information set forth under the caption "Available Information" in this prospectus.

          In this prospectus, unless the context otherwise requires, references to:

1


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          For the periods prior to and as of December 31, 2013, all financial information provided in this prospectus reflects our organizational structure prior to the restructuring on May 8, 2014 described under "Description of Restructuring", where NMF Holdings functioned as the operating company.


Overview

New Mountain Finance Corporation

          We are a Delaware corporation that was originally incorporated on June 29, 2010. We are 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, we are obligated to comply with certain regulatory requirements. We have elected to be treated, and intend 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"). We are also registered as an investment adviser under the Investment Advisers Act of 1940, as amended (the "Advisers Act").

          On May 19, 2011, we priced our 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, we sold an additional 2,172,000 shares of our 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 our IPO and through a series of transactions, NMF Holdings 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. See "Material Federal Income Tax Considerations". For additional information on our organizational structure prior to May 8, 2014, see "Description of Restructuring".

          Until May 8, 2014, NMF Holdings was externally managed by the Investment Adviser. As of May 8, 2014, the Investment Adviser serves as our external investment adviser. The Administrator provides the administrative services necessary for operations. The Investment Adviser and

2


Table of Contents

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 us. 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 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.

          Prior to December 18, 2014, 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 us. NMF SLF was bankruptcy-remote and non-recourse to us. As part of an amendment to our existing credit facilities with Wells Fargo Bank, National Association, NMF SLF merged with and into NMF Holdings on December 18, 2014. See "Management's Discussion and Analysis of Financial Conditions and Results of Operations — Liquidity and Capital Resources — Borrowings" for additional information on our borrowings.

Current Organization

          Our wholly-owned subsidiaries, NMF Ancora Holdings Inc. ("NMF Ancora"), NMF QID NGL Holdings, Inc. ("NMF QID") and NMF YP Holdings Inc. ("NMF YP"), 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). We consolidate our tax blocker corporations for accounting purposes. The tax blocker corporations are not consolidated for income tax purposes and may incur income tax expense as a result of their ownership of the portfolio companies. Additionally, our wholly-owned subsidiary, New Mountain Finance Servicing, L.L.C. ("NMF Servicing") serves as the administrative agent on certain investment transactions. SBIC LP, and its general partner, SBIC GP, were organized in Delaware as a limited partnership and limited liability company, respectively. SBIC LP and SBIC GP are our consolidated wholly-owned direct and indirect subsidiaries. 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").

   


(1)
Includes amounts committed, not all of which have been drawn down and invested to-date, as of June 30, 2016, as well as amounts called and returned since inception.

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          The diagram below depicts our organizational structure as of October 4, 2016.

GRAPHIC


*
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.

          Our 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, our 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 us, SBIC LP's investment objective is to generate current income and capital appreciation under our investment criteria. However, SBIC LP's investments must be in SBA eligible companies. Our portfolio may be concentrated in a limited number of industries. As of June 30, 2016, our top five industry concentrations were business services, software, education, federal services and distribution & logistics.

          The investments that we invest in are almost entirely rated below investment grade or may be unrated, which are often referred to as "leveraged loans", "high yield" or "junk" debt investments, and may be considered "high risk" or speculative compared to debt investments that are rated investment grade. 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 our net asset value and income distributions. Our investments are also primarily floating rate debt investments that contain interest reset provisions that may make it more difficult for borrowers to make debt repayments to us if interest rates rise. In addition, some of our 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. Our debt investments may also lose significant market value before a default occurs. Furthermore, an active trading market may not exist for these securities. This illiquidity may make it more difficult to value our investments.

          As of June 30, 2016, our net asset value was $843.3 million and our portfolio had a fair value of approximately $1,498.1 million in 72 portfolio companies, with a weighted average yield to maturity at cost ("Yield to Maturity at Cost") of approximately 10.3%. This Yield to Maturity at Cost

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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 accounting principles generally accepted in the United States of America ("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 our portfolio or other factors.


Recent Developments

Appointment of President

          John R. Kline was promoted to be our President on July 19, 2016 in addition to maintaining his role as our Chief Operating Officer. Robert A. Hamwee, who previously held the title of President and Chief Executive Officer ("CEO"), will continue in his capacity as our CEO.

Distribution

          On August 2, 2016, our board of directors declared a third quarter 2016 distribution of $0.34 per share, which was paid on September 30, 2016 to holders of record as of September 16, 2016.

New Mountain Net Lease Corporation

          New Mountain Net Lease Corporation ("NMNLC") was formed as a Maryland corporation on April 18, 2016 and commenced operations on August 12, 2016. NMNLC was formed to acquire commercial real properties that are subject to "triple net" leases and to qualify as a real estate investment trust (a "REIT") within the meaning of Section 856(a) of the Code. We have determined that NMNLC is not an investment company under Accounting Standards Codification Topic 946, Financial Services — Investment Companies and in accordance with such guidance we will generally not consolidate our investment in a company other than a wholly-owned investment company subsidiary. Accordingly, NMNLC is a wholly-owned non-consolidated portfolio company of NMFC.

Convertible Notes Offering

          On September 30, 2016, we closed a public offering of an additional $40.25 million in aggregate principal amount (including $5.25 million in aggregate principal amount issued pursuant to the underwriters' overallotment option) of our Convertible Notes. These additional Convertible Notes constitute a further issuance of, rank equally in right of payment with, and form a single series with the $115.0 million in aggregate principal amount of the Convertible Notes that we issued on June 3, 2014, pursuant to the Indenture. See "Management's Discussion and Analysis of Financial Conditions and Results of Operations — Liquidity and Capital Resources — Borrowings" for a discussion of the terms of the Convertible Notes.

Unsecured Notes

          On September 30, 2016, we entered into an amended and restated note purchase agreement (the "Amended Note Purchase Agreement") related to our existing Unsecured Notes. The Amended Note Purchase Agreement amends and restates the Note Purchase Agreement dated May 4, 2016 (the "Existing NPA"), pursuant to which we issued $50.0 million in aggregate principal amount of the Unsecured Notes in May 2016. The Amended Note Purchase Agreement was entered into in connection with the issuance of an additional $40.0 million in aggregate principal amount of the

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Unsecured Notes to institutional investors in a private placement, which closed on September 30, 2016. The Amended Note Purchase Agreement also amended and restated the Existing NPA to provide for future issuances of Unsecured Notes in separate series or tranches under the Amended Note Purchase Agreement and supplements thereto. See "Management's Discussion and Analysis of Financial Conditions and Results of Operations — Liquidity and Capital Resources — Borrowings" for a discussion of the terms of the Unsecured Notes.


The Investment Adviser

          The Investment Adviser, a wholly-owned subsidiary of New Mountain Capital, manages our day-to-day operations and provides us 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 our investments and monitoring and servicing our investments. We currently do not have, and do not intend to have, any employees. As of June 30, 2016, the Investment Adviser was supported by approximately 100 staff members of New Mountain Capital, including approximately 60 investment professionals.

          The Investment Adviser is managed by a five member investment committee (the "Investment Committee"), which is responsible for approving purchases and sales of our investments above $10.0 million in aggregate by issuer. The Investment Committee currently consists of Steven B. Klinsky, Robert A. Hamwee, Adam B. Weinstein and John R. Kline. The fifth and final member of the Investment Committee will consist of a New Mountain Capital Managing Director who will hold the position on the Investment Committee on an annual rotating basis. Beginning in August 2016, Mathew J. Lori was appointed to the Investment Committee for a one year term. In addition, our executive officers and certain investment professionals of the Investment Adviser are invited to all Investment Committee meetings. Purchases and dispositions below $10.0 million may be approved by our 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.


Competitive Advantages

          We believe that we have the following competitive advantages over other capital providers to middle market companies:

Proven and Differentiated Investment Style With Areas of Deep Industry Knowledge

          In making its investment decisions, the Investment Adviser applies New Mountain Capital's long-standing, consistent investment approach that has been in place since its founding more than 15 years ago. We focus on companies in defensive growth niches of the middle market space where we believe few debt funds have built equivalent research and operational size and scale.

          We benefit directly from New Mountain Capital's private equity investment strategy that seeks to identify attractive investment sectors from the top down and then works to become a well positioned investor in these sectors. New Mountain Capital focuses on companies and industries with sustainable strengths in all economic cycles, particularly ones that are defensive in nature, that have secular tailwinds and can maintain pricing power in the midst of a recessionary and/or inflationary environment. New Mountain Capital focuses on companies within sectors in which it has significant expertise (examples include software, education, niche healthcare, business services, federal services and distribution & logistics) while typically avoiding investments in companies with products or services that serve markets that are highly cyclical, have the potential for long-term decline, are overly-dependent on consumer demand or are commodity-like in nature.

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          In making its investment decisions, the Investment Adviser has adopted the approach of New Mountain Capital, which is based on three primary investment principles:

Experienced Management Team and Established Platform

          The Investment Adviser's team members have extensive experience in the leveraged lending space. Steven B. Klinsky, New Mountain Capital's Founder, Chief Executive Officer and Managing Director and Chairman of our board of directors, was a general partner of Forstmann Little & Co., a manager of debt and equity funds totaling multiple billions of dollars in the 1980s and 1990s. He was also a co-founder of Goldman, Sachs & Co.'s Leverage Buyout Group in the period from 1981 to 1984. Robert A. Hamwee, our Chief Executive Officer and Managing Director of New Mountain Capital, was formerly President of GSC Group, Inc. ("GSC"), where he was the portfolio manager of GSC's distressed debt funds and led the development of GSC's CLOs. John R. Kline, our President and Chief Operating Officer and Managing Director of New Mountain Capital, worked at GSC as an investment analyst and trader for GSC's control distressed and corporate credit funds and at Goldman, Sachs & Co. in the Credit Risk Management and Advisory Group.

          Many of the debt investments that we have made to date have been in the same companies with which New Mountain Capital has already conducted months of intensive acquisition due diligence related to potential private equity investments. We believe that private equity underwriting due diligence is usually more robust than typical due diligence for loan underwriting. In its underwriting of debt investments, the Investment Adviser is able to utilize the research and hands-on operating experience that New Mountain Capital's private equity underwriting teams possess regarding the individual companies and industries. Business and industry due diligence is led by a team of investment professionals of the Investment Adviser that generally consists of three to seven individuals, typically based on their relevant company and/or industry specific knowledge. Additionally, the Investment Adviser is also able to utilize its relationships with operating management teams and other private equity sponsors. We believe this differentiates us from many of our competitors.

Significant Sourcing Capabilities and Relationships

          We believe the Investment Adviser's ability to source attractive investment opportunities is greatly aided by both New Mountain Capital's historical and current reviews of private equity opportunities in the business segments we target. To date, a significant majority of the investments that we have made are in the debt of companies and industry sectors that were first identified and reviewed in connection with New Mountain Capital's private equity efforts, and the majority of our current pipeline reflects this as well. Furthermore, the Investment Adviser's investment professionals have deep and longstanding relationships in both the private equity sponsor community and the lending/agency community which they have and will continue to utilize to generate investment opportunities.

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Risk Management through Various Cycles

          New Mountain Capital has emphasized tight control of risk since its inception and long before the recent global financial distress began. To date, New Mountain Capital has never experienced a bankruptcy of any of its portfolio companies in its private equity efforts. The Investment Adviser seeks to emphasize tight control of risk with our investments in several important ways, consistent with New Mountain Capital's historical approach. In particular, the Investment Adviser:

Access to Non Mark to Market, Seasoned Leverage Facility

          The amount available under the Holdings Credit Facility is generally not subject to reduction as a result of mark to market fluctuations in our portfolio investments. None of our credit facilities mature prior to June 2019. For a detailed discussion of our credit facilities, see "Management's Discussion and Analysis of Financial Conditions and Results of Operations — Liquidity and Capital Resources".


Market Opportunity

          We believe that the size of the market for investments that we target, coupled with the demands of middle market companies for flexible sources of capital at competitive terms and rates, create an attractive investment environment for us.

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Operating and Regulatory Structure

          We are a closed-end, non-diversified management investment company that has elected to be regulated as a BDC under the 1940 Act and are required to maintain an asset coverage ratio, as defined in the 1940 Act, of at least 200.0%. We include the assets and liabilities of our consolidated subsidiaries for purposes of satisfying the requirements under the 1940 Act. See "Regulation — Senior Securities" in this prospectus.

          We have elected to be treated, and intend to comply with the requirements to continue to qualify annually, as a RIC under Subchapter M of the Code. See "Material Federal Income Tax Considerations" in this prospectus. As a RIC, we generally will not be subject to corporate-level U.S. federal income taxes on any net ordinary income or capital gains that we timely distribute to our stockholders as dividends if it meets certain source-of-income, distribution and asset diversification requirements. We intend to distribute to our stockholders substantially all of our annual taxable income except that we may retain certain net capital gains for reinvestment.


Risks

          An investment in our securities involves risk, including the risk of leverage and the risk that our operating policies and strategies may change without prior notice to our stockholders or prior stockholder approval. See "Risk Factors" and the other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our securities. The value of our assets, as well as the market price of our securities, will fluctuate. Our investments may be risky, and you may lose all or part of your investment. Investing in us involves other risks, including the following:

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Company Information

          Our administrative and executive offices are located at 787 Seventh Avenue, 48th Floor, New York, New York 10019, and our telephone number is (212) 720-0300. We maintain a website at www.newmountainfinance.com. Information contained on our website is not incorporated by reference into this prospectus, and you should not consider information contained on our website to be part of this prospectus.


Presentation of Historical Financial Information and Market Data

Historical Financial Information

          Unless otherwise indicated, historical references contained in this prospectus for periods prior to and as of December 31, 2013 in "Selected Financial and Other Data", "Selected Quarterly Data", "Management's Discussion and Analysis of Financial Condition and Results of Operations", "Senior

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Securities" and "Portfolio Companies" relate to NMF Holdings. The consolidated financial statements of New Mountain Finance Holdings, L.L.C., formerly known as New Mountain Guardian (Leveraged), L.L.C., and New Mountain Guardian Partners, L.P. are NMF Holdings' historical consolidated financial statements.

Market Data

          Statistical and market data used in this prospectus has been obtained from governmental and independent industry sources and publications. We have not independently verified the data obtained from these sources, and we cannot assure you of the accuracy or completeness of the data. Forward-looking information obtained from these sources is subject to the same qualifications and the additional uncertainties regarding the other forward-looking statements contained in this prospectus. See "Cautionary Statement Regarding Forward-Looking Statements".

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THE OFFERING

          We may offer, from time to time, up to $250,000,000 of common stock, preferred stock, subscription rights to purchase shares of common stock, debt securities or warrants, on terms to be determined at the time of each offering. We will offer our securities at prices and on terms to be set forth in one or more supplements to this prospectus. The offering price per share of our securities, less any underwriting commissions or discounts, generally will not be less than the net asset value per share of our securities at the time of an offering. However, we may issue securities pursuant to this prospectus at a price per share that is less than our net asset value per share (i) in connection with a rights offering to our existing stockholders, (ii) with the prior approval of the majority of our common stockholders or (iii) under such other circumstances as the SEC may permit. Any such issuance of shares of our common stock below net asset value may be dilutive to the net asset value of our common stock. See "Risk Factors — Risks Relating to Offerings Pursuant to this Prospectus".

          Our securities may be offered directly to one or more purchasers, or through agents designated from time to time by us, or to or through underwriters or dealers. The prospectus supplement relating to an offering will identify any agents or underwriters involved in the sale of our securities, and will disclose any applicable purchase price, fee, commission or discount arrangement between us and our agents or underwriters or among our underwriters or the basis upon which such amount may be calculated. See "Plan of Distribution". We may not sell any of our securities through agents, underwriters or dealers without delivery of this prospectus and a prospectus supplement describing the method and terms of the offering of securities.

          Set forth below is additional information regarding offerings of securities pursuant to this prospectus:

Use of Proceeds

  Unless otherwise specified in a prospectus supplement, we intend to use the net proceeds from the sale of our securities for new investments in portfolio companies in accordance with our investment objective and strategies described in this prospectus, to temporarily repay indebtedness (which will be subject to reborrowing), to pay our operating expenses and distributions to our stockholders and for general corporate purposes, and other working capital needs. Proceeds not immediately used for new investments or the temporary repayment of debt will be invested in cash, cash equivalents, U.S. government securities and other high-quality investments that mature in one year or less from the date of the investment. These securities may have lower yields than the types of investments we would typically make in accordance with our investment objective and, accordingly, may result in lower distributions, if any, during such period. Each supplement to this prospectus relating to an offering will more fully identify the use of the proceeds from such offering. See "Use of Proceeds".

New York Stock Exchange Symbol

 

"NMFC"

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Investment Advisory Fees

 

We pay the Investment Adviser a fee for its services under an investment advisory and management agreement (the "Investment Management Agreement") consisting of two components — a base management fee and an incentive fee. Pursuant to the Investment Management Agreement, the base management fee is calculated at an annual rate of 1.75% of our gross assets, which equals our total assets on the Consolidated Statements of Assets and Liabilities, less (i) the borrowings under 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 our gross assets, which equals our total assets, as determined in accordance with GAAP, less the 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. We have not invested, and currently do not invest, in derivatives. To the extent we invest in derivatives in the future, we will use the actual value of the derivatives, as reported on our Consolidated Statements of Assets and Liabilities, for purposes of calculating our base management fee. Since our IPO, the base management fee calculation has deducted the borrowings under the SLF Credit Facility. The SLF Credit Facility had historically consisted of primarily lower yielding assets at higher advance rates. As part of an amendment to our 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. Post credit facility merger and to be consistent with the methodology since our IPO, the Investment Adviser will continue to 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 Adviser cannot recoup management fees that the Investment Adviser has previously waived. The incentive fee consists of two parts. The first part is calculated and payable quarterly in arrears and equals 20.0% of our "Pre-Incentive Fee Adjusted Net Investment Income" for the immediately preceding quarter, subject to a "preferred return", or "hurdle", and a "catch-up" feature each as described in the Investment Management Agreement. 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 our "Adjusted Realized Capital Gains", if any, on a cumulative basis from inception through the end of the 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 each as described in the Investment Management Agreement. See "Investment Management Agreement".

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Administrator

 

The Administrator serves as our administrator and arranges our office space and provides us with office equipment and administrative services. The Administrator performs, or oversees the performance of, our financial records, prepares reports to our stockholders and reports filed by us with the SEC, monitors the payment of our expenses, and oversees the performance of administrative and professional services rendered to us by others. We reimburse the Administrator for our allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations to us under an administration agreement, as amended and restated (the "Administration Agreement"). For the six months ended June 30, 2016, we incurred approximately $0.9 million of indirect administrative expenses, of which $0.3 million of indirect administrative expenses were waived by the Administrator. The Administrator cannot recoup any expenses that the Administrator has previously waived. For the six months ended June 30, 2016, we reimbursed our Administrator approximately $0.6 million, which represents approximately 0.1% of our gross assets on an annualized basis. See "Administration Agreement".

Distributions

 

We intend to pay quarterly distributions to our stockholders out of assets legally available for distribution. The quarterly distributions, if any, will be determined by our board of directors. The distributions we pay to our stockholders in a year may exceed our taxable income for that year and, accordingly, a portion of such distributions may constitute a return of capital, which is a return of a portion of a shareholder's original investment in our common stock, for U.S. federal income tax purposes. Generally, a return of capital will reduce an investor's basis in our stock for U.S. federal income tax purposes, which will result in a higher tax liability when the stock is sold. The specific tax characteristics of our distributions will be reported to stockholders after the end of the calendar year. See "Price Range of Common Stock and Distributions".

Taxation of NMFC

 

We have elected to be treated, and intend to comply with the requirements to continue to qualify annually, as a RIC under Subchapter M of the Code. As a RIC, we generally will not pay corporate-level U.S. federal income taxes on any net ordinary income or capital gains that are timely distributed to our stockholders as dividends. To maintain our RIC status, we must meet specified source-of-income and asset diversification requirements and distribute annually to our stockholders at least 90.0% of our net ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any. See "Price Range of Common Stock and Distributions" and "Material Federal Income Tax Considerations".

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Dividend Reinvestment Plan

 

We have adopted an "opt out" dividend reinvestment plan for our stockholders. As a result, if we declare a distribution, then your cash distributions will be automatically reinvested in additional shares of our common stock, unless you specifically "opt out" of the dividend reinvestment plan so as to receive cash distributions. Stockholders who receive distributions in the form of stock will be subject to the same U.S. federal income tax consequences as stockholders who elect to receive their distributions in cash. We will use only newly issued shares to implement the plan if the price at which newly issued shares are to be credited is equal to or greater than 110.0% of the last determined net asset value of our shares. We reserve the right to either issue new shares or purchase shares of our common stock in the open market in connection with our implementation of the plan if the price at which newly issued shares are to be credited to stockholders' accounts does not exceed 110.0% of the last determined net asset value of the shares. See "Dividend Reinvestment Plan".

Trading at a Discount

 

Shares of closed-end investment companies frequently trade at a discount to their net asset value. The possibility that our common stock may trade at a discount to our net asset value per share is separate and distinct from the risk that our net asset value per share may decline. We cannot predict whether our common stock will trade above, at or below net asset value.

License Agreement

 

We have entered into a royalty-free license agreement with New Mountain Capital, pursuant to which New Mountain Capital has agreed to grant us a non-exclusive license to use the names "New Mountain" and "New Mountain Finance". See "License Agreement".

Leverage

 

We expect to continue to use leverage to make investments. As a result, we may continue to be exposed to the risks of leverage, which include that leverage may be considered a speculative investment technique. The use of leverage magnifies the potential for gain and loss on amounts we invest and therefore, indirectly, increases the risks associated with investing in shares of our common stock. See "Risk Factors".

Anti-Takeover Provisions

 

Our board of directors is divided into three classes of directors serving staggered three-year terms. This structure is intended to provide us with a greater likelihood of continuity of management, which may be necessary for us to realize the full value of our investments. A staggered board of directors also may serve to deter hostile takeovers or proxy contests, as may certain other measures that we may adopt. These measures may delay, defer or prevent a transaction or a change in control that might otherwise be in the best interests of our stockholders. See "Description of Capital Stock — Delaware Law and Certain Certificate of Incorporation and Bylaw Provisions; Anti-Takeover Measures".

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Available Information

 

We have filed with the SEC a registration statement on Form N-2 together with all amendments and related exhibits under the Securities Act. The registration statement contains additional information about us and the securities being offered by this prospectus.

 

We are required to file annual, quarterly and current reports, proxy statements and other information with the SEC under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). This information is available at the SEC's public reference room at 100 F Street, NE, Washington, District of Columbia 20549 and on the SEC's website at http://www.sec.gov. The public may obtain information on the operation of the SEC's public reference room by calling the SEC at 1-800-SEC-0330. This information is also available free of charge by contacting us at New Mountain Finance Corporation, 787 Seventh Avenue, 48th Floor, New York, New York 10019, by telephone at (212) 720-0300, or on our website at www.newmountainfinance.com. Information contained on our website or on the SEC's web site about us is not incorporated into this prospectus and you should not consider information contained on our website or on the SEC's website to be part of this prospectus.

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FEES AND EXPENSES

          The following table is intended to assist you in understanding the costs and expenses that you will bear directly or indirectly. We caution you that some of the percentages indicated in the table below are estimates and may vary. Except where the context suggests otherwise, whenever this prospectus contains a reference to fees or expenses paid by "you", "NMFC", or "us" or that "we", "NMFC", or the "Company" will pay fees or expenses, we will pay such fees and expenses out of our net assets and, consequently, you will indirectly bear such fees or expenses as an investor in us. However, you will not be required to deliver any money or otherwise bear personal liability or responsibility for such fees or expenses.

Stockholder transaction expenses:

       

Sales load (as a percentage of offering price)

    N/A (1)

Offering expenses borne by us (as a percentage of offering price)

    N/A (2)

Dividend reinvestment plan fees

    N/A (3)

Total stockholder transaction expenses (as a percentage of offering price)

     — %

Annual expenses (as a percentage of net assets attributable to common stock):

       

Base management fees

    3.25% (4)

Incentive fees payable under the Investment Management Agreement

    2.57% (5)

Interest payments on borrowed funds

    3.37% (6)

Other expenses

    0.98% (7)

Acquired fund fees and expenses

    0.53% (8)

Total annual expenses

    10.70% (9)


Example

          The following example, required by the SEC, demonstrates the projected dollar amount of total cumulative expenses that would be incurred over various periods with respect to a hypothetical investment in our common stock. In calculating the following expense amounts, we have assumed that our borrowings and annual operating expenses would remain at the levels set forth in the table above. In the event that shares to which this prospectus relates are sold to or through underwriters, a corresponding prospectus supplement will restate this example to reflect the applicable sales load and offering expenses. See Note 6 below for additional information regarding certain assumptions regarding our level of leverage.

    1 Year     3 Years     5 Years     10 Years
 

You would pay the following expenses on a $1,000 investment, assuming a 5.0% annual return

  $ 81   $ 235   $ 379   $ 695  

          The example should not be considered a representation of future expenses, and actual expenses may be greater or less than those shown.

          While the example assumes, as required by the applicable rules of the SEC, a 5.0% annual return, our performance will vary and may result in a return greater or less than 5.0%. The incentive fee under the Investment Management Agreement, which, assuming a 5.0% annual return, would either not be payable or would have an insignificant impact on the expense amounts shown above, is not included in the above example. The above illustration assumes that we will not realize any capital gains (computed net of all realized capital losses and unrealized capital depreciation) in any of the indicated time periods. If we achieve sufficient returns on our investments, including through the realization of capital gains, to trigger an incentive fee of a material amount, our expenses and

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returns to our investors would be higher. For example, if we assumed that we received our 5.0% annual return completely in the form of net realized capital gains on our investments, computed net of all cumulative unrealized depreciation on our investments, the projected dollar amount of total cumulative expenses set forth in the above illustration would be as follows:

    1 Year     3 Years     5 Years     10 Years
 

You would pay the following expenses on a $1,000 investment, assuming a 5.0% annual return

  $ 90   $ 260   $ 414   $ 743  

          The example assumes no sales load. In addition, while the examples assume reinvestment of all distributions at net asset value, participants in our dividend reinvestment plan will receive a number of shares of our common stock determined by dividing the total dollar amount of the distribution payable to a participant by the market price per share of our common stock at the close of trading on the dividend payment date. The market price per share of our common stock may be at, above or below net asset value. See "Dividend Reinvestment Plan" for additional information regarding the dividend reinvestment plan.


(1)
In the event that the shares to which this prospectus relates are sold to or through underwriters, a corresponding prospectus supplement will disclose the applicable sales load.

(2)
The prospectus supplement corresponding to each offering will disclose the applicable estimated amount of offering expenses of the offering and the offering expenses borne by us as a percentage of the offering price.

(3)
The de minimis expenses of the dividend reinvestment plan are included in "other expenses."

(4)
The base management fee under the Investment Management Agreement is based on an annual rate of 1.75% of our average gross assets for the two most recent quarters, which equals our total assets on the Consolidated Statements of Assets and Liabilities, less (i) the borrowings under the SLF Credit Facility and (ii) cash and cash equivalents. We have not invested, and currently do not invest, in derivatives. To the extent we invest in derivatives in the future, we will use the actual value of the derivatives, as reported on our Consolidated Statements of Assets and Liabilities, for purposes of calculating our base management fee. Since our IPO, the base management fee calculation has deducted the borrowings under the SLF Credit Facility. The SLF Credit Facility had historically consisted of primarily lower yielding assets at higher advance rates. As part of an amendment to our 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. Post credit facility merger and to be consistent with the methodology since our IPO, the Investment Adviser will continue to 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 Adviser cannot recoup management fees that the Investment Adviser has previously waived. The base management fee reflected in the table above is based on the six months ended June 30, 2016 and is calculated without deducting any management fees waived. The annual base management fee after deducting the management fee waiver as a percentage of net assets would be 2.69% based on the six months ended June 30, 2016. See "Investment Management Agreement."

(5)
Assumes that annual incentive fees earned by the Investment Adviser remain consistent with the incentive fees earned by the Investment Adviser during the six months ended June 30, 2016 and includes accrued capital gains incentive fee. These accrued capital gains incentive fees would be paid by us if we ceased operations on June 30, 2016 and liquidated our investments at the June 30, 2016 valuation. As we cannot predict whether we will meet the thresholds for incentive fees under the Investment Management Agreement, the incentive fees paid in subsequent periods, if any, may be substantially different than the fees incurred during the six months ended June 30, 2016. For more detailed information about the incentive fee calculations, see the "Investment Management Agreement" section of this prospectus.

(6)
We may borrow funds from time to time to make investments to the extent we determine that additional capital would allow us to take advantage of additional investment opportunities or if the economic situation is otherwise conducive to doing so. The costs associated with these borrowings are indirectly borne by our stockholders. As of June 30, 2016, we had $348.0 million, $87.0 million, $115.0 million, $50.0 million and $121.7 million of indebtedness outstanding under the Holdings Credit Facility, the NMFC Credit Facility, the Convertible Notes, the Unsecured Notes and the SBA-guaranteed debentures, respectively. For purposes of this calculation, we have assumed the June 30, 2016 amounts outstanding under the credit facilities and SBA-guaranteed debentures, and have computed interest expense using an assumed interest rate of 2.7% for the Holdings Credit Facility, 3.0% for the NMFC Credit Facility and

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(7)
"Other expenses" include our overhead expenses, including payments by us under the Administration Agreement based on the allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations to us under the Administration Agreement. Pursuant to the Administration Agreement, the Administrator may, in its own discretion, submit to us for reimbursement some or all of the expenses that the Administrator has incurred on our behalf during any quarterly period. As a result, the amount of expenses for which we 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 us for reimbursement in the future. However, it is expected that the Administrator will continue to support part of our expense burden 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. This expense ratio is calculated without deducting any expenses waived or reimbursed by the Administrator. Assuming the expenses waived or reimbursed by the Administrator at June 30, 2016, the annual expense ratio after deducting the expenses waived or reimbursed by the Administrator as a percentage of net assets would be 0.89%. For the six months ended June 30, 2016, we reimbursed our Administrator approximately $0.6 million, which represents approximately 0.14% of our net assets on an annualized basis. See "Administration Agreement."

(8)
The holders of shares of our common stock indirectly bear the expenses of our investment in NMFC Senior Loan Program I, LLC ("SLP I") and NMFC Senior Loan Program II, LLC ("SLP II"). No management fee is charged on our investment in SLP I in connection with the administrative services provided to SLP I. As SLP II is structured as a private joint venture, no management fees are paid by SLP II. Future expenses for SLP I and SLP II may be substantially higher or lower because certain expenses may fluctuate over time.

(9)
The holders of shares of our common stock indirectly bear the cost associated with our annual expenses.

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SELECTED FINANCIAL AND OTHER DATA

          The selected financial data should be read in conjunction with the respective consolidated financial statements and related consolidated notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in this prospectus. Financial information for the years ended December 31, 2015, December 31, 2014, December 31, 2013, December 31, 2012 and December 31, 2011 has been derived from the Predecessor Operating Company and our financial statements and the related notes thereto that were audited by Deloitte & Touche LLP, an independent registered public accounting firm. The financial information at and for the six months ended June 30, 2016 was derived from our unaudited consolidated financial statements and related consolidated notes. In the opinion of management, all adjustments, consisting solely of normal recurring accruals, considered necessary for the fair presentation of financial statements for the interim periods, have been included. Our results for the interim periods may not be indicative of our results for any future interim period or the full year. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Senior Securities" in this prospectus for more information.

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          The below selected financial and other data is for NMFC.

   

Six Months
Ended
June 30,
   



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

New Mountain Finance Corporation

    2016     2015     2014     2013     2012     2011
 

Statement of Operations Data:

                                     

Investment income

  $ 82,466   $ 153,855   $ 91,923   $   $   $  

Investment income allocated from NMF Holdings

            43,678     90,876     37,511     13,669  

Net expenses

    39,067     71,360     34,727              

Net expenses allocated from NMF Holdings

            20,808     40,355     17,719     5,324  

Net investment income

    43,399     82,495     80,066     50,521     19,792     8,345  

Net realized gains (losses) on investments

    1,041     (12,789 )   357              

Net realized and unrealized gains (losses) allocated from NMF Holdings

            9,508     11,443     12,087     (4,235 )

Net change in unrealized appreciation (depreciation) of investments

    7,570     (35,272 )   (43,863 )            

Net change in unrealized (depreciation) appreciation of securities purchased under collateralized agreements to resell

    (74 )   (296 )                

Net change in unrealized (depreciation) appreciation of investment in NMF Holdings

                (44 )   (95 )   6,221  

Benefit (provision) for taxes

    808     (1,183 )   (493 )            

Net increase in net assets resulting from operations

    52,744     32,955     45,575     61,920     31,784     10,331  

Per share data:

                                     

Net asset value

  $ 13.23   $ 13.08   $ 13.83   $ 14.38   $ 14.06   $ 13.60  

Net increase in net assets resulting from operations (basic)

    0.83     0.55     0.88     1.76     2.14     0.97  

Net increase in net assets resulting from operations (diluted)(1)

    0.77     0.55     0.86     1.76     2.14     0.38  

Dividends declared(2)

    0.68     1.36     1.48     1.48     1.71     0.86  

Balance sheet data:

                                     

Total assets

  $ 1,584,601   $ 1,602,138   $ 1,514,920   $ 650,107   $ 345,331   $ 145,487  

Holdings Credit Facility

    348,013     419,313     468,108     N/A     N/A     N/A  

SBA-guaranteed debentures

    121,745     117,745     37,500     N/A     N/A     N/A  

Convertible Notes

    115,000     115,000     115,000     N/A     N/A     N/A  

NMFC Credit Facility

    87,000     90,000     50,000     N/A     N/A     N/A  

Unsecured Notes

    50,000             N/A     N/A     N/A  

Total net assets

    843,325     836,908     802,170     650,107     341,926     145,487  

Other data:

                                     

Total return based on market value(3)

    4.36 %   (4.00 )%   9.66 %   11.62 %   24.84 %   4.16 %

Total return based on net asset value(4)

    6.50 %   4.32 %   6.56 %   13.27 %   16.61 %   2.82 %

Number of portfolio companies at period end

    72     75     71     N/A     N/A     N/A  

Total new investments for the period(5)

  $ 163,845   $ 612,737   $ 720,871     N/A     N/A     N/A  

Investment sales and repayments for the period(5)

  $ 198,211   $ 483,936   $ 384,568     N/A     N/A     N/A  

Weighted average Yield to Maturity at Cost on debt portfolio at period end (unaudited)(6)

    10.3 %   10.7 %   10.7 %   N/A     N/A     N/A  

Weighted average shares outstanding for the period (basic)

    63,887,036     59,715,290     51,846,164     35,092,722     14,860,838     10,697,691  

Weighted average shares outstanding for the period (diluted)

    71,164,167     66,968,089     56,157,835     35,092,722     14,860,838     10,697,691  

Portfolio turnover(5)

    10.97 %   33.93 %   29.51 %   N/A     N/A     N/A  

(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, 2015, there was anti-dilution. For the six months ended June 30, 2016 and 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.

(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 NMF Holdings' 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 NMF Holdings' 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 NMF Holdings' 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.

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(3)
For the six months ended June 30, 2016 and the years ended December 31, 2015, 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 period and assuming a purchase of common stock at our 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 our dividend reinvestment plan.

(4)
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.

(5)
For the year ended December 31, 2014, amounts include our investment activity and the investment activity of the Predecessor Operating Company.

(6)
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 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).

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          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.

    Years Ended December 31,
 

New Mountain Finance Holdings, L.L.C.

    2013     2012     2011
 

Statement of Operations Data:

                   

Total investment income

  $ 114,912   $ 85,786   $ 56,523  

Net expenses

    51,235     40,569     17,998  

Net investment income

    63,677     45,217     38,525  

Net realized and unrealized gains (losses)

    15,247     28,779     (6,848 )

Net increase in net assets resulting from operations

    78,924     73,996     31,677  

Per unit data:

                   

Net asset value

  $ 14.38   $ 14.06   $ 13.60  

Net increase in net assets resulting from operations (basic and diluted)

    1.79     2.18     1.02  

Dividends declared(1)

    1.48     1.71     0.86  

Balance sheet data:

                   

Total assets

  $ 1,147,841   $ 1,025,564   $ 730,579  

Holdings Credit Facility

    221,849     206,938     129,038  

SLF Credit Facility

    214,668     214,262     165,928  

Total net assets

    688,516     569,939     420,502  

Other data:

                   

Total return at net asset value(2)

    13.27 %   16.61 %   10.09 %

Number of portfolio companies at period end

    59     63     55  

Total new investments for the period

  $ 529,307   $ 673,218   $ 493,331  

Investment sales and repayments for the period

  $ 426,561   $ 423,874   $ 231,962  

Weighted average Yield to Maturity at Cost on debt portfolio at period end (unaudited)(3)

    11.0 %   10.3 %   10.3 %

Weighted average Yield to Maturity on debt portfolio at period end (unaudited)(4)

    10.6 %   10.1 %   10.7 %

Weighted average Adjusted Yield to Maturity on debt portfolio at period end (unaudited)

    (5)   (5)   13.1 %

Weighted average common membership units outstanding for the period

    44,021,920     34,011,738     30,919,629 (6)

Portfolio turnover

    40.52 %   52.02 %   42.13 %

(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 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)
For 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

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(3)
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.

(4)
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.

(5)
"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.

(6)
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.

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SELECTED QUARTERLY FINANCIAL DATA

          The selected quarterly financial data should be read in conjunction with our respective consolidated financial statements and related consolidated notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in this prospectus. The following table sets forth certain quarterly financial data for the quarters ended June 30, 2016 and March 31, 2016 and each of the quarters for the fiscal years ended December 31, 2015 and December 31, 2014. This data is derived from our unaudited financial statements. Results for any quarter are not necessarily indicative of results for the full year or for any future quarter. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Senior Securities" included in this prospectus for more information.

          The below selected quarterly financial data is for NMFC.

    Total
Investment Income
    Net
Investment Income
    Total Net Realized
Gains (Losses) and
Net Changes in
Unrealized
Appreciation
(Depreciation) of
Investments(1)
    Net Increase
(Decrease)
in Net Assets
Resulting
from Operations
 

Quarter Ended

    Total     Per Share     Total     Per Share     Total     Per Share     Total     Per Share
 

June 30, 2016

  $ 41,490   $ 0.65   $ 21,832   $ 0.34   $ 22,861   $ 0.36   $ 44,693   $ 0.70  

March 31, 2016

    40,976     0.64     21,567     0.34     (13,516 )   (0.21 )   8,051     0.13  

December 31, 2015

 
$

41,967
 
$

0.66
 
$

22,521
 
$

0.35
 
$

(42,548

)

$

(0.66

)

$

(20,027

)

$

(0.31

)

September 30, 2015

    37,447     0.64     20,659     0.35     (10,855 )   (0.18 )   9,804     0.17  

June 30, 2015

    37,905     0.65     20,253     0.35     11     0.00     20,264     0.35  

March 31, 2015

    36,536     0.63     19,062     0.33     3,852     0.07     22,914     0.40  

December 31, 2014

 
$

36,748
 
$

0.65
 
$

25,919
 
$

0.46
 
$

(34,865

)

$

(0.62

)

$

(8,946

)

$

(0.16

)

September 30, 2014

    34,706     0.67     20,800     0.40     (13,389 )   (0.26 )   7,411     0.14  

June 30, 2014

    33,708     0.65     17,289     0.34     6,373     0.12     23,662     0.46  

March 31, 2014

    30,439     0.65     16,058     0.34     7,390     0.16     23,448     0.50  

(1)
Includes securities purchased under collaterial agreements to resell, benefit (provision) for taxes and the accretive effect of common stock issuances per share, if applicable.

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DESCRIPTION OF RESTRUCTURING

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 regulated 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 RIC under Subchapter M of the Code. NMFC is also registered as an investment adviser under the Advisers Act.

          On May 19, 2011, NMFC priced 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 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 NMF Holdings 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 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. See "Material Federal Income Tax Considerations".

          Until May 8, 2014, NMF Holdings was externally managed by the Investment Adviser. As of May 8, 2014, the Investment Adviser now serves as the external investment adviser to NMFC. 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 us. 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 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 Finance AIV Holdings Corporation

          Until April 25, 2014, 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

   


(1)
Includes amounts committed, not all of which have been drawn down and invested to-date, as of June 30, 2016, as well as amounts called and returned since inception.

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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, 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. See "Material Federal Income Tax Considerations" included in this prospectus.

          Since the IPO through February 3, 2014, NMFC completed five underwritten secondary offerings of its common stock on behalf of AIV Holdings as the selling stockholder. In connection with these five secondary offerings, AIV Holdings tendered an aggregate of 20,221,938 units of NMF Holdings held by AIV Holdings to NMFC in exchange for the net proceeds (after deducting underwriting discounts and commissions) of these five secondary offerings and NMFC issued an aggregate of 20,221,938 shares of its common stock directly to the underwriters for these five secondary offerings. AIV Holdings distributed all of the net proceeds from these five secondary offerings to its sole stockholder, Guardian AIV. With the completion of the final secondary offering on February 3, 2014, NMFC now owns 100.0% of the units of NMF Holdings, which is now 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

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its registration under Section 12(g) of 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 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.

          Effective May 8, 2014, NMF Holdings amended and restated its Limited Liability Company Agreement, (as amended and restated, the "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 GAAP. NMFC continues to remain a BDC regulated 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.

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          The diagram below depicts our organizational structure as of October 4, 2016.

GRAPHIC


*
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.

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RISK FACTORS

          Investing in our securities involves a number of significant risks. In addition to the other information contained in this prospectus and any accompanying prospectus supplement, you should consider carefully the following information before making an investment in our securities. The risks set out below are not the only risks we face. Additional risks and uncertainties not presently known to us or not presently deemed material by us might also impair our operations and performance. 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 our common stock could decline or the value of our preferred stock, subscription rights, warrants or debt securities may decline, and you may lose all or part of your investment.

Risks Related to our Business and Structure

Global capital markets could enter a period of severe disruption and instability. These market conditions have historically and could again have a materially adverse effect on debt and equity capital markets in the U.S., which could have, a materially negative impact on our business, financial condition and results of operations.

          The U.S. and global capital markets have experienced periods of disruption characterized by the freezing of available credit, a lack of liquidity in the debt capital markets, significant losses in the principal value of investments, the re-pricing of credit risk in the broadly syndicated credit market, the failure of certain major financial institutions and general volatility in the financial markets. During these periods of disruption, general economic conditions deteriorated with material and adverse consequences for the broader financial and credit markets, and the availability of debt and equity capital for the market as a whole, and financial services firms in particular, was reduced significantly. These conditions may reoccur for a prolonged period of time or materially worsen in the future. In addition, signs of deteriorating sovereign debt conditions in Europe and concerns of economic slowdown in China create uncertainty that could lead to further disruptions and instability. We may in the future have difficulty accessing debt and equity capital, and a severe disruption in the global financial markets, deterioration in credit and financing conditions or uncertainty regarding U.S. Government spending and deficit levels, European sovereign debt, Chinese economic slowdown or other global economic conditions could have a material adverse effect on our business, financial condition and results of operations.

Further downgrades of the U.S. credit rating, impending automatic spending cuts or another government shutdown could negatively impact our liquidity, financial condition and earnings.

          Recent U.S. debt ceiling and budget deficit concerns have increased the possibility of additional credit-rating downgrades and economic slowdowns, or a recession in the U.S. Although U.S. lawmakers passed legislation to raise the federal debt ceiling on multiple occasions, ratings agencies have lowered or threatened to lower the long-term sovereign credit rating on the U.S. The impact of this or any further downgrades to the U.S. government's sovereign credit rating or its perceived creditworthiness could adversely affect the U.S. and global financial markets and economic conditions. Absent further quantitative easing by the Federal Reserve, these developments could cause interest rates and borrowing costs to rise, which may negatively impact our ability to access the debt markets on favorable terms. In addition, disagreement over the federal budget has caused the U.S. federal government to shut down for periods of time. Continued adverse political and economic conditions could have a material adverse effect on our business, financial condition and results of operations.

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Global economic, political and market conditions may adversely affect our business, results of operations and financial condition, including our revenue growth and profitability.

          The current worldwide financial market situation, as well as various social and political tensions in the U.S. and around the world, may contribute to increased market volatility, may have long-term effects on the U.S. and worldwide financial markets, and may cause economic uncertainties or deterioration in the U.S. and worldwide. Since 2010, several European Union ("EU") countries, including Greece, Ireland, Italy, Spain, and Portugal, have faced budget issues, some of which may have negative long-term effects for the economies of those countries and other EU countries. There is continued concern about national-level support for the Euro and the accompanying coordination of fiscal and wage policy among European Economic and Monetary Union member countries. In addition, the fiscal policy of foreign nations, such as Russia and China, may have a severe impact on the worldwide and U.S. financial markets. We cannot predict the effects of these or similar events in the future on the U.S. economy and securities markets or on our investments. We monitor developments and seek to manage our investments in a manner consistent with achieving our investment objective, but there can be no assurance that we will be successful in doing so.

We 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.

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

          We do not expect to replicate the Predecessor Entities' historical performance or the historical performance of New Mountain Capital's investments. Our 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, our investment strategies may differ from those of New Mountain Capital or its affiliates. We, as a BDC and as a RIC, are subject to certain regulatory restrictions that do not apply to New Mountain Capital or its affiliates.

          We are 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 we make investments. Moreover, we 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 our investment team will be able to continue to implement our investment objective with the same degree of success as it has had in the past.

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

          Some of our 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, we are required to carry our portfolio investments at market value or, if there is no readily available market value, at fair value as determined in good faith by our board of directors, including to reflect significant events affecting the value of our securities. We value our investments for which we do not have readily available market quotations quarterly, or more frequently as circumstances require, at fair value as determined in good faith by our board of directors in accordance with our valuation policy, which is at all times consistent with GAAP.

          Our 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 our material unquoted assets in accordance with our 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.

          The types of factors that the board of directors takes into account in determining the fair value of our 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, our 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, our fair value determinations may cause our net asset value, on any given date, to be materially understated or overstated. In addition, investors purchasing our common stock based on an overstated net asset value would pay a higher price than the realizable value that our investments might warrant.

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

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

          We depend 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 our investments. The Investment Adviser, as an affiliate of New Mountain Capital, is supported by New Mountain Capital's team, which as of June 30, 2016 consisted of approximately 100 staff members of New Mountain Capital and its affiliates to fulfill its obligations to us under the Investment

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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. Our 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 our ability to achieve our investment objective.

          The Investment Committee, which provides oversight over our 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 our ability to achieve our 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 our 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.

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

          Other than us, 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 us 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 our investment objective. If we fail to maintain our status as a BDC or as a RIC, our operating flexibility could be significantly reduced.

We operate in a highly competitive market for investment opportunities and may not be able to compete effectively.

          We compete 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 our competitors are substantially larger and have considerably greater financial, technical and marketing resources than we do. For example, some competitors may have a lower cost of capital and access to funding sources that are not available to us. In addition, some of our competitors may have higher risk tolerances or different risk assessments than us. Furthermore, many of our competitors have greater experience operating under, or are not subject to, the regulatory restrictions that the 1940 Act imposes on us as a BDC or the source-of-income, asset diversification and distribution requirements that we must satisfy to maintain our RIC status. These characteristics could allow our competitors to consider a wider variety of investments, establish more relationships and offer better pricing and more flexible structuring than we are able to do.

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          We may lose investment opportunities if our pricing, terms and structure do not match those of our competitors. With respect to the investments that we make, we do not seek to compete based primarily on the interest rates we may offer, and we believe that some of our competitors may make loans with interest rates that may be lower than the rates we offer. In the secondary market for acquiring existing loans, we expect to compete generally on the basis of pricing terms. If we match our competitors' pricing, terms and structure, we may experience decreased net interest income, lower yields and increased risk of credit loss. If we are forced to match our competitors' pricing, terms and structure, we may not be able to achieve acceptable returns on our investments or may bear substantial risk of capital loss. Part of our 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 our competitors in this target market could force us to accept less attractive investment terms. We 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 us and may not be in our best interests and, consequently, our stockholders. Moreover, the performance of investment opportunities is not known at the time of allocation. If we are not able to compete effectively, our business, financial condition and results of operations may be adversely affected, thus affecting our business, financial condition and results of operations. Because of this competition, there can be no assurance that we will be able to identify and take advantage of attractive investment opportunities that we identify or that we will be able to fully invest our available capital.

Our business, results of operations and financial condition depend on our ability to manage future growth effectively.

          Our ability to achieve our investment objective and to grow depends on the Investment Adviser's ability to identify, invest in and monitor companies that meet our 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 us 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 our portfolio companies. These demands on the time of the Investment Adviser and its investment professionals may distract them or slow our rate of investment. In order to grow, we 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 we are unable to manage our 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 our return on investment capital. This may encourage the Investment Adviser to use leverage to increase the return on our investments. In addition, because the base management fee is payable based upon our 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,

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the use of leverage may increase the likelihood of default, which would impair the value of our 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 our stockholders. Under these investments, we 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. Our 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 we have 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.

We may be obligated to pay the Investment Adviser incentive compensation even if we incur 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 our 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 our net asset value, decreases in our net asset value make it easier to achieve the performance threshold. Our 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 our statement of operations for that quarter. Thus, we may be required to pay the Investment Adviser incentive compensation for a fiscal quarter even if there is a decline in the value of our portfolio or we incur a net loss for that quarter.

The incentive fee we pay 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 we pay 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 our common stock.

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

          We borrow money as part of our 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 to continue to use leverage to finance our investments, through senior securities issued by banks and other lenders. Lenders of these senior securities have fixed dollar claims on our assets that are superior to claims of our common stockholders. If the value of our assets decreases, leveraging would cause our net asset value to decline more sharply than it otherwise would have had it not leveraged. Similarly, any decrease in our income would cause our net income to decline more sharply than it would have had it not borrowed. Such a decline could adversely affect our ability to make common stock dividend payments. In addition, because our

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investments may be illiquid, we may be unable to dispose of them or to do so at a favorable price in the event we need to do so if we are unable to refinance any indebtedness upon maturity and, as a result, we may suffer losses. Leverage is generally considered a speculative investment technique.

          Our ability to service any debt that we incur depends largely on our 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 our interests and the interests of our common stockholders. In addition, holders of our common stock will, indirectly, bear the burden of any increase in our expenses as a result of leverage, including any increase in the management fee payable to the Investment Adviser.

          At June 30, 2016, we had $348.0 million, $87.0 million, $115.0 million, $50.0 million and $121.7 million of indebtedness outstanding under the Holdings Credit Facility, the NMFC Credit Facility, the Convertible Notes, the Unsecured Notes and the SBA-guaranteed debentures, respectively. The Holdings Credit Facility had a weighted average interest rate of 2.7% for the six months ended June 30, 2016, the NMFC Credit Facility had a weighted average interest rate of 2.9% for the six months ended June 30, 2016 and the SBA-guaranteed debentures had a weighted average interest rate of 3.1% for the six months ended June 30, 2016. The interest rate on the Convertible Notes is 5.0% per annum and the interest rate on the Unsecured Notes is 5.313% per annum. In order for us to cover our annual interest payments on our outstanding indebtedness at June 30, 2016, we must achieve annual returns on our June 30, 2016 total assets of at least 1.6%.

          Illustration.    The following table illustrates the effect of leverage on returns from an investment in our common stock assuming various annual returns, net of expenses and adjusted for unsettled securities purchased. The calculations in the table below are hypothetical. Actual returns may be higher or lower than those appearing below. The calculation assumes (i) $1,584.6 million in total assets, (ii) a weighted average cost of borrowings of 3.3%, which assumes the weighted average interest rates as of June 30, 2016 for the Holdings Credit Facility, the NMFC Credit Facility and the SBA-guaranteed debentures and the interest rate as of June 30, 2016 for the Convertible Notes and Unsecured Notes, (iii) $721.7 million in debt outstanding and (iv) $843.3 million in net assets.


Assumed Return on Our Portfolio
(net of expenses)

    (10.0)%     (5.0)%     0%     5.0%     10.0%
 

Corresponding return to stockholder

    (21.6 )%   (12.2 )%   (2.8 )%   6.6 %   15.9 %

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

          The Holdings Credit Facility includes covenants that, subject to exceptions, restrict our 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 us from taking actions that we believe would help us grow our business or are otherwise consistent with our investment objective. These restrictions could also limit our 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 our ability to make distributions to our stockholders in certain

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circumstances, which could result in us 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.

          Our Convertible Notes are subject to certain covenants, including covenants requiring us to provide financial information to the holders of the Convertible Notes and the trustee if we cease to be subject to the reporting requirements of the Exchange Act. These covenants are subject to limitations and exceptions. In addition, if certain corporate events occur, holders of the Convertible Notes may require us 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.

          Our Unsecured Notes are subject to certain covenants, including covenants such as information reporting, maintenance of our status as a BDC under the 1940 Act and a RIC under the Internal Revenue Code, minimum stockholders' equity, minimum asset coverage ratio, and prohibitions on certain fundamental changes, as well as customary events of default with customary cure and notice, including, without limitation, nonpayment, misrepresentation in a material respect, breach of covenant, cross-default under our other indebtedness or certain significant subsidiaries, certain judgments and orders, and certain events of bankruptcy. In addition, we are obligated to offer to prepay the Unsecured Notes at par if the Investment Adviser, or an affiliate thereof, ceases to be our investment adviser or if certain change in control events occur with respect to the Investment Adviser.

          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, we 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 our liquidity. We may not be granted waivers or amendments to the credit facilities if for any reason we are unable to comply with it, and we may not be able to refinance the credit facilities on terms acceptable to us, or at all.

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

          We may enter into reverse repurchase agreements as part of our management of our investment portfolio. Under a reverse repurchase agreement, we will effectively pledge our 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 our benefit.

          Our use of reverse repurchase agreements, if any, involves many of the same risks involved in our use of leverage, as the proceeds from reverse repurchase agreements generally will be 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 we have sold but remain obligated to repurchase under the reverse repurchase agreement. In addition, there is a risk that the market value of the securities effectively pledged by us may decline. If a buyer of securities under a reverse repurchase agreement were to file for bankruptcy or experience insolvency, we may be adversely affected. Also, in entering into reverse repurchase

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agreements, we 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, our net asset value would decline, and, in some cases, we may be worse off than if such instruments had not been used.

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

          We may want to obtain additional debt financing, or need to do so upon maturity of our 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 Unsecured Notes mature on June 4, 2019, June 15, 2019 and May 15, 2021, respectively. The SBA-guaranteed debentures have ten year maturities and will begin to mature on March 1, 2025. If we are unable to increase, renew or replace any such facilities and enter into new debt financing facilities or other debt financing on commercially reasonable terms, our liquidity may be reduced significantly. In addition, if we are unable to repay amounts outstanding under any such facilities and are declared in default or are unable to renew or refinance these facilities, we may not be able to make new investments or operate our business in the normal course. These situations may arise due to circumstances that we 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 us or third parties, and could materially damage our business operations, results of operations and financial condition.

We may need to raise additional capital to grow.

          We may need additional capital to fund new investments and grow. We may access the capital markets periodically to issue equity securities. In addition, we may also issue debt securities or borrow from financial institutions in order to obtain such additional capital. Unfavorable economic conditions could increase our funding costs and limit our access to the capital markets or result in a decision by lenders not to extend credit to us. A reduction in the availability of new capital could limit our ability to grow. In addition, we are required to distribute at least 90.0% of our net ordinary income and net short-term capital gains in excess of net long-term capital losses, if any, to our stockholders to maintain our RIC status. As a result, these earnings will not be available to fund new investments. If we are unable to access the capital markets or if we are unable to borrow from financial institutions, we may be unable to grow our business and execute our business strategy fully, and our earnings, if any, could decrease, which could have an adverse effect on the value of our securities.

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

          As a BDC, we must maintain our ability to raise additional capital for investment purposes. If we are unable to access the capital markets or credit markets, we may be forced to curtail our 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 have 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 us to reduce the volume of loans that we originate and/or fund and adversely affect the value of our portfolio investments. Unfavorable

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economic conditions could also increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us. These events could limit our investment originations, limit our 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 our business operations and, consequently, could adversely impact our business, results of operations and financial condition.

          If the fair value of our assets declines substantially, we may fail to maintain the asset coverage ratios imposed upon us by the 1940 Act and contained in the Holdings Credit Facility, the NMFC Credit Facility and the Unsecured Notes. Any such failure would result in a default under such indebtedness and otherwise affect our ability to issue senior securities, borrow under the Holdings Credit Facility and NMFC Credit Facility and pay distributions, which could materially impair our business operations. Our liquidity could be impaired further by our inability to access the capital or credit markets. For example, we cannot be certain that we will be able to renew our credit facilities as they mature or 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 our ability to comply with the financial and other covenants in any existing or future credit facilities. If we are unable to comply with these covenants, this could materially adversely affect our business, results of operations and financial condition.

Changes in interest rates may affect our cost of capital and net investment income.

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

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

          On August 1, 2014, our 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 us. 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 us because SBIC LP is our wholly-owned direct and indirect subsidiary.

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          SBA-guaranteed debentures are non-recourse to us, 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 single 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. In December 2015, the 2016 omnibus spending bill approved by the U.S. Congress and signed into law by the President increased the amount of SBA-guaranteed debentures that affiliated SBIC funds can have outstanding from $225.0 million to $350.0 million, subject to SBA approval.

Risks Related to Our Operations

Because we intend to distribute substantially all of our income to our stockholders to obtain and maintain our status as a RIC, we will continue to need additional capital to finance our growth. If additional funds are unavailable or not available on favorable terms, our ability to grow may be impaired.

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

          As a BDC, we are 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 our borrowings with the exception of SBA-guaranteed debentures, of at least 200.0%. This requirement limits the amount that we may borrow. Since we continue to need capital to grow our investment portfolio, these limitations may prevent us from incurring debt and require us to raise additional equity at a time when it may be disadvantageous to do so. While we expect that we will be able to borrow and to issue additional debt securities and expect that we will be able to issue additional equity securities, which would in turn increase the equity capital available to us, we cannot assure you that debt and equity financing will be available to us on favorable terms, or at all. In addition, as a BDC, we generally are not permitted to issue equity securities priced below net asset value without stockholder approval. If additional funds are not available us, we may be forced to curtail or cease new investment activities, and our net asset value could decline.

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

          In order for us to continue to qualify for tax benefits available to RICs and to minimize corporate-level U.S. federal income tax, we must distribute to our stockholders, for each taxable year, at least 90.0% of our "investment company taxable income", which is generally our 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. We will be partially dependent on SBIC LP for cash distributions to enable us to meet the RIC distribution requirements. SBIC LP may be limited by SBA regulations governing SBICs from making certain distributions to us that may be necessary to maintain our status as a RIC. We may have to request a waiver of the SBA's restrictions for SBIC LP to make certain distributions to maintain our RIC status. We 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.

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

          As a BDC, we are prohibited under the 1940 Act from participating in certain transactions with our affiliates without the prior approval of our independent directors and, in some cases, the SEC. Any person that owns, directly or indirectly, 5.0% or more of our outstanding voting securities is an affiliate of ours for purposes of the 1940 Act. We are generally prohibited from buying or selling any securities (other than our 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 our voting securities, we are prohibited from buying or selling any security (other than our 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 our ability to transact business with our officers or directors or their affiliates. As a result of these restrictions, we 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 us.

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

          Our 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 our 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 us and such other funds. Although the investment professionals endeavor to allocate investment opportunities in a fair and equitable manner, it is possible that we 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 us. 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, we 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 our allocation procedures. In addition, we pay management and incentive fees to the Investment Adviser and reimburse the Investment Adviser for certain expenses it incurs. As a result, investors in our common stock invest in us on a "gross" basis and receive distributions on a "net" basis after our 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.

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The Investment Committee, the Investment Adviser or its affiliates may, from time to time, possess material non-public information, limiting our 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, we 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 us and our stockholders.

The valuation process for certain of our portfolio holdings creates a conflict of interest.

          Some of our portfolio investments are made in the form of securities that are not publicly traded. As a result, our 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 our 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 our board of directors, has an indirect pecuniary interest in the Investment Adviser. The participation of the Investment Adviser's investment professionals in our valuation process, and the indirect pecuniary interest in the Investment Adviser by a member of our board of directors, could result in a conflict of interest as the Investment Adviser's management fee is based, in part, on our 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.

          We have entered into a royalty-free license agreement with New Mountain Capital under which New Mountain Capital has agreed to grant us a non-exclusive, royalty-free license to use the name "New Mountain". In addition, we reimburse the Administrator for the allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations to us under the Administration Agreement, such as, but not limited to, the allocable portion of the cost of our chief financial officer and chief compliance officer and their respective staffs. This could create conflicts of interest that our 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, we may choose not to enforce, or to enforce less vigorously, our respective rights and remedies under these agreements because of our desire to maintain our ongoing relationship with the Investment Adviser, the Administrator and their respective affiliates. Any such decision, however, could cause us to breach our fiduciary obligations to our stockholders.

The Investment Adviser's liability is limited under the Investment Management Agreement, and we have 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 our board of directors in following or declining to follow the Investment

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Adviser's advice or recommendations. Under the terms of the Investment Management Agreement, the Investment Adviser, its officers, members, personnel, any person controlling or 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, we have 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 our 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, we 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 our ability to pay distributions are likely to be materially adversely affected and the market price of our common stock may decline. In addition, if we are 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 we are able to retain comparable management, whether internal or external, their integration into our business and lack of familiarity with our 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 our ability to pay distributions, are likely to be adversely affected, and the market price of our common stock may decline. In addition, the coordination of our internal management and administrative activities is likely to suffer if we 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 our business and lack of familiarity with our investment objective may result in additional costs and time delays that may materially adversely affect our business, results of operations and financial condition.

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If we fail to maintain our status as a BDC, our business and operating flexibility could be significantly reduced.

          We qualify 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 us and/or expose us to claims of private litigants. In addition, upon approval of a majority of our stockholders, we may elect to withdraw their respective election as a BDC. If we decide to withdraw our election, or if we otherwise fail to qualify, or maintain our qualification, as a BDC, we 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 we do not invest a sufficient portion of our assets in qualifying assets, we 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, we are 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 we do not invest a sufficient portion of our assets in qualifying assets, we 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 us from making follow-on investments in existing portfolio companies (which could result in the dilution of our position) or could require us to dispose of investments at inopportune times in order to come into compliance with the 1940 Act. If we need to dispose of these investments quickly, it may be difficult to dispose of such investments on favorable terms. For example, we 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.

Our ability to invest in public companies may be limited in certain circumstances.

          To maintain our status as a BDC, we are 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 our 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 our ability to raise additional equity capital as well as our 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.

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

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          We may issue debt securities, preferred stock, and we 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 us to issue senior securities in amounts such that our asset coverage, as defined in the 1940 Act, equals at least 200.0% after each issuance of senior securities. As a result of our SEC exemptive relief, we are permitted to exclude our SBA-guaranteed debentures from the definition of senior securities in the 200.0% asset coverage ratio we are required to maintain under the 1940 Act. If our asset coverage ratio is not at least 200.0%, we would be unable to issue senior securities, and if we 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), we would be unable to make distributions to our stockholders. However, at June 30, 2016, our only senior securities outstanding were indebtedness under the Holdings Credit Facility, NMFC Credit Facility, Convertible Notes and Unsecured Notes and therefore at June 30, 2016, we would not have been precluded from paying distributions. If the value of our assets declines, we may be unable to satisfy this test. If that happens, we may be required to liquidate a portion of our investments and repay a portion of our 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 June 30, 2016. The Holdings Credit Facility had $348.0 million in debt outstanding as of June 30, 2016. The NMFC Credit Facility matures on June 4, 2019 and permits borrowings of $122.5 million as of June 30, 2016. The NMFC Credit Facility had $87.0 million in debt outstanding as of June 30, 2016. The Convertible Notes mature on June 15, 2019. The Convertible Notes had $115.0 million in debt outstanding as of June 30, 2016. The Unsecured Notes mature on May 15, 2021. The Unsecured Notes had $50.0 million in debt outstanding as of June 30, 2016.The SBA-guaranteed debentures have ten year maturities and will begin to mature on March 1, 2025. As of June 30, 2016, $121.7 million of SBA-guaranteed debentures were outstanding.

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

          We may also obtain capital through the issuance of additional equity capital. As a BDC, we generally are not able to issue or sell our common stock at a price below net asset value per share. If our common stock trades at a discount to our net asset value per share, this restriction could adversely affect our ability to raise equity capital. We may, however, sell our common stock, or warrants, options or rights to acquire our common stock, at a price below our net asset value per share of the common stock if our board of directors and independent directors determine that such sale is in our best interests and the best interests of our stockholders, and our stockholders approve such sale. In any such case, the price at which our securities are to be issued and sold may not be less than a price that, in the determination of our board of directors, closely approximates the market value of such securities (less any underwriting commission or discount). If we raise additional funds by issuing more shares of our common stock, or if we issue senior

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securities convertible into, or exchangeable for, our common stock, the percentage ownership of our stockholders may decline and you may experience dilution.

Our 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 our 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, we may not be able to grow our investment portfolio. In addition, individuals with whom the investment professionals of the Investment Adviser have relationships are not obligated to provide us 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 us.

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 us to make investments in companies that meet our investment criteria, the interest rate payable on the debt securities acquired and the default rate on such securities, the level of our expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in the markets in which we operate 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.

Our board of directors may change our investment objective, operating policies and strategies without prior notice or stockholder approval, the effects of which may be adverse to your interests as stockholders.

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

We will be subject to corporate-level U.S. federal income tax on all of our income if we are unable to maintain RIC status under Subchapter M of the Code, which would have a material adverse effect on our financial performance.

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

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

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

          Under the dividend reinvestment plan, if you own shares of our common stock registered in your own name, you will have all cash distributions automatically reinvested in additional shares of our common stock 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 our common stock 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.

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

          We intend to pay quarterly distributions to our stockholders out of assets legally available for distribution. We cannot assure you that we will continue to achieve investment results that will allow us to make a specified level of cash distributions or year-to-year increases in cash distributions. If we are unable to satisfy the asset coverage test applicable to us as a BDC, or if we violate certain covenants under the Holdings Credit Facility, the NMFC Credit Facility or the Unsecured Notes, our ability to pay distributions to our stockholders could be limited. All distributions are paid at the discretion of our board of directors and depend on our earnings, financial condition, maintenance of our RIC status, compliance with applicable BDC regulations, compliance with covenants under the Holdings Credit Facility, the NMFC Credit Facility and the Unsecured Notes, and such other factors as our board of directors may deem relevant from time to time. The distributions that we pay to our stockholders in a year may exceed our 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.

We may have difficulty paying our required distributions if we recognize taxable income before or without receiving cash representing such income.

          For U.S. federal income tax purposes, we include in our taxable income our allocable share of certain amounts that we have not yet received in cash, such as original issue discount or accruals on a contingent payment debt instrument, which may occur if we receive 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. Our allocable share of such original issue discount and PIK interest are included in our taxable income before we receive any corresponding cash payments. We also may be required to include in our taxable income our allocable share of certain other amounts that we will not receive in cash.

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

Changes in laws or regulations governing our operations may adversely affect our business or cause us to alter our 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. Our 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 we are permitted to make, and your interests as stockholders potentially with retroactive effect. In addition, any changes to the laws and regulations governing

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our operations relating to permitted investments may cause us to alter our investment strategy in order to avail ourselves of new or different opportunities. These changes could result in material changes to our strategies and plans set forth in this prospectus which may result in our 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 us 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 us and our 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 our or our portfolio companies' operations, cash flows or financial condition, impose additional costs on us or our portfolio companies, intensify the regulatory supervision of us or our portfolio companies or otherwise adversely affect our business or the business of our 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 our operations, cash flows or financial condition, impose additional costs on us, intensify the regulatory supervision of us or otherwise adversely affect our business.

Our business and operation could be negatively affected if we become subject to any securities litigation or shareholder activism, which could cause us to incur significant expense, hinder execution of investment strategy and impact our stock price.

          In the past, following periods of volatility in the market price of a company's securities, securities class action litigation has often been brought against that company. Shareholder activism, which could take many forms or arise in a variety of situations, has been increasing in the BDC space recently. While we are currently not subject to any securities litigation or shareholder activism, due to the potential volatility of our stock price and for a variety of other reasons, we may in the future become the target of securities litigation or shareholder activism. Securities litigation and shareholder activism, including potential proxy contests, could result in substantial costs and divert the attention of our management and board of directors and resources from our business. Additionally, such securities litigation and shareholder activism could give rise to perceived uncertainties as to our future, adversely affect our relationships with service providers and make it more difficult to attract and retain qualified personnel. Also, we may be required to incur significant legal fees and other expenses related to any securities litigation or activist shareholder matters. Further, our stock price could be subject to significant fluctuation or otherwise be adversely affected by the events, risks and uncertainties of any securities litigation or shareholder activism.

The effect of global climate change may impact the operations of our portfolio companies.

          There may be evidence of global climate change. Climate change creates physical and financial risk and some of our portfolio companies may be adversely affected by climate change. For example, the needs of customers of energy companies vary with weather conditions, primarily

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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 our 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 our 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.

          In December 2015 the United Nations, of which the U.S. is a member, adopted a climate accord with the long-term goal of limiting global warming and the short-term goal of significantly reducing greenhouse gas emissions. As a result, our portfolio companies, particularly those operating in the energy sector, may be subject to new or strengthened regulations or legislation which could increase their operating costs and/or decrease their revenues.

Pending legislation may allow us to incur additional leverage.

          As a BDC, under the 1940 Act we generally are not permitted to incur indebtedness unless immediately after such borrowing we have 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 our total assets or we may borrow an amount equal to 100.0% of net assets). Legislation introduced in the U.S. House of Representatives would modify this section of the 1940 Act and increase the amount of debt that BDCs may incur by modifying the asset coverage percentage from 200.0% to 150.0%. As a result, we may be able to incur additional indebtedness in the future and therefore your risk of an investment in us may increase.

          In addition, in December 2015, the 2016 omnibus spending bill approved by the U.S. Congress and signed into law by the President increased the amount of SBA-guaranteed debentures that affiliated SBIC funds can have outstanding from $225.0 million to $350.0 million, subject to SBA approval. This new legislation may allow us to issue additional SBIC debentures above the $225.0 million of SBA-guaranteed debentures previously permitted pending application for and receipt of additional SBIC licenses. If we incur this additional indebtedness in the future, your risk of an investment in our securities may increase.

We incur significant costs as a result of being a publicly traded company.

          As a publicly traded company, we incur legal, accounting and other expenses, which are paid by us, 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 us and the market price of our common stock.

          We are subject to the Sarbanes-Oxley Act, and the related rules and regulations promulgated by the SEC. Under current SEC rules since our fiscal year ending December 31, 2012, our management has been required to report on our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act, and rules and regulations of the SEC thereunder. We are required to review on an annual basis our internal control over financial reporting, and on a quarterly and annual basis to evaluate and disclose changes in our internal control over financial reporting. As a result, we expect to continue to incur additional expenses, which may negatively

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impact our financial performance and our ability to make distributions to our 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 we are not able to ensure that the process is effective or that our internal control over financial reporting is or will continue to be effective in a timely manner. In the event that we are unable to maintain or achieve compliance with Section 404 of the Sarbanes-Oxley Act and related rules, we and, consequently, the market price of our common stock may be adversely affected.

Our 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 our common stock and our ability to pay dividends.

          Our 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 our activities. This, in turn, could have a material adverse effect on our operating results and, consequently, negatively affect the market price of our common stock and our ability to pay dividends to our stockholders. In addition, because many of our 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 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 our disaster recovery systems and management continuity planning could impair our 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 our disaster recovery systems, or a support failure from external providers, could have an adverse effect on our ability to conduct business and on our results of operations and financial condition, particularly if those events affect our computer-based data processing, transmission, storage, and retrieval systems or destroy data. If a significant number of our managers were unavailable in the event of a disaster, our ability to effectively conduct our business could be severely compromised.

          We depend heavily upon computer systems to perform necessary business functions. Despite our implementation of a variety of security measures, our computer systems could be subject to cyber attacks and unauthorized access, such as physical and electronic break-ins or unauthorized tampering. Like other companies, we may experience threats to our 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, our computer systems and networks, or otherwise cause interruptions or malfunctions in our operations, which could result in damage to our reputation, financial losses, litigation, increased costs, regulatory penalties and/or customer dissatisfaction or loss.

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Risks Relating to Our Investments

Our investments in portfolio companies may be risky, and we could lose all or part of any of our 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:

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

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

          We invest primarily in privately held companies. There is generally little public information about these companies, and, as a result, we 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 we are unable to uncover all material information about these companies, we may not make a fully informed investment decision, and we may lose money on our 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 our investment returns.

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Our 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 investments that we invest in are almost entirely rated below investment grade or may be unrated, which 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.

Our portfolio may be concentrated in a limited number of industries, which may subject us to a risk of significant loss if there is a downturn in a particular industry in which a number of our investments are concentrated.

          Our portfolio may be concentrated in a limited number of industries. For example, as of June 30, 2016, our investments in the business services and the software industries represented approximately 25.4% and 25.2%, respectively, of the fair value of our portfolio. A downturn in any particular industry in which we are invested could significantly impact the portfolio companies operating in that industry, and accordingly, the aggregate returns that we realize from our investment in such portfolio companies.

          Specifically, 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. In addition, 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. If an industry in which we have significant investments suffers from adverse business or economic conditions, as these industries have to varying degrees, a material portion of our investment portfolio could be affected adversely, which, in turn, could adversely affect our 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.

          As of June 30, 2016, approximately 4.7% of our 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 our financial position and results of operations. Should the current decline in oil and natural gas prices persist, it is likely that our energy-related portfolio companies' abilities to satisfy the financial or operating covenants of us or other lenders will be adversely affected, thereby negatively impacting our financial condition and their ability to satisfy their debt service and other obligations to us.

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If we make unsecured investments, those investments might not generate sufficient cash flow to service their debt obligations to us.

          We 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 we make 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 we invest in the securities and obligations of distressed and bankrupt issuers, we might not receive interest or other payments.

          From time to time, we may invest in other types of investments which are not our 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.

Defaults by our portfolio companies may harm our operating results.

          A portfolio company's failure to satisfy financial or operating covenants imposed by us 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 we hold.

          We 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 we could become subject to a lender's liability claim, including as a result of actions taken if we render significant managerial assistance to the borrower. Furthermore, if one of our portfolio companies were to file for bankruptcy protection, even though we may have structured our investment as senior secured debt, depending on the facts and circumstances, including the extent to which we provided managerial assistance to that portfolio company, a bankruptcy court might re-characterize our debt holding and subordinate all or a portion of our claim to claims of other creditors.

The lack of liquidity in our investments may adversely affect our business.

          We invest, 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 less liquid than publicly traded securities. The illiquidity of these investments may make it difficult for us to sell these investments when desired. In addition, if we are required or otherwise choose to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we had previously recorded these investments. Our 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 our investments are illiquid, we

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may be unable to dispose of them in which case we could fail to qualify as a RIC and/or a BDC, or we may be unable to do so at a favorable price, and, as a result, we may suffer losses.

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

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

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

If we are unable to make follow-on investments in our portfolio companies, the value of our investment portfolio could be adversely affected.

          Following an initial investment in a portfolio company, we may make additional investments in that portfolio company as "follow-on" investments, in order to (i) increase or maintain in whole or in part our 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 our investment. We may elect not to make follow-on investments or may otherwise lack sufficient funds to make these investments. We have the discretion to make follow-on investments, subject to the availability of capital resources. If we fail to make follow-on investments, the continued viability of a portfolio company and our investment may, in some circumstances, be jeopardized and we could miss an opportunity for us to increase our participation in a successful operation. Even if we have sufficient capital to make a desired follow-on investment, we may elect not to make a follow-on investment because we may not want to increase our concentration of risk, either because we prefer other opportunities or because we are subject to BDC requirements that would prevent such follow-on investments or such follow-on investments would adversely impact our ability to maintain our RIC status.

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Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies.

          We invest in portfolio companies at all levels of the capital structure. Our portfolio companies may have, or may be permitted to incur, other debt that ranks equally with, or senior to, the debt in which we invest. By their terms, these debt instruments may entitle the holders to receive payment of interest or principal on or before the dates on which we are entitled to receive payments with respect to the debt instruments in which we invest. In addition, in the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a portfolio company, holders of debt instruments ranking senior to our investment in that portfolio company would typically be entitled to receive payment in full before we receive any distribution. After repaying the senior creditors, the portfolio company may not have any remaining assets to use for repaying its obligation to us. In the case of debt ranking equally with debt instruments in which we invest, we 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 our investments may result in contingent liabilities.

          Most of our investments will involve private securities. In connection with the disposition of an investment in private securities, we 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. We 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 our return of certain distributions previously made to us.

There may be circumstances where our debt investments could be subordinated to claims of other creditors or we could be subject to lender liability claims.

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

          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 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 us. 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

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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 we, 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 we may have with respect to the collateral securing the loans we make to our 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. We may not have the ability to control or direct these actions, even if our rights are adversely affected.

We generally do not control our portfolio companies.

          Although we have taken and may in the future take controlling equity positions in our portfolio companies from time to time, we generally do not control most of our portfolio companies, even though we may have board representation or board observation rights, and our debt agreements may contain certain restrictive covenants that limit the business and operations of our portfolio companies. As a result, we are subject to the risk that a portfolio company may make business decisions with which we disagree and the management of such company may take risks or otherwise act in ways that do not serve our interests as debt investors. Due to the lack of liquidity of the investments that we typically hold in our portfolio companies, we may not be able to dispose of our investments in the event that we disagree with the actions of a portfolio company as readily as we would otherwise like to or at favorable prices which could decrease the value of our investments.

Economic recessions, downturns or government spending cuts could impair our portfolio companies and harm our operating results.

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

A number of our 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 our 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

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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 our portfolio companies that provide services to the U.S. government.

Prepayments of our debt investments by our portfolio companies could adversely impact our results of operations and reduce our return on equity.

          We are subject to the risk that the investments we make in our portfolio companies may be repaid prior to maturity. When this occurs, subject to maintenance of our RIC status, we will generally reinvest these proceeds in temporary investments, pending our future investment in new portfolio companies. These temporary investments will typically have substantially lower yields than the debt being prepaid and we 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, our results of operations could be materially adversely affected if one or more of our portfolio companies elect to prepay amounts owed to us. Additionally, prepayments could negatively impact our return on equity, which could result in a decline in the market price of our common stock.

We may not realize gains from our equity investments.

          When we invest in portfolio companies, we may acquire warrants or other equity securities of portfolio companies as well. We may also invest in equity securities directly. To the extent we hold equity investments, we will attempt to dispose of them and realize gains upon our disposition of them. However, the equity interests we receive may not appreciate in value and, in fact, may decline in value. As a result, we may not be able to realize gains from our equity interests, and any gains that we do realize on the disposition of any equity interests may not be sufficient to offset any other losses we experience. We 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 us to sell the underlying equity interests.

Our performance may differ from our historical performance as our current investment strategy includes significantly more primary originations in addition to secondary market purchases.

          Historically, our investment strategy consisted primarily of secondary market purchases in debt securities. We adjusted that investment strategy to also include significantly more primary originations. While loans that we originate and loans we purchase in the secondary market face many of the same risks associated with the financing of leveraged companies, we 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 our 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 us and fluctuations in the quarterly valuations of investments that are primary originations. As a result, this strategy may result

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in different returns from these investments than the types of returns historically experienced from secondary market purchases of debt securities.

We may be subject to additional risks if we invest in foreign securities and/or engage in hedging transactions.

          The 1940 Act generally requires that 70.0% of our 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. Our investment strategy does not presently contemplate significant investments in securities of non-U.S. companies. However, we may desire to make such investments in the future, to the extent that such transactions and investments are permitted under the 1940 Act. We expect that these investments would focus on the same types of investments that we make in U.S. middle market companies and accordingly would be complementary to our overall strategy and enhance the diversity of our holdings. Investing in foreign companies could expose us 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 investment and capital appreciation and political developments. We may employ hedging techniques to minimize these risks, but we can offer no assurance that we will, in fact, hedge currency risk, or that if we do, such strategies will be effective.

          Engaging in hedging transactions would also, indirectly, entail additional risks to our stockholders. Although it is not currently anticipated that we would engage in hedging transactions as a principal investment strategy, if we determined to engage in hedging transactions, we generally would seek to hedge against fluctuations of the relative values of our portfolio positions from changes in market interest rates or currency exchange rates. Hedging against a decline in the values of our 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 we would not be able to enter into a hedging transaction at an acceptable price. If we choose to engage in hedging transactions, there can be no assurances that we will achieve the intended benefits of such transactions and, depending on the degree of exposure such transactions could create, such transactions may expose us to risk of loss.

          While we 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 we 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, we might not seek to establish a perfect correlation between the hedging instruments and the portfolio holdings being hedged. Any imperfect

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correlation could prevent us from achieving the intended hedge and expose us 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 our 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 our 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, which could have an adverse impact on the market for LIBOR-based securities or the value of our portfolio of LIBOR-indexed, floating-rate debt securities.

Risks Relating to Our Securities

The market price of our common stock may fluctuate significantly.

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

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

Investing in our common stock may involve an above average degree of risk.

          The investments we 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 our common stock may not be suitable for investors with lower risk tolerance.

Sales of substantial amounts of our common stock in the public market may have an adverse effect on the market price of our common stock.

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

Certain provisions of our 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 our common stock.

          Our 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, our certificate of incorporation and bylaws:

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          These anti-takeover provisions may inhibit a change in control in circumstances that could give the holders of our common stock the opportunity to realize a premium over the market price for our common stock. The Holdings Credit Facility, the NMFC Credit Facility and the Unsecured Notes also include covenants that, among other things, restrict our 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, the NMFC Credit Facility and the Unsecured Notes also include change of control provisions that accelerate the indebtedness (or require prepayment of such indebtedness) under these agreements in the event of certain change of control events.

Shares of our 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 we are a part, our common stock has at times traded below our net asset value per share since our IPO on May 19, 2011. Our shares could once again trade at a discount to net asset value. The possibility that our 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 our net asset value will decrease. We cannot predict whether shares of our common stock will trade above, at or below our net asset value. If our common stock trades below our net asset value, we will generally not be able to issue additional shares of our common stock without first obtaining the approval for such issuance from our stockholders and our independent directors. If additional funds are not available to us, we could be forced to curtail or cease our new lending and investment activities, and our net asset value could decrease and our level of distributions could be impacted.

You may not receive dividends or our dividends may decline or may not grow over time.

          We cannot assure you that we 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, our future dividends are dependent upon the investment income we receive on our portfolio investments. To the extent such investment income declines, our ability to pay future dividends may be harmed.

We will have broad discretion over the use of proceeds of any offering made pursuant to this prospectus, to the extent it is successful.

          We will have significant flexibility in applying the proceeds of any offering made pursuant to this prospectus. We will also pay operating expenses, and may pay other expenses such as due diligence expenses of potential new investments, from net proceeds. Our ability to achieve our investment objective may be limited to the extent that the net proceeds of the offering, pending full investment, are used to pay operating expenses. In addition, we can provide you no assurance that the current offering will be successful, or that by increasing the size of our available equity capital, our aggregate expenses, and correspondingly, our expense ratio, will be lowered.

Your interest in NMFC may be diluted if you do not fully exercise your subscription rights in any rights offering.

          In the event we issue subscription rights to purchase shares of our common stock, stockholders who do not fully exercise their rights should expect that they will, at the completion of the offer, own a smaller proportional interest in NMFC than would otherwise be the case if they fully exercised their rights. We cannot state precisely the amount of any such dilution in share ownership

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because we do not know at this time what proportion of the shares will be purchased as a result of the offer.

          In addition, if the subscription price is less than our net asset value per share, then our stockholders would experience an immediate dilution of the aggregate net asset value of their shares as a result of the offer. The amount of any decrease in net asset value is not predictable because it is not known at this time what the subscription price and net asset value per share will be on the expiration date of the rights offering or what proportion of the shares will be purchased as a result of the offer. Such dilution could be substantial.

If we issue preferred stock, the net asset value and market value of our 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 our 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 our 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 our 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 our investments would be borne entirely by the holders of common stock. Therefore, if the market value of our 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, our 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 our 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 we 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 our common stock and preferred stock, both by the 1940 Act and by requirements imposed by rating agencies, if any, or the terms of our credit facilities, if any, might impair our ability to maintain our qualification as a RIC for U.S. federal income tax purposes. While we would intend to redeem our preferred stock to the extent necessary to enable us to distribute our 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.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

          This prospectus contains forward-looking statements that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about us, our current and prospective portfolio investments, our industry, our beliefs, and our assumptions. Words such as "anticipate", "believe", "continue", "could", "estimate", "expect", "intend", "may", "plan", "potential", "project", "seek", "should", "target", "will", "would" or variations of these words and similar expressions are intended to identify forward-looking statements. The forward-looking statements contained in this prospectus involve risks and uncertainties, including statements as to:

          These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements, including without limitation:

          Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be inaccurate. Important assumptions include our ability to originate new loans and investments, certain margins and levels of profitability and the availability of additional capital. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this prospectus should not be regarded as a representation by us that our plans and objectives will be achieved. These risks and uncertainties include those described or identified in "Risk Factors" and elsewhere in this prospectus. You

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should not place undue reliance on these forward-looking statements, which apply only as of the date of this prospectus. However, we will update this prospectus to reflect any material changes to the information contained herein. The forward-looking statements and projections contained in this prospectus are excluded from the safe harbor protection provided by Section 27A of the Securities Act.

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USE OF PROCEEDS

          We intend to use the net proceeds from the sale of our securities pursuant to this prospectus for new investments in portfolio companies in accordance with our investment objective and strategies described in this prospectus, to temporarily repay indebtedness (which will be subject to reborrowing), to pay our operating expenses, to pay distributions to our stockholders and for general corporate purposes, and other working capital needs. We are continuously identifying, reviewing and, to the extent consistent with our investment objective, funding new investments. As a result, we typically raise capital as we deem appropriate to fund such new investments. The supplement to this prospectus relating to an offering will more fully identify the use of the proceeds from such offering.

          We estimate that it will take less than six months for us to substantially invest the net proceeds of any offering made pursuant to this prospectus, depending on the availability of attractive opportunities, market conditions and the amount raised. However, we can offer no assurance that we will be able to achieve this goal.

          Proceeds not immediately used for new investments or the temporary repayment of debt will be invested primarily in cash, cash equivalents, U.S. government securities and other high-quality investments that mature in one year or less from the date of investment. These securities may have lower yields than the types of investments we would typically make in accordance with our investment objective and, accordingly, may result in lower distributions, if any, during such period.

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PRICE RANGE OF COMMON STOCK AND DISTRIBUTIONS

          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 our common stock, the high and low closing sale price for our common stock, the closing sale price as a percentage of NAV and the quarterly distributions per share for each fiscal quarter for the years ended December 31, 2016, December 31, 2015 and December 31, 2014.

   


NAV
   

Closing Sales
Price(3)
    Premium
(Discount) of
High Closing
Sales to
    Premium
(Discount) of
Low Closing
Sales to
   

Declared
Distributions
 

Fiscal Year Ended

    Per Share(2)     High     Low     NAV(4)     NAV(4)     Per Share(5)(6)
 

December 31, 2016

                                     

Fourth Quarter(1)

       * $ 13.83   $ 13.79        *      *      *

Third Quarter

       * $ 14.28   $ 13.11        *      * $ 0.34  

Second Quarter

  $ 13.23   $ 12.90   $ 12.10     (2.49 )%   (8.54 )% $ 0.34  

First Quarter

  $ 12.87   $ 12.96   $ 11.09     0.70 %   (13.83 )% $ 0.34  

December 31, 2015

                                     

Fourth Quarter

  $ 13.08   $ 14.17   $ 12.15     8.33 %   (7.11 )% $ 0.34  

Third Quarter

  $ 13.73   $ 14.94   $ 13.34     8.81 %   (2.84 )% $ 0.34  

Second Quarter

  $ 13.90   $ 15.14   $ 14.49     8.92 %   4.24 % $ 0.34  

First Quarter

  $ 13.89   $ 15.06   $ 14.30     8.42 %   2.95 % $ 0.34  

December 31, 2014

                                     

Fourth Quarter

  $ 13.83   $ 15.09   $ 14.14     9.11 %   2.24 % $ 0.34  

Third Quarter

  $ 14.33   $ 15.39   $ 14.48     7.40 %   1.05 % $ 0.46 (7)

Second Quarter

  $ 14.65   $ 14.89   $ 13.91     1.64 %   (5.05 )% $ 0.34  

First Quarter

  $ 14.53   $ 15.19   $ 14.46     4.54 %   (0.48 )% $ 0.34  

(1)
Period from October 1, 2016 through October 4, 2016.

(2)
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.

(3)
Closing sales price is determined as the high or low closing sales price noted within the respective quarter, not adjusted for distributions.

(4)
Calculated as of the respective high or low closing sales price divided by the quarter end NAV.

(5)
Represents the distributions declared or paid for the specified quarter.

(6)
Tax characteristics of all distributions paid are reported to stockholders on Form 1099 after the end of the calendar year. For the years ended December 31, 2015 and December 31, 2014, total distributions were $81.0 million and $77.6 million, respectively, of which the distributions were comprised of approximately 99.96% and 96.16%, respectively, of ordinary income, 0.00% and 3.55%, respectively, of long-term capital gains and approximately 0.04% and 0.29%, respectively, of a return of capital.

(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.

*
Not determinable at the time of filing.

          On October 4, 2016, the last reported sales price of our common stock was $13.79 per share. As of September 29, 2016, we had approximately 22 stockholders of record and approximately one beneficial owner whose shares are held in the names of brokers, dealers, funds, trusts and clearing agencies.

          Shares of BDCs may trade at a market price that is less than the value of the net assets attributable to those shares. The possibility that our shares of common stock will trade at a discount

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from NAV or at premiums that are unsustainable over the long term are separate and distinct from the risk that our NAV will decrease. Since our initial public offering on May 19, 2011, our shares of common stock have traded at times at both a discount and a premium to the net assets attributable to those shares. As of October 4, 2016, our shares of common stock traded at a premium of approximately 4.2% of the NAV attributable to those shares as of June 30, 2016. It is not possible to predict whether the shares offered hereby will trade at, above, or below NAV.

          We intend to pay quarterly distributions to our stockholders in amounts sufficient to maintain our status as a RIC. We intend to distribute approximately our 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 our taxable income on an annual basis, except that we may retain certain net capital gains for reinvestment.

          We maintain an "opt out" dividend reinvestment plan on behalf of our stockholders, pursuant to which each of our stockholders' cash distributions will be automatically reinvested in additional shares of our common stock, unless the stockholder elects to receive cash.

          We apply the following in implementing the dividend reinvestment plan. If the price at which newly issued shares are to be credited to stockholders' accounts is equal to or greater than 110.0% of the last determined NAV of the shares, we will use only newly issued shares to implement the 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 our 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 ask 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, we 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 our 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 our stockholders have been tabulated.

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          The following table reflects the cash distributions, including dividends and returns of capital, if any, per share that have been declared by our board of directors for the years ended December 31, 2016, December 31, 2015 and December 31, 2014:

Date Declared

  Record Date   Payment Date     Amount  

August 2, 2016

  September 16, 2016   September 30, 2016   $ 0.34  

May 3, 2016

  June 16, 2016   June 30, 2016     0.34  

February 22, 2016

  March 17, 2016   March 31, 2016     0.34  

          $ 1.02  

November 3, 2015

 

December 16, 2015

 

December 30, 2015

 
$

0.34
 

August 4, 2015

  September 16, 2015   September 30, 2015     0.34  

May 5, 2015

  June 16, 2015   June 30, 2015     0.34  

February 23, 2015

  March 17, 2015   March 31, 2015     0.34  

          $ 1.36  

November 4, 2014

 

December 16, 2014

 

December 30, 2014

 
$

0.34
 

August 5, 2014

  September 16, 2014   September 30, 2014     0.34  

July 30, 2014

  August 20, 2014   September 3, 2014     0.12 (1)

May 6, 2014

  June 16, 2014   June 30, 2014     0.34  

March 4, 2014

  March 17, 2014   March 31, 2014     0.34  

          $ 1.48  

(1)
Special dividend related to estimated realized capital gains attributable to NMF Holdings' warrant investments in Learning Care Group (US), Inc.

          Tax characteristics of all distributions paid are reported to stockholders on Form 1099 after the end of the calendar year. For the years ended December 31, 2015 and December 31, 2014, total distributions were $81.0 million and $77.6 million, respectively, of which the distributions were comprised of approximately 99.96% and 96.16%, respectively, of ordinary income, 0.00% and 3.55%, respectively, of long-term capital gains and approximately 0.04% and 0.29%, respectively, of a return of capital. Future quarterly distributions, if any, will be determined by our board of directors.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

          The information contained in this section should be read in conjunction with the Selected Financial and Other Data and our Financial Statements and notes thereto appearing elsewhere in this prospectus. For the periods prior to and as of May 8, 2014, all financial information provided in this prospectus reflects our organizational structure prior to the restructuring on May 8, 2014 described under "Description of Restructuring", where NMF Holdings functioned as the operating company. In addition to historical information, the following discussion and other parts of this prospectus contain forward-looking information that involves risks and uncertainties. Our actual results could differ materially from those anticipated by such forward-looking information due to the factors discussed under "Risk Factors" and "Cautionary Statement Regarding Forward-Looking Statements" appearing elsewhere in this prospectus.


Overview

New Mountain Finance Corporation

          We are a Delaware corporation that was originally incorporated on June 29, 2010. We are a closed-end, non-diversified management investment company that has elected to be regulated as a BDC under the 1940 Act. As such, we are obligated to comply with certain regulatory requirements. We have elected to be treated, and intend to comply with the requirements to continue to qualify annually, as a RIC under Subchapter M of the Code. NMFC is also registered as an investment adviser under the Advisers Act.

          On May 19, 2011, we priced our 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, we sold an additional 2,172,000 shares of our common stock to certain executives and employees of, and other individuals affiliated with, New Mountain Capital in 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 our IPO and through a series of transactions, NMF Holdings 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 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 "Description of Restructuring".

          Until May 8, 2014, NMF Holdings was externally managed by the Investment Adviser. As of May 8, 2014, the Investment Adviser serves as our external investment adviser. 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

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totaling more than $15.0 billion(1), which includes total assets held by us. 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 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.

          Prior to December 18, 2014, NMF SLF was a Delaware limited liability company. NMF SLF was a wholly-owned subsidiary of NMF Holdings and thus our wholly-owned indirect subsidiary. NMF SLF was bankruptcy-remote and non-recourse to us. As part of an amendment to our existing credit facilities with Wells Fargo Bank, National Association, NMF SLF merged with and into NMF Holdings on December 18, 2014. See "Borrowings" for additional information on our credit facilities.

          Since our IPO, and through June 30, 2016, we raised approximately $454.0 million in net proceeds from additional offerings of common stock and issued shares of common stock valued at approximately $288.4 million on behalf of AIV Holdings for exchanged units. We acquired from NMF Holdings units of NMF Holdings equal to the number of shares of our common stock sold in additional offerings. With the completion of the final secondary offering on February 3, 2014, we owned 100.0% of the units of NMF Holdings, which became our wholly-owned subsidiary.

Current Organization

          Our wholly-owned subsidiaries, NMF Ancora, NMF QID and NMF YP, 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). We consolidate our tax blocker corporations for accounting purposes. The tax blocker corporations are not consolidated for income tax purposes and may incur income tax expense as a result of their ownership of the portfolio companies. Additionally, our wholly-owned subsidiary, NMF Servicing serves as the administrative agent on certain investment transactions. SBIC LP, and its general partner, SBIC GP, were organized in Delaware as a limited partnership and limited liability company, respectively. SBIC LP and SBIC GP are our consolidated wholly-owned direct and indirect subsidiaries. SBIC LP received a license from the SBA to operate as a SBIC under Section 301(c) of the 1958 Act.

   


(1)
Includes amounts committed, not all of which have been drawn down and invested to-date, as of June 30, 2016, as well as amounts called and returned since inception.

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          The diagram below depicts our organizational structure as of June 30, 2016.

GRAPHIC


*
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.

          Our 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, our 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 us, SBIC LP's investment objective is to generate current income and capital appreciation under our investment criteria. However, SBIC LP's investments must be in SBA eligible companies. Our portfolio may be concentrated in a limited number of industries. As of June 30, 2016, our top five industry concentrations were business services, software, education, federal services and distribution & logistics.

          The investments that we invest in are almost entirely rated below investment grade or may be unrated, which are often referred to as "leveraged loans", "high yield" or "junk" debt investments, and may be considered "high risk" or speculative compared to debt investments that are rated investment grade. 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 our net asset value and income distributions. Our investments are also primarily floating rate debt investments that contain interest reset provisions that may make it more difficult for borrowers to make debt repayments to us if interest rates rise. In addition, some of our 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. Our debt investments may also loss significant market value before a default occurs. Furthermore, an active trading market may not exist for these securities. This illiquidity may make it more difficult to value our investments.

          As of June 30, 2016, our net asset value was $843.3 million and our portfolio had a fair value of approximately $1,498.1 million in 72 portfolio companies, with a weighted average Yield to Maturity at Cost of approximately 10.3%.

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Recent Developments

          On August 2, 2016, our board of directors declared a third quarter 2016 distribution of $0.34 per share payable on September 30, 2016 to holders of record as of September 16, 2016.


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

          We consolidate our wholly-owned direct and indirect subsidiaries: NMF Holdings, NMF Servicing, SBIC LP, SBIC GP, NMF Ancora, NMF QID and NMF YP. Previously, we consolidated our wholly-owned indirect subsidiary NMF SLF until it merged with and into NMF Holdings on December 18, 2014. See "Borrowings" for additional information on our credit facilities. We are an investment company following accounting and reporting guidance as described in Accounting Standards Codification Topic 946, Financial Services — Investment Companies, ("ASC 946").

Valuation and Leveling of Portfolio Investments

          At all times consistent with GAAP and the 1940 Act, we conduct a valuation of assets, which impacts our net asset value.

          We value our assets on a quarterly basis, or more frequently if required under the 1940 Act. In all cases, our board of directors is ultimately and solely responsible for determining the fair value of our 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 our portfolio investments require a fair value determination. Security transactions are accounted for on a trade date basis. Our quarterly valuation procedures are set forth in more detail below:

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          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 our 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 we have 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

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Value Measurements and Disclosures ("ASC 820"), we, to the extent that we hold such investments, do not adjust the quoted price for these investments, even in situations where we hold 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:

          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 and unobservable. 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 and unobservable inputs.

          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 our portfolio investments fall into as of June 30, 2016:

(in thousands)

    Total     Level I     Level II     Level III
 

First lien

  $ 616,894   $   $ 285,363   $ 331,531  

Second lien

    642,423         354,286     288,137  

Subordinated

    79,272         37,538     41,734  

Equity and other

    159,472     118     14     159,340  

Total investments

  $ 1,498,061   $ 118   $ 677,201   $ 820,742  

          We generally use the following framework when determining the fair value of investments where there are little, if any, market activity or observable pricing inputs. We typically determine the fair value of our performing debt investments utilizing an income approach. Additional consideration is given using a market based approach, as well as reviewing the overall underlying portfolio

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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 our due diligence process, we evaluate the overall performance and financial stability of the portfolio company. Post investment, we analyze 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. We also attempt 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 our original investment thesis. This analysis is specific to each portfolio company. We leverage the knowledge gained from our original due diligence process, augmented by this subsequent monitoring, to continually refine our outlook for each of our portfolio companies and ultimately form the valuation of our investment in each portfolio company. When an external event such as a purchase transaction, public offering or subsequent sale occurs, we will consider the pricing indicated by the external event to corroborate the private valuation.

          For debt investments, we may employ the Market Based Approach (as described below) to assess the total enterprise value of the portfolio company, in order to evaluate the enterprise value coverage of our debt investment. For equity investments or in cases where the Market Based Approach implies a lack of enterprise value coverage for the debt investment, we may additionally employ a discounted cash flow analysis based on the free cash flows of the portfolio company to assess the total enterprise value.

          After enterprise value coverage is demonstrated for our debt investments through the method(s) above, the Income Based Approach (as described below) may be employed to estimate the fair value of the investment.

          Market Based Approach:    We may estimate the total enterprise value of each portfolio company by utilizing market value cash flow (EBITDA) multiples of publicly traded comparable companies and comparable transactions. We consider numerous factors when selecting the appropriate companies whose trading multiples are used to value our 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. We 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 the enterprise value of the portfolio company. Significant increases or decreases in the EBITDA multiple will result in an increase or decrease in enterprise value, which may result in an increase or decrease in the fair value estimate of the investment. In applying the market based approach as of June 30, 2016, we used the relevant EBITDA multiple ranges set forth in the table below to determine the enterprise value of our portfolio companies. We believe this was a reasonable range in light of current comparable company trading levels and the specific portfolio companies involved.

          Income Based Approach:    We 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

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fair value measurement. In applying the income based approach as of June 30, 2016, we used the discount ranges set forth in the table below to value investments in our portfolio companies.

          The unobservable inputs used in the fair value measurement of our Level III investments as of June 30, 2016 were as follows:

    Fair Value                            

    as of             Range
 

(in thousands)
Type

    June 30,
2016
  Approach   Unobservable Input     Low     High     Weighted
Average
 

First lien

  $ 283,732   Market & income   EBITDA multiple     5.0x     16.0x     10.3x  

        approach   Discount rate     7.4 %   12.4 %   9.7 %

    25,524   Market quote   Broker quote     N/A     N/A     N/A  

    22,275   Other   N/A(1)     N/A (1)   N/A (1)   N/A (1)

Second lien

    157,473   Market & income   EBITDA multiple     6.5x     16.0x     11.5x  

        approach   Discount rate     9.5 %   13.1 %   11.3 %

    118,769   Market quote   Broker quote     N/A     N/A     N/A  

    11,895   Other   N/A(1)     N/A (1)   N/A (1)   N/A (1)

Subordinated

    41,734   Market & income   EBITDA multiple     5.0x     8.5x     7.3x  

        approach   Discount rate     9.5 %   18.1 %   15.8 %

Equity and other

    155,308   Market & income   EBITDA multiple     2.5x     12.0x     6.2x  

        approach   Discount rate     8.0 %   19.5 %   14.3 %

    1,504   Black Scholes analysis   Expected life in years     9.3     9.8     9.5  

            Volatility     27.0 %   33.8 %   30.7 %

            Discount rate     1.6 %   1.6 %   1.6 %

    2,528   Other   N/A(1)     N/A (1)   N/A (1)   N/A (1)

  $ 820,742                            

(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

          NMFC Senior Loan Program I LLC ("SLP I") was formed as a Delaware limited liability company on May 27, 2014 and commenced operations on June 10, 2014. SLP I is a portfolio company held by us. 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 "SLP I Agreement") and will continue in existence until June 10, 2019, subject to earlier termination pursuant to certain terms of the SLP I Agreement. The term may be extended for up to one year pursuant to certain terms of the SLP I Agreement. SLP I has a three year re-investment period. SLP I invests in senior secured loans issued by companies within our core industry verticals. These investments are typically broadly syndicated first lien loans.

          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 us. Our capital commitment is $23.0 million, representing less than 25.0% ownership, with third party investors representing the remaining capital commitment. As of June 30, 2016, SLP I had total investments with an aggregate fair value of approximately $339.0 million, debt outstanding of $245.9 million and capital that had been called and funded of $93.0 million. As of December 31, 2015, SLP I had total investments with an aggregate fair value of approximately $349.7 million, debt outstanding of $267.6 million and capital

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that had been called and funded of $93.0 million. Our investment in SLP I is disclosed on our Consolidated Schedules of Investments as of June 30, 2016 and December 31, 2015.

          We, as an investment adviser registered under the Advisers Act, act as the collateral manager to SLP I and are entitled to receive a management fee for our investment management services provided to SLP I. As a result, SLP I is classified as our affiliate. No management fee is charged on our investment in SLP I in connection with the administrative services provided to SLP I. For the three and six months ended June 30, 2016, we earned approximately $0.3 million and $0.6 million, respectively, in management fees related to SLP I which is included in other income. For the three and six months ended June 30, 2015, we earned approximately $0.3 million and $0.6 million, respectively, in management fees related to SLP I which is included in other income. As of June 30, 2016 and December 31, 2015, approximately $0.3 million and $0.3 million, respectively, of management fees related to SLP I was included in receivable from affiliates. For the three and six months ended June 30, 2016, we earned approximately $0.9 million and $1.8 million, respectively, of dividend income related to SLP I, which is included in dividend income. For the three and six months ended June 30, 2015, we earned approximately $0.9 million and $1.8 million, respectively, of dividend income related to SLP I, which is included in dividend income. As of June 30, 2016 and December 31, 2015, approximately $0.9 million and $0.9 million, respectively, of dividend income related to SLP I was included in interest and dividend receivable.

NMFC Senior Loan Program II LLC

          NMFC Senior Loan Program II LLC ("SLP II") was formed as a Delaware limited liability company on March 9, 2016 and commenced operations on April 12, 2016. SLP II is structured as a private joint venture investment fund between us and SkyKnight Income, LLC ("SkyKnight") and operates under a limited liability company agreement (the "SLP II Agreement"). The purpose of the joint venture is to invest primarily in senior secured loans issued by portfolio companies within our core industry verticals. These investments are typically broadly syndicated first lien loans. All investment decisions must be unanimously approved by the board of managers of SLP II, which has equal representation from us and SkyKnight. SLP II has a three year investment period and will continue in existence until April 12, 2021. The term may be extended for up to one year pursuant to certain terms of the SLP II Agreement.

          SLP II is capitalized with equity contributions which are called from its members, on a pro-rata basis based on their equity commitments, as transactions are completed. Any decision by SLP II to call down on capital commitments requires approval by the board of managers of SLP II. We and SkyKnight have committed to provide $79.4 million and $20.6 million of equity to SLP II, respectively. As of June 30, 2016 we and SkyKnight have contributed $27.8 million and $7.2 million, respectively. Our investment in SLP II is disclosed on our Consolidated Schedule of Investments as of June 30, 2016.

          On April 12, 2016, SLP II closed its $275.0 million revolving credit facility with Wells Fargo Bank, National Association which matures on April 12, 2021 and bears interest at a rate of LIBOR plus 1.75% per annum. As of June 30, 2016, SLP II had total investments with an aggregate fair value of approximately $167.9 million and debt outstanding under its credit facility of $71.6 million.

          We have determined that SLP II is an investment company under ASC 946, however, in accordance with such guidance we will generally not consolidate our investment in a company other than a wholly-owned investment company subsidiary. Furthermore, Accounting Standards Codification Topic 810, Consolidation, concludes that in a joint venture where both members have equal decision making authority, it is not appropriate for one member to consolidate the joint venture since neither has control. Accordingly, we do not consolidate SLP II.

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Collateralized agreements or repurchase financings

          We follow 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 June 30, 2016 and December 31, 2015, we held one collateralized agreement to resell with a cost basis of $30.0 million and $30.0 million, respectively, and a carrying value of $29.6 million and $29.7 million, respectively, and is collateralized by a second lien bond in Northstar GOM Holdings Group LLC with a fair value of $29.6 million and $29.7 million, respectively. The collateralized agreement to resell is guaranteed by a private hedge fund with the most recently reported assets under management of approximately $690.0 million and December 31, 2015 assets under management of approximately $716.6 million, respectively. Pursuant to the terms of the collateralized agreement, the private hedge fund is obligated to repurchase the collateral from us at the par value of the collateralized agreement once called upon by us or if the private hedge fund's total assets under management fall below the agreed upon thresholds. The collateralized agreement was called upon by us but the counterparty failed to repurchase the collateral at its par value in accordance with the terms of the collateralized agreement. As of June 30, 2016, litigation is on-going in the state of New York to resolve this matter. The collateralized agreement earned interest at a weighted average rate of 16.0% and 15.0% per annum as of June 30, 2016 and December 31, 2015, respectively.

Revenue Recognition

          Sales and paydowns of investments:    Realized gains and losses on investments are determined on the specific identification method.

          Interest and dividend 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. We have loans and certain preferred equity investments in the portfolio that contain a payment-in-kind ("PIK") interest or dividend provision. PIK interest and dividends are accrued and recorded as income at the contractual rates, if deemed collectible. The PIK interest and dividends are added to the principal or share balances on the capitalization dates and generally due at maturity or when redeemed by the issuer.

          Dividend income on common equity is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies. Dividend income on preferred securities is recorded as dividend income on an accrual basis to the extent that such amounts are deemed collectible.

          Non-accrual income:    Investments 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 or dividends are reversed when an investment is placed on non-accrual status. Previously capitalized PIK interest or dividends are not reversed when an investment is placed on non-accrual status. Interest or dividend payments received on non-accrual investments may be recognized as income or applied to principal depending upon management's judgment of the ultimate outcome. Non-accrual investments are restored to accrual status when past due principal and interest is paid and, in management's judgment, are likely to remain current.

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          Other income:    Other income represents delayed compensation, consent or amendment fees, revolver fees, structuring fees, upfront 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. We 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 for providing such commitments. Structuring fees and upfront fees are recognized as income when earned, usually when paid at the closing of the investment, and are non-refundable.


Monitoring of Portfolio Investments

          We monitor the performance and financial trends of our portfolio companies on at least a quarterly basis. We attempt to identify any developments within the portfolio company, the industry or the macroeconomic environment that may alter any material element of our original investment strategy.

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

          The following table shows the distribution of our investments on the 1 to 4 investment rating scale at fair value as of June 30, 2016:

(in millions)

    As of June 30, 2016
 

Investment Rating

    Par Value(1)     Percent     Fair Value     Percent
 

Investment Rating 1

  $ 196.0     13.5 % $ 249.4     16.6 %

Investment Rating 2

    1,161.5     80.1 %   1,207.9     80.6 %

Investment Rating 3

    43.6     3.0 %   26.3     1.8 %

Investment Rating 4

    49.1     3.4 %   14.5     1.0 %

  $ 1,450.2     100.0 % $ 1,498.1     100.0 %

(1)
Excludes shares and warrants.

          As of June 30, 2016, all investments in our portfolio had an Investment Rating of 1 or 2 with the exception of five portfolio companies. As of June 30, 2016, four portfolio companies had an Investment Rating of 3 and three portfolio companies had an Investment Rating of 4, which includes two portfolio companies that had a portion of our investment included in Investment Rating of 3 and a portion included in Investment Rating of 4.

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          During the second quarter of 2016, the Company placed a portion of its first lien position in Permian Tank & Manufacturing, Inc. ("Permian") on non-accrual status due to its ongoing restructuring. As of June 30, 2016, the portion of the Permian first lien position placed on non-accrual status represented an aggregate cost basis of $17.1 million, an aggregate fair value of $5.0 million and total unearned interest income of $0.8 million and $0.8 million for the three and six months then ended.

          During the second quarter of 2016, the Company placed a portion of its second lien position in Transtar Holding Company ("Transtar") on non-accrual status due to its ongoing restructuring. As of June 30, 2016, the portion of the Transtar second lien position placed on non-accrual status represented an aggregate cost basis of $24.7 million, an aggregate fair value of $9.1 million and total unearned interest income of $0.8 million and $0.8 million for the three and six months then ended.

          As of June 30, 2016, our two super priority first lien positions in ATI Acquisition Company and its 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 June 30, 2016, our two super priority first lien positions in ATI Acquisition Company and its related preferred shares and warrants in Ancora Acquisition LLC remained on non-accrual status due to the inability of the portfolio company to service its interest payments for the quarter then ended and uncertainty about its ability to pay such amounts in the future. As of June 30, 2016, our 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 no unearned interest income for the three and six months then ended. For the three and six months ended June 30, 2015, total unearned interest income was $0.1 million and $0.2 million. As of December 31, 2015, our investment had an aggregate cost basis of $1.6 million and an aggregate fair value of $0.4 million. As of June 30, 2016 and December 31, 2015, unrealized gains (losses) include a fee that we would recognize upon realization of the two super priority first lien debt investments.

          During the first quarter of 2015, we placed a portion of our second lien position in Edmentum, Inc. ("Edmentum") on non-accrual status due to its ongoing restructuring. As of March 31, 2015, our investment in Edmentum had an aggregate cost basis of $30.8 million, an aggregate fair value of $15.6 million and total unearned interest income of $0.4 million for the three months then ended. In June 2015, Edmentum completed a restructuring which resulted in a material modification of the original terms and an extinguishment of our original investment in Edmentum. Prior to the extinguishment in June 2015, our original investment in Edmentum had an aggregate cost of $31.6 million, an aggregate fair value of $16.4 million and total unearned interest income of $0.8 million for the six months ended June 30, 2015. The extinguishment resulted in a realized loss of $15.2 million. Post restructuring, our investments in Edmentum have been restored to full accrual status. As of June 30, 2016, our investments in Edmentum have an aggregate cost basis of $25.9 million and an aggregate fair value of $27.2 million.

          During the first quarter of 2015, our first lien position in Education Management LLC ("EDMC") was non-income producing as a result of the portfolio company undergoing a restructuring. As of December 31, 2014, our investment in EDMC had an aggregate cost basis of $3.0 million, an aggregate fair value of $1.4 million and no unearned interest income for the three months then ended. In January 2015, EDMC completed a restructuring which resulted in a material modification of the original terms and an extinguishment of our original investment in EDMC. Prior to the extinguishment in January 2015, our original investment in EDMC had an aggregate cost of $3.0 million, an aggregate fair value of $1.4 million and no unearned interest income for the period then ended. The extinguishment resulted in a realized loss of $1.6 million. Post restructuring, our investments in EDMC are income producing. As of June 30, 2016, our investments in EDMC have an aggregate cost basis of $1.5 million and an aggregate fair value of $0.3 million.

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          During the third quarter of 2014, we placed a portion of our 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, our investment in UniTek had an aggregate cost basis of $47.4 million, an aggregate fair value of $35.2 million and total unearned interest income of $1.0 million for the year then ended. In January 2015, UniTek emerged from "Pre-Packaged" Chapter 11 Bankruptcy and completed its restructuring. The restructuring resulted in a material modification of the original terms and an extinguishment of our original investments in UniTek. Prior to the extinguishment in January 2015, our original investments in UniTek had an aggregate cost of $52.9 million, an aggregate fair value of $40.1 million and total unearned interest income of $0.1 million for the period then ended. The extinguishment resulted in a realized loss of $12.8 million. Post restructuring, our investments in UniTek have been restored to full accrual status. As of June 30, 2016, our investments in UniTek have an aggregate cost basis of $41.3 million and an aggregate fair value of $56.0 million.


Portfolio and Investment Activity

          The fair value of our investments was approximately $1,498.1 million in 72 portfolio companies at June 30, 2016 and approximately $1,512.2 million in 75 portfolio companies at December 31, 2015.

          The following table shows our portfolio and investment activity for the six months ended June 30, 2016 and June 30, 2015:

    Six Months Ended
 

(in millions)

    June 30, 2016     June 30, 2015
 

New investments in 21 and 14 portfolio companies, respectively

  $ 163.8   $ 190.0  

Debt repayments in existing portfolio companies

    170.2     262.8  

Sales of securities in 4 and 12 portfolio companies, respectively

    28.0     52.4  

Change in unrealized appreciation on 54 and 37 portfolio companies, respectively

    41.7     48.6  

Change in unrealized depreciation on 23 and 39 portfolio companies, respectively

    (34.1 )   (30.7 )

          At June 30, 2016 and June 30, 2015, our weighted average Yield to Maturity at Cost was approximately 10.3% and 10.8%, respectively.


Recent Accounting Standards Updates

          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 our consolidated financial statements and disclosures.

          In February 2015, the FASB issued Accounting Standards Update No. 2015-02, Consolidation Topic 810 — Amendments to the Consolidation Analysis ("ASU 2015-02"), which modifies the

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consolidation analysis in determining if limited partnerships or similar type entities fall under the variable interest model or voting interest model, particularly those that have fee arrangements and related party relationships. ASU 2015-02 was effective for all public entities for interim and annual reporting periods beginning after December 15, 2015. Earlier adoption is permitted. On January 1, 2016, we adopted ASU 2015-02. The adoption did not have an impact on our consolidated financial statements and disclosures.

          In April 2015, the FASB issued Accounting Standards Update No. 2015-03, Interest — Imputation of Interest Subtopic 835-30 — Simplifying the Presentation of Debt Issuance Costs ("ASU 2015-03"), which changes the presentation of debt issuance costs in financial statements. Under ASU 2015-03, an entity presents such costs on the statement of assets and liabilities as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs is reported as interest expense. The new standard was effective for all public entities for interim and annual reporting periods beginning after December 15, 2015. Earlier adoption is permitted. On January 1, 2016, we adopted ASU 2015-03. Upon adoption, we revised our presentation of deferred financing costs from an asset to a liability, which is a direct deduction to our debt on the Consolidated Statements of Assets and Liabilities. In addition, we retrospectively revised our presentation of $13,992 of deferred financing costs that were previously presented as an asset as of December 31, 2015, which resulted in a decrease to total assets and total liabilities as of December 31, 2015.

          In January 2016, the FASB issued Accounting Standards Update No. 2016-01, Financial Instruments — Overall Subtopic 825-10 — Recognition and Measurement of Financial Assets and Financial Liabilities ("ASU 2016-01"). ASU 2016-01 amends certain aspects of recognition, measurement, presentation and disclosure of financial assets and liabilities. ASU 2016-01 is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The new guidance must be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair values (including disclosure requirements) should be applied prospectively to equity investments that exist as of the date of adoption of ASU 2016-01. We are in the process of evaluating the impact that this guidance will have on our consolidated financial statements and disclosures.


Results of Operations

          Under GAAP, our 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. We track 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.

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          The following table for the three months ended June 30, 2016 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)

    Three Months
Ended
June 30, 2016
    Stepped-up
Cost Basis
Adjustments
    Incentive Fee
Adjustments(1)
    Adjusted
Three Months
Ended
June 30, 2016
 

Investment income

                         

Interest income

  $ 38,412   $ (35 ) $   $ 38,377  

Dividend income

    1,721             1,721  

Other income

    1,357             1,357  

Total investment income(2)

    41,490     (35 )       41,455  

Total expenses pre-incentive fee(3)

    14,209             14,209  

Pre-Incentive Fee Net Investment Income

    27,281     (35 )       27,246  

Incentive fee

    5,449             5,449  

Post-Incentive Fee Net Investment Income

    21,832     (35 )       21,797  

Net realized gains (losses) on investments(4)          

    865     (86 )       779  

Net change in unrealized appreciation (depreciation) of investments(4)          

    21,956     121         22,077  

Net change in unrealized (depreciation) appreciation of securities purchased under collateralized agreements to resell

    (44 )           (44 )

Benefit for taxes

    84             84  

Capital gains incentive fees

                 

Net increase in net assets resulting from operations

  $ 44,693               $ 44,693  

(1)
For the three months ended June 30, 2016, we incurred total incentive fees of $5.4 million, of which none was related to the capital gains incentive fee accrual on a hypothetical liquidation basis.

(2)
Includes income from non-controlled/non-affiliated investments, non-controlled/affiliated investments and controlled investments.

(3)
Includes expense waivers and reimbursements of $0.1 million and management fee waivers of $1.2 million.

(4)
Includes net realized gains and losses on investments and net change in unrealized appreciation (depreciation) of investments from non-controlled/non-affiliated investments, non-controlled/affiliated investments and controlled investments.

          For the three months ended June 30, 2016, we had a less than $0.1 million adjustment to interest income for amortization, a decrease of approximately $0.1 million to net realized gains and an increase of approximately $0.1 million to net change in unrealized appreciation to adjust for the stepped-up cost basis of the transferred investments as discussed above. For the three months ended June 30, 2016, total adjusted investment income of $41.5 million consisted of approximately $33.3 million in cash interest from investments, approximately $0.9 million in PIK interest from

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investments, approximately $3.3 million in prepayment fees, net amortization of purchase premiums and discounts of approximately $0.8 million, approximately $1.0 million in cash dividends from investments, $0.8 million in PIK dividends from investments and approximately $1.4 million in other income. Our Adjusted Net Investment Income was $21.8 million for the three months ended June 30, 2016.

          In accordance with GAAP, for the three months ended June 30, 2016, we did not have an accrual for 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 June 30, 2016, no actual capital gains incentive fee was owed under the Investment Management Agreement, as cumulative net Adjusted Realized Gains did not exceed cumulative Adjusted Unrealized Depreciation.

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          The following table for the six months ended June 30, 2016 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)

    Six Months Ended
June 30, 2016
    Stepped-up
Cost Basis
Adjustments
    Incentive Fee
Adjustments(1)
    Adjusted
Six Months
Ended
June 30, 2016
 

Investment income

                         

Interest income

  $ 76,202   $ (64 ) $   $ 76,138  

Dividend income

    3,360             3,360  

Other income

    2,904             2,904  

Total investment income(2)

    82,466     (64 )       82,402  

Total expenses pre-incentive fee(3)

    28,233             28,233  

Pre-Incentive Fee Net Investment Income

    54,233     (64 )       54,169  

Incentive fee

    10,834             10,834  

Post-Incentive Fee Net Investment Income

    43,399     (64 )       43,335  

Net realized gains (losses) on investments(4)

    1,041     (124 )       917  

Net change in unrealized appreciation (depreciation) of investments(4)

    7,570     188         7,758  

Net change in unrealized (depreciation) appreciation of securities purchased under collateralized agreements to resell

    (74 )           (74 )

Benefit for taxes

    808             808  

Capital gains incentive fees

                 

Net increase in net assets resulting from operations

  $ 52,744               $ 52,744  

(1)
For the six months ended June 30, 2016, we incurred total incentive fees of $10.8 million, of which none was related to the capital gains incentive fee accrual on a hypothetical liquidation basis.

(2)
Includes income from non-controlled/non-affiliated investments, non-controlled/affiliated investments and controlled investments.

(3)
Includes expense waivers and reimbursements of $0.3 million and management fee waivers of $2.6 million.

(4)
Includes net realized gains and losses on investments and net change in unrealized appreciation (depreciation) of investments from non-controlled/non-affiliated investments, non-controlled/affiliated investments and controlled investments.

          For the six months ended June 30, 2016, we had approximately $0.1 million adjustment to interest income for amortization, a decrease of approximately $0.1 million to net realized gains and an increase of approximately $0.2 million to net change in unrealized appreciation to adjust for the stepped-up cost basis of the transferred investments as discussed above. For the six months ended June 30, 2016, total adjusted investment income of $82.4 million consisted of approximately

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$69.2 million in cash interest from investments, approximately $1.9 million in PIK interest from investments, approximately $3.5 million in prepayment fees, net amortization of purchase premiums and discounts of approximately $1.5 million, approximately $1.9 million in cash dividends from investments, $1.5 million in PIK dividends from investments and approximately $2.9 million in other income. Our Adjusted Net Investment Income was $43.3 million for the six months ended June 30, 2016.

          In accordance with GAAP, for the six months ended June 30, 2016, we did not have an accrual for 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 June 30, 2016, no actual capital gains incentive fee was owed under the Investment Management Agreement, as cumulative net Adjusted Realized Gains did not exceed cumulative Adjusted Unrealized Depreciation.

Results of Operations for the Three Months Ended June 30, 2016 and June 30, 2015

Revenue

    Three Months Ended     Percentage
 

(in thousands)

    June 30, 2016     June 30, 2015     Change
 

Interest income

  $ 38,412   $ 35,470     8 %

Dividend income

    1,721     1,795     (4 )%

Other income

    1,357     640     112 %

Total investment income

  $ 41,490   $ 37,905     9 %

          Our total investment income increased by approximately $3.6 million for the three months ended June 30, 2016 as compared to the three months ended June 30, 2015. The 9% increase in total investment income primarily results from an increase in interest income of approximately $2.9 million from the three months ended June 30, 2015 to the three months ended June 30, 2016 which is attributable to larger invested balances, driven by the proceeds from the September 2015 primary offering of our common stock, proceeds from our May 2016 Unsecured Notes offering, our use of leverage from our revolving credit facilities and SBA-guaranteed debentures to originate new investments, and prepayment fees received associated with the early repayment of three portfolio companies held as of March 31, 2016. Dividend income remained stable during the three months ended June 30, 2016 as compared to the three months ended June 30, 2015 which is primarily comprised of distributions from our investment in SLP I and PIK dividend income from one equity position. Other income during the three months ended June 30, 2016, which represents fees that are generally non-recurring in nature, was primarily attributable to structuring, upfront, amendment, consent and commitment fees received from six different portfolio companies and management fees from a non-controlled affiliated portfolio company.

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Operating Expenses

    Three Months Ended     Percentage
 

(in thousands)

    June 30, 2016     June 30, 2015     Change
 

Management fee

  $ 6,818   $ 6,198        

Less: management fee waiver

    (1,241 )   (1,247 )      

Total management fee

    5,577     4,951     13 %

Incentive fee

    5,449     5,057     8 %

Capital gains incentive fee(1)

        9     NM *

Interest and other financing expenses

    6,771     5,598     21 %

Professional fees

    861     909     (5 )%

Administrative expenses

    629     522     20 %

Other general and administrative expenses

    384     453     (15 )%

Total expenses

    19,671     17,499     12 %

Less: expenses waived and reimbursed

    (63 )       NM *

Net expenses before income taxes

    19,608     17,499     12 %

Income tax expense

    50     153     (67 )%

Net expenses after income taxes

  $ 19,658   $ 17,652     11 %

(1)
Capital gains incentive fee accrual assumes a hypothetical liquidation basis.

*
Not meaningful.

          Our total net operating expenses increased by approximately $2.0 million for the three months ended June 30, 2016 as compared to the three months ended June 30, 2015. Our management fee increased by approximately $0.6 million, net of a management fee waiver, and incentive fees increased by approximately $0.4 million for the three months ended June 30, 2016 as compared to the three months ended June 30, 2015. The increase in management fee and incentive fee from the three months ended June 30, 2015 to the three months ended June 30, 2016 was attributable to larger invested balances, driven by the proceeds from the September 2015 primary offering of our common stock, proceeds from our May 2016 unsecured notes offering and our use of leverage from our revolving credit facilities and SBA-guaranteed debentures to originate new investments.

          Interest and other financing expenses increased by approximately $1.2 million during the three months ended June 30, 2016, primarily due to higher drawn balances on the NMFC Credit Facility (as defined below) and SBA-guaranteed debentures. Our total professional fees, total administrative expenses and total other general and administrative expenses remained flat and our expenses waived and reimbursed increased by approximately $0.1 million for the three months ended June 30, 2016 as compared to the three months ended June 30, 2015.

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

    Three Months Ended     Percentage
 

(in thousands)

    June 30, 2016     June 30, 2015     Change
 

Net realized gains (losses) on investments

  $ 865   $ (13,338 )   NM *

Net change in unrealized appreciation (depreciation) of investments

    21,956     13,484     63 %

Net change in unrealized (depreciation) appreciation securities purchased under collateralized agreements to resell

    (44 )       NM *

Benefit (provision) for taxes

    84     (135 )   NM *

Net realized and unrealized gains (losses)

  $ 22,861   $ 11     NM *

*
Not meaningful.

          Our net realized and unrealized gains resulted in a net gain of approximately $22.9 million for the three months ended June 30, 2016 compared to net realized losses and unrealized gains resulting in a minimal net gain for the same period in 2015. 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 gain for the three months ended June 30, 2016 was primarily driven by the overall increase in the market prices of our investments during the period. The benefit for income taxes was attributable to three equity investments that are held as of June 30, 2016 in three of our corporate subsidiaries.

          The minimal net gain for the three months ended June 30, 2015 was primarily driven by the overall decrease in the market prices of our investments during the period which were offset by sales or repayments of investments with fair values in excess of March 31, 2015 valuations, resulting in net realized gains being greater than the reversal of the cumulative net unrealized gains for those investments. In addition, one portfolio company had a modification of terms that was accounted for as an extinguishment during the quarter ended June 30, 2015, the net realized loss of approximately $15.2 million was offset by the reversal of the cumulative net unrealized losses for this investment.

Results of Operations for the Six Months Ended June 30, 2016 and June 30, 2015

Revenue

    Six Months Ended     Percentage
 

(in thousands)

    June 30, 2016     June 30, 2015     Change
 

Interest income

  $ 76,202   $ 68,817     11 %

Dividend income

    3,360     3,102     8 %

Other income

    2,904     2,522     15 %

Total investment income

  $ 82,466   $ 74,441     11 %

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          Our total investment income increased by approximately $8.0 million for the six months ended June 30, 2016 as compared to the six months ended June 30, 2015. The 11% increase in total investment income primarily results from an increase in interest income of approximately $7.4 million from the six months ended June 30, 2015 to the six months ended June 30, 2016 which is attributable to larger invested balances, driven by the proceeds from the September 2015 primary offering of our common stock, proceeds from our May 2016 Unsecured Notes offering, our use of leverage from our revolving credit facilities and SBA-guaranteed debentures to originate new investments, and prepayment fees received associated with the early repayment of four portfolio companies held as of December 31, 2015. Dividend income remained stable during the six months ended June 30, 2016 as compared to the six months ended June 30, 2015 which is primarily comprised of distributions from our investment in SLP I and PIK dividend income from an equity position. Other income during the six months ended June 30, 2016, which represents fees that are generally non-recurring in nature, was primarily attributable to structuring, upfront, amendment, consent and commitment fees received from eleven different portfolio companies and management fees from a non-controlled affiliated portfolio company.

Operating Expenses

    Six Months Ended     Percentage
 

(in thousands)

    June 30, 2016     June 30, 2015     Change
 

Management fee

  $ 13,654   $ 12,666        

Less: management fee waiver

    (2,560 )   (2,629 )      

Total management fee

    11,094     10,037     11 %

Incentive fee

    10,834     9,935     9 %

Capital gains incentive fee(1)

        490     NM *

Interest and other financing expenses

    13,373     11,075     21 %

Professional fees

    1,738     1,648     5 %

Administrative expenses

    1,468     1,157     27 %

Other general and administrative expenses

    816     882     (7 )%

Total expenses

    39,323     35,224     12 %

Less: expenses waived and reimbursed

    (347 )   (400 )   (13 )%

Net expenses before income taxes

    38,976     34,824     12 %

Income tax expense

    91     302     (70 )%

Net expenses after income taxes

  $ 39,067   $ 35,126     11 %

(1)
Capital gains incentive fee accrual assumes a hypothetical liquidation basis.

*
Not meaningful.

          Our total net operating expenses increased by approximately $3.9 million for the six months ended June 30, 2016 as compared to the six months ended June 30, 2015. Our management fee increased by approximately $1.1 million, net of a management fee waiver, and incentive fees increased by approximately $0.9 million for the six months ended June 30, 2016 as compared to the six months ended June 30, 2015. The increase in management fee and incentive fee from the six months ended June 30, 2015 to the six months ended June 30, 2016 was attributable to larger invested balances, driven by the proceeds from the September 2015 primary offering of our common stock, proceeds from our May 2016 unsecured notes offering, and our use of leverage from our revolving credit facilities and SBA-guaranteed debentures to originate new investments. Our capital gains incentive fee accrual decreased by approximately $0.5 million for the six months ended June 30, 2016 as compared to the six months ended June 30, 2015, which was attributable

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to lower net Adjusted Realized Capital Gains (Losses) and Adjusted Unrealized Capital Appreciation (Depreciation) of investments during the period. As of June 30, 2016, no actual capital gains incentive fee was owed under the Investment Management Agreement, as cumulative net Adjusted Realized Gains did not exceed cumulative Adjusted Unrealized Depreciation.

          Interest and other financing expenses increased by approximately $2.3 million during the six months ended June 30, 2016, primarily due to higher drawn balances on the NMFC Credit Facility (as defined below) and SBA-guaranteed debentures. Our total professional fees, total administrative expenses and total other general and administrative expenses increased $0.3 million and our expenses waived and reimbursed remained flat for the six months ended June 30, 2016 as compared to the six months ended June 30, 2015.

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

    Six Months Ended     Percentage
 

(in thousands)

    June 30, 2016     June 30, 2015     Change
 

Net realized gains (losses) on investments

  $ 1,041   $ (13,471 )   NM *

Net change in unrealized appreciation (depreciation) of investments

    7,570     17,970     (58 )%

Net change in unrealized (depreciation) appreciation securities purchased under collateralized agreements to resell

    (74 )       NM *

Benefit (provision) for taxes

    808     (636 )   NM *

Net realized and unrealized gains (losses)

  $ 9,345   $ 3,863     NM *

*
Not meaningful.

          Our net realized and unrealized gains resulted in a net gain of approximately $9.3 million for the six months ended June 30, 2016 compared to net realized losses and unrealized gains resulting in a net gain of approximately $3.9 million for the same period in 2015. 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 gain for the six months ended June 30, 2016 was primarily driven by the overall increase in the market prices of our investments during the period. The benefit for income taxes was attributable to three equity investments that are held as of June 30, 2016 in three of our corporate subsidiaries.

          The net gain for the six months ended June 30, 2015 was primarily driven by the sales or repayments of investments with fair values in excess of December 31, 2014 valuations, resulting in net realized gains being greater than the reversal of the cumulative net unrealized gains for those investments which included the sale of two portfolio companies resulting in realized gains of approximately $14.2 million. These gains were offset by $29.7 million of realized losses on investments resulting from the modification of terms on three portfolio companies that were accounted for as extinguishments.

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Our Results of Operations for the Years Ended December 31, 2015 and December 31, 2014 and the Predecessor Operating Company for the Year Ended December 31, 2013

Revenue

    Years Ended December 31,
 

(in thousands)

    2015     2014     2013
 

Interest income

  $ 140,074   $ 85,123   $ 107,027  

Interest income allocated from the Predecessor Operating Company

        40,515      

Total interest income

    140,074     125,638     107,027  

Dividend income

    5,771     2,309     5,049  

Dividend income allocated from the Predecessor Operating Company

        2,368      

Total dividend income

    5,771     4,677     5,049  

Other income

    8,010     4,491     2,836  

Other income allocated from the Predecessor Operating Company

        795      

Total other income

    8,010     5,286     2,836  

Total investment income

  $ 153,855   $ 135,601   $ 114,912  

          Our total investment income increased by approximately $18.3 million for the year ended December 31, 2015 as compared to total investment income for the year ended December 31, 2014. The 13% increase in total investment income primarily results from an increase in interest income of approximately $14.4 million from the year ended December 31, 2014 to the year ended December 31, 2015, which is attributable to larger invested balances, driven by the proceeds from the September 2015 primary offering of our common stock, our use of leverage from our revolving credit facilities, SBA-guaranteed debentures and the deployment of the June 2014 proceeds from the issuance of $115.0 million of convertible notes to originate new investments, and prepayment fees received associated with the early repayments or partial repayments of nine different portfolio companies held as of December 31, 2014. The increase in dividend income of approximately $1.1 million during the year ended December 31, 2015 as compared to the year ended December 31, 2014 was primarily attributable to distributions from our investment in SLP I and PIK dividends income from an equity position. The increase in other income, which represents fees that are generally non-recurring in nature, of approximately $2.7 million during the year ended December 31, 2015 as compared to the year ended December 31, 2014 was primarily attributable to structuring, upfront, amendment and consent fees received from 22 different portfolio companies, commitment fees received from three bridge facilities and management fees from a non-controlled/affiliated portfolio company.

          Our 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% 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 our common stock and the June 2014 offering of our convertible notes, our use of leverage from our 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

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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 generally non-recurring in nature, was primarily attributable to structuring, amendment and consent fees received from 20 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.

Operating Expenses

    Years Ended December 31,
 

(in thousands)

    2015     2014     2013
 

Management fee

  $ 25,858   $ 13,593   $ 14,905  

Management fee allocated from Predecessor Operating Company

        5,983      

Less: management fee waiver

    (5,219 )   (686 )    

Total management fee

    20,639     18,890     14,905  

Incentive fee

    20,591     12,070     16,502  

Incentive fee allocated from Predecessor Operating Company

        6,248      

Total incentive fee

    20,591     18,318     16,502  

Capital gains incentive fee(1)

        (8,573 )   3,229  

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

        2,024      

Total capital gains incentive fee(1)

        (6,549 )   3,229  

Interest and other financing expenses

    23,374     13,269     12,470  

Interest and other financing expenses allocated from Predecessor Operating Company

        4,764      

Total interest and other financing expenses

    23,374     18,033     12,470  

Professional fees

    3,214     2,390     2,349  

Professional fees allocated from Predecessor Operating Company

        1,238      

Total professional fees

    3,214     3,628     2,349  

Administrative fees

    2,450     1,470     3,429  

Administrative expenses allocated from Predecessor Operating Company

        761      

Total administrative expenses

    2,450     2,231     3,429  

Other general and administrative expenses

    1,665     1,138     1,584  

Other general and administrative expenses allocated from Predecessor Operating Company

        555      

Total other general and administrative expenses

    1,665     1,693     1,584  

Total expenses

    71,933     56,244     54,468  

Less: expenses waived and reimbursed

    (733 )   (1,145 )   (3,233 )

Net expenses before income taxes

    71,200     55,099     51,235  

Income tax expense

    160     436      

Net expenses after income taxes

  $ 71,360   $ 55,535   $ 51,235  

(1)
Capital gains incentive fee accrual assumes a hypothetical liquidation basis.

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          Our total net operating expenses increased by approximately $15.8 million for the year ended December 31, 2015 as compared to the year ended December 31, 2014. Our management fee increased by approximately $1.7 million, net of a management fee waiver, and incentive fees increased by approximately $2.3 million for the year ended December 31, 2015 as compared to the year ended December 31, 2014. The increase in management fee and incentive fee from the year ended December 31, 2014 to the year ended December 31, 2015 was attributable to larger invested balances, driven by the proceeds from the September 2015 primary offering of our common stock, our use of leverage from our revolving credit facilities, SBA-guaranteed debentures and the deployment of the June 2014 proceeds from the issuance of $115.0 million of convertible notes to originate new investments. No capital gains incentive fee was accrued for the year ended December 31, 2015.

          Interest and other financing expenses increased by approximately $5.3 million during the year ended December 31, 2015, primarily due to our issuance of $115.0 million of convertible notes, the closing of the NMFC Credit Facility (as defined below) during the second quarter of 2014 and the drawing on SBA-guaranteed debentures beginning in the fourth quarter of 2014. Our total professional fees, total administrative expenses and total other general and administrative expenses marginally decreased by approximately $0.2 million for the year ended December 31, 2015 as compared to the year ended December 31, 2014. Our expenses waived and reimbursed decreased by approximately $0.4 million for the year ended December 31, 2015 as compared to the year ended December 31, 2014 due to the expiration of the expense cap on March 31, 2014.

          Our 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. Our 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, 2013. The increase in management fee and incentive fee from the Predecessor Operating Company's year ended December 31, 2013 to our 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 our common stock, the June 2014 offering of our convertible notes and our use of leverage from our revolving credit facilities to originate new investments. Our 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, 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, we issued $115.0 million of convertible notes, closed the NMFC Credit Facility (as defined below) and began to draw on SBA-guaranteed debentures. Our 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, we 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 us. For the year

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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. Our 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.

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

    Years Ended December 31,
 

(in thousands)

    2015     2014     2013
 

Net realized (losses) gains on investments

  $ (12,789 ) $ 357   $ 7,253  

Net realized gains on investments allocated from Predecessor Operating Company

        8,568      

Total realized (losses) gains on investments

    (12,789 )   8,925     7,253  

Net change in unrealized (depreciation) appreciation of investments

    (35,272 )   (43,863 )   7,994  

Net change in unrealized appreciation (depreciation) of investments allocated from Predecessor Operating Company

        940      

Total change in unrealized (depreciation) appreciation of investments

    (35,272 )   (42,923 )   7,994  

Net change in unrealized (depreciation) appreciation of securities purchased under collateralized agreements to resell

    (296 )        

Provision for taxes

    (1,183 )   (493 )    

Total net realized gains and net change in unrealized (depreciation) appreciation of investments

  $ (49,540 ) $ (34,491 ) $ 15,247  

          Our net realized and unrealized losses resulted in a net loss of approximately $49.5 million for the year ended December 31, 2015 compared to the net realized gain and unrealized losses resulting in a net loss of approximately $34.5 million for the same period in 2014. 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, 2015 was primarily driven by the overall decrease in the market prices of our investments during the period and $29.7 million of realized losses on investments resulting from the modification of terms on three portfolio companies that were accounted for as extinguishments. These losses were partially offset by sales or repayments of investments with fair values in excess of December 31, 2014 valuations, resulting in net realized gains being greater than the reversal of the cumulative net unrealized gains for those investments which included the sale of two portfolio companies resulting in realized gains of approximately $14.2 million. The provision for income taxes was primarily attributable to three equity investments that are held as of December 31, 2015 in three of our corporate subsidiaries.

          The 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 our investments during the period and the partial write-down related to two portfolio companies. These

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losses were partially offset by a $5.6 million gain from the sale of NMF Holdings' 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 our 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


Liquidity and Capital Resources

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

          Since our IPO, and through June 30, 2016, we raised approximately $454.0 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. We acquired from the Predecessor Operating Company units of the Predecessor Operating Company equal to the number of shares of our common stock sold in the additional offerings.

          Our 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 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 June 30, 2016 and December 31, 2015, we had cash and cash equivalents of approximately $34.5 million and $30.1 million, respectively. Our cash provided by operating activities during the six months ended June 30, 2016 and June 30, 2015 was approximately $72.6 million and $142.3 million, respectively. We expect that all current liquidity needs will be met with cash flows from operations and other activities.

Borrowings

          Holdings Credit Facility — On December 18, 2014 we entered into the Second Amended and Restated Loan and Security Agreement (the "Holdings Credit Facility"), among us, 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 SLF merged with and into NMF Holdings. The Holdings Credit Facility effectively amended and restated the Predecessor

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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 permitted to borrow up to 25.0%, 45.0% or 70.0% of the purchase price of pledged assets, subject to approval by Wells Fargo Securities, LLC. The Holdings Credit Facility is non-recourse to us 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 our 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 us 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.

          Effective January 1, 2016, the Holdings Credit Facility bears interest at a rate of the LIBOR plus 1.75% per annum for Broadly Syndicated Loans (as defined in the Loan and Security Agreement) and LIBOR plus 2.50% per annum for all other investments. Previously, the Holdings Credit Facility bore 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).

          The following table summarizes the interest expense, non-usage fees and amortization of financing costs incurred on the Holdings Credit Facility for the three and six months ended June 30, 2016 and June 30, 2015.

    Three Months Ended     Six Months Ended
 

(in millions)

    June 30, 2016     June 30, 2015     June 30, 2016     June 30, 2015
 

Interest expense

  $ 2.4   $ 2.5   $ 5.0   $ 5.4  

Non-usage fee

  $ 0.2   $ 0.1   $ 0.3   $ 0.2  

Amortization of financing costs

  $ 0.4   $ 0.4   $ 0.8   $ 0.8  

Weighted average interest rate

    2.7 %   2.6 %   2.7 %   2.6 %

Effective interest rate

    3.4 %   3.2 %   3.3 %   3.1 %

Average debt outstanding

  $ 348.0   $ 374.2   $ 371.4   $ 411.6  

          As of June 30, 2016 and December 31, 2015, the outstanding balance on the Holdings Credit Facility was $348.0 million and $419.3 million, respectively, and NMF Holdings was in compliance with the applicable covenants in the Holdings Credit Facility on such dates.

          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.

          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

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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 us 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 our 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 us 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).

          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 was set to 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 us 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 our 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 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).

          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 us as the Borrower, Goldman Sachs Bank USA as the Administrative Agent and Collateral Agent, and Goldman Sachs Bank USA, Morgan Stanley Bank, N.A. and Stifel Bank & Trust 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 of our domestic subsidiaries and proceeds from the NMFC Credit Facility may be used for general corporate purposes, including the funding of portfolio investments.

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          As of June 30, 2016, the maximum amount of revolving borrowings available under the NMFC Credit Facility was $122.5 million. We are 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 our 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 generally bears 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% per annum (as defined in the Senior Secured Revolving Credit Agreement).

          The following table summarizes the interest expense, non-usage fees and amortization of financing costs incurred on the NMFC Credit Facility for the three and six months ended June 30, 2016 and June 30, 2015.

    Three Months Ended     Six Months Ended
 

(in millions)

    June 30, 2016     June 30, 2015     June 30, 2016     June 30, 2015
 

Interest expense

  $ 0.5   $ 0.5   $ 1.2   $ 0.7  

Non-usage fee

  $  — (1) $  — (1) $  — (1) $ 0.1  

Amortization of financing costs

  $ 0.1   $ 0.1   $ 0.2   $ 0.2  

Weighted average interest rate

    2.9 %   2.7 %   2.9 %   2.7 %

Effective interest rate

    3.7 %   3.5 %   3.5 %   3.7 %

Average debt outstanding

  $ 72.7   $ 67.1   $ 82.8   $ 49.5  

(1)
For the three months ended June 30, 2016 and June 30, 2015 and the six months ended June 30, 2016, the total non-usage fee was less than $50 thousand.

          As of June 30, 2016 and December 31, 2015, the outstanding balance on the NMFC Credit Facility was $87.0 million and $90.0 million, respectively, and NMFC was in compliance with the applicable covenants in the NMFC Credit Facility on such dates.

          Convertible Notes — On June 3, 2014, we closed a private offering of $115.0 million aggregate principal amount of 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. As of the first anniversary, June 3, 2015, of the Convertible Notes, the restrictions under Rule 144A under the Securities Act were removed, allowing the Convertible Notes to be eligible and freely tradeable without restrictions for resale pursuant to Rule 144(b)(1) under the Securities Act. 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, which commenced on December 15, 2014. The Convertible Notes will mature on June 15, 2019 unless earlier converted or repurchased at the holder's option.

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          The following table summarizes certain key terms related to the convertible features of our Convertible Notes as of June 30, 2016.

    June 30, 2016
 

Initial conversion premium

    12.5 %

Initial conversion rate(1)

    62.7746  

Initial conversion price

  $ 15.93  

Conversion premium at June 30, 2016

    11.7 %

Conversion rate at June 30, 2016(1)(2)

    63.2794  

Conversion price at June 30, 2016(2)(3)

  $ 15.80  

Last conversion price calculation date

    June 3, 2016  

(1)
Conversion rates denominated in shares of common stock per $1.0 thousand principal amount of the Convertible Notes converted.

(2)
Represents conversion rate and conversion price, as applicable, taking into account certain de minimis adjustments that will be made on the conversion date.

(3)
The conversion price in effect at June 30, 2016 was calculated on the last anniversary of the issuance and will be calculated again on the next anniversary, unless the exercise price shall have changed by more than 1.0% before the anniversary.

          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 $14.05 per share. In no event will the total number of shares of common stock issuable upon conversion exceed 71.1893 per $1.0 thousand principal amount of the Convertible Notes (subject to adjustment upon certain events). We have 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 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 we later secure) 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.

          We may not redeem the Convertible Notes prior to maturity. No sinking fund is provided for the Convertible Notes. In addition, if certain corporate events, holders of the Convertible Notes may require us 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 us to provide financial information to the holders of the Convertible Notes and the Trustee if we cease 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.

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          The following table summarizes the interest expense and amortization of financing costs incurred on the Convertible Notes for the three and six months ended June 30, 2016 and June 30, 2015.

    Three Months Ended     Six Months Ended
 

(in millions)

    June 30, 2016     June 30, 2015     June 30, 2016     June 30, 2015
 

Interest expense

  $ 1.5   $ 1.5   $ 2.9   $ 2.9  

Amortization of financing costs

  $ 0.2   $ 0.2   $ 0.4   $ 0.4  

Effective interest rate

    5.7 %   5.7 %   5.7 %   5.7 %

          As of June 30, 2016 and December 31, 2015, the outstanding balance on the Convertible Notes was $115.0 million and $115.0 million, respectively, and NMFC was in compliance with the terms of the Indenture.

          Unsecured Notes — On May 6, 2016, we issued $50.0 million in aggregate principal amount of five-year unsecured notes that mature on May 15, 2021 (the "Unsecured Notes"), pursuant to a note purchase agreement, dated May 4, 2016 (the "NPA"), to an institutional investor in a private placement. The Unsecured Notes are equal in priority with our other unsecured indebtedness, including our Convertible Notes. The Unsecured Notes bear interest at an annual rate of 5.313%, payable semi-annually on May 15 and November 15 of each year, starting on November 15, 2016. This interest rate is subject to increase in the event that: (i) subject to certain exceptions, the Unsecured Notes or the Company cease to have an investment grade rating or (ii) the aggregate amount of our unsecured debt falls below $150.0 million. In each such event, we have the option to offer to prepay the Unsecured Notes at par, in which case holders of the Unsecured Notes who accept the offer would not receive the increased interest rate. In addition, we are obligated to offer to prepay the Unsecured Notes at par if the Investment Adviser, or an affiliate thereof, ceases to be our investment adviser or if certain change in control events occur with respect to the Investment Adviser.

          The NPA contains customary terms and conditions for unsecured notes issued in a private placement, including, without limitation, an option to offer to prepay all or a portion of the Unsecured Notes at par (plus a make-whole amount, if applicable), affirmative and negative covenants such as information reporting, maintenance of our status as a BDC under the 1940 Act and a RIC under the Internal Revenue Code, minimum stockholders' equity, minimum asset coverage ratio, and prohibitions on certain fundamental changes or any subsidiary guarantor, as well as customary events of default with customary cure and notice, including, without limitation, nonpayment, misrepresentation in a material respect, breach of covenant, cross-default under our other indebtedness or certain significant subsidiaries, certain judgments and orders, and certain events of bankruptcy. As of June 30, 2016, the outstanding balance on the Unsecured Notes was $50.0 million and we were in compliance with the terms of the NPA.

          Interest expense incurred on the Unsecured Notes for the three and six months ended June 30, 2016 was $0.4 million and $0.4 million, respectively. Amortization of financing costs incurred on the Unsecured Notes for the three and six months ended June 30, 2016 was less than $50 thousand, respectively. The effective interest rate for the three and six months ended June 30, 2016 was 5.8% and 5.8%, respectively.

          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 us, interest only debentures with interest payable

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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 our 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 June 30, 2016 and December 31, 2015, SBIC LP had regulatory capital of $72.4 million and $72.4 million, respectively, and SBA-guaranteed debentures outstanding of $121.7 million and $117.7 million, respectively. The SBA-guaranteed debentures incur upfront fees of 3.425%, which consists of a 1.00% commitment fee and a 2.425% issuance discount, which are amortized over the life of the SBA-guaranteed debentures. The following table summarizes our fixed-rate SBA-guaranteed debentures as of June 30, 2016.

(in millions)

        Debenture           SBA Annual  

Issuance Date

  Maturity Date     Amount     Interest Rate     Charge
 

Fixed SBA-guaranteed debentures:

                       

March 25, 2015

  March 1, 2025   $ 37.5     2.517 %   0.355 %

September 23, 2015

  September 1, 2025     37.5     2.829 %   0.355 %

September 23, 2015

  September 1, 2025     28.8     2.829 %   0.742 %

March 23, 2016

  March 1, 2026     13.9     2.507 %   0.742 %

Interim SBA-guaranteed debentures:

                       

  September 1, 2026(1)     1.0     0.950 %   0.742 %

  September 1, 2026(1)     3.0     0.907 %   0.742 %

Total SBA-guaranteed debentures

      $ 121.7              

(1)
Estimated maturity date as interim SBA-guaranteed debentures are expected to pool in September 2016.

          Prior to pooling, the SBA-guaranteed debentures bear interest at an interim floating rate of LIBOR plus 0.30%. Once pooled, which occurs in March and September each year, the SBA-guaranteed debentures bear interest at a fixed rate that is set to the current 10-year treasury rate plus a spread at each pooling date.

          The following table summarizes the interest expense and amortization of financing costs incurred on the SBA-guaranteed debentures for the three and six months ended June 30, 2016 and June 30, 2015.

    Three Months Ended     Six Months Ended
 

(in millions)

    June 30, 2016     June 30, 2015     June 30, 2016     June 30, 2015
 

Interest expense

  $ 0.9   $ 0.3   $ 1.8   $ 0.4  

Amortization of financing costs

  $ 0.1   $ (1) $ 0.2   $ 0.1  

Weighted average interest rate

    3.2 %   2.5 %   3.1 %   1.9 %

Effective interest rate

    3.5 %   2.8 %   3.4 %   2.2 %

Average debt outstanding

  $ 118.0   $ 47.1   $ 117.9   $ 42.3  

(1)
For the three months ended June 30, 2015, the total amortization of financing costs was less than $50 thousand.

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          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 us. 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 June 30, 2016 and December 31, 2015, SBIC LP was in compliance with SBA regulatory requirements.

Off-Balance Sheet Arrangements

          We may become a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of our 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 June 30, 2016 and December 31, 2015, we had outstanding commitments to third parties to fund investments totaling $13.8 million and $26.3 million, respectively, under various undrawn revolving credit facilities, delayed draw commitments or other future funding commitments.

          We may from time to time enter into financing commitment letters or bridge financing commitments, which could require funding in the future. As of June 30, 2016 and December 31, 2015, we had commitment letters to purchase debt investments in an aggregate par amount of $25.0 million and $0, respectively. As of June 30, 2016 and December 31, 2015, we had not entered into any bridge financing commitments which could require funding in the future.

          As of June 30, 2016 and December 31, 2015, we had unfunded commitments related to our equity investment in SLP II of $51.6 million and $0, respectively, which may be funded at our discretion.

Contractual Obligations

          A summary of our significant contractual payment obligations as of June 30, 2016 is as follows:

    Contractual Obligations Payments Due by Period
(in millions)
 

    Total     Less than
1 Year
    1 - 3 Years     3 - 5 Years     More than
5 Years
 

Holdings Credit Facility(1)

  $ 348.0   $   $   $ 348.0   $  

SBA-guaranteed debentures(2)

    121.7                 121.7  

Convertible Notes(3)

    115.0             115.0      

NMFC Credit Facility(4)

    87.0             87.0      

Unsecured Notes(5)

    50.0             50.0      

Total Contractual Obligations

  $ 721.7   $   $   $ 600.0   $ 121.7  

(1)
Under the terms of the $495.0 million Holdings Credit Facility, all outstanding borrowings under that facility ($348.0 million as of June 30, 2016) must be repaid on or before December 18, 2019. As of June 30, 2016, there was approximately $147.0 million of possible capacity remaining under the Holdings Credit Facility.

(2)
Our SBA-guaranteed debentures will begin to mature on March 1, 2025.

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(3)
The $115.0 million Convertible Notes will mature on June 15, 2019 unless earlier converted or repurchased at the holder's option.

(4)
Under the terms of the $122.5 million NMFC Credit Facility, all outstanding borrowings under that facility ($87.0 million as of June 30, 2016) must be repaid on or before June 4, 2019. As of June 30, 2016, there was approximately $35.5 million of possible capacity remaining under the NMFC Credit Facility.

(5)
The $50.0 million Unsecured Notes will mature on May 15, 2021 unless earlier repurchased.

          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 us 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 our 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

          Distributions declared and paid to stockholders for the six months ended June 30, 2016 totaled $43.4 million.

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          The following table reflects cash distributions, including dividends and returns of capital, if any, per share that have been declared by our board of directors for the six months ended June 30, 2016 and the years ended December 31, 2015 and December 31, 2014:

Fiscal Year Ended

  Date Declared   Record Date   Payment Date     Per Share
Amount
 

December 31, 2016

                   

Second Quarter

  May 3, 2016   June 16, 2016   June 30, 2016   $ 0.34  

First Quarter

  February 22, 2016   March 17, 2016   March 31, 2016     0.34  

              $ 0.68  

December 31, 2015

                   

Fourth Quarter

  November 3, 2015   December 16, 2015   December 30, 2015   $ 0.34  

Third Quarter

  August 4, 2015   September 16, 2015   September 30, 2015     0.34  

Second Quarter

  May 5, 2015   June 16, 2015   June 30, 2015     0.34  

First Quarter

  February 23, 2015   March 17, 2015   March 31, 2015     0.34  

              $ 1.36  

December 31, 2014

                   

Fourth Quarter

  November 4, 2014   December 16, 2014   December 30, 2014   $ 0.34  

Third Quarter

  August 5, 2014   September 16, 2014   September 30, 2014     0.34  

Third Quarter

  July 30, 2014   August 20, 2014   September 3, 2014     0.12 (1)

Second Quarter

  May 6, 2014   June 16, 2014   June 30, 2014     0.34  

First Quarter

  March 4, 2014   March 17, 2014   March 31, 2014     0.34  

              $ 1.48  

(1)
Special dividend related to estimated realized capital gains attributable to the Predecessor Operating Company's warrant investments in Learning Care Group (US), Inc.

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

          We intend to pay quarterly distributions to our stockholders in amounts sufficient to maintain our status as a RIC. We intend to distribute approximately all of our Adjusted Net Investment Income on a quarterly basis and substantially all of our taxable income on an annual basis, except that we may retain certain net capital gains for reinvestment.

          We maintain an "opt out" dividend reinvestment plan on behalf of our common stockholders, pursuant to which each of our stockholders' cash distributions will be automatically reinvested in additional shares of common stock, unless the stockholder elects to receive cash.


Related Parties

          We have entered into a number of business relationships with affiliated or related parties, including the following:

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          In addition, we have adopted a formal code of ethics that governs the conduct of our 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 our investment mandates. The Investment Adviser and its affiliates may determine that an investment is appropriate for us 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, we sold an additional 2,172,000 shares of our common stock to certain executives and employees of, and other individuals affiliated with, New Mountain Capital in the Concurrent Private Placement.

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Quantitative and Qualitative Disclosures About Market Risk

          We are subject to certain financial market risks, such as interest rate fluctuations. During the six months ended June 30, 2016, certain of the loans held in our portfolio have floating interest rates. As of June 30, 2016, approximately 87.2% of investments at fair value (excluding investments on non-accrual, unfunded debt investments and non-interest bearing equity investments) represent floating-rate investments with a LIBOR floor (includes investments bearing prime interest rate contracts) and approximately 12.8% of investments at fair value represent fixed-rate investments. Additionally, our 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 our portfolio of investments held on June 30, 2016. Interest expense is calculated based on the terms of our outstanding revolving credit facilities and convertible notes. For our floating rate credit facilities, we use the outstanding balance as of June 30, 2016. Interest expense on our floating rate credit facilities are calculated using the interest rate as of June 30, 2016, adjusted for the hypothetical changes in rates, as shown below. The base interest rate case assumes the rates on our portfolio investments remain unchanged from the actual effective interest rates as of June 30, 2016. These hypothetical calculations are based on a model of the investments in our portfolio, held as of June 30, 2016, and are only adjusted for assumed changes in the underlying base interest rates.

          Actual results could differ significantly from those estimated in the table.

Change in Interest Rates

    Estimated
Percentage
Change in Interest
Income Net of
Interest Expense
(unaudited)
 

–25 Basis Points

    0.96 %(1)

Base Interest Rate

    %

+100 Basis Points

    2.14 %

+200 Basis Points

    9.24 %

+300 Basis Points

    16.64 %

(1)
Limited to the lesser of the June 30, 2016 LIBOR rates or a decrease of 25 basis points.

          We were not exposed to any foreign currency exchange risks as of June 30, 2016.

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SENIOR SECURITIES

          Information about our senior securities as of June 30, 2016, December 31, 2015 and December 31, 2014 and information about NMF Holdings' senior securities as of December 31, 2013, 2012, 2011, 2010 and 2009 are shown in the following table. The report of Deloitte & Touche LLP, an independent registered public accounting firm, on the senior securities table as of December 31, 2015, 2014, 2013, 2012, 2011, 2010 and 2009 is attached, or incorporated by reference, as an exhibit to the registration statement of which this prospectus is a part.

Class and Year(1)

    Total Amount
Outstanding
Exclusive
of Treasury
Securities(2)
(in millions)
    Asset
Coverage
Per Unit(3)
    Involuntary
Liquidating
Preference
Per Unit(4)
    Average
Market
Value
Per Unit(5)
 

June 30, 2016 (unaudited)

                         

Holdings Credit Facility

  $ 348.0   $ 2,406   $     N/A  

Convertible Notes

    115.0     2,406         N/A  

NMFC Credit Facility

    87.0     2,406         N/A  

Unsecured Notes

    50.0     2,406         N/A  

December 31, 2015

                         

Holdings Credit Facility

    419.3     2,341         N/A  

Convertible Notes

    115.0     2,341         N/A  

NMFC Credit Facility

    90.0     2,341         N/A  

December 31, 2014

                         

Holdings Credit Facility

    468.1     2,267         N/A  

Convertible Notes

    115.0     2,267         N/A  

NMFC Credit Facility

    50.0     2,267         N/A  

December 31, 2013

                         

Holdings Credit Facility

    221.8     2,577         N/A  

SLF Credit Facility

    214.7     2,577         N/A  

December 31, 2012

                         

Holdings Credit Facility

    206.9     2,353         N/A  

SLF Credit Facility

    214.3     2,353         N/A  

December 31, 2011

                         

Holdings Credit Facility

    129.0     2,426         N/A  

SLF Credit Facility

    165.9     2,426         N/A  

December 31, 2010(6)

                         

Holdings Credit Facility

    59.7     3,074         N/A  

SLF Credit Facility

    56.9     3,074         N/A  

December 31, 2009(6)

                         

Holdings Credit Facility

    77.7     4,080         N/A  

(1)
We have excluded our SBA-guaranteed debentures from this table as a result of the SEC exemptive relief that permits us to exclude such debentures from the definition of senior securities in the 200.0% asset coverage ratio we are required to maintain under the 1940 Act. At June 30, 2016, December 31, 2015 and December 31, 2014, we had $121.7 million, 117.7 million and $37.5 million, respectively, in SBA-guaranteed debentures outstanding. At December 31, 2013, 2012, 2011, 2010 and 2009, we had no outstanding SBA-guaranteed debentures. Total asset coverage per unit including the SBA-guaranteed debentures as of June 30, 2016, December 31, 2015 and December 31, 2014 is $2,168, $2,128 and $2,196, respectively, and unchanged for the prior years.

(2)
Total amount of each class of senior securities outstanding at the end of the period presented.

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(3)
Asset coverage per unit is the ratio of the carrying value of our total assets, less all liabilities excluding indebtedness represented by senior securities in this table, to the aggregate amount of senior securities representing indebtedness. Asset coverage per unit is expressed in terms of dollar amounts per $1,000 of indebtedness and is calculated on a consolidated basis.

(4)
The amount to which such class of senior security would be entitled upon the voluntary liquidation of the issuer in preference to any security junior to it. The "—" in this column indicates that the SEC expressly does not require this information to be disclosed for certain types of senior securities.

(5)
Not applicable because the senior securities are not registered for public trading.

(6)
Prior to NMFC's IPO on May 19, 2011, these credit facilities existed at the Predecessor Entities.

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BUSINESS

The Company

New Mountain Finance Corporation

          We are a Delaware corporation that was originally incorporated on June 29, 2010. We are a closed-end, non-diversified management investment company that has elected to be regulated as a BDC under the 1940 Act. As such, we are obligated to comply with certain regulatory requirements. We have elected to be treated, and intend to comply with the requirements to continue to qualify annually, as a RIC under Subchapter M of the Code. NMFC is also registered as an investment adviser under the Advisers Act.

          On May 19, 2011, we priced our 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, we sold an additional 2,172,000 shares of our common stock to certain executives and employees of, and other individuals affiliated with, New Mountain Capital in 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 our IPO and through a series of transactions, NMF Holdings 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 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. See "Material Federal Income Tax Considerations." For additional information on our organizational structure prior to May 8, 2014, see "Description of 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. 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 us. 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 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.

          Prior to December 18, 2014, NMF SLF was a Delaware limited liability company. NMF SLF was a wholly-owned subsidiary of NMF Holdings and thus our wholly-owned indirect subsidiary. NMF

   


(1)
Includes amounts committed, not all of which have been drawn down and invested to-date, as of June 30, 2016, as well as amounts called and returned since inception

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SLF was bankruptcy-remote and non-recourse to NMFC. As part of an amendment to our existing credit facilities with Wells Fargo Bank, National Association, NMF SLF merged with and into NMF Holdings on December 18, 2014. See "Management's Discussion and Analysis of Financial Conditions and Results of Operations — Liquidity and Capital Resources" for additional information on our credit facilities.

Current Organization

          Our wholly-owned subsidiaries, NMF Ancora, NMF QID and NMF YP, 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). We consolidate our tax blocker corporations for accounting purposes. The tax blocker corporations are not consolidated for income tax purposes and may incur income tax expense as a result of their ownership of the portfolio companies. Additionally, we have a wholly-owned subsidiary, NMF Servicing that serves as the administrative agent on certain investment transactions. SBIC LP, and its general partner, SBIC GP, were organized in Delaware as a limited partnership and limited liability company, respectively. SBIC LP and SBIC GP are our consolidated wholly-owned direct and indirect subsidiaries. SBIC LP received a license from the SBA to operate as a SBIC under Section 301(c) of the 1958 Act.

          The diagram below depicts our organizational structure as of October 4, 2016.

GRAPHIC


*
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.

          Our 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, our 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 us, SBIC LP's investment objective is to generate current income and capital appreciation under our investment criteria. However, SBIC LP's investments must be in SBA eligible companies. Our portfolio may be

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concentrated in a limited number of industries. As of June 30, 2016, our top five industry concentrations were business services, software, education, federal services and distribution & logistics.

          The investments that we invest in are almost entirely rated below investment grade or may be unrated, which are often referred to as "leveraged loans", "high yield" or "junk" debt investments, and may be considered "high risk" or speculative compared to debt investments that are rated investment grade. 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 our net asset value and income distributions. Our investments are also primarily floating rate debt investments that contain interest reset provisions that may make it more difficult for borrowers to make debt repayments to us if interest rates rise. In addition, some of our 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. Our debt investments may also lose significant market value before a default occurs. Furthermore, an active trading market may not exist for these securities. This illiquidity may make it more difficult to value our investments.

          As of June 30, 2016, our net asset value was $843.3 million and our portfolio had a fair value of approximately $1,498.1 million in 72 portfolio companies, with a weighted average Yield to Maturity at Cost of approximately 10.3%.

          NMF Holdings is a party to the Holdings Credit Facility pursuant to a secured credit agreement with Wells Fargo Bank, National Association. As of June 30, 2016, the Holdings Credit Facility, which matures on December 18, 2019, provides for potential borrowings up to $495.0 million. Unlike many credit facilities for BDCs the amount available under the Holdings Credit Facility is generally not subject to reduction as a result of mark to market fluctuations in its portfolio investments. As of June 30, 2016, we were 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 bears interest at a rate of the LIBOR plus 1.75% per annum for Broadly Syndicated Loans (as defined in the Loan and Security Agreement) and LIBOR plus 2.50% 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). As of June 30, 2016, $348.0 million was outstanding under the Holdings Credit Facility.

          The NMFC Credit Facility among NMFC as the Borrower and Goldman Sachs Bank USA as the Administrative Agent and Collateral Agent, and Goldman Sachs Bank USA, Morgan Stanley Bank, N.A. and Stifel Bank & Trust as Lenders, is structured as a senior secured revolving credit facility and matures on June 4, 2019. As of June 30, 2016, the maximum amount of revolving borrowings available under the NMFC Credit Facility was $122.5 million. NMFC is permitted to borrow at various advance rates depending on the type of portfolio investment as outlined in the Senior Secured Revolving Credit Agreement. 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 generally bears 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). As of June 30, 2016, $87.0 million was outstanding under the NMFC Credit Facility.

          On June 3, 2014, NMFC closed a private offering of $115.0 million aggregate principal amount Convertible Notes, pursuant to an indenture, dated June 3, 2014. The Convertible Notes were issued in a private placement only to qualified institutional buyers pursuant to Rule 144A under the

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Securities Act. 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, which commenced on December 15, 2014. The Convertible Notes will mature on June 15, 2019 unless earlier converted or repurchased at the holder's option.

          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 our stockholders in the event SBIC LP is liquidated or the SBA exercises remedies upon an event of default. As of June 30, 2016, the rate payable for SBIC LP's SBA-guaranteed debentures was 3.1%. As of June 30, 2016, SBIC LP had $121.7 million of SBA-guaranteed debentures outstanding.

          On May 6, 2016, NMFC issued $50.0 million in aggregate principal amount of five-year Unsecured Notes, pursuant to a note purchase agreement, dated May 4, 2016, to an institutional investor in a private placement. The Unsecured Notes are equal in priority with our other unsecured indebtedness, including our Convertible Notes. The Unsecured Notes bear interest at an annual rate of 5.313%, payable semi-annually on May 15 and November 15 of each year, starting on November 15, 2016. The Unsecured Notes will mature on May 15, 2021.

          For a detailed discussion of the Holdings Credit Facility, the NMFC Credit Facility, the Convertible Notes, the SBA-guaranteed debentures and the Unsecured Notes, see "Management's Discussion and Analysis of Financial Conditions and Results of Operations — Liquidity and Capital Resources".

          We expect to continue to finance our investments using both debt and equity, including proceeds from equity and debt securities issued by NMFC.


Recent Developments

Appointment of President

          John R. Kline was promoted to be our President on July 19, 2016 in addition to maintaining his role as our Chief Operating Officer. Robert A. Hamwee, who previously held the title of President and CEO, will continue in his capacity as our CEO.

Distribution

          On August 2, 2016, our board of directors declared a third quarter 2016 distribution of $0.34 per share, which was paid on September 30, 2016 to holders of record as of September 16, 2016.

New Mountain Net Lease Corporation

          New Mountain Net Lease Corporation ("NMNLC") was formed as a Maryland corporation on April 18, 2016 and commenced operations on August 12, 2016. NMNLC was formed to acquire commercial real properties that are subject to "triple net" leases and to qualify as a real estate investment trust (a "REIT") within the meaning of Section 856(a) of the Code. We have determined that NMNLC is not an investment company under Accounting Standards Codification Topic 946, Financial Services — Investment Companies and in accordance with such guidance we will generally not consolidate our investment in a company other than a wholly-owned investment

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company subsidiary. Accordingly, NMNLC is a wholly-owned non-consolidated portfolio company of NMFC.

Convertible Notes Offering

          On September 30, 2016, we closed a public offering of an additional $40.25 million in aggregate principal amount (including $5.25 million in aggregate principal amount issued pursuant to the underwriters' overallotment option) of our Convertible Notes. These additional Convertible Notes constitute a further issuance of, rank equally in right of payment with, and form a single series with the $115.0 million in aggregate principal amount of the Convertible Notes that we issued on June 3, 2014, pursuant to the Indenture. See "Management's Discussion and Analysis of Financial Conditions and Results of Operations — Liquidity and Capital Resources — Borrowings" for a discussion of the terms of the Convertible Notes.

Unsecured Notes

          On September 30, 2016, we entered into an amended and restated note purchase agreement (the "Amended Note Purchase Agreement") related to our existing Unsecured Notes. The Amended Note Purchase Agreement amends and restates the Note Purchase Agreement dated May 4, 2016 (the "Existing NPA"), pursuant to which we issued $50.0 million in aggregate principal amount of the Unsecured Notes in May 2016. The Amended Note Purchase Agreement was entered into in connection with the issuance of an additional $40.0 million in aggregate principal amount of the Unsecured Notes to institutional investors in a private placement, which closed on September 30, 2016. The Amended Note Purchase Agreement also amended and restated the Existing NPA to provide for future issuances of Unsecured Notes in separate series or tranches under the Amended Note Purchase Agreement and supplements thereto. See "Management's Discussion and Analysis of Financial Conditions and Results of Operations — Liquidity and Capital Resources — Borrowings" for a discussion of the terms of the Unsecured Notes.


New Mountain Capital

          New Mountain Capital manages private equity, public equity and debt investments with aggregate assets under management totaling more than $15.0 billion(1), which includes total assets held by us.

          New Mountain Capital's first private equity fund, the $770.0 million New Mountain Partners, L.P., or "Fund I", began its investment period in January 2000. New Mountain Capital's second private equity fund, the $1.6 billion New Mountain Partners II, L.P., or "Fund II", began its investment period in January 2005. New Mountain Capital's third private equity fund, Fund III, with over $5.1 billion of aggregate commitments, began its investment period in August 2007. New Mountain Capital's fourth private equity fund, "Fund IV", with over $4.1 billion of aggregate commitments, began its investment period in July 2013. New Mountain Capital manages public equity portfolios through New Mountain Vantage Advisers, L.L.C., which is designed to apply New Mountain Capital's established strengths toward non-control positions in the U.S. public equity markets generally. New Mountain Capital manages its debt portfolio through us, and we are currently New Mountain Capital's only vehicle focused primarily on investing in the investments that we target.

          New Mountain Capital's mission is to be "best in class" in the new generation of investment managers as measured by returns, control of risk, service to investors and the quality of the businesses in which New Mountain Capital invests. All of New Mountain Capital's efforts emphasize

   


(1)
Includes amounts committed, not all of which have been drawn down and invested to-date, as of June 30, 2016, as well as amounts called and returned since inception.

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intensive fundamental research and the proactive creation of proprietary investment advantages in carefully selected industry sectors. New Mountain Capital is a generalist firm but has developed particular competitive advantages in what New Mountain Capital believes to be particularly attractive sectors, such as education, healthcare, distribution & logistics, business and industrial services, federal information technology services, media, software, insurance, consumer products, financial services and technology, infrastructure and energy. New Mountain Capital is focused on systematically establishing expertise in new sectors in which it believes it will have a competitive advantage over time.


The Investment Adviser

          The Investment Adviser, a wholly-owned subsidiary of New Mountain Capital, manages our day-to-day operations and provides us 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 our investments and monitoring and servicing our investments. We currently do not have, and do not intend to have, any employees. As of June 30, 2016, the Investment Adviser was supported by approximately 100 staff members of New Mountain Capital, including approximately 60 investment professionals.

          The Investment Adviser is managed by a five member Investment Committee, which is responsible for approving purchases and sales of our investments above $10.0 million in aggregate by issuer. The Investment Committee currently consists of Steven B. Klinsky, Robert A. Hamwee, Adam B. Weinstein and John R. Kline. The fifth and final member of the Investment Committee will consist of a New Mountain Capital Managing Director who will hold the position on the Investment Committee on an annual rotating basis. Beginning in August 2016, Mathew J. Lori was appointed to the Investment Committee for a one year term. In addition, our executive officers and certain investment professionals of the Investment Adviser are invited to all Investment Committee meetings. Purchases and dispositions below $10.0 million may be approved by our 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.


Investment Objective and Portfolio

          Our 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, our investments may also include equity interests such as preferred stock, common stock, warrants or options received in connection with our debt investments or may include a direct investment in the equity of private companies.

          We make investments through both primary originations and open-market secondary purchases. We primarily target loans to, and invest in, the 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. Our 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 us, SBIC LP's investment objective is to generate current income and capital appreciation under our investment criteria. However, SBIC LP's investments must be in SBA eligible companies. Our portfolio may be concentrated in a limited number of

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industries. As of June 30, 2016, our top five industry concentrations were business services, software, education, federal services and distribution & logistics. Our 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 our capital base changes. At June 30, 2016, the fair value of our investments was approximately $1,498.1 million in 72 portfolio companies and was invested 41.2% in first lien loans, 42.9% in second lien loans, 5.3% in subordinated debt and 10.6% in equity and other, as measured at fair value.

          The following table shows our portfolio and investment activity for the six months ended June 30, 2016 and June 30, 2015:

    Six Months Ended
 

(in millions)

    June 30, 2016     June 30, 2015
 

New investments in 21 and 14 portfolio companies, respectively

  $ 163.8   $ 190.0  

Debt repayments in existing portfolio companies

    170.2     262.8  

Sales of securities in 4 and 12 portfolio companies, respectively

    28.0     52.4  

Change in unrealized appreciation on 54 and 37 portfolio companies, respectively

    41.7     48.6  

Change in unrealized depreciation on 23 and 39 portfolio companies, respectively

    (34.1 )   (30.7 )

          At June 30, 2016, our weighted average Yield to Maturity at Cost was approximately 10.3%.

          The following summarizes our ten largest portfolio company investments and top ten industries in which we were invested as of June 30, 2016, calculated as a percentage of total assets as of June 30, 2016.

Portfolio Company

    Percent of
Total Assets
 

UniTek Global Services, Inc. 

    3.5 %

Crowley Holdings Preferred, LLC

    3.3 %

Engility Corporation (fka TASC, Inc.)

    2.8 %

Tenawa Resource Holdings LLC

    2.7 %

Deltek, Inc. 

    2.6 %

Hill International, Inc. 

    2.6 %

Navex Global Inc. 

    2.5 %

AssuredPartners, Inc. 

    2.5 %

TIBCO Software Inc. 

    2.5 %

Kronos Incorporated

    2.4 %

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Industry Type

    Percent of
Total Assets
 

Business Services

    24.0 %

Software

    23.8 %

Education

    7.9 %

Federal Services

    7.0 %

Distribution & Logistics

    6.9 %

Healthcare Services

    5.3 %

Consumer Services

    5.2 %

Energy

    4.5 %

Investment Fund

    3.2 %

Business Products

    2.0 %


Competitive Advantages

          We believe that we have the following competitive advantages over other capital providers to middle market companies:

Proven and Differentiated Investment Style With Areas of Deep Industry Knowledge

          In making its investment decisions, the Investment Adviser applies New Mountain Capital's long-standing, consistent investment approach that has been in place since its founding more than 15 years ago. We focus on companies in less well followed defensive growth niches of the middle market space where we believe few debt funds have built equivalent research and operational size and scale.

          We benefit directly from New Mountain Capital's private equity investment strategy that seeks to identify attractive investment sectors from the top down and then works to become a well positioned investor in these sectors. New Mountain Capital focuses on companies and industries with sustainable strengths in all economic cycles, particularly ones that are defensive in nature, that are secular and can maintain pricing power in the midst of a recessionary and/or inflationary environment. New Mountain Capital focuses on companies within sectors in which it has significant expertise (examples include federal services, software, education, niche healthcare, business services, energy and distribution & logistics) while typically avoiding investments in companies with products or services that serve markets that are highly cyclical, have the potential for long-term decline, are overly-dependent on consumer demand or are commodity-like in nature.

          In making its investment decisions, the Investment Adviser has adopted the approach of New Mountain Capital, which is based on three primary investment principles:

Experienced Management Team and Established Platform

          The Investment Adviser's team members have extensive experience in the leveraged lending space. Steven B. Klinsky, New Mountain Capital's Founder, Chief Executive Officer and Managing Director and Chairman of our board of directors, was a general partner of Forstmann Little & Co., a

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manager of debt and equity funds totaling multiple billions of dollars in the 1980s and 1990s. He was also a co-founder of Goldman, Sachs & Co.'s Leverage Buyout Group in the period from 1981 to 1984. Robert A. Hamwee, our Chief Executive Officer and Managing Director of New Mountain Capital, was formerly President of GSC Group, Inc. ("GSC"), where he was the portfolio manager of GSC's distressed debt funds and led the development of GSC's CLOs. John R. Kline, our President and Chief Operating Officer and Managing Director of New Mountain Capital, worked at GSC as an investment analyst and trader for GSC's control distressed and corporate credit funds and at Goldman, Sachs & Co. in the Credit Risk Management and Advisory Group.

          Many of the debt investments that we have made to date have been in the same companies with which New Mountain Capital has already conducted months of intensive acquisition due diligence related to potential private equity investments. We believe that private equity underwriting due diligence is usually more robust than typical due diligence for loan underwriting. In its underwriting of debt investments, the Investment Adviser is able to utilize the research and hands-on operating experience that New Mountain Capital's private equity underwriting teams possess regarding the individual companies and industries. Business and industry due diligence is led by a team of investment professionals of the Investment Adviser that generally consists of three to seven individuals, typically based on their relevant company and/or industry specific knowledge. Additionally, the Investment Adviser is also able to utilize its relationships with operating management teams and other private equity sponsors. We believe this differentiates us from many of our competitors.

Significant Sourcing Capabilities and Relationships

          We believe the Investment Adviser's ability to source attractive investment opportunities is greatly aided by both New Mountain Capital's historical and current reviews of private equity opportunities in the business segments we target. To date, a significant majority of the investments that we have made are in the debt of companies and industry sectors that were first identified and reviewed in connection with New Mountain Capital's private equity efforts, and the majority of our current pipeline reflects this as well. Furthermore, the Investment Adviser's investment professionals have deep and longstanding relationships in both the private equity sponsor community and the lending/agency community which they have and will continue to utilize to generate investment opportunities.

Risk Management through Various Cycles

          New Mountain Capital has emphasized tight control of risk since its inception and long before the recent global financial distress began. To date, New Mountain Capital has never experienced a bankruptcy of any of its portfolio companies in its private equity efforts. The Investment Adviser seeks to emphasize tight control of risk with our investments in several important ways, consistent with New Mountain Capital's historical approach. In particular, the Investment Adviser:

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Access to Non Mark to Market, Seasoned Leverage Facility

          The amount available under our Holdings Credit Facility is generally not subject to reduction as a result of mark to market fluctuations in our portfolio investments. None of our credit facilities mature prior to June 2019. For a detailed discussion of our credit facilities, see "Management's Discussion and Analysis of Financial Conditions and Results of Operations — Liquidity and Capital Resources."


Market Opportunity

          We believe that the size of the market for investments that we target, coupled with the demands of middle market companies for flexible sources of capital at competitive terms and rates, create an attractive investment environment for us.


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 our investments.

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Investment Selection and Process

          The Investment Adviser believes it has developed a proven, consistent and replicable investment process to execute our 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:    The Investment Adviser works continuously and in a variety of ways to proactively identify the most attractive sectors for investment opportunities. The investment professionals of the Investment Adviser participate in this process through both individual and group efforts, formal and informal. The Investment Adviser has also worked with consultants, investment bankers and public equity managers to supplement its internal analyses, although the prime driver of sector ideas has been the Investment Adviser itself.

          Creating competitive advantages in the selected industry sectors:    Once a sector has been identified, the Investment Adviser works to make itself the most advantaged and knowledgeable investor in that sector. An internal working team is assigned to each project. The team may spend months confirming the sector thesis and building the Investment Adviser's leadership in this sector. In general, the Investment Adviser seeks to construct proprietary databases and to utilize the best specialized industry consultants. The Investment Adviser particularly stresses the establishment of close relationships with operating managers in each field

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in order to gain the deepest possible level of understanding. When advisable, industry executives have been placed on New Mountain Capital's Management Advisory Board or have been hired on salary as "executives in residence". When the Investment Adviser considers specific investment ideas in its chosen sectors, it can triangulate its own views against the views of its management relationships, consultants, brokers, bankers and others. The Investment Adviser believes this multi-front analysis leads to strong decision making and company identification. The Investment Adviser also believes that its "flexible specialization" approach gives us all the benefits of a narrow-based sector fund without forcing us to invest in any industry sector at an inappropriate time for that sector. The Investment Adviser can also become a leading investment expert in lesser known or smaller sectors that would not support an entire fund dedicated solely to them.

          Targeting companies with leading market share and attractive business models in its chosen sectors:    The Investment Adviser, consistent with New Mountain Capital's historical approach, typically follows a "good to great" approach, seeking to invest in debt securities of companies in its chosen sectors that it believes are already safe and successful but where the Investment Adviser sees an opportunity for further increases in enterprise value due to special circumstances existing at the time of the financing or through value that a sponsor can add. The investment professionals of the Investment Adviser have been successful in targeting companies with leading market shares, rapid growth, high free cash flows, high operating margins, high barriers to entry and which produce goods or services that are of value to their customers.

          Utilizing this research platform, we have largely invested in the debt of companies and industries that have been researched by New Mountain Capital's private equity efforts. In many instances, we have studied the specific debt issuer with which New Mountain Capital has already conducted months of intensive acquisition due diligence related to a potential private equity investment. In other situations, while New Mountain Capital may not have specifically analyzed the issuer in the past, we have deep knowledge of the company's industry through New Mountain Capital's private equity work. We expect the Investment Adviser to continue this approach in the future.

          Beyond the foregoing, the investment professionals of the Investment Adviser have deep and longstanding relationships in both the private equity sponsor community and the lending/agency community. We have sourced and we expect to continue sourcing new investment opportunities from both private equity sponsors and other lenders and agents. In private equity, we have strong, personal relationships with principals at a significant majority of relevant sponsors, and we expect that we will continue to utilize those relationships to generate investment opportunities. In the same fashion, we have an extensive relationship network with lenders and agents, including commercial banks, investment banks, loan funds, mezzanine funds and a wide range of smaller agents that seek debt capital on behalf of their clients. In addition to newly issued primary opportunities, we have extensive experience in sourcing investment opportunities from the secondary market, and will continue to actively monitor that large, and often volatile, area for appropriate investment opportunities.

          This team performs the core underwriting function to determine the attractiveness of the target's business model, focusing on the investment criteria described above. The team ultimately develops a forecast of a target's likely operating and financial performance. Team members have diverse backgrounds in investment management, investment banking, consulting, and operations. We believe the presence within New Mountain Capital of numerous former CEOs and other senior operating executives, and their active involvement in our underwriting process, combined with New Mountain Capital's experience as a majority stockholder owning and directing a wide range of businesses and overseeing operating companies in the same or related industries, is a key differentiator for us versus typical debt investment vehicles.

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          In addition to performing rigorous business due diligence, the Investment Adviser also thoroughly reviews and/or structures the relevant credit documentation, including bank credit agreements and bond indentures, to ensure that any securities we invest in have appropriate credit rights, protections and remedies. There is a strong focus on appropriate covenant packages. This part of the process, as well as the determination of the appropriate price/yield parameters for individual securities, is led by Robert A. Hamwee, John R. Kline and James W. Stone III with significant input as needed from other professionals with extensive credit experience, such as Steven B. Klinsky, New Mountain Capital's Managing Director, Founder and Chief Executive Officer, and others.


Investment Committee

          The Investment Committee currently consists of Steven B. Klinsky, Robert A. Hamwee, Adam B. Weinstein and John R. Kline. The fifth and final member of the Investment Committee will consist of a New Mountain Capital Managing Director who will hold the position on the Investment Committee on an annual rotating basis. Beginning in August 2016, Mathew J. Lori was appointed to the Investment Committee for a one year term. In addition, our executive officers and certain investment professionals of the Investment Adviser are invited to all Investment Committee meetings. The Investment Committee is responsible for approving purchases and sales of our investments above $10.0 million in aggregate by issuer. Purchases and dispositions below $10.0 million may be approved by our 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 and suggests ongoing monitoring requirements.

          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 our investment team are encouraged to share information and views on credits with the Investment Committee early in their analysis. This process improves the quality of the analysis and assists the deal team members to work more efficiently.


Investment Structure

          We target debt investments that will yield meaningful current income and occasionally provide the opportunity for capital appreciation through equity securities. Our debt investments are typically structured with the maximum seniority and collateral that we can reasonably obtain while seeking to achieve our total return target.

Debt Investments

          The terms of our 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 we collect on our debt investments.

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


Portfolio Company Monitoring

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

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

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          The following table shows the distribution of our investments on the 1 to 4 investment rating scale at fair value as of June 30, 2016:

(in millions)

    As of June 30, 2016
 

Investment Rating

    Par Value(1)     Percent     Fair Value     Percent
 

Investment Rating 1

  $ 196.0     13.5 % $ 249.4     16.6 %

Investment Rating 2

    1,161.5     80.1 %   1,207.9     80.6 %

Investment Rating 3

    43.6     3.0 %   26.3     1.8 %

Investment Rating 4

    49.1     3.4 %   14.5     1.0 %

  $ 1,450.2     100.0 % $ 1,498.1     100.0 %

(1)
Excludes shares and warrants.


Exit Strategies/Refinancing

          We exit our 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 our loan is replaced with debt or equity from a third party or parties (in some cases, we may choose to participate in the newly issued loan(s)), (iii) the repayment of the initial or remaining principal amount of our loan then outstanding at maturity or (iv) the sale of the debt investment by us. In some investments, there may be scheduled amortization of some portion of our loan which would result in a partial exit of our investment prior to the maturity of the loan.


Managerial Assistance to Porfolio Companies

          BDCs generally must offer to make available to the issuer of its 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 our behalf to portfolio companies that request this assistance.


Competition

          We compete 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 banks and other sources of financing. Many of these entities have greater financial and managerial resources than we do. We believe we are able to be competitive with these entities primarily on the basis of the experience and contacts of our management team, our responsive and efficient investment analysis and decision-making processes, the investment terms we offer, the model that we employ to perform our due diligence with the broader New Mountain Capital team and our model of investing in companies and industries we know well.

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          We believe that some of our competitors may make investments with interest rates and returns that are comparable to or lower than the rates and returns that we target. Therefore, we do not seek to compete solely on the interest rates and returns that we offer to potential portfolio companies. For additional information concerning the competitive risks we face, see "Risk Factors — Risks Relating to Our Business".


Employees

          We do not have any employees. Day-to-day investment operations that are conducted by us are managed by the Investment Adviser. See "Investment Management Agreement". We reimburse the Administrator for the allocable portion of overhead and other expenses incurred by it in performing its obligations to us under the Administration Agreement, including the compensation of our chief financial officer and chief compliance officer, and their respective staffs. For a more detailed discussion of the Administration Agreement, see "Administration Agreement".


Properties

          Our executive office is located at 787 Seventh Avenue, 48th Floor, New York, New York 10019. We believe that our current office facilities are adequate for our business as we intend to conduct it.


Legal Proceedings

          We, our consolidated subsidiaries, the Investment Adviser and the Administrator are not currently subject to any material legal proceedings, although these entities may, from time to time, be involved in litigation arising out of operations in the normal course of business or otherwise.

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PORTFOLIO COMPANIES

          The following table sets forth certain information as of June 30, 2016, for each portfolio company in which we had a debt or equity investment. Our portfolio companies are presented in three categories: (1)"Non-Controlled/Non-Affiliated Investments", which represent portfolio companies in which we own less than 5.0% of the outstanding voting securities of such portfolio company and have no other affiliations, (2)"Non-Controlled/Affiliated Investments", which denotes investments in which we are an "Affiliated Person", as defined in the 1940 Act, 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 portfolio company, and (3)"Controlled Investments", which denotes investments in which we "Control", as defined in the 1940 Act due to owning or holding the power to vote 25.0% or more of the outstanding voting securities of the investment. We may provide managerial assistance to our portfolio companies, if requested, and may receive rights to observe board meetings.

Name / Address of Portfolio Company(1)

  Industry   Type of
Investment
  Interest Rate(10)   Maturity /
Expiration
Date
    Yield to
Maturity At
Cost(27)
    Percent of
Class
Held(28)
    Fair Value
 

                                (in thousands)  

Non-Controlled/
Non-Affiliated Investments

                                   

AAC Holding Corp. 

  Education   First lien(2)   8.25% (L + 7.25%/M)   9/30/2020     8.95 %     $ 24,253  

7211 Circle South Road

                                   

Austin, TX 78745

                                   

AgKnowledge Holdings Company, Inc. 

  Business Services   Second lien(2)   9.25% (L + 8.25%/M)   7/23/2020     9.84 %       17,122  

6060 Piedmont Row Drive South

                                   

Charlotte, NC 28287

                                   

Air Newco LLC**

  Software   Second lien(3)   10.50% (L + 9.50%/Q)   1/31/2023     11.61 %       30,265  

Munro House, Portsmouth Road

                                   

Cobham, Surrey KT11 1TF

                                   

United Kingdom

                                   

American Tire Distributors, Inc.

  Distribution &   Subordinated(3)   10.25%/S   3/1/2022     11.03 %       11,473  

PO Box 3145

  Logistics                                

Huntersville, NC 28070

                                   

Aricent Technologies

  Business Services   Second lien(2)   9.50% (L + 8.50%/Q)   4/14/2022     10.36 %       16,200  

303 Twin Dolphin Drive, Suite 600

  Business Services   Second lien(3)   9.50% (L + 8.50%/Q)   4/14/2022     10.36 %       3,240  

Redwood City, CA 94605

                                   

                                19,440  

Ascend Learning, LLC

  Education   Second lien(3)   9.50% (L + 8.50%/Q)   11/30/2020     10.21 %       33,906  

5 Wall Street

                                   

Burlington, MA 01803

                                   

ASP LCG Holdings, Inc. 

  Education   Warrants(3)     5/5/2026         2.30 %   687  

21333 Haggerty Road, Suite 300

                                   

Novi, MI 48375

                                   

AssuredPartners, Inc.

  Business Services   Second lien(2)   10.00% (L + 9.00%/M)   10/20/2023     11.40 %       19,762  

200 Colonial Center Parkway, Suite 140

  Business Services   Second lien(3)   10.00% (L + 9.00%/M)   10/20/2023     11.40 %       19,960  

Lake Mary, FL 32746

                                   

                                39,722  

ATI Acquisition Company (fka Ability Acquisition, Inc.)(14)

  Education   First lien(2)   17.25%   6/30/2012 —              

6351 Boulevard 26, Suite 275

          (P + 10.00% + 4.00%   Past Due                    

North Richland Hills, TX 76180

          PIK/Q)(8)*                        

  Education   First lien(2)   17.25%   6/30/2012 —              

          (P + 10.00% + 4.00% PIK/Q)(8)*   Past Due                    

Ancora Acquisition LLC(14)

  Education   Preferred shares(6)             3.72 %   393  

8701 Bedford Euless Road, Suite 400

  Education   Warrants(6)     8/12/2020         3.72 %    

Hurst, TX 76053

                                   

                                393  

Brock Holdings III, Inc. 

  Industrial Services   Second lien(2)   10.00% (L + 8.25%/Q)   3/16/2018     10.75 %       2,700  

10343 Sam Houston Park Drive, Suite 200
Houston, TX 77064

                                   

CompassLearning, Inc.(15)

  Education   First lien(2)   8.00% (L + 6.75%/Q)   11/26/2018     8.90 %       29,828  

203 Colorado Street
Austin, TX 78701

                                   

Confie Seguros Holding II Co. 

  Consumer Services   Second lien(2)   10.25% (L + 9.00%/M)   5/8/2019     10.68 %       17,988  

7711 Center Avenue, Suite 200

  Consumer Services   Second lien(3)   10.25% (L + 9.00%/M)   5/8/2019     10.68 %       3,402  

Huntington Beach, CA 92647

                                   

                                21,390  

126


Table of Contents

Name / Address of Portfolio Company(1)

  Industry   Type of
Investment
  Interest Rate(10)   Maturity /
Expiration
Date
    Yield to
Maturity At
Cost(27)
    Percent of
Class
Held(28)
    Fair Value  

                                (in thousands)  

Non-Controlled/
Non-Affiliated Investments
(continued)

                                   

CRGT Inc. 

  Federal Services   First lien(2)   7.50% (L + 6.50%/M)   12/19/2020     7.95 %     $ 32,164  

11921 Freedom Drive, Suite 1000
Reston, VA 20190

                                   

Crowley Holdings Preferred, LLC

  Distribution &   Preferred   12.00%       13.48 %   26.32 %   52,580  

9487 Regency Square

  Logistics   shares(3)(20)   (10.00% + 2.00% PIK/                        

Boulevard

          Q)*                        

Jacksonville, FL 32225

                                   

DCA Investment Holding, LLC

  Healthcare Services   First lien(2)   6.25% (L + 5.25%/Q)   7/2/2021     6.69 %       17,544  

6240 Lake Osprey Drive

  Healthcare Services   First lien(3)(11) —   7.75% (P + 4.25%/Q)   7/2/2021     6.73 %       1,231  

Sarasota, FL 34240

      Drawn                            

  Healthcare Services   First lien(3)(11) —     7/2/2021             (9 )

      Undrawn                            

                                18,766  

Deltek, Inc. 

  Software   Second lien(3)   9.50% (L + 8.50%/Q)   6/26/2023     10.24 %       21,276  

2291 Wood Oak Drive

  Software   Second lien(2)   9.50% (L + 8.50%/Q)   6/26/2023     10.24 %       20,263  

Herndon, VA 20171

                                   

                                41,539  

DigiCert Holdings, Inc. 

  Software   First lien(2)   6.00% (L + 5.00%/Q)   10/21/2021     6.88 %       24,752  

2600 West Executive Parkway, Suite 500

                                   

Lehi, UT 84043

                                   

Education Management Corporation(22)

                                   

210 Sixth Avenue, 33rd Floor

                                   

Pittsburgh, PA 15222

                                   

Education Management II LLC

  Education   First lien(2)   5.50% (L + 4.50%/Q)   7/2/2020     6.93 %       72  

  Education   First lien(3)   5.50% (L + 4.50%/Q)   7/2/2020     6.93 %       39  

  Education   First lien(2)   8.50% (L + 1.00% + 6.50% PIK/Q)*   7/2/2020     12.68 %       27  

  Education   First lien(3)   8.50% (L + 1.00% + 6.50% PIK/Q)*   7/2/2020     12.68 %       15  

Education Management Corporation

  Education   Preferred shares(2)             0.26 %   9  

  Education   Preferred shares(3)             0.26 %   5  

  Education   Ordinary shares(2)             0.19 %   75  

  Education   Ordinary shares(3)             0.19 %   43  

                                285  

Eiger Acquisition B.V. (Eiger

                                   

Co-Borrower, LLC)**

  Software   Second lien(3)   10.13% (L + 9.13%/Q)   2/17/2023     12.26 %       9,450  

Molengraaffsingel 33

                                   

2629 JD Delft

                                   

PO Box 5066, 2600 GB Delft

                                   

The Netherlands

                                   

EN Engineering, LLC

  Business Services   First lien(2)   7.00% (L + 6.00%/Q)   6/30/2021     7.49 %       21,002  

28100 Torch Parkway

  Business Services   First lien(2)(11) —   8.50% (P + 5.00%/Q)   6/30/2021     7.51 %       2,175  

Warrenville, IL 60555

      Drawn                            

  Business Services   First lien(2)(11) —     12/30/2016             (14 )

      Undrawn                            

                                23,163  

Engility Corporation (fka TASC, Inc.)

  Federal Services   First lien(2)   7.00% (L + 6.00%/Q)   5/22/2020     7.53 %       27,651  

4801 Stonecroft Boulevard

  Federal Services   Second lien(3)   12.00%/M   5/21/2021     13.52 %       12,552  

Chantilly, VA 20151

  Federal Services   Second lien(3)   12.00%/M   5/21/2021     12.75 %       4,017  

                                44,220  

Ensemble S Merger Sub, Inc. 

  Software   Subordinated(3)   9.00%/S   9/30/2023     9.97 %       1,983  

4375 Fair Lakes Court

                                   

Fairfax, VA 22033

                                   

First American Payment Systems, L.P. 

  Business Services   Second lien(2)   10.75% (L + 9.50%/M)   4/12/2019     11.66 %       17,990  

100 Throckmorton Street, Suite 1800

                                   

Fort Worth, TX 76102

                                   

Greenway Health, LLC (fka Vitera Healthcare Solutions, LLC)

  Software   First lien(2)   6.00% (L + 5.00%/Q)   11/4/2020     6.37 %       1,877  

4301 West Boy Scout Boulevard, Suite 800

  Software   Second lien(2)   9.25% (L + 8.25%/Q)   11/4/2021     9.96 %       6,300  

Tampa, FL 33607

                                   

                                8,177  

Harley Marine Services, Inc. 

  Distribution &   Second lien(2)   10.50% (L + 9.25%/Q)   12/20/2019     11.42 %       8,955  

910 SW Spokane Street

  Logistics                                

Seattle, WA 98134

                                   

Hill International, Inc. 

  Business Services   First lien(2)   7.75% (L + 6.75%/Q)   9/28/2020     8.33 %       41,443  

303 Lippincott Centre

                                   

Marlton, NJ 08053

                                   

Immucor, Inc. 

  Healthcare Services   Subordinated(2)(9)   11.13%/S   8/15/2019     11.87 %       4,575  

3130 Gateway Drive

                                   

Norcross, GA 30091

                                   

127


Table of Contents

Name / Address of Portfolio Company(1)

  Industry   Type of
Investment
  Interest Rate(10)   Maturity /
Expiration
Date
    Yield to
Maturity At
Cost(27)
    Percent of
Class
Held(28)
    Fair Value  

                                (in thousands)  

Non-Controlled/
Non-Affiliated Investments
(continued)

                                   

Integro Parent Inc. 

  Business Services   First lien(2)   6.75% (L + 5.75%/Q)   10/31/2022     7.47 %     $ 18,604  

1 State Street Plaza, 9th Floor

  Business Services   First lien(2)   6.75% (L + 5.75%/Q)   10/31/2022     7.47 %       1,003  

New York, NY 10004

  Business Services   Second lien(3)   10.25% (L + 9.25%/Q)   10/30/2023     11.06 %       9,650  

                                29,257  

iPipeline, Inc. (Internet Pipeline, Inc.)

  Software   First lien(4)   8.25% (L + 7.25%/Q)   8/4/2022     8.86 %       17,686  

222 Valley Creek Boulevard, Suite 300

  Software   First lien(3)(11) —     8/4/2021             (10 )

Exton, PA 19341

      Undrawn                            

                                17,676  

IT'SUGAR LLC

  Retail   First lien(4)   10.50% (L + 9.50%/Q)   10/23/2019     12.26 %       20,082  

3155 SW 10th Street, Suite A

  Retail   Warrants(3)     10/23/2025         2.79 %   817  

Deerfield Beach, FL 33442

                                   

                                20,899  

J.D. Power and Associates

  Business Services   Second lien(3)   9.50% (L + 8.50%/Q)   6/9/2024(26)     10.38 %       6,895  

3200 Park Center Drive, 13th Floor

                                   

Costa Mesa, CA 92626

                                   

KeyPoint Government Solutions, Inc. 

  Federal Services   First lien(2)   7.75% (L + 6.50%/Q)   11/13/2017     8.55 %       24,023  

1750 Foxtail Drive

                                   

Loveland, CO 80538

                                   

Kronos Incorporated

  Software   Second lien(2)   9.75% (L + 8.50%/Q)   4/30/2020     10.31 %       32,931  

297 Billerica Road

  Software   Second lien(3)   9.75% (L + 8.50%/Q)   4/30/2020     10.31 %       5,044  

Chelmsford, MA 01824

                                   

                                37,975  

Navex Global, Inc. 

  Software   First lien(4)   5.75% (L + 4.75%/Q)   11/19/2021     6.16 %       4,545  

6000 Meadows Road, Suite 200

  Software   First lien(2)   5.75% (L + 4.75%/Q)   11/19/2021     6.16 %       2,573  

Lake Oswego, OR 97035

  Software   Second lien(4)   9.75% (L + 8.75%/Q)   11/18/2022     10.75 %       17,734  

  Software   Second lien(3)   9.75% (L + 8.75%/Q)   11/18/2022     10.75 %       14,930  

                                39,782  

Netsmart Inc. / Netsmart Technologies, Inc. 

  Healthcare   Second lien(2)   10.50% (L + 9.50%/Q)   10/19/2023     11.66 %       14,850  

4950 College Boulevard

  Information                                

Overland Park, KS 66211

  Technology                                

Packaging Coordinators, Inc.(13)

  Healthcare   Second lien(3)   9.00% (L + 8.00%/Q)   8/1/2022     9.64 %       5,000  

3001 Red Lion Road

  Products                                

Philadelphia, PA 19114

                                   

PCI Pharma Holdings UK Limited**

  Healthcare   Ordinary shares(2)             0.44 %   2,528  

Units 23-24, Tafarnaubach

  Products                                

Industrial Estate
Tredegar Gwent, NP22 3AA United Kingdom

                                   

                                7,528  

Pelican Products, Inc. 

  Business Products   Second lien(3)   9.25% (L + 8.25%/Q)   4/9/2021     9.51 %       14,105  

23215 Early Avenue

  Business Products   Second lien(2)   9.25% (L + 8.25%/Q)   4/9/2021     9.51 %       9,100  

Torrance, CA 90505

                                   

                                23,205  

Permian Tank & Manufacturing, Inc. 

  Energy   First lien(2)   10.50%/S(8)   1/15/2018     10.60 %       7,185  

2701 West Interstate 20
Odessa, TX 79760

                                   

PetVet Care Centers LLC

  Consumer Services   Second lien(3)   10.25% (L + 9.25%/Q)   6/17/2021     10.96 %       24,329  

1 Gorham Island, Suite 300

  Consumer Services   Second lien(3)   10.50% (L + 9.50%/Q)   6/17/2021     11.27 %       6,630  

Westport, CT 06880

                                   

                                30,959  

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

  Software   Second lien(2)   10.50% (L + 9.25%/Q)   7/30/2020     11.08 %       17,240  

41, Boulevard Prince Henri

  Software   Second lien(3)   10.50% (L + 9.25%/Q)   7/30/2020     11.08 %       5,743  

L-1724 Luxembourg

                                   

                                22,983  

Poseidon Intermediate, LLC

  Software   Second lien(2)   9.50% (L + 8.50%/Q)   8/15/2023     10.34 %       12,805  

45 West 18th Street

                                   

New York, NY 10011

                                   

PowerPlan Holdings, Inc. 

  Software   Second lien(2)   10.75% (L + 9.75%/Q)   2/23/2023     11.57 %       9,908  

300 Galleria Parkway, Suite 2100

                                   

Atlanta, GA 30339

                                   

Precyse Acquisition Corp. 

  Healthcare Services   Second lien(2)   10.75% (L + 9.75%/Q)   4/20/2023     11.76 %       24,563  

200 North Point Center East, Suite 600

                                   

Alpharetta, GA 30022

                                   

Project Sunshine IV Pty Ltd**

  Media   First lien(2)   8.00% (L + 7.00%/M)   9/23/2019     8.39 %       7,523  

222 Lonsdale Street

                                   

Melbourne, Victoria, Australia

                                   

ProQuest LLC

  Business Services   Second lien(3)   10.00% (L + 9.00%/Q)   12/15/2022     10.98 %       35,000  

789 East Eisenhower Parkway

                                   

Ann Arbor, MI 48108

                                   

128


Table of Contents

Name / Address of Portfolio Company(1)

  Industry   Type of
Investment
  Interest Rate(10)   Maturity /
Expiration
Date
    Yield to
Maturity At
Cost(27)
    Percent of
Class
Held(28)
    Fair Value  

                                (in thousands)  

Non-Controlled/
Non-Affiliated Investments
(continued)

                                   

QC McKissock Investment, LLC(17)

                                   

218 Liberty Street

                                   

Warren, PA 16365

                                   

QC McKissock Investment, LLC

  Education   First lien(2)   7.50% (L + 6.50%/Q)   8/5/2019     7.97 %     $ 3,096  

McKissock, LLC

  Education   First lien(2)   7.50% (L + 6.50%/Q)   8/5/2019     7.97 %       4,796  

  Education   First lien(2)   7.50% (L + 6.50%/Q)   8/5/2019     8.01 %       999  

                                8,891  

Rocket Software, Inc. 

  Software   Second lien(2)   10.25% (L + 8.75%/Q)   2/8/2019     10.78 %       30,810  

77 Fourth Avenue

                                   

Waltham, MA 02451

                                   

Ryan, LLC

  Business Services   First lien(2)   6.75% (L + 5.75%/M)   8/7/2020     7.34 %       26,069  

Three Galleria Tower

                                   

13155 Noel Road, Suite 100

                                   

Dallas, TX 75240

                                   

Severin Acquisition, LLC

  Software   Second lien(4)   9.75% (L + 8.75%/Q)   7/29/2022     10.47 %       14,850  

10911 White Rock Road, Suite 200

  Software   Second lien(4)   9.75% (L + 8.75%/Q)   7/29/2022     10.47 %       4,112  

Rancho Cordova, CA 95670

  Software   Second lien(4)   10.25% (L + 9.25%/Q)   7/29/2022     11.02 %       3,305  

                                22,267  

Sierra Hamilton LLC / Sierra Hamilton Finance, Inc. 

  Energy   First lien(2)   12.25%/S   12/15/2018     13.82 %       19,500  

777 Post Oak Boulevard, Suite 400

  Energy   First lien(3)   12.25%/S   12/15/2018     13.82 %       2,075  

Houston, TX 77056

                                   

                                21,575  

Smile Brands Group Inc. 

  Healthcare Services   First lien(2)   9.00%   8/16/2019     9.63 %       10,635  

8105 Irvine Center Drive,

          (L + 6.25% +                        

Suite 1500

          1.50% PIK/Q)*                        

Irvine, CA 92618

                                   

Solera LLC / Solera Finance, Inc. 

  Software   Subordinated(3)   10.50%/S   3/1/2024     11.96 %       5,280  

1301 Solana Boulevard, Building #2, Suite 2100

                                   

Westlake, TX 76262

                                   

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

  Federal Services   First lien(2)   9.00% (L + 7.50%/Q)   4/21/2017     9.71 %       5,917  

2121 Cooperative Way, Suite 400

                                   

Herndon, VA 20171

                                   

SW Holdings, LLC

  Business Services   Second lien(4)   9.75% (L + 8.75%/Q)   12/30/2021     10.45 %       14,122  

1900 Avenue of the Stars

                                   

Los Angeles, CA 90067

                                   

Synarc-Biocore Holdings, LLC

  Healthcare Services   Second lien(3)   9.25% (L + 8.25%/Q)   3/10/2022     9.89 %       2,413  

826 Newtown Yardley Road

                                   

Newtown, PA 18940

                                   

TIBCO Software Inc. 

  Software   First lien(2)   6.50% (L + 5.50%/M)   12/4/2020     7.81 %       27,181  

3303 Hillview Avenue

  Software   Subordinated(3)   11.38%/S   12/1/2021     12.54 %       12,000  

Palo Alto, CA 94304

                                   

                                39,181  

Transtar Holding Company

  Distribution &   Second lien(2)   12.00% (L + 10.75%/   10/9/2019     21.27 %       8,490  

7350 Young Drive

  Logistics       Q)(8)                        

Cleveland, OH 44146

  Distribution &   Second lien(3)   12.00% (L + 10.75%/   10/9/2019     21.27 %       2,869  

  Logistics       Q)(8)                        

                                11,359  

TTM Technologies, Inc.**

  Business Products   First lien(2)   6.00% (L + 5.00%/Q)   5/31/2021     7.21 %       8,781  

1665 Scenic Avenue, Suite 250

                                   

Costa Mesa, CA 92626

                                   

TWDiamondback Holdings Corp.(18)

                                   

7631 East Indian School Road

                                   

Scottsdale, AZ 85251

                                   

Diamondback Drugs of Delaware, L.L.C. (TWDiamondback II Holdings LLC)

  Distribution & Logistics   First lien(4)   9.75% (L + 8.75%/Q)   11/19/2019     10.12 %       20,156  

  Distribution & Logistics   First lien(3)   9.75% (L + 8.75%/Q)   11/19/2019     10.12 %       2,186  

  Distribution & Logistics   First lien(4)   9.75% (L + 8.75%/Q)   11/19/2019     10.12 %       613  

TWDiamondback Holdings Corp. 

  Distribution & Logistics   Preferred shares(4)             4.63 %   2,664  

                                25,619  

129


Table of Contents

Name / Address of Portfolio Company(1)

  Industry   Type of
Investment
  Interest Rate(10)   Maturity /
Expiration
Date
    Yield to
Maturity At
Cost(27)
    Percent of
Class
Held(28)
    Fair Value  

                                (in thousands)  

Non-Controlled/
Non-Affiliated Investments
(continued)

                                   

TW-NHME Holdings Corp.(23)

                                   

7451 Airport Freeway

                                   

Richland Hills, TX 76118

                                   

National HME, Inc. 

  Healthcare Services   Second lien(4)   10.25% (L + 9.25%/Q)   7/14/2022     11.07 %     $ 21,231  

  Healthcare Services   Second lien(3)   10.25% (L + 9.25%/Q)   7/14/2022     11.07 %       494  

TW-NHME Holdings Corp. 

  Healthcare Services   Preferred shares(4)             1.56 %   1,116  

  Healthcare Services   Preferred shares(4)             0.25 %   176  

  Healthcare Services   Preferred shares(4)             0.10 %   68  

                                23,085  

Valet Waste Holdings, Inc. 

  Business Services   First lien(2)   8.00% (L + 7.00%/Q)   9/24/2021     8.62 %       29,404  

100 South Ashley Drive, Suite 700

  Business Services   First lien(3)(11) —   8.00% (L + 7.00%/Q)   9/24/2021     8.65 %       2,222  

Tampa, FL 33602

      Drawn                            

  Business Services   First lien(3)(11) —     9/24/2021             (28 )

      Undrawn                            

                                31,598  

Vencore, Inc. (fka The SI Organization Inc.)

  Federal Services   Second lien(3)   9.75% (L + 8.75%/Q)   5/23/2020     10.82 %       3,920  

15052 Conference Center Drive

                                   

Chantilly, VA 20151

                                   

VetCor Professional Practices LLC

  Consumer Services   First lien(4)   7.25% (L + 6.25%/Q)   4/20/2021     7.83 %       19,598  

350 Lincoln Place

  Consumer Services   First lien(2)   7.25% (L + 6.25%/Q)   4/20/2021     7.83 %       7,911  

Hingham, MA 02043

  Consumer Services   First lien(3)(11) — Drawn   7.25% (L + 6.25%/Q)   4/20/2021     7.78 %       682  

  Consumer Services   First lien(3)(11) — Undrawn     4/20/2021             20  

  Consumer Services   First lien(4)(11) — Drawn   7.25% (L + 6.25%/Q)   4/20/2021     7.76 %       2,288  

  Consumer Services   First lien(4)(11) — Undrawn     5/12/2017             4  

  Consumer Services   First lien(4)(11) — Undrawn     3/30/2018             5  

  Consumer Services   First lien(2)(11) — Undrawn     6/22/2018             16  

                                30,524  

Vision Solutions, Inc. 

  Software   First lien(2)   7.50% (L + 6.50%/Q)   6/16/2022     8.07 %       22,275  

15300 Barranca Parkway

                                   

Irvine, CA 92618

                                   

Weston Solutions, Inc. 

  Business Services   Subordinated(4)   16.00%/Q   7/3/2019     16.99 %       20,311  

1400 Weston Way

                                   

PO Box 2653

                                   

West Chester, PA 19380

                                   

York Risk Services Holding Corp. 

  Business Services   Subordinated(3)   8.50%/S   10/1/2022     8.77 %       2,227  

99 Cherry Hill Road, Suite 102

                                   

Parsippany, NJ 07054

                                   

YP Holdings LLC / Print Media Holdings LLC(12)

                                   

2247 Northlake Parkway

                                   

Tucker, GA 30084

                                   

YP LLC / Print Media LLC

  Media   First lien(2)   8.00% (L + 6.75%/M)   6/4/2018     8.61 %       17,233  

YP Equity Investors, LLC

  Media   Warrants(5)     5/8/2022         4.96 %   3,628  

                                20,861  

Total Non-Controlled/Non-Affiliated Investments

                              $ 1,321,957  

Non-Controlled/Affiliated Investments(24)

                                   

Edmentum Ultimate Holdings, LLC(19)

  Education   Subordinated(3)   8.50% PIK/Q*   6/9/2020     8.82 %     $ 3,950  

5600 West 83rd Street, 8200 Tower, Suite 300

  Education   Subordinated(2)   10.00% PIK/Q*   6/9/2020     10.38 %       11,931  

Bloomington, MN 55437

  Education   Subordinated(3)   10.00% PIK/Q*   6/9/2020     10.38 %       2,935  

  Education   Ordinary shares(3)             19.15 %   2,357  

  Education   Ordinary shares(2)             19.15 %   2,037  

Edmentum, Inc. (fka Plato, Inc.) (Archipelago Learning, Inc.)

  Education   Second lien(3)(11) — Drawn   5.00%/Q   6/9/2020     5.09 %       4,002  

  Education   Second lien(3)(11) — Undrawn     6/9/2020              

                                27,212  

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Name / Address of Portfolio Company(1)

  Industry   Type of
Investment
  Interest Rate(10)   Maturity /
Expiration
Date
    Yield to
Maturity At
Cost(27)
    Percent of
Class
Held(28)
    Fair Value  

                                (in thousands)  

Non-Controlled/Affiliated
Investments (continued)

                                   

NMFC Senior Loan Program I LLC**

  Investment Fund   Membership interest(3)         12.55 %   24.73 % $ 22,820  

787 Seventh Avenue, 48th Floor

                                   

New York, NY 10019

                                   

Tenawa Resource Holdings LLC(16)

                                   

333 Clay Street, Suite 4060

                                   

Houston, TX 77002

                                   

Tenawa Resource Management LLC

  Energy   First lien(3)   10.50% (Base + 8.00%/Q)   5/12/2019     11.05 %       39,151  

QID NGL LLC

  Energy   Ordinary shares(7)             5.25 %   3,137  

                                42,288  

Total Non-Controlled/Affiliated Investments

                              $ 92,320  

Controlled Investments(25)

                                   

NMFC Senior Loan Program II LLC**

  Investment Fund   Membership interest(3)         15.87 %   79.40 % $ 27,790  

787 Seventh Avenue, 48th Floor

                                   

New York, NY 10019

                                   

UniTek Global Services, Inc. 

  Business Services   First lien(2)   8.50% (L + 7.50%/Q)   1/13/2019     8.78 %       11,000  

Gwynedd Hall

  Business Services   First lien(2)   9.88% (Base + 7.25% + 1.00% PIK/Q)*   1/13/2019     9.84 %       5,845  

1777 Sentry Parkway West, Suite 302

  Business Services   Subordinated(2)   15.00% PIK/Q*   7/13/2019     15.87 %       1,631  

Blue Bell, PA 19422

  Business Services   Subordinated(3)   15.00% PIK/Q*   7/13/2019     15.87 %       976  

  Business Services   First lien(3)(11) — Undrawn     1/13/2019              

  Business Services   First lien(3)(11) — Undrawn     1/13/2019              

  Business Services   Preferred shares(2)(21)         19.72 %   26.76 %   15,857  

  Business Services   Preferred shares(3)(21)         19.72 %   26.76 %   4,382  

  Business Services   Ordinary shares(2)             26.76 %   12,773  

  Business Services   Ordinary shares(3)             26.76 %   3,530  

                                55,994  

Total Controlled Investments

                              $ 83,784  

Total Investments

                              $ 1,498,061  

(1)
We generally acquire investments in private transactions exempt from registration under the Securities Act. These investments are generally subject to certain limitations on resale, and may be deemed to be "restricted securities" under the Securities Act.

(2)
Investment is pledged as collateral for the Holdings Credit Facility, a revolving credit facility among us as 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.

(3)
Investment is pledged as collateral for the NMFC Credit Facility, a revolving credit facility among us as the Borrower and Goldman Sachs Bank USA as the Administrative Agent and the Collateral Agent and Goldman Sachs Bank USA, Morgan Stanley Bank, N.A. and Stifel Bank & Trust as Lenders.

(4)
Investment is held in New Mountain Finance SBIC, L.P.

(5)
Investment is held in NMF YP Holdings, Inc.

(6)
Investment is held in NMF Ancora Holdings, Inc.

(7)
Investment is held in NMF QID NGL Holdings, Inc.

(8)
Investment or a portion of the investment is on non-accrual status.

(9)
Securities are registered under the Securities Act.

(10)
All interest is payable in cash unless otherwise indicated. A majority of the variable rate debt investments bear interest at a rate that may be determined by reference to the London Interbank Offered Rate (L), the Prime Rate (P) and the alternative base rate (Base) and which resets monthly (M), quarterly (Q), semi-annually (S) or annually (A). For each investment the current interest rate provided reflects the rate in effect as of June 30, 2016.

(11)
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.

(12)
We hold investments in three related entities of YP Holdings LLC/Print Media Holdings LLC. We directly hold 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 hold an investment in the Term Loan B loans issued by YP LLC and Print Media LLC, wholly-owned subsidiaries of YP Holdings LLC and Print Media Holdings LLC, respectively.

(13)
We hold investments in Packaging Coordinators, Inc. and one related entity of Packaging Coordinators, Inc. We have a debt investment in Packaging Coordinators, Inc. and hold ordinary equity in PCI Pharma Holdings UK Limited, a wholly-owned subsidiary of Packaging Coordinators, Inc.

(14)
We hold investments in ATI Acquisition Company and Ancora Acquisition LLC. We have debt investments in ATI Acquisition Company and preferred equity and warrants to purchase units of common membership interests of Ancora Acquisition LLC. We received our investments in Ancora Acquisition LLC as a result of our investments in ATI Acquisition Company.

(15)
We hold an investment in CompassLearning, Inc. that is structured as a first lien last out term loan.

(16)
We hold investments in two related entities of Tenawa Resource Holdings LLC. We hold 5.25% 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 hold a first lien investment in Tenawa Resource Management LLC, a wholly-owned subsidiary of Tenawa Resource Holdings LLC.

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(17)
We hold investments in QC McKissock Investment, LLC and one related entity of QC McKissock, LLC. We hold a first lien term loan in QC McKissock Investment, LLC (which at closing represented 71.1% of the ownership in the Series A common units of McKissock Investment Holdings, LLC) and hold a first lien term loan and a delayed draw term loan in McKissock, LLC, which is wholly-owned subsidiary of McKissock Investment Holdings, LLC.

(18)
We hold investments in TWDiamondback Holdings Corp. and one related entity of TWDiamondback Holdings Corp. We hold preferred equity in TWDiamondback Holdings Corp. and hold 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.

(19)
We hold investments in Edmentum Ultimate Holdings, LLC and its related entities. We hold subordinated notes and ordinary equity in Edmentum Ultimate Holdings, LLC and hold a second lien revolver in Edmentum, Inc. and Archipelago Learning, Inc., which are wholly-owned subsidiaries of Edmentum Ultimate Holdings, LLC.

(20)
Total shares reported assumes shares issued for the capitalization of PIK interest. Actual shares owned total 50,000 as of June 30, 2016.

(21)
We hold preferred equity in UniTek Global Services, Inc. that is entitled to receive cumulative preferential dividends at a rate of 13.5% per annum payable in additional shares.

(22)
We hold investments in Education Management Corporation and one related entity of Education Management Corporation. We hold series A-1 convertible preferred stock and common stock in Education Management Corporation and hold a tranche A first lien term loan and a tranche B first lien term loan in Education Management II LLC, which is an indirect subsidiary of Education Management Corporation.

(23)
We hold an equity investment in TW-NHME Holdings Corp., as well as a second lien term loan investment in National HME, Inc., a wholly-owned subsidiary of TW-NHME Holdings Corp.

(24)
Denotes investments in which we are 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.

(25)
Denotes investments in which we are in "Control", as defined in the Investment Company Act of 1940, as amended, due to owning or holding the power to vote 25.0% or more of the outstanding voting securities of the investment.

(26)
Investment was unsettled as of June 30, 2016. Maturity date is subject to change once the credit agreement has been executed.

(27)
Assumes that all investments 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 respective end date.

(28)
Percent of class held is presented only for equity positions.

*
All or a portion of interest contains PIK interest.

**
Indicates assets that we deem 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 our total assets at the time of acquisition of any additional non-qualifying assets.

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MANAGEMENT

Board of Directors and Executive Officers

          Our business and affairs are managed under the direction of our board of directors. Our board of directors appoints our officers, who serve at the discretion of our board of directors. Our board of directors has an audit committee, a nominating and corporate governance committee, a valuation committee and a compensation committee and may establish additional committees from time to time as necessary.

          Our board of directors consists of seven members, four of whom are classified under applicable NYSE listing standards as "independent" directors and under Section 2(a)(19) of the 1940 Act as non-interested persons. Pursuant to our governing documents, our directors are divided into three classes. Each class of directors will hold office for a three-year term. At each annual meeting of our stockholders, the successors to the class of directors whose terms expire at such meeting will be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election. Each director will hold office for the term to which he or she is elected and until his or her successor is duly elected and qualifies. Our governing documents also give our board of directors sole authority to appoint directors to fill vacancies that are created either through an increase in the number of directors or due to the resignation, removal or death of any director.

Directors

          Information regarding our board of directors is set forth below. The directors have been divided into two groups — independent directors and interested directors. Interested directors are "interested persons" of NMFC as defined in Section 2(a)(19) of the 1940 Act. The address for each director is c/o New Mountain Finance Corporation, 787 Seventh Avenue, 48th Floor, New York, New York 10019.

              Director     Expiration  

Name

    Age   Position     Since     of Term
 

Independent Directors

                       

David Ogens

    62   Director     2010     2018  

Alfred F. Hurley, Jr. 

    62   Director     2010     2019  

Kurt J. Wolfgruber

    66   Director     2010     2017  

David R. Malpass

    60   Director     2012     2017  

Interested Directors

                       

Steven B. Klinsky

    60   Chairman of the board of directors     2010     2017  

Robert A. Hamwee

    46   Chief Executive Officer and Director     2010     2019  

Adam B. Weinstein

    37   Executive Vice President and Chief Administrative Officer     2012     2018  

Executive Officers Who Are Not Directors

          Information regarding our executive officers who are not directors is set forth below.

Name

    Age   Position

Karrie J. Jerry

    42   Chief Compliance Officer and Corporate Secretary

Shiraz Y. Kajee

    36   Chief Financial Officer and Treasurer

John R. Kline

    40   President and Chief Operating Officer

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          The address for each executive officer is c/o New Mountain Finance Corporation, 787 Seventh Avenue, 48th Floor, New York, New York 10019.


Biographical Information

Directors

          Each of our directors has demonstrated high character and integrity, superior credentials and recognition in his respective field and the relevant expertise and experience upon which to be able to offer advice and guidance to our management. Each of our directors also has sufficient time available to devote to our affairs, is able to work with the other members of the board of directors and contribute to our success and can represent the long-term interests of our stockholders as a whole. We have selected our current directors to provide a range of backgrounds and experience to our board of directors. Set forth below is biographical information for each director, including a discussion of the director's particular experience, qualifications, attributes or skills that led us to conclude, as of the date of this prospectus, that the individual should serve as a director, in light of our business and structure.

Independent Directors

          David Ogens has been a director of NMFC since November 2010. Mr. Ogens has served as the President and a Director of Med Inc. since 2011, a company that provides complex rehabilitation services to patients with serious muscular/neuro diseases. Previously, Mr. Ogens served as Senior Managing Director and Head of Investment Banking at Leerink Swann LLC, a specialized healthcare investment bank focused on emerging growth healthcare companies, from 2005 to 2009. Prior to serving at Leerink Swann LLC, Mr. Ogens was Chairman and Co-Founder of SCS Financial Services, LLC, a private wealth management firm. Before co-founding SCS Financial Services, LLC in 2002, Mr. Ogens was a Managing Director in the Investment Banking Division of Goldman, Sachs & Co, where he served as a senior investment banker and a head of the High Technology Investment Banking Group. Mr. Ogens received his Bachelor of Arts ("B.A." or "A.B.") and Master of Business Administration ("M.B.A.") from the University of Virginia.

          Mr. Ogens brings his experience in wealth management and investment banking, including experience with debt issuances, as well as industry-specific expertise in the healthcare industry to our board of directors. This background positions Mr. Ogens well to serve as our director.

          Kurt J. Wolfgruber has been a director of NMFC since November 2010, and is currently a private investor. Mr. Wolfgruber served as President of OppenheimerFunds, Inc., an investment management company, from March 2007 until his departure in May of 2009, during which time he was responsible for OppenheimerFunds, Inc.'s Retail and Wealth Management business units. During such period, Mr. Wolfgruber also served as Chief Investment Officer, overseeing the direction of OppenheimerFunds, Inc.'s investment organization and directing the underlying investment process. Mr. Wolfgruber joined OppenheimerFunds, Inc. in April 2000 as Senior Investment Officer and Director of Domestic Equities, in which position he was responsible for the investment process of the assets managed by OppenheimerFunds, Inc.'s Domestic Equity Portfolio teams. In 2003, Mr. Wolfgruber was named Executive Vice President and Chief Investment Officer of OppenheimerFunds, Inc. with oversight responsibilities for all investment functions including equity and fixed income research and portfolio management, trading and risk management. Prior to joining OppenheimerFunds, Inc., Mr. Wolfgruber spent 26 years at JPMorgan Investment Management in various research, portfolio management and management leadership roles. He has served as a Trustee to Exchange Traded Concepts since 2012. Mr. Wolfgruber received his B.A. in Economics from Ithaca College and his M.B.A. from the University of Virginia. He is also a Chartered Financial Analyst.

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          Mr. Wolfgruber brings experience in portfolio management and his abilities as a chartered financial analyst to our board of directors. This background positions Mr. Wolfgruber well to serve as our director.

          Alfred F. Hurley, Jr. has been a director of NMFC since November 2010. He was a Vice Chairman of Emigrant Bank and Emigrant Bancorp (collectively, the "Bank") from 2007 and 2009, respectively, to December 2012 and was a consultant to the Bank during 2013. His responsibilities at the Bank included advising the Bank's CEO on acquisitions and divestitures, asset/liability management, and new products. In addition, he was the Chairman of the Bank's Credit and Risk Management Committee from 2008 to 2012 and the Bank's acting Chief Risk Officer until January 2012. Before joining the Bank, Mr. Hurley was the Chief Executive Officer of M. Safra & Co., a private money management firm, from 2004 to 2007. Prior to joining M. Safra & Co., Mr. Hurley worked at Merrill Lynch ("ML") from 1976 to 2004. His most recent management positions included serving as Senior Vice President of ML & Co. and Head of Global Private Equity Investing, Managing Director and Head of Japan Investment Banking and Capital Markets, Managing Director and Co-Head of the Global Manufacturing and Services Group, and Managing Director and Head of the Global Automotive Aerospace and Transportation Group. As part of the management duties described above, he was a member of the Corporate and Institutional Client Group ("CICG") Executive Committee which had global responsibility for the firm's equity, debt, investment banking and private equity businesses, a member of the Japan CICG Executive Committee, and a member of the Global Investment Banking Management and Operating Group Committees. Mr. Hurley is also a member of the board of directors of Merrill Corporation, which is a privately held company that provides outsourced solutions for complex, regulated and confidential business information, where he serves as Chairman of the Compensation and Governance and Human Resources Committee and as a member of the Audit Committee. Since June 2016, Mr. Hurley has served as a member of the board of directors of Amaya, Inc., a publicly listed technology gaming company. Since February 2014, Mr. Hurley is the sole member of a consulting business, Alfred F. Hurley, Jr. & Company, LLC. Mr. Hurley graduated from Princeton University with an A.B. in History, cum laude.

          Mr. Hurley brings his experience in risk management as well as his experience in the banking and money management industries to our board of directors. This background positions Mr. Hurley well to serve as our director.

          David R. Malpass has been a director of NMFC since July 2012. He is currently president of Encima Global, an economic research and consulting firm serving institutional investors and corporate clients. His work provides insight and analysis on global economic and political trends, with investment research spanning equities, fixed income, commodities and currencies. Before founding Encima Global, LLC in 2008, Mr. Malpass served as Bear Stearns' chief economist and Senior Managing Director from 1993 to 2008. Between February 1984 and January 1993, Mr. Malpass held economic appointments during the Reagan and Bush Administrations. He was Deputy Assistant Treasury Secretary for Developing Nations, a Deputy Assistant Secretary of State, Republican Staff Director of Congress's Joint Economic Committee, and Senior Analyst for Taxes and Trade at the Senate Budget Committee. From 1977 to 1983, Mr. Malpass worked in Portland, Oregon as a Certified Public Accountant with Arthur Andersen's systems consulting group, the Controller at Consolidated Supply Co., and a contract administrator at Esco Corporation, a steel foundry. Mr. Malpass also has served on the board of directors of various UBS mutual funds since May 2014. Mr. Malpass authors the Current Events column in Forbes magazine, and his opinion pieces appear regularly in the Wall Street Journal. Mr. Malpass received a bachelor's degree in physics from Colorado College and a M.B.A. from the University of Denver. In addition to this, he studied international economics at Georgetown University's School of Foreign Service.

          Mr. Malpass brings his experience in global economics and research to our board of directors. This background positions Mr. Malpass well to serve as our director.

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Interested Directors

          Steven B. Klinsky has served as Chairman of the board of directors of NMFC since July 2010. Mr. Klinsky is the Founder of New Mountain Capital and has served as New Mountain Capital's Chief Executive Officer since its inception in 1999. Prior to 1999, Mr. Klinsky served as a General Partner and an Associate Partner with Forstmann Little & Co. and co-founded Goldman, Sachs & Co.'s Leveraged Buyout Group. He currently serves on the board of directors of Gary Klinsky Children Centers, Private Equity Growth Capital Council, Victory Education Partners, SNL Financial LC, Avantor Performance Materials Holdings, Inc., IRI Group Holdings, Inc., and Overland Solutions, Inc., and during the five years prior to the date of this document has served on the board of directors of Oakleaf Global Holdings, Inc., Connextions, Inc., Apptis, Inc., MailSouth, Inc., National Medical Health Card Systems, Inc., RedPrairie Holding, Inc., Inmar, Inc. and Deltek, Inc. Mr. Klinsky received his B.A. in Economics and Political Philosophy from the University of Michigan. He received his M.B.A. from Harvard Business School and his J.D. from Harvard Law School.

          From his experience as an executive or director of public and private companies of financial advisory and private equity companies, Mr. Klinsky brings broad financial advisory and investment management expertise to the board of directors. Mr. Klinsky's intimate knowledge of our business and operations, as a Managing Director, Founder and Chief Executive Officer of New Mountain Capital and his experience as a board member or chairman of other publicly-held companies, positions him well to serve as the chairman of our board of directors.

          Robert A. Hamwee has served on the board of directors of NMFC since July 2010. Mr. Hamwee has served as NMFC's Chief Executive Officer since July 2010. Mr. Hamwee has also served as a Managing Director of New Mountain Capital since 2008. Prior to joining New Mountain Capital, Mr. Hamwee served as a Senior Executive of GSC Group Inc. ("GSC"), a leading institutional investment manager of alternative assets, where he had day-to-day responsibility for managing GSC's control distressed debt funds from 1999 to 2008. Prior to 1999, Mr. Hamwee held various positions at Greenwich Street Capital Partners, the predecessor to GSC, and with The Blackstone Group. Mr. Hamwee has chaired numerous Creditor Committees and Bank Steering Groups, and was formerly a director of a number of public and private companies, including Envirosource, Purina Mills, and Viasystems. Mr. Hamwee currently serves on the board of Edmentum, Inc., an NMFC portfolio company. Mr. Hamwee received his Bachelor of Business Administration ("B.B.A.") in Finance and Accounting from the University of Michigan.

          Mr. Hamwee's depth of experience in managerial operational positions in investment management and financial services and as a member of other corporate boards of directors, as well as his intimate knowledge of our business and operations, provides our board of directors valuable industry- and company-specific knowledge and expertise.

          Adam B. Weinstein has served on the board of directors of NMFC since July 2012. Mr. Weinstein has served as our Executive Vice President and Chief Administrative Officer since January 2013 and previously served as our Chief Financial Officer and Treasurer from July 2010. Mr. Weinstein also serves as a Managing Director and Chief Financial Officer of New Mountain Capital and has been in various roles since joining in 2005. Prior to joining New Mountain Capital in 2005, Mr. Weinstein was a Manager at Deloitte & Touche LLP and worked in that firm's merger and acquisition and private equity investor services areas. He also currently serves as a director of Bellerophon Therapeutics Inc., Great Oaks Foundation and Victory Education Partners. Mr. Weinstein sits on a number of boards of directors for professional and non-profit organizations. Mr. Weinstein received his B.S. from Binghamton University, is a member of the AICPA and is a New York State Certified Public Accountant.

          Mr. Weinstein brings his industry-specific expertise and background in accounting to our board of directors. This background positions Mr. Weinstein well to serve as our director.

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Executive Officers Who Are Not Directors

          Karrie J. Jerry has served as Chief Compliance Officer ("CCO") and Corporate Secretary of NMFC since June 2015. Ms. Jerry joined NMFC in 2011 and served as NMFC's Compliance Vice President and Assistant Corporate Secretary prior to her appointment as CCO. From 2005 until 2011, Ms. Jerry served as a Compliance Associate and Assistant Corporate Secretary at Apollo Investment Corporation ("Apollo"), a business development company. While at Apollo, Ms. Jerry also served in compliance and corporate governance oversight roles of Apollo's other publicly listed funds, which included a real estate investment trust and one other closed-end fund. Ms. Jerry received a B.S. degree in Paralegal Studies from Boston University.

          Shiraz Y. Kajee has served as Chief Financial Officer and Treasurer of NMFC since December 2015. Prior to joining NMFC, Mr. Kajee was the Head of U.S. Finance at Man Investments from 2012 to 2015, where he was responsible for the accounting, tax and treasury functions for the U.S. operations of Man Group plc, a United Kingdom based alternative asset manager. From 2010 to 2012, Mr. Kajee was a Vice President of Private Wealth Finance at Goldman, Sachs & Co. and from 2006 to 2010 was a Senior Vice President of Corporate Loans Finance at Citigroup Inc. Mr. Kajee began his career at Ernst & Young LLP within their Financial Services Office Assurance practice. Mr. Kajee received both his Master of Science ("M.S.") in Accounting and a Bachelor of Business Administration ("B.B.A.") in Finance from Baruch College — City University of New York. He is a New York State Certified Public Accountant and a Chartered Global Management Accountant.

          John R. Kline has served as NMFC's President since July 2016 and Chief Operating Officer since January 2013. Mr. Kline also serves as a Managing Director of New Mountain Capital. Prior to joining New Mountain Capital in 2008, he worked at GSC Group Inc. from 2001 to 2008 as an investment analyst and trader for GSC Group Inc.'s control distressed and corporate credit funds. From 1999 to 2001, Mr. Kline was with Goldman, Sachs & Co. where he worked in the Credit Risk Management and Advisory Group. He currently serves as a director of UniTek Global Services, Inc., an NMFC portfolio company. Mr. Kline received an A.B. degree in History from Dartmouth College.


Board Leadership Structure

          Our board of directors monitors and performs an oversight role with respect to our business and affairs, compliance with regulatory requirements and the services, expenses and performance of our service providers. Among other things, our board of directors approves the appointment of the Administrator and officers, reviews and monitors the services and activities performed by the Administrator and officers and approves the engagement, and reviews the performance of, our independent public accounting firm.

          Under our bylaws, our board of directors may designate a chairman to preside over the meetings of the board of directors and meetings of the stockholders and to perform such other duties as may be assigned to the chairman by the board of directors. We do not have a fixed policy as to whether the chairman of the board of directors should be an independent director and believe that we should maintain the flexibility to select the chairman and reorganize the leadership structure, from time to time, based on the criteria that is in our best interests and our stockholders at such times.

          Mr. Klinsky currently serves as the chairman of our board of directors. Mr. Klinsky is an "interested person" of NMFC as defined in Section 2(a)(19) of the 1940 Act because he is the Founder and Chief Executive Officer of New Mountain Capital, serves on the investment committee of the Investment Adviser and is the managing member of the sole member of the Investment Adviser. We believe that Mr. Klinsky's history with New Mountain Capital, familiarity with our investment objectives and investment strategy, and extensive knowledge of the financial services industry and the investment valuation process in particular qualify him to serve as the chairman of

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our board of directors. We believe that, at present, we are best served through this leadership structure, as Mr. Klinsky's relationship with the Investment Adviser and New Mountain Capital, provides an effective bridge and encourages an open dialogue between our management and our board of directors, ensuring that all groups act with a common purpose.

          Our board of directors does not currently have a designated lead independent director. We are aware of the potential conflicts that may arise when a non-independent director is chairman of the board of directors, but believe these potential conflicts are offset by our strong corporate governance policies. Our corporate governance policies include regular meetings of the independent directors in executive session without the presence of interested directors and management over which the chairman of the audit committee presides, the establishment of audit, valuation, nominating and corporate governance and compensation committees comprised solely of independent directors and the appointment of a chief compliance officer, with whom the independent directors meet regularly without the presence of interested directors and other members of management, for administering our compliance policies and procedures.

          We recognize that different board leadership structures are appropriate for companies in different situations. We intend to continue to re-examine our corporate governance policies on an ongoing basis to ensure that they continue to meet our needs.


Board of Directors' Role In Risk Oversight

          Our board of directors performs its risk oversight function primarily through (1) its four standing committees which report to the board of directors, each of which is comprised solely of independent directors and (2) active monitoring by our chief compliance officer and our compliance policies and procedures.

          Our audit committee, valuation committee, nominating and corporate governance committee and compensation committee assist our board of directors in fulfilling its risk oversight responsibilities. The audit committee's risk oversight responsibilities include overseeing our accounting and financial reporting processes, our systems of internal controls regarding finance and accounting, and audits of our financial statements, including the independence of our independent auditors. The valuation committee is responsible for making recommendations in accordance with the valuation policies and procedures adopted by our board of directors, reviewing valuations and any reports of independent valuation firms, confirming that valuations are made in accordance with the valuation policies of our board of directors and reporting any deficiencies or violations of such valuation policies to our board of directors on at least a quarterly basis, and reviewing other matters that our board of directors or the valuation committee deems appropriate. The nominating and corporate governance committee's risk oversight responsibilities include selecting, researching and nominating directors for election by our stockholders, developing and recommending to the board of directors a set of corporate governance principles and overseeing the evaluation of the board of directors and our management. The compensation committee is responsible for periodically reviewing director compensation and recommending any appropriate changes to our board of directors. In addition, although we do not directly compensate our executive officers currently, to the extent that we do so in the future, the compensation committee would also be responsible for reviewing and evaluating their compensation and making recommendations to the board of directors regarding their compensation.

          Our board of directors performs its risk oversight responsibilities with the assistance of our chief compliance officer. The board of directors quarterly reviews a written report from the chief compliance officer discussing the adequacy and effectiveness of our compliance policies and

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procedures and our service providers. The chief compliance officer's quarterly report addresses at a minimum:

          In addition, the chief compliance officer meets separately in executive session with the independent directors at least once each year.

          We believe that our board of directors' role in risk oversight is effective, and appropriate given the extensive regulation to which we are subject as a BDC. We are required to comply with certain regulatory requirements that control the levels of risk in our business and operations. For example, our ability to incur indebtedness is limited because our asset coverage must equal at least 200.0% immediately after we incur indebtedness. On November 5, 2014, we received exemptive relief from the SEC to permit us to exclude the SBA-guaranteed debentures of SBIC LP from our 200.0% asset coverage test under the 1940 Act. As such, our ratio of total consolidated assets to outstanding indebtedness may be less than 200.0%. This provides us with increased investment flexibility but also increases our risks related to leverage. We generally have to invest at least 70.0% of our total assets in "qualifying assets" and are not generally permitted to invest in any portfolio company in which one of our affiliates currently has an investment.

          We recognize that different board of director roles in risk oversight are appropriate for companies in different situations. We intend to continue to re-examine the manner in which our board of directors administers its oversight function on an ongoing basis to ensure that its continues to meet our needs.


Committees of the Board of Directors

          Our board of directors has established an audit committee, a nominating and corporate governance committee, a compensation committee and a valuation committee. The members of each committee have been appointed by our board of directors and serve until their successor is elected and qualifies, unless they are removed or resign. During 2015, our board of directors held eight board of directors meetings, four audit committee meetings, two nominating and corporate governance committee meetings, one compensation committee meeting and eight valuation committee meetings. All directors attended at least 75.0% of the aggregate number of meetings of the board of directors and of the respective committees on which they serve. We require each director to make a diligent effort to attend all board and committee meetings as well as each annual meeting of our stockholders.

Audit Committee

          The audit committee operates pursuant to a charter approved by our board of directors, a copy of which is available on our website at www.newmountainfinance.com. The charter sets forth the responsibilities of the audit committee. The audit committee is responsible for recommending the selection of, engagement of and discharge of our independent auditors, reviewing the plans, scope and results of the audit engagement with the independent auditors, approving professional

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services provided by the independent auditors (including compensation therefore), reviewing the independence of the independent auditors and reviewing the adequacy of our internal controls over financial reporting. The members of the audit committee are Alfred F. Hurley, Jr., David R. Malpass, David Ogens and Kurt J. Wolfgruber, each of whom is not an interested person of NMFC for purposes of the 1940 Act and is independent for purposes of the NYSE's corporate governance listing standards. Kurt J. Wolfgruber serves as the chairman of the audit committee, and our board of directors has determined that Alfred F. Hurley, Jr., David Ogens and Kurt J. Wolfgruber are "audit committee financial experts" as that term is defined under Item 407 of Regulation S-K, as promulgated under the Exchange Act, and that each of them meets the current independence and experience requirements of Rule 10A-3 of the Exchange Act.

Nominating and Corporate Governance Committee

          The nominating and corporate governance committee operates pursuant to a charter approved by our board of directors, a copy of which is available on our website at www.newmountainfinance.com. The charter sets forth the responsibilities of the nominating and corporate governance committee. The nominating and corporate governance committee is responsible for determining criteria for service on the board of directors, identifying, researching and nominating directors for election by our stockholders, selecting nominees to fill vacancies on our board of directors or committees of the board of directors, developing and recommending to the board of directors a set of corporate governance principles and overseeing the self-evaluation of the board of directors and its committees and evaluation of our management. The nominating and corporate governance committee considers nominees properly recommended by our stockholders. The members of the nominating and corporate governance committee are Alfred F. Hurley, Jr., David R. Malpass, David Ogens and Kurt J. Wolfgruber, each of whom is not an interested person of NMFC for purposes of the 1940 Act and is independent for purposes of the NYSE's corporate governance listing standards. Alfred F. Hurley, Jr. serves as the chairman of the nominating and corporate governance committee.

          The nominating and corporate governance committee seeks candidates who possess the background, skills and expertise to make a significant contribution to the board of directors, us and our stockholders. In considering possible candidates for election as a director, the nominating and corporate governance committee takes into account, in addition to such other factors as they deem relevant, the desirability of selecting directors who:

          The nominating and corporate governance committee has not adopted formal policies with regard to the consideration of diversity in identifying director nominees. In determining whether to recommend a director nominee, the nominating and corporate governance committee considers and discusses diversity, among other factors, with a view toward the needs of the board of directors

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as a whole. The nominating and corporate governance committee generally conceptualizes diversity expansively to include, without limitation, concepts such as race, gender, national origin, differences of viewpoint, professional experience, education, skill and other qualities that contribute to the board of directors, when identifying and recommending director nominees. The nominating and corporate governance committee believes that the inclusion of diversity as one of many factors considered in selecting director nominees is consistent with the nominating and corporate governance committee's goal of creating a board of directors that best serves our needs and the interest of our stockholders.

Compensation Committee

          The compensation committee operates pursuant to a charter approved by our board of directors, a copy of which is available on our website at www.newmountainfinance.com. The charter sets forth the responsibilities of the compensation committee. The compensation committee is responsible for periodically reviewing director compensation and recommending any appropriate changes to the board of directors. In addition, although we do not directly compensate our executive officers currently, to the extent that we do so in the future, the compensation committee would also be responsible for reviewing and evaluating their compensation and making recommendations to the board of directors regarding their compensation. The compensation committee is also responsible for annually reviewing and recommending for approval to our board of directors an investment advisory and management agreement and an administration agreement. Lastly, the compensation committee would produce a report on our executive compensation practices and policies for inclusion in our proxy statement if required by applicable proxy rules and regulations and, if applicable, make recommendations to the board of directors on our executive compensation practices and policies. The compensation committee has the authority to engage compensation consultants, although it does not currently do so, and to delegate its duties and responsibilities to a member or to a subcommittee of the compensation committee. The compensation committee is composed of Alfred F. Hurley, Jr., David R. Malpass, David Ogens and Kurt J. Wolfgruber, each of whom is not an interested person of NMFC for purposes of the 1940 Act and is independent for purposes of the NYSE's corporate governance listing standards. Alfred F. Hurley, Jr. serves as chairman of the compensation committee.

Valuation Committee

          The valuation committee operates pursuant to a charter approved by our board of directors, a copy of which is available on our website at www.newmountainfinance.com. The charter set forth the responsibilities of the valuation committee. The valuation committee is responsible for making recommendations in accordance with the valuation policies and procedures adopted by our board of directors, reviewing valuations and any reports of independent valuation firms, confirming that valuations are made in accordance with the valuation policies of our board of directors and reporting any deficiencies or violations of such valuation policies to our board of directors on at least a quarterly basis, and reviewing other matters that our board of directors or the valuation committee deems appropriate. The valuation committee is composed of Alfred F. Hurley, Jr., David R. Malpass, David Ogens and Kurt J. Wolfgruber, each of whom is not an interested person of NMFC for purposes of the 1940 Act and is independent for purposes of the NYSE's corporate governance listing standards. David Ogens serves as chairman of the valuation committee.

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Compensation of Directors

          The following table sets forth the compensation of our directors for the year ended December 31, 2015.

Name

    Fees
Paid in
Cash(1)
    All Other
Compensation(2)
    Total
 

Interested Directors

                   

Steven B. Klinsky

             

Robert A. Hamwee

             

Adam B. Weinstein

             

Independent Directors

                   

David Ogens

  $ 116,052       $ 116,052  

Alfred F. Hurley, Jr. 

  $ 105,190       $ 105,190  

Kurt J. Wolfgruber

  $ 111,690       $ 111,690  

David R. Malpass

  $ 103,190       $ 103,190  

(1)
For a discussion of the independent directors' compensation, see below.

(2)
We do not maintain a stock or option plan, non-equity incentive plan or pension plan for our directors

          Effective October 1, 2015, our independent directors receive an annual retainer fee of $95,000 (which was $85,000 before October 1, 2015) and further receive a fee of $2,500 for each regularly scheduled board of directors meeting and a fee of $1,000 for each special board of directors meeting as well as reimbursement of reasonable and documented out-of-pocket expenses incurred in connection with attending each board of directors meeting. In addition, the chairman of the audit committee receives an annual retainer of $7,500, while the chairman of the valuation committee, the chairman of the compensation committee and the chairman of the nominating and corporate governance committee receive annual retainers of $5,000, $1,000 and $1,000, respectively. No compensation is paid to directors who are interested persons of NMFC as defined in the 1940 Act.


Compensation of Executive Officers

          None of our executive officers receive direct compensation from us. We do not engage any compensation consultants. The compensation of the principals and other investment professionals of the Investment Adviser are paid by the Investment Adviser. Compensation paid to our chief financial officer and chief compliance officer is set by the Administrator and is subject to reimbursement by us of the allocable portion of such compensation for services rendered to us.


Indemnification Agreements

          We have entered into indemnification agreements with our directors. The indemnification agreements are intended to provide the directors the maximum indemnification permitted under Delaware law and the 1940 Act. Each indemnification agreement provides that we shall indemnify the director who is a party to the agreement, or an Indemnitee, including the advancement of legal expenses, if, by reason of his corporate status, the Indemnitee is, or is threatened to be, made a party to or a witness in any threatened, pending, or completed proceeding, to the maximum extent permitted by Delaware law and the 1940 Act.

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PORTFOLIO MANAGEMENT

          The management of our investment portfolio is the responsibility of the Investment Adviser and the Investment Committee, which currently consists of Steven B. Klinsky, Robert A. Hamwee, Adam B. Weinstein and John R. Kline. The fifth and final member of the Investment Committee will consist of a New Mountain Capital Managing Director who will hold the position on the Investment Committee on an annual rotating basis. Beginning in August 2016, Mathew J. Lori was appointed to the Investment Committee for a one year term. In addition, our executive officers and certain investment professionals of the Investment Adviser are invited to all Investment Committee meetings. We consider Mr. Hamwee to be our portfolio manager. The Investment Committee is responsible for approving purchases and sales of our investments above $10.0 million in aggregate by issuer. Purchases and dispositions below $10.0 million may be approved by our Chief Executive Officer. These approval thresholds are subject to change over time.


Investment Personnel

          As of June 30, 2016, the Investment Adviser was supported by approximately 100 New Mountain Capital staff members, including approximately 60 investment professionals. These individuals, in addition to the Investment Committee, are primarily responsible for the day-to-day management of our portfolio. The Investment Adviser may retain additional investment professionals, based upon its needs.

          Below are the biographies for selected senior investment professionals of the Investment Adviser, whose biographies are not included elsewhere in this prospectus. For more information regarding the business experience of Messrs. Kline, Klinsky, Hamwee and Weinstein, see "Management — Biographical Information — Directors — Interested Directors" and "Management — Biographical Information — Executive Officers Who Are Not Directors".

          Mathew J. Lori currently serves on the Investment Adviser's Investment Committee and serves as a Managing Director of New Mountain Capital. Prior to joining New Mountain Capital in 2007, Mr. Lori served as a Managing Director of CCMP Capital Advisors and its predecessor firm, JP Morgan Partners, where he was responsible for investing on behalf of global funds with more than $10 billion under management. Mr. Lori received his B.S. from the University of Windsor and his M.B.A. from the JL Kellogg Graduate School of Management at Northwestern University. Mr. Lori serves as the lead director of IRI Worldwide, ABB Optical Group, Alexander Mann Solutions, Diversified Foodservice Supply and Strategic Partners, all of which are portfolio companies of New Mountain Capital.

          James W. Stone III currently serves as a Managing Director of New Mountain Capital and has been in various roles since joining in 2011. Prior to joining New Mountain Capital, he worked for The Blackstone Group as a Managing Director of GSO Capital Partners. At Blackstone, Mr. Stone was responsible for originating, evaluating, executing and monitoring various senior secured and mezzanine debt investments across a variety of industries. Before joining Blackstone in 2002, Mr. Stone worked as a Vice President in Lehman Brothers' Communications and Media Group and as a Vice President in UBS Warburg's Leveraged Finance Department. Prior to that, Mr. Stone worked at Nomura Securities International, Inc. with the team that later founded Blackstone's corporate debt investment unit. Mr. Stone received a B.S. in Mathematics and Physics from The University of the South and an M.B.A. with concentrations in finance and accounting from The University of Chicago's Graduate School of Business.

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          The table below shows the dollar range of shares of our common stock beneficially owned by our portfolio manager.

Name of Portfolio Manager

    Dollar Range of
Equity Securities
of NMFC(1)(2)
 

Robert A. Hamwee

    over $1,000,000  

(1)
The dollar range of equity securities beneficially owned in NMFC is based on the closing price for NMFC's common stock of $13.79 on October 4, 2016 on the NYSE. Beneficial ownership has been determined in accordance with Rule 16a-1(a)(2) of the Exchange Act.

(2)
The dollar range of equity securities beneficially owned are: none, $1 - $10,000, $10,001 - $50,000, $50,001 - $100,000, $100,001 - $500,000, $500,001 - $1,000,000 or over $1,000,000.

          Mr. Hamwee is not primarily responsible for the day-to-day management of any other portfolio other than our portfolio. Mr. Hamwee is a Managing Director of New Mountain Capital, which as of June 30, 2016 had assets under management totaling more than $15.0 billion(1), which includes total assets held by us, used to calculate New Mountain Capital's management fees related to such funds. See "Risk Factors — Risks Relating to Our Business — The Investment Adviser has significant potential conflicts of interest with us and, consequently, your interests as stockholders which could adversely impact our investment returns".


Compensation

          None of the Investment Adviser's investment professionals are employed by us or will receive any direct compensation from us in connection with the management of our portfolio. Mr. Klinsky, through his financial interest in the Investment Adviser, is entitled to a portion of 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.

   


(1)
Includes amounts committed, not all of which have been drawn down and invested to-date, as of June 30, 2016, as well as amounts called and returned since inception.

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INVESTMENT MANAGEMENT AGREEMENT

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


Overview of the Investment Adviser

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 our board of directors, the Investment Adviser manages our day-to-day operations and provides us with investment advisory and management services. Under the terms of the Investment Management Agreement, the Investment Adviser:

          The Investment Adviser's services under the Investment Management Agreement are not exclusive, and the Investment Adviser (so long as its services to us 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, NMFC 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 NMFC and, as a result, are indirectly borne by NMFC's common stockholders.

Base Management Fees

          Pursuant to the Investment Management Agreement, the base management fee is calculated at an annual rate of 1.75% of our gross assets, which equals our total assets on the Consolidated Statements of Assets and Liabilities, less (i) the borrowings under 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 our gross assets, which equals our total assets, as determined in accordance with GAAP, less the 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. We have not invested, and currently do not invest, in derivatives. To the

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extent we invest in derivatives in the future, we will use the actual value of the derivatives, as reported on our Consolidated Statements of Assets and Liabilities, for purposes of calculating our base management fee.

          Since IPO, the base management fee calculation has deducted the borrowings under the SLF Credit Facility. The SLF Credit Facility had historically consisted of primarily lower yielding assets at higher advance rates. As part of an amendment to our 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. Post credit facility merger and to be consistent with the methodology since the IPO, the Investment Adviser will continue to 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, which as of June 30, 2016 approximated $269.6 million. The Investment Adviser cannot recoup management fees that the Investment Adviser has previously waived. For the three and six months ended June 30, 2016, management fees waived were approximately $1.2 million and $2.6 million, respectively.

Incentive Fees

          The incentive fee consists of two parts. The first part is calculated and payable quarterly in arrears and equals 20.0% of our "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 we receive from portfolio companies) accrued during the calendar quarter, minus our operating expenses for the quarter (including the base management fee, expenses payable under the Administration Agreement, as amended and restated, with the Administrator, and any interest expense and distributions paid on any issued and outstanding preferred stock (of which there is none as of June 30, 2016), 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 we have 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, our IPO did not step-up the cost basis of our existing investments to fair market value at the IPO date. Since the total value of our investments at the time of the IPO was greater than the investments' cost basis, a larger amount of amortization of purchase or original issue discount, as well as different amounts in realized gain and unrealized appreciation, may be recognized under GAAP in each period than if the step-up had occurred. This will remain until such predecessor investments are sold or mature in the future. We track the transferred (or fair market) value of each of our investments as of the time of the IPO and, for purposes of the incentive fee calculation, adjust Pre-Incentive Fee Net Investment Income to reflect the amortization of purchase or original issue discount on our 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". We also use the transferred (or fair market) value of each of our 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 our net assets at the end of the immediately preceding calendar quarter, will be compared to a

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"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 our incentive fee with respect to the Pre-Incentive Fee Adjusted Net Investment Income for each quarter is as follows:

          The following is a graphical representation of the calculation of the income related portion of the incentive fee:


Quarterly Incentive Fee Based on "Pre-Incentive Fee Adjusted Net Investment Income"
Pre-Incentive Fee Adjusted Net Investment Income
(expressed as a percentage of the value of net assets)

GRAPHIC


Percentage of Pre-Incentive Fee Adjusted Net Investment
Income allocated to income related portion of incentive fee

          These calculations will be appropriately prorated for any period of less than three months and adjusted for any equity capital raises or repurchases during the current calendar quarter.

          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 our 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, we accrue 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

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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

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

Alternative 2

Assumptions

          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

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          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 our investments held prior to the IPO, 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.

(1)
Represents 8.00% annualized hurdle rate.

(2)
Assumes 1.75% annualized base management fee.

(3)
Excludes organizational and offering expenses.

(4)
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 our net investment income exceeds 2.50% in any calendar quarter.

Example 2: Capital Gains Portion of Incentive Fee*:

Alternative 1

Assumptions

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Alternative 2

Assumptions

*
The hypothetical amounts of returns shown are based on a percentage of our 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 our 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.

(1)
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

          Our 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 us under the Administration Agreement. We bear all other expenses of our operations and transactions, including (without limitation) fees and expenses relating to:

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Duration and Termination

          The Investment Management Agreement, which became effective on May 8, 2014 and was most recently re-approved by our board of directors on February 3, 2016, provides that the Investment Management Agreement will continue automatically for successive annual periods, provided that such continuance is specifically approved at least annually by (A) the vote of the board of directors, or by the vote of a majority of the outstanding voting securities of NMFC and (B) the vote of a majority of NMFC's board of directors who are not parties to the Investment Management Agreement or "interested persons" (as such term is defined in Section 2(a)(19) of the 1940 Act) of any such party, in accordance with the requirements of the 1940 Act. Notwithstanding the foregoing, the Investment Management Agreement may be terminated (i) by NMFC at any time, without the payment of any penalty, upon giving the Investment Adviser 60 days' written notice (which notice may be waived by the Investment Adviser), provided that such termination by NMFC shall be directed or approved by the vote of a majority of the directors of NMFC in office at the time

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or by the vote of a majority of the voting securities of NMFC at the time outstanding and entitled to vote, or (ii) by the Investment Adviser on 60 days' written notice to NMFC (which notice may be waived by NMFC).


Indemnification

          The Investment Management Agreement provides that, absent willful misfeasance, bad faith or gross negligence in the performance of their respective duties or by reason of the reckless disregard of their respective duties and obligations, the Investment Adviser and its officers, managers, agents, employees, controlling persons, members (or their owners) and any other person or entity affiliated with it, are entitled to indemnification from us for any damages, liabilities, costs and expenses (including reasonable attorneys' fees and amounts reasonably paid in settlement) arising from the rendering of the Investment Adviser's services under the Investment Management Agreement or otherwise as the Investment Adviser.


Organization of the Investment Adviser

          The Investment Adviser is a Delaware limited liability company. The principal address of the Investment Adviser is 787 Seventh Avenue, 48th Floor, New York, New York 10019. The Investment Adviser is ultimately controlled by Steven B. Klinsky through Mr. Klinsky's interest in New Mountain Capital.


Board Approval of the Investment Management Agreement

          A discussion regarding the basis for our board of directors' approval of the Investment Management Agreement was included in our annual report on Form 10-K for the period ending December 31, 2015, which was filed with the SEC on February 29, 2016.

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ADMINISTRATION AGREEMENT

          We have entered into the Administration Agreement with the Administrator, under which the Administrator provides administrative services for us, including arranging office facilities for us and providing office equipment and clerical, bookkeeping and recordkeeping services at such facilities. Under the Administration Agreement, the Administrator also performs, or oversees the performance of, our required administrative services, which includes being responsible for the financial records which we are required to maintain and preparing reports to our stockholders and reports filed with the SEC, which includes, but is not limited to, providing the services of our Chief Financial Officer. In addition, the Administrator assists us in determining and publishing our net asset value, overseeing the preparation and filing of tax returns and the printing and dissemination of reports to our stockholders, and generally overseeing the payment of our expenses and the performance of administrative and professional services rendered to us by others. For providing these services, facilities and personnel, we reimburse the Administrator the allocable portion of overhead and other expenses incurred by it in performing its obligations to us under the Administration Agreement, including our allocable portion of the costs of compensation and related expenses of our Chief Financial Officer and Chief Compliance Officer, and their respective staffs. The Administrator may also provide on our behalf managerial assistance to our portfolio companies. The Administration Agreement may be terminated by us or the Administrator without penalty upon 60 days' written notice to the other party. Pursuant to the Administration Agreement, and further restricted by us, the Administrator may, in its own discretion, submit to us for reimbursement some or all of the expenses that the Administrator has incurred on our behalf during any quarterly period. As a result, the amount of expenses for which we 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 us for reimbursement in the future. However, it is expected that the Administrator will continue to support part of our expense burden 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.

          The Administration Agreement provides that, absent willful misfeasance, bad faith or gross negligence in the performance of their respective duties or by reason of the reckless disregard of their respective duties and obligations, the Administrator and its officers, managers, agents, employees, controlling persons, members and any other person or entity affiliated with it are entitled to indemnification from us for any damages, liabilities, costs and expenses (including reasonable attorneys' fees and amounts reasonably paid in settlement) arising from the rendering of services under the Administration Agreement or otherwise as administrator for us.

LICENSE AGREEMENT

          We, 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 us, the Investment Adviser and the Administrator a non-exclusive, royalty-free license to use the name "New Mountain" and "New Mountain Finance". Under this Trademark License Agreement, as amended, subject to certain conditions, we, the Investment Adviser and the Administrator have a right to use the "New Mountain" and the "New Mountain Finance" names for so long as the Investment Adviser or one of its affiliates remains our investment adviser. Other than with respect to this limited license, we, the Investment Adviser and the Administrator have no legal right to the "New Mountain" and the "New Mountain Finance" names.

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

          We have entered into an Investment Management Agreement with the Investment Adviser. Pursuant to the Investment Management Agreement, payments will be equal to (a) a base management fee of 1.75% of the value of our gross assets and (b) an incentive fee based on our performance. Steven B. Klinsky, through his financial interest in the Investment Adviser, is entitled to a portion of 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. In addition, our executive officers and directors, as well as the current or future members 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 our affiliates. Accordingly, they may have obligations to investors in those entities, the fulfillment of which might not be in our and our stockholders' best interests.

          Although we are currently New Mountain Capital's only vehicle focused primarily on investing in first and second lien debt, unsecured notes and mezzanine securities, in the future, the principals 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 us 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 us and such other funds. Although the investment professionals will endeavor to allocate investment opportunities in a fair and equitable manner, it is possible that we may not be given the opportunity to participate in certain investments made by investment funds managed by the Investment Adviser or persons affiliated with the Investment Adviser or that certain of these investment funds may be favored over us. When these investment professionals identify an investment, they will be forced to choose which investment fund should make the investment. Alternatively, depending on the availability of such investments 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.

          We have entered into the Administration Agreement with the Administrator. The Administrator arranges office space for us and provides office equipment and administrative services necessary to conduct our day-to-day operations pursuant to the Administration Agreement. We reimburse the Administrator for the allocable portion of overhead and other expenses incurred by it in performing its obligations to us under the Administration Agreement, which includes the fees and expenses associated with performing administrative, finance, and compliance functions, and the compensation of our chief financial officer and chief compliance officer and their respective staffs. Pursuant to the Administration Agreement, as amended and restated, and further restricted by us, the Administrator may, in its own discretion, submit to us for reimbursement some or all of the expenses that the Administrator has incurred on our behalf during any quarterly period. As a result, the amount of expenses for which we 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 us for reimbursement in the future. However, it is expected that the Administrator will continue to support part of our expense burden 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.

          We, 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

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Capital has agreed to grant us, the Investment Adviser and the Administrator a non-exclusive, royalty-free license to use the name "New Mountain" and "New Mountain Finance". Under this Trademark License Agreement, as amended, subject to certain conditions, we, the Investment Adviser and the Administrator have a right to use the "New Mountain" and the "New Mountain Finance" names for so long as the Investment Adviser or one of its affiliates remains our investment adviser. Other than with respect to this limited license, we, the Investment Adviser and the Administrator have no legal right to the "New Mountain" and the "New Mountain Finance" names.

          Concurrently with the closing of NMFC's initial public offering, NMFC sold 2,172,000 shares of its common stock to certain executives and employees of, and other individuals affiliated with, New Mountain Capital in a separate private placement at the initial public offering price per share.

          In the ordinary course of business, we may enter into transactions with portfolio companies that may be considered related party transactions. In order to ensure that we do not engage in any prohibited transactions with any persons affiliated with us, we have implemented certain policies and procedures whereby our executive officers screen each of our transactions for any possible affiliations between the proposed portfolio investment, us, companies controlled by us and our employees and directors. We will not enter into any agreements unless and until we are satisfied that doing so will not raise concerns under the 1940 Act or, if such concerns exist, we have taken appropriate actions to seek board review and approval or exemptive relief for such transaction. Our board of directors reviews these procedures on a quarterly basis.

          We have adopted a Code of Ethics which applies to, among others, our senior officers, including our chief executive officer and chief financial officer, as well as all of our officers, directors and employees. Our Code of Ethics requires that all employees and directors avoid any conflict, or the appearance of a conflict, between an individual's personal interests and our interests. Pursuant to such Code of Ethics, each employee and director must disclose any conflicts of interest, or actions or relationships that might give rise to a conflict, to our chief compliance officer.

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CONTROL PERSONS AND PRINCIPAL STOCKHOLDERS

          The following table sets forth information with respect to the beneficial ownership of our common stock by:

          Beneficial ownership has been determined in accordance with Rule 13d-3 under the Exchange Act and includes voting or investment power (including the power to dispose) with respect to the securities. Assumes no other purchases or sales of securities since the most recently available SEC filings. This assumption has been made under the rules and regulations of the SEC and does not reflect any knowledge that NMFC has with respect to the present intent of the beneficial owners of the securities listed in the table below.

          Percentage of beneficial ownership below takes into account 63,756,888 shares of our common stock outstanding as of September 29, 2016. Unless otherwise indicated, the address for each listed holder is c/o New Mountain Finance Corporation, 787 Seventh Avenue, 48th Floor, New York, New York 10019.

  Type of     NMFC Shares
 

Name

  Ownership in NMFC     Number(1)     Percentage
 

Beneficial Owners of More than 5.0%:

                 

Wells Fargo & Company(2)

  Direct     5,748,926     9.02 %

Executive Officers:

                 

Karrie J. Jerry

  Direct     1,592     *  

Shiraz Y. Kajee

  Direct         *  

John R. Kline

  Direct     21,879     *  

Interested Directors:

                 

Steven B. Klinsky(3)

  Direct and Beneficial     5,649,755     8.86 %

Robert A. Hamwee

  Direct and Beneficial     233,962     *  

Adam B. Weinstein

  Direct     62,503     *  

Independent Directors:

                 

Albert F. Hurley, Jr. 

  Direct     27,164     *  

David R. Malpass

  Direct and Beneficial     77,911     *  

David Ogens

  Direct     41,351     *  

Kurt J. Wolfgruber

  Direct and Beneficial     73,298     *  

All executive officers and directors as a group (10 persons)

  Direct and Beneficial     6,189,415     9.71 %

*
Represents less than 1.0%.

(1)
Any fractional shares owned directly or beneficially have been rounded down for purposes of this table.

(2)
Such securities are held by certain investment vehicles controlled and/or managed by Wells Fargo & Company or its affiliates. The address for Wells Fargo & Company is 420 Montgomery Street, San Francisco, California 94104.

(3)
Mr. Klinsky directly owns 4,708,695 shares of our common stock. The Steven B. Klinsky Trust directly owns 140,573 shares of our common stock. The Steven B. Klinsky Non-GST Exempt Trust holds 800,487 shares of our common stock.

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          The following table sets forth the dollar range of our equity securities over which holders of our common stock have voting power that is beneficially owned by each of our directors.

  Dollar Range of Equity
Securities Beneficially
Owned(1)(2)(3)

Interested Directors:

   

Steven B. Klinsky

  Over $100,000

Robert A. Hamwee

  Over $100,000

Adam B. Weinstein

  Over $100,000

Independent Directors:

   

Albert F. Hurley, Jr. 

  Over $100,000

David R. Malpass

  Over $100,000

David Ogens(4)

  Over $100,000

Kurt J. Wolfgruber

  Over $100,000

(1)
Beneficial ownership has been determined in accordance with Exchange Act Rule 16a-1(a)(2).

(2)
The dollar range of our equity securities beneficially owned is based on the closing price for our common stock of $13.79 per share on October 4, 2016 on the NYSE.

(3)
The dollar range of equity securities beneficially owned are: None, $1 - $10,000, $10,001 - $50,000, $50,001 - $100,000 or over $100,000.

(4)
Mr. Ogens is the beneficial owner of a limited partnership interest in New Mountain Partners, L.P. and New Mountain Partners II, L.P. that is held by Ogens Family, Inc.

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DETERMINATION OF NET ASSET VALUE

Quarterly Net Asset Value Determinations

          We conduct the valuation of assets, pursuant to which our net asset value is determined, at all times consistent with GAAP and the 1940 Act. We determine our net asset value on a quarterly basis, or more frequently if required under the 1940 Act.

          We apply fair value accounting in accordance with GAAP. We value our assets on a quarterly basis, or more frequently if required under the 1940 Act. In all cases, our board of directors is ultimately and solely responsible for determining the fair value of our 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 our portfolio investments require a fair value determination. Security transactions are accounted for on a trade date basis. Our quarterly valuation procedures are set forth in more detail below:

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          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 certain investments may fluctuate from period to period and the fluctuations could be material.

Determinations in Connection with Offerings

          In connection with future offering of shares of our common stock, our board of directors or an authorized committee thereof will be required to make a good faith determination that it is not selling shares of our common stock at a price below the then current net asset value of our common stock at the time at which the sale is made. Our board of directors or an authorized committee thereof will consider the following factors, among others, in making such determination:

          Moreover, to the extent that there is even a remote possibility that we may (i) issue shares of our common stock at a price per share below the then current net asset value per share of our common stock at the time at which the sale is made or (ii) trigger the undertaking (which we provide in certain registration statements we file with the SEC) to suspend the offering of shares of

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our common stock if the net asset value per share of our common stock fluctuates by certain amounts in certain circumstances until the prospectus is amended, our board of directors will elect, in the case of clause (i) above, either to postpone the offering until such time that there is no longer the possibility of the occurrence of such event or to undertake to determine the net asset value per share of our common stock within two days prior to any such sale to ensure that such sale will not be below our then current net asset value per share, and, in the case of clause (ii) above, to comply with such undertaking or to undertake to determine the net asset value per share of our common stock to ensure that such undertaking has not been triggered.

          These processes and procedures are part of our compliance policies and procedures. Records will be made contemporaneously with all determinations described in this section and these records will be maintained with other records that we are required to maintain under the 1940 Act.

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DIVIDEND REINVESTMENT PLAN

          We have adopted a dividend reinvestment plan that provides for reinvestment of our distributions on behalf of our stockholders, unless a stockholder elects to receive cash as provided below. As a result, if our board of directors authorizes, and we declare, a cash distribution, then our stockholders who have not "opted out" of the dividend reinvestment plan will have their cash distributions automatically reinvested in additional shares of our common stock, rather than receiving the cash distributions.

          No action will be required on the part of a registered stockholder to have their cash distributions reinvested in shares of our common stock. A registered stockholder may elect to receive an entire distribution in cash by notifying American Stock Transfer and Trust Company, LLC the plan administrator and our transfer agent and registrar, in writing, by phone or through the internet so that such notice is received by the plan administrator no later than three days prior to the payment date for distributions to stockholders. The plan administrator will set up an account for shares acquired through the plan for each stockholder who has not elected to receive distributions in cash and hold such shares in non-certificated form. Upon request by a stockholder participating in the plan, received in writing, by phone or through the internet at any time, the plan administrator will, instead of crediting shares to the participant's account, issue a certificate registered in the participant's name for the number of whole shares of our common stock and a check for any fractional share less a transaction fee of the lesser of (i) $15.00 and (ii) the price of the fractional share.

          We will use only newly issued shares to implement the plan if the price at which newly issued shares are to be credited is equal to or greater than 110.0% of the last determined net asset value of the shares. 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 our common stock at the close of regular trading 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. We reserve the right to purchase its shares in the open market in connection with its implementation of the plan if the price at which its newly issued shares are to be credited does not exceed 110.0% of the last determined net asset value of the shares. 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 our 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 our stockholders have been tabulated.

          There will be no brokerage charges or other charges for dividend reinvestment to stockholders who participate in the plan. We will pay the plan administrator's fees under the plan. If a participant elects by written, telephone, or internet notice to the plan administrator to have the plan administrator sell part or all of the shares held by the plan administrator in the participant's account and remit the proceeds to the participant, the plan administrator is authorized to deduct a $15.00 transaction fee plus a $0.10 per share brokerage commissions from the proceeds.

          Stockholders who receive distributions in the form of stock generally are subject to the same U.S. federal income tax consequences as are stockholders who elect to receive their distributions in cash. A stockholder's basis for determining gain or loss upon the sale of stock received in a distribution from us will be equal to the total dollar amount of the distribution payable to the stockholder. Any stock received in a distribution will have a holding period for tax purposes

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commencing on the day following the day on which the shares are credited to the U.S. stockholder's account.

          Participants may terminate their accounts under the plan by notifying the plan administrator via its website at www.amstock.com, by filling out the transaction request form located at the bottom of their statement and sending it to the plan administrator at American Stock Transfer and Trust Company, LLC, P.O. Box 922, Wall Street Station, New York, New York 10269, Attention: Plan Administration Department, or by calling the plan administrator at (888) 333-0212.

          All correspondence concerning the plan should be directed to the plan administrator by mail at American Stock Transfer and Trust Company, LLC, P.O. Box 922, Wall Street Station, New York, New York 10269, or by telephone at (888) 333-0212.

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DESCRIPTION OF SECURITIES

          This prospectus contains a summary of our common stock, preferred stock, subscription rights, warrants and debt securities. These summaries are not meant to be a complete description of each security. However, this prospectus contains the material terms and conditions for each security.

DESCRIPTION OF CAPITAL STOCK

          The following description is based on relevant portions of the Delaware General Corporation Law, our amended and restated certificate of incorporation and amended and restated bylaws. This summary is not necessarily complete, and we refer you to the Delaware General Corporation Law, our amended and restated certificate of incorporation and amended and restated bylaws for a more detailed description of the provisions summarized below.


Capital Stock

          Our authorized capital stock consists of 100,000,000 shares of common stock, par value $0.01 per share, of which 63,756,888 shares are outstanding as of September 29, 2016. Our common stock is listed on the NYSE under the ticker symbol "NMFC". No stock has been authorized for issuance under any equity compensation plans. Under Delaware law, our stockholders generally will not be personally liable for our debts or obligations.

          The following are our outstanding classes of securities as of September 29, 2016:

(1)
Title of Class

    (2)
Amount
Authorized
    (3)
Amount Held
by
NMFC or for Its
Account
    (4)
Amount Outstanding
Exclusive of Amount
Under Column 3
 

Common Stock

    100,000,000     248,499     63,756,888  

Preferred Stock

    2,000,000          

Common Stock

          Under the terms of our amended and restated certificate of incorporation, all shares of our common stock will have equal rights as to earnings, assets, dividends and voting and, when they are issued, will be duly authorized, validly issued, fully paid and nonassessable. Distributions may be paid to the holders of our common stock if, as and when authorized and declared by our board of directors out of funds legally available therefore. Shares of our common stock will have no preemptive, exchange, conversion or redemption rights and will be freely transferable, except where their transfer is restricted by federal and state securities laws or by contract. In the event of our liquidation, dissolution or winding up, each share of our common stock would be entitled to share ratably in all of our assets that are legally available for distribution after we pay all debts and other liabilities and subject to any preferential rights of holders of our preferred stock, if any preferred stock is outstanding at such time. Each share of our common stock will be entitled to one vote on all matters submitted to a vote of stockholders, including the election of directors. Except as provided with respect to any other class or series of stock, the holders of our common stock will possess exclusive voting power. There will be no cumulative voting in the election of directors, which means that holders of a majority of the outstanding shares of common stock will be able to elect all of our directors (other than directors to be elected solely by the holders of preferred stock), and holders of less than a majority of such shares will be unable to elect any director.

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Preferred Stock

          Our amended and restated certificate of incorporation authorizes our board of directors to issue preferred stock. Prior to the issuance of shares of each class or series, the board of directors is required by Delaware law and by our amended and restated certificate of incorporation to set the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption for each class or series. Thus, the board of directors could authorize the issuance of shares of preferred stock with terms and conditions which could have the effect of delaying, deferring or preventing a transaction or a change in control that might involve a premium price for holders of our common stock or otherwise be in their best interest. You should note, however, that any issuance of preferred stock must comply with the requirements of the 1940 Act. The 1940 Act requires, among other things, that (1) immediately after issuance and before any dividend or other distribution is made with respect to our common stock and before any purchase of our common stock is made, such preferred stock together with all other senior securities must not exceed an amount equal to 50.0% of our total assets after deducting the amount of such dividend, distribution or purchase price, as the case may be, and (2) the holders of shares of preferred stock, if any are issued, must be entitled as a class to elect two directors at all times and to elect a majority of the directors if dividends on such preferred stock are in arrears by two full years or more. Certain matters under the 1940 Act require the separate vote of the holders of any issued and outstanding preferred stock. For example, holders of preferred stock would vote separately from the holders of common stock on a proposal to cease operations as a BDC. We believe that the availability for issuance of preferred stock will provide us with increased flexibility in structuring future financings and acquisitions. However, we do not currently have any plans to issue preferred stock.

Limitation on Liability of Directors and Officers; Indemnification and Advance of Expenses

          The Delaware General Corporation Law authorizes corporations to limit or eliminate the personal liability of directors to corporations and their stockholders for monetary damages for breaches of directors' fiduciary duties. Our amended and restated certificate of incorporation will include a provision that eliminates the personal liability of its directors for monetary damages for actions taken as a director, except for liability:

          Under our amended and restated bylaws, we will fully indemnify any person who was or is involved in any actual or threatened action, suit or proceeding by reason of the fact that such person is or was one of our directors or officers. So long as we are regulated under the 1940 Act, the above indemnification and limitation of liability is limited by the 1940 Act or by any valid rule, regulation or order of the SEC thereunder. The 1940 Act provides, among other things, that a company may not indemnify any director or officer against liability to it or its security holders to which he or she might otherwise be subject by reason of his or her willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office unless a determination is made by final decision of a court, by vote of a majority of a quorum of directors who are disinterested, non-party directors or by independent legal counsel that the liability for which indemnification is sought did not arise out of the foregoing conduct.

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          Delaware law also provides that indemnification permitted under the law shall not be deemed exclusive of any other rights to which the directors and officers may be entitled under the corporation's bylaws, any agreement, a vote of stockholders or otherwise.

          We have obtained liability insurance for our officers and directors.

Delaware Law and Certain Certificate of Incorporation and Bylaw Provisions; Anti-Takeover Measures

          Certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws, as summarized below, and applicable provisions of the Delaware General Corporation Law and certain other agreements to which we are a party may make it more difficult for or prevent an unsolicited third party from acquiring control of us or changing our board of directors and management. These provisions may have the effect of deterring hostile takeovers or delaying changes in our control or in our management. These provisions are intended to enhance the likelihood of continued stability in the composition of our board of directors and in the policies furnished by them and to discourage certain types of transactions that may involve an actual or threatened change in our control. The provisions also are intended to discourage certain tactics that may be used in proxy fights. These provisions, however, could have the effect of discouraging others from making tender offers for our shares and, as a consequence, they also may inhibit fluctuations in the market price of our shares that could result from actual or rumored takeover attempts.

          Classified Board; Vacancies; Removal.    The classification of our board of directors and the limitations on removal of directors and filling of vacancies could have the effect of making it more difficult for a third party to acquire us, or of discouraging a third party from acquiring us. Our board of directors will be divided into three classes, with the term of one class expiring at each annual meeting of stockholders. At each annual meeting, one class of directors is elected to a three-year term. This provision could delay for up to two years the replacement of a majority of the board of directors.

          Our amended and restated certificate of incorporation provides that, subject to the applicable requirements of the 1940 Act and the rights of any holders of preferred stock, any vacancy on the board of directors, however the vacancy occurs, including a vacancy due to an enlargement of the board, may only be filled by vote a majority of the directors then in office.

          A director may be removed at any time at a meeting called for that purpose, but only for cause and only by the affirmative vote of the holders of at least 75.0% of the shares then entitled to vote for the election of the respective director.

          Advance Notice Requirements for Stockholder Proposals and Director Nominations.    Our amended and restated bylaws provide that with respect to an annual meeting of stockholders, nominations of persons for election to the board of directors and the proposal of business to be considered by stockholders may be made only (1) by or at the direction of the board of directors or (2) by a stockholder who is entitled to vote at the meeting and who has complied with the advance notice procedures of the amended and restated bylaws. Nominations of persons for election to the board of directors at a special meeting may be made only (1) by or at the direction of the board of directors or (2) provided that the board of directors has determined that directors will be elected at the meeting, by a stockholder who is entitled to vote at the meeting and who has complied with the advance notice provisions of the amended and restated bylaws. The purpose of requiring stockholders to give us advance notice of nominations and other business is to afford our board of directors a meaningful opportunity to consider the qualifications of the proposed nominees and the advisability of any other proposed business and, to the extent deemed necessary or desirable by our board of directors, to inform its stockholders and make recommendations about such

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qualifications or business, as well as to approve a more orderly procedure for conducting meetings of stockholders. Although our amended and restated bylaws do not give its board of directors any power to disapprove stockholder nominations for the election of directors or proposals recommending certain action, they may have the effect of precluding a contest for the election of directors or the consideration of stockholder proposals if proper procedures are not followed and of discouraging or deterring a third party from conducting a solicitation of proxies to elect its own slate of directors or to approve its own proposal without regard to whether consideration of such nominees or proposals might be harmful or beneficial to us and our stockholders.

          Amendments to Certificate of Incorporation and Bylaws.    Delaware's corporation law provides generally that the affirmative vote of a majority of the shares entitled to vote on any matter is required to amend a corporation's certificate of incorporation or bylaws, unless a corporation's certificate of incorporation or bylaws requires a greater percentage. Our amended and restated certificate of incorporation will provide that the following provisions, among others, may be amended by our stockholders only by a vote of at least two-thirds of the shares of our capital stock entitled to vote:

          The amended and restated bylaws generally can be amended by approval of (i) a majority of the total number of authorized directors or (ii) the affirmative vote of the holders of at least two-thirds of the shares of our capital stock entitled to vote.

          Calling of Special Meetings by Stockholders.    Our certificate of incorporation and bylaws also provide that special meetings of the stockholders may only be called by our board of directors, the chairperson of our board, our chief executive officer or upon the request of the holders of at least 50.0% of the voting power of all shares of our capital stock, generally entitled to vote on the election of directors then outstanding, subject to certain limitations.

          Section 203 of the Delaware General Corporation Law.    We will not be subject to Section 203 of the DGCL, an anti-takeover law. In general, Section 203 prohibits a publicly-held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years following the date the person became an interested stockholder, unless (with certain exceptions) the "business combination" or the transaction in which the person became an interested stockholder is approved in a prescribed manner. Generally, a "business combination" includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. Generally, an "interested stockholder" is a person who, together with affiliates and associates, owns (or within three years prior to the determination of interested stockholder status, did own) 15.0% or more of a corporation's voting stock. In our certificate of incorporation, we have elected not to be bound by Section 203.

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          Our credit facilities also include change of control provisions that accelerate the indebtedness under the credit facilities in the event of certain change of control events. If certain transactions were engaged in without the consent of the lender, repayment obligations under the credit facilities could be accelerated.

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DESCRIPTION OF PREFERRED STOCK

          In addition to shares of common stock, we have 2,000,000 shares of preferred stock, par value $0.01, authorized of which no shares are currently outstanding. If we offer preferred stock under this prospectus, we will issue an appropriate prospectus supplement. We may issue preferred stock from time to time in one or more classes or series, without stockholder approval. Prior to issuance of shares of each class or series, our board of directors is required by Delaware law and by our charter to set the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption for each class or series. Any such an issuance must adhere to the requirements of the 1940 Act, Delaware law and any other limitations imposed by law.

          The 1940 Act currently requires, among other things, that (a) immediately after issuance and before any distribution is made with respect to common stock, the liquidation preference of the preferred stock, together with all other senior securities, must not exceed an amount equal to 50.0% of our total assets (taking into account such distribution), (b) the holders of shares of preferred stock, if any are issued, must be entitled as a class to elect two directors at all times and to elect a majority of the directors if dividends on the preferred stock are in arrears by two years or more and (c) such class of stock have complete priority over any other class of stock as to distribution of assets and payment of dividends, which dividends shall be cumulative.

          For any series of preferred stock that we may issue, our board of directors will determine and the amendment to the charter and the prospectus supplement relating to such series will describe:

          All shares of preferred stock that we may issue will be identical and of equal rank except as to the particular terms thereof that may be fixed by our board of directors, and all shares of each series of preferred stock will be identical and of equal rank except as to the dates from which dividends, if any, thereon will be cumulative.

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DESCRIPTION OF SUBSCRIPTION RIGHTS

General

          We may issue subscription rights to our stockholders to purchase common stock. Subscription rights may be issued independently or together with any other offered security and may or may not be transferable by the person purchasing or receiving the subscription rights. In connection with a subscription rights offering to our stockholders, we would distribute certificates evidencing the subscription rights and a prospectus supplement to our stockholders on the record date that we set for receiving subscription rights in such subscription rights offering.

          The applicable prospectus supplement would describe the following terms of subscription rights in respect of which this prospectus is being delivered:

Exercise Of Subscription Rights

          Each subscription right would entitle the holder of the subscription right to purchase for cash such amount of shares of common stock at such exercise price as shall in each case be set forth in, or be determinable as set forth in, the prospectus supplement relating to the subscription rights offered thereby. Subscription rights may be exercised at any time up to the close of business on the expiration date for such subscription rights set forth in the prospectus supplement. After the close of business on the expiration date, all unexercised subscription rights would become void.

          Subscription rights may be exercised as set forth in the prospectus supplement relating to the subscription rights offered thereby. Upon receipt of payment and the subscription rights certificate properly completed and duly executed at the corporate trust office of the subscription rights agent or any other office indicated in the prospectus supplement we will forward, as soon as practicable, the shares of common stock purchasable upon such exercise. To the extent permissible under

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applicable law, we may determine to offer any unsubscribed offered securities directly to persons other than stockholders, to or through agents, underwriters or dealers or through a combination of such methods, as set forth in the applicable prospectus supplement.

Dilutive Effects

          Any stockholder who chooses not to participate in a rights offering should expect to own a smaller interest in us upon completion of such rights offering. Any rights offering will dilute the ownership interest and voting power of stockholders who do not fully exercise their subscription rights. Further, because the net proceeds per share from any rights offering may be lower than our current net asset value per share, the rights offering may reduce our net asset value per share. The amount of dilution that a stockholder will experience could be substantial, particularly to the extent we engage in multiple rights offerings within a limited time period. In addition, the market price of our common stock could be adversely affected while a rights offering is ongoing as a result of the possibility that a significant number of additional shares may be issued upon completion of such rights offering. All of our stockholders will also indirectly bear the expenses associated with any rights offering we may conduct, regardless of whether they elect to exercise any rights.

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DESCRIPTION OF WARRANTS

          The following is a general description of the terms of the warrants we may issue from time to time. Particular terms of any warrants we offer will be described in the prospectus supplement relating to such warrants.

          We may issue warrants to purchase shares of our common stock. Such warrants may be issued independently or together with shares of common stock and may be attached or separate from such shares of common stock. We will issue each series of warrants under a separate warrant agreement to be entered into between us and a warrant agent. The warrant agent will act solely as our agent and will not assume any obligation or relationship of agency for or with holders or beneficial owners of warrants.

          A prospectus supplement will describe the particular terms of any series of warrants we may issue, including the following:

          NMFC and the warrant agent may amend or supplement the warrant agreement for a series of warrants without the consent of the holders of the warrants issued thereunder to effect changes that are not inconsistent with the provisions of the warrants and that do not materially and adversely affect the interests of the holders of the warrants.

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          Under the 1940 Act, we may generally only offer warrants provided that (1) the warrants expire by their terms within ten years; (2) the exercise or conversion price is not less than the current market value at the date of issuance; (3) our stockholders authorize the proposal to issue such warrants, and our board of directors approves such issuance on the basis that the issuance is in the best interests of us and our stockholders; and (4) if the warrants are accompanied by other securities, the warrants are not separately transferable unless no class of such warrants and the securities accompanying them has been publicly distributed. The 1940 Act also provides that the amount of our voting securities that would result from the exercise of all outstanding warrants at the time of issuance may not exceed 25.0% of our outstanding voting securities.

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DESCRIPTION OF DEBT SECURITIES

          We may issue debt securities in one or more series. The specific terms of each series of debt securities will be described in the particular prospectus supplement relating to that series. The prospectus supplement may or may not modify the general terms found in this prospectus and will be filed with the SEC. For a complete description of the terms of a particular series of debt securities, you should read both this prospectus and the prospectus supplement relating to that particular series.

          As required by federal law for all bonds and notes of companies that are publicly offered, the debt securities are governed by a document called an "indenture." An indenture is a contract between us and the financial institution acting as trustee on your behalf, and is subject to and governed by the Trust Indenture Act of 1939, as amended. The trustee has two main roles. First, the trustee can enforce your rights against us if we default. There are some limitations on the extent to which the trustee acts on your behalf, described in the second paragraph under "— Events of Default — Remedies if an Event of Default Occurs." Second, the trustee performs certain administrative duties for us with respect to the debt securities.

          This section includes a description of the material provisions of the indenture. Because this section is a summary, however, it does not describe every aspect of the debt securities and the indenture. We urge you to read the indenture because it, and not this description, defines your rights as a holder of debt securities. A copy of the form of indenture is attached as an exhibit to the registration statement of which this prospectus is a part. We will file a supplemental indenture with the SEC in connection with any debt offering, at which time the supplemental indenture would be publicly available. See "Available Information" for information on how to obtain a copy of the indenture.

          The prospectus supplement, which will accompany this prospectus, will describe the particular series of debt securities being offered by including:

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          The debt securities may be secured or unsecured obligations. Under the provisions of the 1940 Act, we, as a BDC, are permitted to issue debt only in amounts such that our asset coverage, as defined in the 1940 Act, equals at least 200.0% after each issuance of debt, but giving effect to any exemptive relief granted to us by the SEC. This asset coverage requirement may change in the future, however, to permit us to incur additional leverage. See "Risk Factors — Risks Related to Our Operations — Pending legislation may allow us to incur additional leverage." Unless the prospectus supplement states otherwise, principal (and premium, if any) and interest, if any, will be paid by us in immediately available funds.


General

          The indenture provides that any debt securities proposed to be sold under this prospectus and the accompanying prospectus supplement ("offered debt securities") may be issued under the indenture in one or more series.

          For purposes of this prospectus, any reference to the payment of principal of, or premium or interest, if any, on, debt securities will include additional amounts if required by the terms of the debt securities.

          The indenture does not limit the amount of debt securities that may be issued thereunder from time to time. Debt securities issued under the indenture, when a single trustee is acting for all debt securities issued under the indenture, are called the "indenture securities." The indenture also provides that there may be more than one trustee thereunder, each with respect to one or more different series of indenture securities. See "— Resignation of Trustee" below. At a time when two

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or more trustees are acting under the indenture, each with respect to only certain series, the term "indenture securities" means the one or more series of debt securities with respect to which each respective trustee is acting. In the event that there is more than one trustee under the indenture, the powers and trust obligations of each trustee described in this prospectus will extend only to the one or more series of indenture securities for which it is trustee. If two or more trustees are acting under the indenture, then the indenture securities for which each trustee is acting would be treated as if issued under separate indentures.

          Except as described under "— Events of Default" and "— Merger or Consolidation" below, the indenture does not contain any provisions that give you protection in the event we issue a large amount of debt or we are acquired by another entity.

          We refer you to the prospectus supplement for information with respect to any deletions from, modifications of or additions to the Events of Default or our covenants, as applicable, that are described below, including any addition of a covenant or other provision providing event risk protection or similar protection.

          We have the ability to issue indenture securities with terms different from those of indenture securities previously issued and, without the consent of the holders thereof, to reopen a previous issue of a series of indenture securities and issue additional indenture securities of that series unless the reopening was restricted when that series was created.


Conversion and Exchange

          If any debt securities are convertible into or exchangeable for other securities, the prospectus supplement will explain the terms and conditions of the conversion or exchange, including the conversion price or exchange ratio (or the calculation method), the conversion or exchange period (or how the period will be determined), if conversion or exchange will be mandatory or at the option of the holder or us, provisions for adjusting the conversion price or the exchange ratio and provisions affecting conversion or exchange in the event of the redemption of the underlying debt securities. These terms may also include provisions under which the number or amount of other securities to be received by the holders of the debt securities upon conversion or exchange would be calculated according to the market price of the other securities as of a time stated in the prospectus supplement.


Issuance of Securities in Registered Form

          We may issue the debt securities in registered form, in which case we may issue them either in book-entry form only or in "certificated" form. Debt securities issued in book-entry form will be represented by global securities. We expect that we will usually issue debt securities in book-entry only form represented by global securities.

Book-Entry Holders

          We will issue registered debt securities in book-entry form only, unless we specify otherwise in the applicable prospectus supplement. This means debt securities will be represented by one or more global securities registered in the name of a depositary that will hold them on behalf of financial institutions that participate in the depositary's book-entry system. These participating institutions, in turn, hold beneficial interests in the debt securities held by the depositary or its nominee. These institutions may hold these interests on behalf of themselves or customers.

          Under the indenture, only the person in whose name a debt security is registered is recognized as the holder of that debt security. Consequently, for debt securities issued in book-entry form, we will recognize only the depositary as the holder of the debt securities and we

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will make all payments on the debt securities to the depositary. The depositary will then pass along the payments it receives to its participants, which in turn will pass the payments along to their customers who are the beneficial owners. The depositary and its participants do so under agreements they have made with one another or with their customers; they are not obligated to do so under the terms of the debt securities.

          As a result, investors will not own debt securities directly. Instead, they will own beneficial interests in a global security, through a bank, broker or other financial institution that participates in the depositary's book-entry system or holds an interest through a participant. As long as the debt securities are represented by one or more global securities, investors will be indirect holders, and not holders, of the debt securities.

Street Name Holders

          In the future, we may issue debt securities in certificated form or terminate a global security. In these cases, investors may choose to hold their debt securities in their own names or in "street name." Debt securities held in street name are registered in the name of a bank, broker or other financial institution chosen by the investor, and the investor would hold a beneficial interest in those debt securities through the account he or she maintains at that institution.

          For debt securities held in street name, we will recognize only the intermediary banks, brokers and other financial institutions in whose names the debt securities are registered as the holders of those debt securities, and we will make all payments on those debt securities to them. These institutions will pass along the payments they receive to their customers who are the beneficial owners, but only because they agree to do so in their customer agreements or because they are legally required to do so. Investors who hold debt securities in street name will be indirect holders, and not holders, of the debt securities.

Legal Holders

          Our obligations, as well as the obligations of the applicable trustee and those of any third parties employed by us or the applicable trustee, run only to the legal holders of the debt securities. We do not have obligations to investors who hold beneficial interests in global securities, in street name or by any other indirect means. This will be the case whether an investor chooses to be an indirect holder of a debt security or has no choice because we are issuing the debt securities only in book-entry form.

          For example, once we make a payment or give a notice to the holder, we have no further responsibility for the payment or notice even if that holder is required, under agreements with depositary participants or customers or by law, to pass it along to the indirect holders but does not do so. Similarly, if we want to obtain the approval of the holders for any purpose (for example, to amend an indenture or to relieve us of the consequences of a default or of our obligation to comply with a particular provision of an indenture), we would seek the approval only from the holders, and not the indirect holders, of the debt securities. Whether and how the holders contact the indirect holders is up to the holders.

          When we refer to you in this Description of Debt Securities, we mean those who invest in the debt securities being offered by this prospectus, whether they are the holders or only indirect holders of those debt securities. When we refer to your debt securities, we mean the debt securities in which you hold a direct or indirect interest.

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Special Considerations for Indirect Holders

          If you hold debt securities through a bank, broker or other financial institution, either in book-entry form or in street name, we urge you to check with that institution to find out:


Global Securities

          As noted above, we usually will issue debt securities as registered securities in book-entry form only. A global security represents one or any other number of individual debt securities. Generally, all debt securities represented by the same global securities will have the same terms.

          Each debt security issued in book-entry form will be represented by a global security that we deposit with and register in the name of a financial institution or its nominee that we select. The financial institution that we select for this purpose is called the depositary. Unless we specify otherwise in the applicable prospectus supplement, The Depository Trust Company, New York, New York, known as DTC, will be the depositary for all debt securities issued in book-entry form.

          A global security may not be transferred to or registered in the name of anyone other than the depositary or its nominee, unless special termination situations arise. We describe those situations below under "— Termination of a Global Security." As a result of these arrangements, the depositary, or its nominee, will be the sole registered owner and holder of all debt securities represented by a global security, and investors will be permitted to own only beneficial interests in a global security. Beneficial interests must be held by means of an account with a broker, bank or other financial institution that in turn has an account with the depositary or with another institution that has an account with the depositary. Thus, an investor whose security is represented by a global security will not be a holder of the debt security, but only an indirect holder of a beneficial interest in the global security.

Special Considerations for Global Securities

          As an indirect holder, an investor's rights relating to a global security will be governed by the account rules of the investor's financial institution and of the depositary, as well as general laws relating to securities transfers. The depositary that holds the global security will be considered the holder of the debt securities represented by the global security.

          If debt securities are issued only in the form of a global security, an investor should be aware of the following:

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Termination of a Global Security

          If a global security is terminated for any reason, interests in it will be exchanged for certificates in non-book-entry form (certificated securities). After that exchange, the choice of whether to hold the certificated debt securities directly or in street name will be up to the investor. Investors must consult their own banks or brokers to find out how to have their interests in a global security transferred on termination to their own names, so that they will be holders. We have described the rights of legal holders and street name investors under "— Issuance of Securities in Registered Form" above.

          The prospectus supplement may list situations for terminating a global security that would apply only to the particular series of debt securities covered by the prospectus supplement. If a global security is terminated, only the depositary, and not us or the applicable trustee, is responsible for deciding the investors in whose names the debt securities represented by the global security will be registered and, therefore, who will be the holders of those debt securities.

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Payment and Paying Agents

          We will pay interest to the person listed in the applicable trustee's records as the owner of the debt security at the close of business on a particular day in advance of each due date for interest, even if that person no longer owns the debt security on the interest due date. That day, usually about two weeks in advance of the interest due date, is called the "record date." Since we will pay all the interest for an interest period to the holders on the record date, holders buying and selling debt securities must work out between themselves the appropriate purchase price. The most common manner is to adjust the sales price of the debt securities to prorate interest fairly between buyer and seller based on their respective ownership periods within the particular interest period. This prorated interest amount is called "accrued interest."

Payments on Global Securities

          We will make payments on a global security in accordance with the applicable policies of the depositary as in effect from time to time. Under those policies, we will make payments directly to the depositary, or its nominee, and not to any indirect holders who own beneficial interests in the global security. An indirect holder's right to those payments will be governed by the rules and practices of the depositary and its participants, as described under "— Special Considerations for Global Securities."

Payments on Certificated Securities

          We will make payments on a certificated debt security as follows. We will pay interest that is due on an interest payment date to the holder of debt securities as shown on the trustee's records as of the close of business on the regular record date at our office in New York, New York, as applicable, and/or at other offices that may be specified in the prospectus supplement. We will make all payments of principal and premium, if any, by check at the office of the applicable trustee in New York, New York and/or at other offices that may be specified in the prospectus supplement or in a notice to holders against surrender of the debt security.

          Alternatively, at our option we may pay any cash interest that becomes due on the debt security by mailing a check to the holder at his, her or its address shown on the trustee's records as of the close of business on the regular record date or by transfer to an account at a bank in the U.S., in either case, on the due date.

Payment When Offices Are Closed

          If any payment is due on a debt security on a day that is not a business day, we will make the payment on the next day that is a business day. Payments made on the next business day in this situation will be treated under the indenture as if they were made on the original due date, except as otherwise indicated in the attached prospectus supplement. Such payment will not result in a default under any debt security or the indenture, and no interest will accrue on the payment amount from the original due date to the next day that is a business day.

          Book-entry and other indirect holders should consult their banks or brokers for information on how they will receive payments on their debt securities.


Events of Default

          You will have rights if an Event of Default occurs in respect of the debt securities of your series and is not cured, as described later in this subsection.

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          The term "Event of Default" in respect of the debt securities of your series means any of the following:

          An Event of Default for a particular series of debt securities does not necessarily constitute an Event of Default for any other series of debt securities issued under the same or any other indenture. The trustee may withhold notice to the holders of debt securities of any default, except in the payment of principal, premium, interest, or sinking or purchase fund installment, if it in good faith considers the withholding of notice to be in the interest of the holders.

Remedies if an Event of Default Occurs

          If an Event of Default has occurred and is continuing, the trustee or the holders of not less than 25.0% in principal amount of the outstanding debt securities of the affected series may (and the trustee shall at the request of such holders) declare the entire principal amount of all the debt securities of that series to be due and immediately payable. This is called a declaration of acceleration of maturity. A declaration of acceleration of maturity may be canceled by the holders of a majority in principal amount of the outstanding debt securities of the affected series if (1) we have deposited with the trustee all amounts due and owing with respect to the securities (other than principal that has become due solely by reason of such acceleration) and certain other amounts, and (2) any other Events of Default have been cured or waived.

          The trustee is not required to take any action under the indenture at the request of any holders unless the holders offer the trustee protection from expenses and liability reasonably satisfactory to it (called an "indemnity"). If indemnity reasonably satisfactory to the trustee is provided, the holders of a majority in principal amount of the outstanding debt securities of the relevant series may direct the time, method and place of conducting any lawsuit or other formal legal action seeking any remedy available to the trustee. The trustee may refuse to follow those directions in certain circumstances. No delay or omission in exercising any right or remedy will be treated as a waiver of that right, remedy or Event of Default.

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          Before you are allowed to bypass your trustee and bring your own lawsuit or other formal legal action or take other steps to enforce your rights or protect your interests relating to the debt securities, the following must occur:

          However, you are entitled at any time to bring a lawsuit for the payment of money due on your debt securities on or after the due date.

          Book-entry and other indirect holders should consult their banks or brokers for information on how to give notice or direction to or make a request of the trustee and how to declare or cancel an acceleration of maturity.

          Each year, we will furnish to each trustee a written statement of certain of our officers certifying that to their knowledge we are in compliance with the indenture and the debt securities, or else specifying any default.

Waiver of Default

          Holders of a majority in principal amount of the outstanding debt securities of the affected series may waive any past defaults other than a default:


Merger or Consolidation

          Under the terms of the indenture, we are generally permitted to consolidate or merge with another entity. We are also permitted to sell all or substantially all of our assets to another entity. However, we may not take any of these actions unless all the following conditions are met:

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Modification or Waiver

          There are three types of changes we can make to the indenture and the debt securities issued thereunder.

Changes Requiring Your Approval

          First, there are changes that we cannot make to your debt securities without your specific approval. The following is a list of those types of changes:

Changes Not Requiring Approval

          The second type of change does not require any vote by the holders of the debt securities. This type is limited to clarifications, establishment of the form or terms of new securities of any series as permitted by the indenture and certain other changes that would not adversely affect holders of the outstanding debt securities in any material respect. We also do not need any approval to make any change that affects only debt securities to be issued under the indenture after the change takes effect.

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Changes Requiring Majority Approval

          Any other change to the indenture and the debt securities would require the following approval:

          In each case, the required approval must be given by written consent.

          The holders of a majority in principal amount of a series of debt securities issued under the indenture, voting together as one class for this purpose, may waive our compliance with some of the covenants applicable to that series of debt securities. However, we cannot obtain a waiver of a payment default or of any of the matters covered by the bullet points included above under "— Changes Requiring Your Approval."

Further Details Concerning Voting

          When taking a vote, we will use the following rules to decide how much principal to attribute to a debt security:

          Debt securities will not be considered outstanding, and therefore not eligible to vote, if we have deposited or set aside in trust money for their payment or redemption or if we, any other obligor, or any of our affiliates, or any obligor own such debt securities. Debt securities will also not be eligible to vote if they have been fully defeased as described later under "— Defeasance — Full Defeasance".

          We will generally be entitled to set any day as a record date for the purpose of determining the holders of outstanding indenture securities that are entitled to vote or take other action under the indenture. However, the record date may not be more than 30 days before the date of the first solicitation of holders to vote on or take such action. If we set a record date for a vote or other action to be taken by holders of one or more series, that vote or action may be taken only by persons who are holders of outstanding indenture securities of those series on the record date and must be taken within 11 months following the record date.

          Book-entry and other indirect holders should consult their banks or brokers for information on how approval may be granted or denied if we seek to change the indenture or the debt securities or requests a waiver.

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Defeasance

          The following provisions will be applicable to each series of debt securities unless we state in the applicable prospectus supplement that the provisions of covenant defeasance and full defeasance will not be applicable to that series.

Covenant Defeasance

          Under current U.S. federal tax law and the indenture, we can make the deposit described below and be released from some of the restrictive covenants in the indenture under which the particular series was issued. This is called "covenant defeasance". In that event, you would lose the protection of those restrictive covenants but would gain the protection of having money and government securities set aside in trust to repay your debt securities. If we achieve covenant defeasance and your debt securities were subordinated as described under "— Indenture Provisions — Subordination" below, such subordination would not prevent the trustee under the indenture from applying the funds available to it from the deposit described in the first bullet below to the payment of amounts due in respect of such debt securities for the benefit of the subordinated debt holders. In order to achieve covenant defeasance, we must do the following:

          If we accomplish covenant defeasance, you can still look to us for repayment of the debt securities if there were a shortfall in the trust deposit or the trustee is prevented from making payment. For example, if one of the remaining Events of Default occurred (such as our bankruptcy) and the debt securities became immediately due and payable, there might be such a shortfall. However, there is no assurance that we would have sufficient funds to make payment of the shortfall.

Full Defeasance

          If there is a change in U.S. federal tax law or we obtain IRS ruling, as described in the second bullet below, we can legally release ourselves from all payment and other obligations on the debt

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securities of a particular series (called "full defeasance") if we put in place the following other arrangements for you to be repaid:

          If we ever did accomplish full defeasance, as described above, you would have to rely solely on the trust deposit for repayment of the debt securities. You could not look to us for repayment in the unlikely event of any shortfall. Conversely, the trust deposit would most likely be protected from claims of our lenders and other creditors, as applicable, if we ever became bankrupt or insolvent. If your debt securities were subordinated as described later under "— Indenture Provisions — Subordination", such subordination would not prevent the trustee under the indenture from applying the funds available to it from the deposit referred to in the first bullet of the preceding paragraph to the payment of amounts due in respect of such debt securities for the benefit of the subordinated debt holders.


Form, Exchange and Transfer of Certificated Registered Securities

          If registered debt securities cease to be issued in book-entry form, they will be issued:

          Holders may exchange their certificated securities for debt securities of smaller denominations or combined into fewer debt securities of larger denominations, as long as the total principal

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amount is not changed and as long as the denomination is greater than the minimum denomination for such securities.

          Holders may exchange or transfer their certificated securities at the office of the trustee. We have appointed the trustee to act as our agent for registering debt securities in the names of holders transferring debt securities. We may appoint another entity to perform these functions or perform them ourself.

          Holders will not be required to pay a service charge to transfer or exchange their certificated securities, but they may be required to pay any tax or other governmental charge associated with the transfer or exchange. The transfer or exchange will be made only if our transfer agent, as applicable, is satisfied with the holder's proof of legal ownership.

          If we have designated additional transfer agents for your debt security, they will be named in the prospectus supplement. We may appoint additional transfer agents or cancel the appointment of any particular transfer agent. We may also approve a change in the office through which any transfer agent acts.

          If any certificated securities of a particular series are redeemable and we redeem less than all the debt securities of that series, we may block the transfer or exchange of those debt securities during the period beginning 15 days before the day we mail the notice of redemption and ending on the day of that mailing, in order to freeze the list of holders to prepare the mailing. We may also refuse to register transfers or exchanges of any certificated securities selected for redemption, except that we will continue to permit transfers and exchanges of the unredeemed portion of any debt security that will be partially redeemed.

          If a registered debt security is issued in book-entry form, only the depositary will be entitled to transfer and exchange the debt security as described in this subsection, since it will be the sole holder of the debt security.


Resignation of Trustee

          Each trustee may resign or be removed with respect to one or more series of indenture securities provided that a successor trustee is appointed to act with respect to these series and has accepted such appointment. In the event that two or more persons are acting as trustee with respect to different series of indenture securities under the indenture, each of the trustees will be a trustee of a trust separate and apart from the trust administered by any other trustee.


Indenture Provisions — Subordination

          Upon any distribution of our assets upon our dissolution, winding up, liquidation or reorganization, the payment of the principal of (and premium, if any) and interest, if any, on any indenture securities denominated as subordinated debt securities is to be subordinated to the extent provided in the indenture in right of payment to the prior payment in full of all Senior Indebtedness (as defined below), but our obligation to you to make payment of the principal of (and premium, if any) and interest, if any, on such subordinated debt securities will not otherwise be affected. In addition, no payment on account of principal (or premium, if any), sinking fund or interest, if any, may be made on such subordinated debt securities at any time unless full payment of all amounts due in respect of the principal (and premium, if any), sinking fund and interest on Senior Indebtedness has been made or duly provided for in money or money's worth.

          In the event that, notwithstanding the foregoing, any payment by us is received by the trustee in respect of subordinated debt securities or by the holders of any of such subordinated debt securities, upon our dissolution, winding up, liquidation or reorganization before all Senior Indebtedness is paid in full, the payment or distribution must be paid over to the holders of the

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Senior Indebtedness or on their behalf for application to the payment of all the Senior Indebtedness remaining unpaid until all the Senior Indebtedness has been paid in full, after giving effect to any concurrent payment or distribution to the holders of the Senior Indebtedness. Subject to the payment in full of all Senior Indebtedness upon this distribution by us, the holders of such subordinated debt securities will be subrogated to the rights of the holders of the Senior Indebtedness to the extent of payments made to the holders of the Senior Indebtedness out of the distributive share of such subordinated debt securities.

          By reason of this subordination, in the event of a distribution of our assets upon our insolvency, certain of our senior creditors may recover more, ratably, than holders of any subordinated debt securities or the holders of any indenture securities that are not Senior Indebtedness. The indenture provides that these subordination provisions will not apply to money and securities held in trust under the defeasance provisions of the indenture.

          Senior Indebtedness is defined in the indenture as the principal of (and premium, if any) and unpaid interest on:

          If this prospectus is being delivered in connection with the offering of a series of indenture securities denominated as subordinated debt securities, the accompanying prospectus supplement will set forth the approximate amount of our Senior Indebtedness and of our other Indebtedness outstanding as of a recent date.


Secured Indebtedness and Ranking

          Certain of our indebtedness, including certain series of indenture securities, may be secured. The prospectus supplement for each series of indenture securities will describe the terms of any security interest for such series and will indicate the approximate amount of our secured indebtedness as of a recent date. Any unsecured indenture securities will effectively rank junior to any existing and future secured indebtedness, including any credit facilities or secured indenture securities, that we incur to the extent of the value of the assets securing such secured indebtedness. Our debt securities, whether secured or unsecured, will rank structurally junior to all existing and future indebtedness (including trade payables) incurred by our subsidiaries, financing vehicles or similar facilities, with respect to claims on the assets of any such subsidiaries, financing vehicles or similar facilities.

          In the event of bankruptcy, liquidation, reorganization or other winding up, any of our assets that secure secured debt will be available to pay obligations on unsecured debt securities only after all indebtedness under such secured debt has been repaid in full from such assets. We advise you that there may not be sufficient assets remaining to pay amounts due on any or all unsecured debt securities then outstanding after fulfillment of this obligation. As a result, the holders of unsecured indenture securities may recover less, ratably, than holders of any of our secured indebtedness.


The Trustee under the Indenture

          U.S. Bank National Association will serve as the trustee under the indenture.

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Certain Considerations Relating to Foreign Currencies

          Debt securities denominated or payable in foreign currencies may entail significant risks. These risks include the possibility of significant fluctuations in the foreign currency markets, the imposition or modification of foreign exchange controls and potential illiquidity in the secondary market. These risks will vary depending upon the currency or currencies involved and will be more fully described in the applicable prospectus supplement.

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MATERIAL FEDERAL INCOME TAX CONSIDERATIONS

          The following discussion is a general summary of the material U.S. federal income tax considerations applicable to us and an investment in shares of our common stock. The discussion is based upon the Internal Revenue Code of 1986, as amended, which we refer to as the "Code", the regulations of the U.S. Department of Treasury promulgated thereunder, which we refer to as the "Treasury regulations", the legislative history of the Code, current administrative interpretations and practices of the Internal Revenue Service, which we refer to as the "IRS", (including administrative interpretations and practices of the IRS expressed in private letter rulings which are binding on the IRS only with respect to the particular taxpayers that requested and received those rulings) and judicial decisions, each as of the date of this prospectus and all of which are subject to change or differing interpretations, possibly retroactively, which could affect the continuing validity of this discussion. The U.S federal income tax laws addressed in this summary are highly technical and complex, and certain aspects of their application to us are not completely clear. In addition, certain U.S. federal income tax consequences described in this summary depend upon certain factual matters, including (without limitation) the value and tax basis ascribed to our assets and the manner in which the we operate, and certain complicated tax accounting calculations. We have not sought, and will not seek, any ruling from the IRS regarding any matter discussed in this summary, and this summary is not binding on the IRS. Accordingly, there can be no assurance that the IRS will not assert, and a court will not sustain, a position contrary to any of the tax consequences discussed below. This summary does not purport to be a complete description of all the tax aspects affecting us and our stockholders. For example, this summary does not describe all U.S. federal income tax consequences that may be relevant to certain types of stockholders subject to special treatment under U.S. federal income tax laws, including stockholders subject to the alternative minimum tax, tax-exempt organizations, insurance companies, partnerships or other pass-through entities and their owners, persons that hold shares of our common stock through a foreign financial institution, persons that hold shares of our common stock through a non-financial foreign entity, Non-U.S. stockholders (as defined below) engaged in a trade or business in the U.S. or Non-U.S. stockholders entitled to claim the benefits of an applicable income tax treaty, persons who have ceased to be U.S. citizens or to be taxed as resident aliens, persons holding our common stock in connection with a hedging, straddle, conversion or other integrated transaction, dealers in securities, a trader in securities that elects to use a market-to-market method of accounting for its securities holdings, pension plans and trusts, and financial institutions. This summary assumes that stockholders hold our common stock as capital assets for U.S. federal income tax purposes (generally, assets held for investment) and that all of the parties to the LLC Agreement comply with all of their respective representations, covenants and agreements contained in the LLC Agreement in accordance with their terms. This summary generally does not discuss any aspects of U.S. estate or gift tax or foreign, state or local tax. It does not discuss the special treatment under U.S. federal income tax laws that could result if the we invested in tax-exempt securities or certain other investment assets.

          A "U.S. stockholder" generally is a beneficial owner of shares of our common stock that is, for U.S. federal income tax purposes:

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          A "Non-U.S. stockholder" generally is a beneficial owner of shares of our common stock that is not a U.S. stockholder or a partnership (or an entity or arrangement treated as a partnership) for U.S. federal income tax purposes.

          If a partnership, or other entity or arrangement treated as a partnership for U.S. federal income tax purposes, holds shares of our common stock, the U.S. federal income tax treatment of the partnership and each partner generally will depend on the status of the partner, the activities of the partnership and certain determinations made at the partner level. A stockholder that is a partnership holding shares of our common stock, and each partner in such a partnership, should consult his, her or its own tax adviser with respect to the tax consequences of the purchase, ownership and disposition of shares of our common stock.

          Tax matters are very complicated and the tax consequences to each stockholder of an investment in shares of our common stock will depend on the facts of his, her or its particular situation. You should consult your own tax adviser regarding the specific consequences of such an investment, including tax reporting requirements, the applicability of federal, state, local and foreign tax laws, eligibility for the benefits of any applicable income tax treaty and the effect of any possible changes in the tax laws.


Our Election to be Taxed as a RIC

          We have elected to be treated, and intend to comply with the requirements to continue to qualify annually, as a RIC under Subchapter M of the Code. As a RIC, we generally will not pay corporate-level U.S. federal income taxes on any net ordinary income or capital gains that we timely distribute to our stockholders as dividends. Rather, dividends distributed by us generally will be taxable to our stockholders, and any net operating losses, foreign tax credits and other tax attributes of ours generally will not pass through to our stockholders, subject to special rules for certain items such as net capital gains and qualified dividend income recognized by us. See "— Taxation of U.S. Stockholders" and "— Taxation of Non-U.S. Stockholders" below.

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


Taxation as a RIC

          If we:

then we will not be subject to U.S. federal income tax on the portion of our income that is timely distributed (or is deemed to be timely distributed) to our stockholders. If we fail to qualify as a RIC, we will be subject to U.S. federal income tax at the regular corporate rates on our income and capital gains.

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

          In order to qualify as a RIC for U.S. federal income tax purposes, we must, among other things:

          NMF Holdings is treated as a disregarded entity for U.S. federal income tax purposes. As a result, NMF Holdings will itself not be subject to U.S. federal income tax and, for U.S. federal income tax purposes, we will take into account all of NMF Holdings' assets and items of income, gain, loss, deduction and credit. In the remainder of this discussion, except as otherwise indicated, references to "we" "us" "our" and "NMFC" include NMF Holdings.

          SBIC GP and SBIC LP are treated as disregarded entities for U.S. federal income tax purposes. As a result, both SBIC GP and SBIC LP will themselves not be subject to U.S. federal income tax and, for U.S. federal income tax purposes, we will take into account all of SBIC GP's and SBIC LP's assets and items of income, gain, loss, deduction and credit. In the remainder of this discussion, except as otherwise indicated, references to "we" "us" "our" and "NMFC" include SBIC GP and SBIC LP.

          NMF Ancora, NMF QID and NMF YP are Delaware corporations. NMF Ancora, NMF QID and NMF YP are not consolidated for income tax purposes and may each incur U.S. federal, state and local income tax expense with respect to their respective income and expenses earned from investment activities.

          A RIC is limited in its ability to deduct expenses in excess of its "investment company taxable income" (which is, generally, ordinary income plus the excess of realized net short-term capital gains over realized net long-term capital losses). If our expenses in a given year exceed our investment company taxable income, we 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

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such net operating losses do not pass through to its stockholders. In addition, expenses can be used only to 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, we may for tax purposes have aggregate taxable income for several years that we are required to distribute and that is taxable to its stockholders even if such income is greater than the aggregate net income we actually earned during those years. In such event, we may liquidate certain investments, if necessary. We may recognize gains or losses from such liquidations. In the event that we recognize net capital gains from such transactions, you may receive a larger capital gain distribution than you would have received in the absence of such transactions.

          For U.S. federal income tax purposes, we may be required to include in our taxable income certain amounts that we have not yet received in cash. For example, if we hold debt obligations that are treated under applicable tax rules as having original issue discount (such as debt instruments with PIK interest or, in certain cases, increasing interest rates or issued with warrants), we must include in our taxable income in each year the portion of the original issue discount that accrues over the life of the obligation, regardless of whether cash representing such income is received by us in the same taxable year. We may also have to include in our taxable income other amounts that we have not yet received in cash, such as accruals on a contingent payment debt instrument or deferred loan origination fees that are paid after origination of the loan or are paid in non-cash compensation such as warrants or stock. Because original issue discount or other amounts accrued will be included in our investment company taxable income for the year of accrual and before we receive any corresponding cash payments, we may be required to make a distribution to our stockholders in order to satisfy the Annual Distribution Requirement, even though we would not have received any corresponding cash payment.

          Accordingly, to enable us to satisfy the Annual Distribution Requirement, we may need to sell some of our assets at times and/or at prices that we would not consider advantageous, we may need to raise additional equity or debt capital or we may need to forego new investment opportunities or otherwise take actions that are disadvantageous to our business (or be unable to take actions that are advantageous to our business). If we are unable to obtain cash from other sources to enable us to satisfy the Annual Distribution Requirement, we may fail to qualify for the U.S. federal income tax benefits allowable to RICs and, thus, become subject to a corporate level U.S. federal income tax (and any applicable state and local taxes).

          Because we intend to use debt financing, we may be prevented by financial covenants contained in our debt financing agreements from making distributions to our shareholders. In addition, under the 1940 Act, we are generally not permitted to make distributions to our shareholders while our debt obligations and other senior securities are outstanding unless certain "asset coverage" tests are met. See "Regulation — Senior Securities". Limits on distributions to our shareholders may prevent us from satisfying the Annual Distribution Requirement and, therefore, may jeopardize our qualification for taxation as a RIC, or subject us to the 4.0% federal excise tax.

          Although we do not presently expect to do so, we may borrow funds and sell assets in order to make distributions to our stockholders that are sufficient for us to satisfy the Annual Distribution Requirement. However, our ability to dispose of assets may be limited by (1) the illiquid nature of our portfolio and/or (2) other requirements relating to our status as a RIC, including the Diversification Tests. If we dispose of assets in order to meet the Annual Distribution Requirement or the Excise Tax Avoidance Requirement, we may make such dispositions at times that, from an investment standpoint, are not advantageous.

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Failure of NMFC to Qualify as a RIC

          If we fail to satisfy the 90.0% Income Test or the Diversification Tests for any taxable year or quarter of such taxable year, we 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 us to pay certain corporate-level U.S. federal income taxes or to dispose of certain assets). If we fail to qualify for treatment as a RIC and such relief provisions do not apply to us, we will be subject to U.S. federal income tax on all of our taxable income at regular corporate rates (and also will be subject to any applicable state and local taxes), regardless of whether we make any distributions to our stockholders. Distributions would not be required. However, if distributions were made, any such distributions would be taxable to our stockholders as ordinary dividend income and, subject to certain limitations under the Code, any such distributions may be eligible for the 20.0% maximum rate applicable to non-corporate taxpayers to the extent of our 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 our 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, we could be subject to tax on any unrealized net built-in gains in the assets held by us during the period in which we 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 our requalification as a RIC, unless we made a special election to pay corporate-level U.S. federal income tax on such built-in gain at the time of our requalification as a RIC. We may decide to be taxed as a regular corporation even if we would otherwise qualify as a RIC if we determine that treatment as a corporation for a particular year would be in our best interests.


Investments — General

          Certain of our investment practices may be subject to special and complex U.S. federal income tax provisions that may, among other things, (1) treat dividends that would otherwise constitute qualified dividend income as non-qualified dividend income, (2) disallow, suspend or otherwise limit the allowance of certain losses or deductions, (3) convert lower-taxed long-term capital gains into higher-taxed short-term capital gains or ordinary income, (4) convert an ordinary loss or a deduction into a capital loss (the deductibility of which is more limited), (5) cause us to recognize income or gains without receipt of a corresponding distribution of cash, (6) adversely affect the time as to when a purchase or sale of stock or securities is deemed to occur, (7) adversely alter the characterization of certain complex financial transactions and (8) produce income that will not be qualifying income for purposes of the 90.0% Income Test. We intend to monitor our transactions and may make certain tax elections to mitigate the potential adverse effect of these provisions, but there can be no assurance that any adverse effects of these provisions will be mitigated.

Passive Foreign Investment Companies

          If we purchase shares in a "passive foreign investment company" (a "PFIC"), we may be subject to U.S. federal income tax on any "excess distribution" received on, or any gain from the disposition of, such shares even if such income is distributed by it as a taxable dividend to its stockholders. Additional charges in the nature of interest generally will be imposed on us in respect of deferred taxes arising from any such excess distribution or gain. If we invest in a PFIC and elect to treat the PFIC as a "qualified electing fund" under the Code (a "QEF"), in lieu of the foregoing requirements, we will be required to include in income each year our proportionate share of the

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ordinary earnings and net capital gain of the QEF, even if such income is not distributed by the QEF. Under recently proposed regulations, amounts required to be included in income from a PFIC for which we have made a QEF election would not be good income for purposes of the 90.0% Income Test unless we receive a cash distribution from such PFIC in the same year attributable to the included income. If these regulations are finalized, we will carefully monitor our investments in PFICs to avoid disqualification as a RIC. Alternatively, we may be able to elect to mark to market at the end of each taxable year our shares in a PFIC; in this case, we will recognize as ordinary income any increase in the value of such shares, and as ordinary loss any decrease in such value to the extent that any such decrease does not exceed prior increases included in our income. Under either election, we may be required to recognize in a year income in excess of distributions from PFICs and our proceeds from dispositions of PFIC stock during that year, and such income will nevertheless be subject to the Annual Distribution Requirement and will be taken into account for purposes of the 4.0% excise tax. See "— Taxation of NMFC as a RIC" above.

Foreign Currency Transactions

          Under Section 988 of the Code, gains or losses attributable to fluctuations in exchange rates between the time we accrue income, expenses or other liabilities denominated in a foreign currency and the time we actually collect such income or pay such expenses or liabilities are generally treated as ordinary income or loss. Similarly, gains or losses on foreign currency forward contracts and the disposition of debt obligations denominated in a foreign currency, to the extent attributable to fluctuations in exchange rates between the acquisition and disposition dates, are also treated as ordinary income or loss.

          The remainder of this discussion assumes that we qualify as a RIC for each taxable year.


Taxation of U.S. Stockholders

          The following discussion only applies to U.S. stockholders. Prospective stockholders that are not U.S. stockholders should refer to "— Taxation of Non-U.S. Stockholders" below.

Distributions

          Distributions by us generally are taxable to U.S. stockholders as ordinary income or capital gains. Distributions of our "investment company taxable income" (which is, generally, our net ordinary income plus realized net short-term capital gains in excess of realized net long-term capital losses) will be taxable as ordinary income to U.S. stockholders to the extent of our current or accumulated earnings and profits, whether paid in cash or reinvested in additional common stock. To the extent that such distributions paid by us to non-corporate stockholders (including individuals) are attributable to dividends from U.S. corporations and certain qualified foreign corporations, such distributions ("Qualifying Dividends") may be eligible for a maximum tax rate of 20.0%. In this regard, it is anticipated that distributions paid by NMFC will generally not be attributable to dividends received by us and, therefore, generally will not qualify for the 20.0% maximum rate applicable to Qualifying Dividends. Distributions of our net capital gains (which are generally our realized net long-term capital gains in excess of realized net short-term capital losses) properly reported by us as "capital gain dividends" in written statements furnished to its stockholders will be taxable to a U.S. stockholder as long-term capital gains that are currently taxable at a maximum rate of 20.0% in the case of individuals, trusts or estates, regardless of the U.S. stockholder's holding period for his, her or its common stock and regardless of whether paid in cash or reinvested in additional common stock. Distributions in excess of our earnings and profits first will reduce a U.S. stockholder's adjusted tax basis in such stockholder's common stock and, after the adjusted tax basis is reduced to zero, will constitute capital gains to such U.S. stockholder.

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          We may retain some or all of our realized net long-term capital gains in excess of realized net short-term capital losses, but designate the retained net capital gain as a "deemed distribution". In that case, among other consequences, (i) we will pay tax on the retained amount, (ii) each U.S. stockholder will be required to include his, her or its share of the deemed distribution in income as if it had been actually distributed to the U.S. stockholder, and (iii) the U.S. stockholder will be entitled to claim a credit equal to his, her or its allocable share of the tax paid thereon by us. Because we expect to pay tax on any retained net capital gains at the regular corporate tax rate, and because that rate is in excess of the maximum rate currently payable by individuals on long-term capital gains, the amount of tax that individual U.S. stockholders will be treated as having paid will exceed the tax they owe on the capital gain distribution and such excess generally may be refunded or claimed as a credit against the U.S. stockholder's other U.S. federal income tax obligations. The amount of the deemed distribution net of such tax will be added to the U.S. stockholder's cost basis for his, her or its common stock. In order to utilize the deemed distribution approach, we must provide written notice to its stockholders prior to the expiration of 60 days after the close of the relevant taxable year. We cannot treat any of our investment company taxable income as a "deemed distribution".

          For purposes of determining (1) whether the Annual Distribution Requirement is satisfied for any year and (2) the amount of capital gain dividends paid for that year, we may, under certain circumstances, elect to treat a dividend that is paid during the following taxable year as if it had been paid during the taxable year in question. If we make such an election, the U.S. stockholder will still be treated as receiving the dividend in the taxable year in which the distribution is made. However, any dividend declared by us in October, November or December of any calendar year, payable to stockholders of record on a specified date in such a month and actually paid during January of the following year, will be treated as if it had been received by its U.S. stockholders on December 31 of the year in which the dividend was declared.

          If an investor purchases shares of our common stock shortly before the record date of a distribution, the price of the shares will include the value of the distribution and the investor will be subject to tax on the distribution even though economically it may represent a return of his, her or its investment.

          We or the applicable withholding agent will send to each of its U.S. stockholders, as promptly as possible after the end of each calendar year, a notice reporting the amounts includible in such U.S. stockholder's taxable income for such year as ordinary income and as long-term capital gain. In addition, the federal tax status of each year's distributions from us generally will be reported to the IRS (including the amount of dividends, if any, that are Qualifying Dividends eligible for the 20.0% maximum rate). Dividends paid by us generally will not be eligible for the dividends-received deduction or the preferential tax rate applicable to Qualifying Dividends because our income generally will not consist of dividends. Distributions may also be subject to additional state, local and foreign taxes depending on a U.S. stockholder's particular situation.

Alternative Minimum Tax

          As a RIC, we may be subject to alternative minimum tax, also referred to as "AMT", but any items that are treated differently for AMT purposes must be apportioned between us and our U.S. stockholders, and this may affect the U.S. stockholders' AMT liabilities. Although Treasury regulations explaining the precise method of apportionment have not yet been issued, such items will generally be apportioned in the same proportion that dividends paid to each U.S. stockholder bear to our taxable income (determined without regard to the dividends paid deduction), unless a different method for a particular item is warranted under the circumstances.

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Dividend Reinvestment Plan

          Under the dividend reinvestment plan, if a U.S. stockholder owns shares of our common stock registered in the U.S. stockholder's own name, the U.S. stockholder will have all cash distributions automatically reinvested in additional shares of our common stock unless the U.S. stockholder opts out of the dividend reinvestment plan by delivering a written, phone or internet notice to the plan administrator at least three days prior to the payment date of the next dividend or distribution. See "Dividend Reinvestment Plan". Any distributions reinvested under the plan will nevertheless remain taxable to the U.S. stockholder. The U.S. stockholder will have an adjusted tax basis in the additional shares of our common stock purchased through the plan equal to the amount of the reinvested distribution. The additional shares will have a new holding period commencing on the day following the day on which the shares are credited to the U.S. stockholder's account.

Dispositions

          A U.S. stockholder generally will recognize taxable gain or loss if the U.S. stockholder sells or otherwise disposes of his, her or its shares of our common stock. The amount of gain or loss will be measured by the difference between such stockholder's adjusted tax basis in the common stock sold and the amount of the proceeds received in exchange. Any gain or loss arising from such sale or disposition generally will be treated as long-term capital gain or loss if the U.S. stockholder has held his, her or its shares for more than one year; otherwise, any such gain or loss will be classified as short-term capital gain or loss. However, any capital loss arising from the sale or disposition of shares of our common stock held for six months or less will be treated as long-term capital loss to the extent of the amount of capital gain dividends received, or undistributed capital gain deemed received, with respect to such shares. In addition, all or a portion of any loss recognized upon a disposition of shares of our common stock may be disallowed if other shares of our common stock are purchased (whether through reinvestment of distributions or otherwise) within 30 days before or after the disposition. In such case, the basis of the newly purchased shares will be adjusted to reflect the disallowed loss.

          In general, non-corporate U.S. stockholders currently are subject to a maximum U.S. federal income tax rate of 20.0% on their recognized net capital gain (i.e., the excess of realized net long-term capital gains over realized net short-term capital losses), including any long-term capital gain derived from an investment in shares of our common stock. Such rate is lower than the maximum rate on ordinary income currently payable by individuals. In addition, individuals with a modified adjusted gross income in excess of $200,000 ($250,000 in the case of married individuals filing jointly) and certain estates and trusts are subject to an additional 3.8% tax on their "net investment income", which generally includes net income from interest, dividends, annuities, royalties and rents, and net capital gains (other than certain amounts earned from trades or businesses). Corporate U.S. stockholders currently are subject to U.S. federal income tax on net capital gain at the maximum 35.0% rate also applied to ordinary income. Non-corporate U.S. stockholders with net capital losses for a year (i.e., capital losses in excess of capital gains) generally may deduct up to $3,000 of such losses against their ordinary income each year; any net capital losses of a non-corporate U.S. stockholder in excess of $3,000 generally may be carried forward and used in subsequent years as provided in the Code. Corporate U.S. stockholders generally may not deduct any net capital losses for a year, but may carry back such losses for three years or carry forward such losses for five years.

Tax Shelter Reporting Regulations

          Under applicable Treasury Regulations, if a U.S. stockholder recognizes a loss with respect to our common stock of $2.0 million or more for a non-corporate U.S. stockholder or $10.0 million or more for a corporate U.S. stockholder in any single taxable year (or a greater loss over a

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combination of years), the U.S. stockholder must file with the IRS a disclosure statement on Form 8886. Direct U.S. stockholders of portfolio securities are in many cases excepted from this reporting requirement, but under current guidance, U.S. stockholders of a RIC are not excepted. Future guidance may extend the current exception from this reporting requirement to U.S. stockholders of most or all RICs. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayer's treatment of the loss is proper. U.S. stockholders should consult their own tax advisers to determine the applicability of these regulations in light of their individual circumstances.

Backup Withholding

          We may be required to withhold U.S. federal income tax ("backup withholding") from any distribution to a U.S. stockholder (other than a corporation, a financial institution, or a stockholder that otherwise qualifies for an exemption) (1) that fails to provide us or the distribution paying agent with a correct taxpayer identification number or a certificate that such stockholder is exempt from backup withholding or (2) with respect to whom the IRS notifies us that such stockholder has failed to properly report certain interest and dividend income to the IRS and to respond to notices to that effect. An individual's taxpayer identification number is his or her social security number. Any amount withheld under backup withholding is allowed as a credit against the U.S. stockholder's U.S. federal income tax liability, provided that proper information is timely provided to the IRS.


Taxation of Non-U.S. Stockholders

          The following discussion applies only to Non-U.S. stockholders. Whether an investment in shares of our common stock is appropriate for a Non-U.S. stockholder will depend upon that person's particular circumstances. An investment in shares of our common stock by a Non-U.S. stockholder may have adverse tax consequences to such Non-U.S. stockholder. Non-U.S. stockholders should consult their tax advisers before investing in our common stock.

Distributions; Dispositions

          Subject to the discussion in "— Foreign Account Tax Compliance Act" below, distributions of our "investment company taxable income" to Non-U.S. stockholders (including interest income and realized net short-term capital gains in excess of realized long-term capital losses, which generally would be free of withholding if paid to Non-U.S. stockholders directly) will be subject to withholding of U.S. federal income tax at a 30.0% rate (or lower rate provided by an applicable income tax treaty) to the extent of our current or accumulated earnings and profits, unless an applicable exception applies. Such dividends will not be subject to withholding of U.S. federal income tax to the extent that we report such dividends as "interest-related dividends" or "short-term capital gain dividends". Under this exemption, interest-related dividends and short-term capital gain dividends generally represent distributions of interest or short-term capital gains that would not have been subject to withholding of U.S. federal income tax at the source if they had been received directly by a foreign person, and that satisfy certain other requirements. No assurance can be given as to whether any of our distributions will be eligible for this exemption from withholding tax or, if eligible, will be reported as such by us.

          If the distributions are effectively connected with a U.S. trade or business of the Non-U.S. stockholder (and, if required by an applicable income tax treaty, are attributable to a U.S. permanent establishment of the Non-U.S. stockholder), we will not be required to withhold U.S. federal income tax if the Non-U.S. stockholder complies with applicable certification and disclosure requirements, although the distributions will be subject to U.S. federal income tax at the rates applicable to U.S. persons. (Special certification requirements apply to a Non-U.S. stockholder that

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is a foreign partnership or a foreign trust, and such entities are urged to consult their own tax advisers.)

          Subject to the discussion in "— Foreign Account Tax Compliance Act" below, actual or deemed distributions of our net capital gains to a Non-U.S. stockholder, and gains realized by a Non-U.S. stockholder upon the sale of our common stock, will not be subject to U.S. federal income or withholding tax unless the distributions or gains, as the case may be, are effectively connected with a U.S. trade or business of the Non-U.S. stockholder (and, if required by an applicable income tax treaty, are attributable to a U.S. permanent establishment of the Non-U.S. stockholder).

          If we distribute our net capital gains in the form of deemed rather than actual distributions, a Non-U.S. stockholder will be entitled to a U.S. federal income tax credit or tax refund equal to the stockholder's allocable share of the tax we pay on the capital gains deemed to have been distributed. In order to obtain the refund, the Non-U.S. stockholder must obtain a U.S. taxpayer identification number and file a U.S. federal income tax return, even if the Non-U.S. stockholder would not otherwise be required to obtain a U.S. taxpayer identification number or file a U.S. federal income tax return. For a corporate Non-U.S. stockholder, both distributions (actual or deemed) and gains realized upon the sale of our common stock that are effectively connected with a U.S. trade or business may, under certain circumstances, be subject to an additional "branch profits tax" at a 30.0% rate (or at a lower rate if provided for by an applicable income tax treaty). Accordingly, investment in shares of our common stock may not be appropriate for a Non-U.S. stockholder.

Dividend Reinvestment Plan

          Under our dividend reinvestment plan, if a Non-U.S. stockholder owns shares of our common stock registered in the Non-U.S. stockholder's own name, the Non-U.S. stockholder will have all cash distributions automatically reinvested in additional shares of our common stock unless it opts out of the dividend reinvestment plan by delivering a written, phone or internet notice to the plan administrator at least three days prior to the payment date of the next dividend or distribution. See "Dividend Reinvestment Plan". If the distribution is a distribution of our investment company taxable income, is not reported by us as a short-term capital gain dividend or interest-related dividend, if applicable, and is not effectively connected with a U.S. trade or business of the Non-U.S. stockholder (or, if required by an applicable income tax treaty, is not attributable to a U.S. permanent establishment of the Non-U.S. stockholder), the amount distributed (to the extent of our current or accumulated earnings and profits) will be subject to withholding of U.S. federal income tax at a 30.0% rate (or lower rate provided by an applicable income tax treaty) and only the net after-tax amount will be reinvested in our common stock. If the distribution is effectively connected with a U.S. trade or business of the Non-U.S. stockholder (and, if required by an applicable income tax treaty, is attributable to a U.S. permanent establishment of the Non-U.S. stockholder), the full amount of the distribution generally will be reinvested in our common stock and will nevertheless be subject to U.S. federal income tax at the ordinary income rates applicable to U.S. persons. The Non-U.S. stockholder will have an adjusted tax basis in the additional shares of our common stock purchased through the plan equal to the amount of the reinvested distribution. The additional shares will have a new holding period commencing on the day following the day on which the shares are credited to the Non-U.S. stockholder's account.

Backup Withholding

          A Non-U.S. stockholder who is a non-resident alien individual, and who is otherwise subject to withholding of U.S. federal income tax, will be subject to information reporting and may be subject to backup withholding of U.S. federal income tax on taxable distributions unless the Non-U.S. stockholder provides us or the distribution paying agent with an IRS Form W-8BEN, W-8BEN-E (or

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an acceptable substitute form) or otherwise meets documentary evidence requirements for establishing that it is a Non-U.S. stockholder or otherwise establishes an exemption from backup withholding.

          Non-U.S. stockholders should consult their own tax advisers with respect to the U.S. federal income and withholding tax consequences, and state, local and foreign tax consequences, of an investment in shares of our common stock.


Foreign Account Tax Compliance Act

          Legislation commonly referred to as the "Foreign Account Tax Compliance Act," or "FATCA," generally imposes a 30.0% withholding tax on payments of certain types of income to foreign financial institutions ("FFIs") unless such FFIs (i) enter into an agreement with the U.S. Treasury to report certain required information with respect to accounts held by U.S. persons (or held by foreign entities that have U.S. persons as substantial owners) or (ii) reside in jurisdictions that have entered into an intergovernmental agreement ("IGA") with the U.S. to provide such information and are in compliance with the terms of such IGA and any enabling legislation or regulations. The types of income subject to the tax include, among other things, U.S. source dividends and, after December 31, 2018, the gross proceeds from the sale of any property that could produce U.S. source dividends. The information required to be reported includes the identity and taxpayer identification number of each account holder that is a U.S. person and transaction activity within the holder's account. In addition, subject to certain exceptions, this legislation also imposes a 30.0% withholding on payments to foreign entities that are not financial institutions unless the foreign entity certifies that it does not have a 10.0% or greater U.S. owner or provides the withholding agent with identifying information on each 10.0% or greater U.S. owner. Depending on the status of a Non-U.S. stockholder and the status of the intermediaries through which such shareholder holds their shares, a Non-U.S. stockholder could be subject to this 30.0% withholding tax with respect to distributions on their shares of our common stock and proceeds from the sale of their shares of our common stock. A U.S. stockholder who hold their shares through foreign entities or intermediaries may also be subject to this 30% withholding tax. Under certain circumstances, a stockholder might be eligible for refunds or credits of such taxes.


Certain State, Local and Foreign Tax Matters

          We and our stockholders may be subject to state, local or foreign taxation in various jurisdictions in which we or they transact business, own property or reside. The state, local or foreign tax treatment of us and our stockholders may not conform to the U.S. federal income tax treatment discussed above. In particular, our investments in foreign securities may be subject to foreign withholding taxes. The imposition of any such foreign, state, local or other taxes would reduce cash available for distribution to our stockholders, and our stockholders would not be entitled to claim a credit or deduction with respect to such taxes. Prospective investors should consult with their own tax advisers regarding the application and effect of state, local and foreign income and other tax laws on an investment in shares of our common stock.

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REGULATION

          We have elected to be regulated as a BDC under the 1940 Act. The 1940 Act contains prohibitions and restrictions relating to investments by a BDC in another investment company and transactions between BDCs and their affiliates, principal underwriters and affiliates of those affiliates or underwriters. The 1940 Act requires that a majority of the directors be persons other than "interested persons", as that term is defined in the 1940 Act. In addition, the 1940 Act provides that we may not change the nature of our business so as to cease to be, or to withdraw its election as a BDC unless approved by a majority of our outstanding voting securities. The 1940 Act defines "a majority of the outstanding voting securities" as the lesser of (i) 67.0% or more of the voting securities present at a meeting if the holders of more than 50.0% of our outstanding voting securities are present or represented by proxy or (ii) more than 50.0% of our voting securities.

          We may, to the extent permitted under the 1940 Act, issue additional equity or debt capital. We will generally not be able to issue and sell our common stock at a price below net asset value per share. See "Risk Factors — Regulations governing the operations of BDCs will affect our ability to raise additional equity capital as well as our 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". We may, however, sell our common stock, or warrants, options or rights to acquire our common stock, at a price below the then-current net asset value of our common stock if our board of directors determines that such sale is in our best interests and the best interests of our stockholders, and our stockholders approve such sale. In addition, we may generally issue new shares of our common stock at a price below net asset value in rights offerings to existing stockholders, in payment of dividends and in certain other limited circumstances.

          As a BDC, we will not generally be 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. In addition, as a BDC, we are not permitted to issue stock in consideration for services.


SBA Regulation

          On August 1, 2014, our wholly-owned direct and indirect subsidiary, SBIC LP received a license from the SBA to operate as an SBIC under Section 301(c) of the 1958 Act. SBIC LP has an investment strategy and philosophy substantially similar to ours 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. SBIC LP is subject to 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 our 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, we received exemptive relief from the SEC to permit us to exclude the SBA-guaranteed debentures of SBIC LP from our 200.0% asset coverage test under the 1940 Act. As such, our ratio of total consolidated assets to outstanding indebtedness may be less than

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200.0%. This provides us with increased investment flexibility but also increases our 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 an 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.

          In December 2015, the 2016 omnibus spending bill approved by the U.S. Congress and signed into law by the President increased the amount of SBA-guaranteed debentures that affiliated SBIC funds can have outstanding from $225.0 million to $350.0 million, subject to SBA approval.

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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:

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          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 June 30, 2016, 8.3% of our total assets were non-qualifying assets.


Managerial Assistance to Portfolio Companies

          BDCs generally must offer to make available to the issuer of its 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 our behalf to portfolio companies that request this assistance.


Temporary Investments

          Pending investments in other types of qualifying assets, our 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 our assets are qualifying assets. Typically, we 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 us, 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 our assets that may be invested in such repurchase agreements. However, if more than 25.0% of our total assets constitute repurchase agreements from a single counterparty, we would not meet the Diversification Tests in order to qualify as a RIC for U.S. federal income tax purposes. Thus, we do 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 we enter into repurchase agreement transactions.


Senior Securities

          We are permitted, under specified conditions, to issue multiple classes of debt if our 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, the NMFC Credit Facility, the Convertible Notes or the Unsecured Notes), we must make provisions to prohibit any distribution to our stockholders or the repurchase of our equity securities unless we meet the applicable asset coverage ratios at the time of the distribution or repurchase. We may also borrow amounts up to 5.0% of the value of our total assets for temporary or emergency purposes without regard to our asset coverage. We will include our assets and liabilities and all of our wholly-owned direct and indirect subsidiaries for purposes of calculating the asset coverage ratio. We received exemptive relief from the SEC on November 5, 2014, allowing us to modify the asset coverage requirement to exclude SBA-guaranteed debentures from this calculation. For a discussion of the risks associated with leverage, see "Risk Factors — Risks Relating to Our Business — Regulations governing the operations of BDCs will affect our ability to raise additional equity capital as well as our ability to issue senior securities or borrow for

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investment purposes, any or all of which could have a negative effect on our investment objectives and strategies" and "— We borrow money, which could magnify the potential for gain or loss on amounts invested in us and increase the risk of investing in us".


Code of Ethics

          We have 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 us 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, District of Columbia 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330, and a copy 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

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


Proxy Voting Policies and Procedures

          We have delegated our 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 our non-interested directors, and, accordingly, are subject to change.

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 our securities in a timely manner free of conflicts of interest and in our best interests.

          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 our securities in our best interest. 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 us. 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

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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 we voted proxies with respect to our 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.


Other

          We will be periodically examined by the SEC for compliance with the 1940 Act.

          We are required to provide and maintain a bond issued by a reputable fidelity insurance company to protect us against larceny and embezzlement. Furthermore, as a BDC, we will be prohibited from protecting any director or officer against any liability to us or our stockholders arising from willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person's office.


Exchange Act and Sarbanes-Oxley Act Compliance

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

          The Sarbanes-Oxley Act of 2002 requires us to review our current policies and procedures to determine whether we comply with the Sarbanes-Oxley Act of 2002 and the regulations promulgated thereunder. We intend to monitor our compliance with all regulations that are adopted under the Sarbanes-Oxley Act of 2002 and will take actions necessary to ensure that we are in compliance therewith.


Fundamental Investment Policies

          Neither our investment objective nor our investment policies are identified as fundamental. Accordingly, our investment objective and policies may be changed by us without the approval of our stockholders.

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NYSE Corporate Governance Regulations

          The NYSE has adopted corporate governance regulations that listed companies must comply with. We intend to be in compliance with such corporate governance listing standards applicable to BDCs. We intend to monitor our compliance with all future listing standards and to take all necessary actions to ensure that we are in compliance therewith. If we were to be delisted by the NYSE, the liquidity of our common stock would be materially impaired.

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PLAN OF DISTRIBUTION

          We may offer, from time to time, up to $250,000,000 of common stock, preferred stock, subscription rights to purchase shares of common stock, debt securities or warrants, in one or more underwritten public offerings, at-the-market offerings, negotiated transactions, block trades, best efforts or a combination of these methods. We may sell the securities through underwriters or dealers, directly to one or more purchasers through agents or through a combination of any such methods of sale. In the case of a rights offering, the applicable prospectus supplement will set forth the number of shares of our common stock issuable upon the exercise of each right and the other terms of such rights offering. Any underwriter or agent involved in the offer and sale of the securities will be named in the applicable prospectus supplement. A prospectus supplement or supplements will also describe the terms of the offering of the securities, including: the purchase price of the securities and the proceeds we will receive from the sale; any options under which underwriters may purchase additional securities from us; any agency fees or underwriting discounts and other items constituting agents' or underwriters' compensation; the public offering price; any discounts or concessions allowed or re-allowed or paid to dealers; and any securities exchange or market on which the securities may be listed. Only underwriters named in the prospectus supplement will be underwriters of the shares offered by the prospectus supplement.

          The distribution of the securities may be effected from time to time in one or more transactions at a fixed price or prices, which may be changed, at prevailing market prices at the time of sale, at prices related to such prevailing market prices, or at negotiated prices, provided, however, that the offering price per share of our common stock, less any underwriting commissions or discounts, must equal or exceed the net asset value per share of our common stock at the time of the offering except (i) in connection with a rights offering to our existing stockholders, (ii) with the prior approval of the majority of our common stockholders, or (iii) under such other circumstances as the SEC may permit. Any offering of securities by us that requires the consent of the majority of our common stockholders, must occur, if at all, within one year after receiving such consent. The price at which the securities may be distributed may represent a discount from prevailing market prices.

          In connection with the sale of the securities, underwriters or agents may receive compensation from us or from purchasers of the securities, for whom they may act as agents, in the form of discounts, concessions or commissions. Underwriters may sell the securities to or through dealers and such dealers may receive compensation in the form of discounts, concessions or commissions from the underwriters and/or commissions from the purchasers for whom they may act as agents. Underwriters, dealers and agents that participate in the distribution of the securities may be deemed to be underwriters under the Securities Act, and any discounts and commissions they receive from us and any profit realized by them on the resale of the securities may be deemed to be underwriting discounts and commissions under the Securities Act. Any such underwriter or agent will be identified and any such compensation received from us will be described in the applicable prospectus supplement. The maximum aggregate commission or discount to be received by any member of FINRA or independent broker-dealer, including any reimbursements to underwriters or agents for certain fees and legal expenses incurred by them, will not be greater than 10.0% of the gross proceeds of the sale of shares offered pursuant to this prospectus and any applicable prospectus supplement.

          Any underwriter may engage in over-allotment, stabilizing transactions, short-covering transactions and penalty bids in accordance with Regulation M under the Exchange Act. Over-allotment involves sales in excess of the offering size, which create a short position. Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum price. Syndicate-covering or other short-covering transactions involve purchases of the securities, either through exercise of the option to purchase additional shares from

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us or in the open market after the distribution is completed, to cover short positions. Penalty bids permit the underwriters to reclaim a selling concession from a dealer when the securities originally sold by the dealer are purchased in a stabilizing or covering transaction to cover short positions. Those activities may cause the price of the securities to be higher than it would otherwise be. If commenced, the underwriters may discontinue any of the activities at any time.

          Any underwriters that are qualified market makers on the NYSE may engage in passive market making transactions in our common stock on the NYSE in accordance with Regulation M under the Exchange Act, during the business day prior to the pricing of the offering, before the commencement of offers or sales of our common stock. Passive market makers must comply with applicable volume and price limitations and must be identified as passive market makers. In general, a passive market maker must display its bid at a price not in excess of the highest independent bid for such security; if all independent bids are lowered below the passive market maker's bid, however, the passive market maker's bid must then be lowered when certain purchase limits are exceeded. Passive market making may stabilize the market price of the shares at a level above that which might otherwise prevail in the open market and, if commenced, may be discontinued at any time.

          We may sell securities directly or through agents we designate from time to time. We will name any agent involved in the offering and sale of securities and we will describe any commissions we will pay the agent in the prospectus supplement. Unless the prospectus supplement states otherwise, our agent will act on a best-efforts basis for the period of its appointment.

          Unless otherwise specified in the applicable prospectus supplement, each class or series of securities will be a new issue with no trading market, other than our common stock, which is traded on the NYSE. We may elect to list any other class or series of securities on any exchanges, but we are not obligated to do so. We cannot guarantee the liquidity of the trading markets for any securities.

          Under agreements that we may enter, underwriters, dealers and agents who participate in the distribution of our securities may be entitled to indemnification by us against certain liabilities, including liabilities under the Securities Act, or contribution with respect to payments that the agents or underwriters may make with respect to these liabilities. Underwriters, dealers and agents may engage in transactions with, or perform services for, us in the ordinary course of business.

          If so indicated in the applicable prospectus supplement, we will authorize underwriters or other persons acting as our agents to solicit offers by certain institutions to purchase our securities from us pursuant to contracts providing for payment and delivery on a future date. Institutions with which such contracts may be made include commercial and savings banks, insurance companies, pension funds, investment companies, educational and charitable institutions and others, but in all cases such institutions must be approved by us. The obligations of any purchaser under any such contract will be subject to the condition that the purchase of our securities shall not at the time of delivery be prohibited under the laws of the jurisdiction to which such purchaser is subject. The underwriters and such other agents will not have any responsibility in respect of the validity or performance of such contracts. Such contracts will be subject only to those conditions set forth in the prospectus supplement, and the prospectus supplement will set forth the commission payable for solicitation of such contracts.

          We may enter into derivative transactions with third parties, or sell securities not covered by this prospectus to third parties in privately negotiated transactions. If the applicable prospectus supplement indicates, in connection with those derivatives, the third parties may sell securities covered by this prospectus and the applicable prospectus supplement, including in short sale transactions. If so, the third party may use securities pledged by us or borrowed from us or others

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to settle those sales or to close out any related open borrowings of stock, and may use securities received from us in settlement of those derivatives to close out any related open borrowings of stock. The third parties in such sale transactions will be underwriters and, if not identified in this prospectus, will be identified in the applicable prospectus supplement.

          In order to comply with the securities laws of certain states, if applicable, our securities offered hereby will be sold in such jurisdictions only through registered or licensed brokers or dealers.

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SAFEKEEPING AGENT, CUSTODIAN, TRANSFER AGENT, DISTRIBUTION
PAYING AGENT AND REGISTRAR

          We maintain custody of our assets in accordance with the requirements of Rule 17f-2 under the 1940 Act. Also in accordance with this rule, some of our portfolio securities are held under a safekeeping agreement, by Wells Fargo Bank, National Association, which is a bank whose functions and physical facilities are supervised by federal or state authority. The address of the safekeeping agent is: 9062 Old Annapolis Road, Columbia, Maryland 21045. In addition, some of our portfolio securities are held under a custody agreement by U.S. Bank National Association. The address of the custodian is: One Federal Street, 3rd Floor, Boston, Massachusetts 02110. American Stock Transfer & Trust Company, LLC acts as our transfer agent, distribution paying agent and registrar. The principal address of the transfer agent, distribution paying agent and registrar is 6201 15th Avenue, Brooklyn, New York 11219, telephone number: (800) 937-5449.

BROKERAGE ALLOCATION AND OTHER PRACTICES

          Since we generally acquire and dispose of our investments in privately negotiated transactions, we expect that we will infrequently use brokers in the normal course of our business. Subject to policies established by our board of directors, the Investment Adviser is primarily responsible for the execution of the publicly-traded securities portion of our portfolio transactions and the allocation of brokerage commissions. The Investment Adviser does not execute transactions through any particular broker or dealer, but seeks to obtain the best net results, taking into account such factors as price (including the applicable brokerage commission or dealer spread), size of order, difficulty of execution, and operational facilities of the firm and the firm's risk and skill in positioning blocks of securities. While the Investment Adviser generally seeks reasonably competitive trade execution costs, we will not necessarily pay the lowest spread or commission available. Subject to applicable legal requirements, the Investment Adviser may select a broker based partly upon brokerage or research services provided to the Investment Adviser and us and any other clients. In return for such services, we may pay a higher commission than other brokers would charge if the Investment Adviser determines in good faith that such commission is reasonable in relation to the services provided.

LEGAL MATTERS

          Certain legal matters regarding the securities offered hereby will be passed upon for us by Sutherland Asbill & Brennan LLP, Washington, D.C. Certain legal matters in connection with the offering will be passed upon for the underwriters, if any, by the counsel named in the applicable prospectus supplement.

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

          With respect to the unaudited interim financial information of New Mountain Finance Corporation as of June 30, 2016 and for the three and six month periods ended June 30, 2016 and 2015, which is included in this prospectus, Deloitte & Touche LLP, an independent registered public accounting firm, has applied limited procedures in accordance with the standards of the Public Company Accounting Oversight Board (United States) for a review of such information. However, as stated in their report included in this prospectus, they did not audit and they do not express an opinion on that interim financial information. Accordingly, the degree of reliance on their report on such information should be restricted in light of the limited nature of the review procedures applied. Deloitte & Touche LLP are not subject to the liability provisions of Section 11 of the Securities Act for their reports on the unaudited interim financial information because those reports are not "reports" or a "part" of the Registration Statement prepared or certified by an accountant within the meaning of Sections 7 and 11 of the Act.

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          The consolidated financial statements and the related information included in the Senior Securities table, and the effectiveness of internal control over financial reporting, included in this prospectus, have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their reports appearing herein and elsewhere in the Registration Statement. Such financial statements and information included in the Senior Securities table have been so included in reliance upon the reports of such firm, given their authority as experts in accounting and auditing.

          The principal business address of Deloitte & Touche LLP is 30 Rockefeller Center Plaza, New York, New York 10112.

AVAILABLE INFORMATION

          We have filed with the SEC a registration statement on Form N-2, together with all amendments and related exhibits, under the Securities Act, with respect to the securities offered by this prospectus. The registration statement contains additional information about us and the securities being offered by this prospectus.

          We are required to file with or submit to the SEC annual, quarterly and current reports, proxy statements and other information meeting the informational requirements of the Exchange Act. You may inspect and copy these reports, proxy statements and other information, as well as the registration statement and related exhibits and schedules, at the Public Reference Room of the SEC at 100 F Street, N.E., Washington, District of Columbia 20549. You may obtain information on the operation of the Public Reference Room 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, which are available on the SEC's website at http://www.sec.gov. Copies of these reports, proxy and information statements and other information may be obtained, after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov, or by writing the SEC's Public Reference Section, 100 F Street, N.E., Washington, District of Columbia 20549. This information will also be available free of charge by contacting us at 787 Seventh Avenue, 48th Floor, New York, New York 10019, by telephone at (212) 720-0300, or on our website at http://www.newmountainfinance.com. Information contained on our website or on the SEC's web site about us is not incorporated into this prospectus and you should not consider information contained on our website or on the SEC's website to be part of this prospectus.

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 shareholders and prospective and former shareholders. These policies apply to our shareholders 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.

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          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) 655-0083.

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INDEX TO FINANCIAL STATEMENTS

    PAGE
 

INTERIM FINANCIAL STATEMENTS FOR THE QUARTER ENDED JUNE 30, 2016

       

New Mountain Finance Corporation

       

Consolidated Statements of Assets and Liabilities as of June 30, 2016 (unaudited) and December 31, 2015 (unaudited)

    F-2  

Consolidated Statements of Operations for the three months and six months ended June 30, 2016 (unaudited) and June 30, 2015 (unaudited)

    F-3  

Consolidated Statements of Changes in Net Assets for the six months ended June 30, 2016 (unaudited) and June 30, 2015 (unaudited)

    F-4  

Consolidated Statements of Cash Flows for the six months ended June 30, 2016 (unaudited) and June 30, 2015 (unaudited)

    F-5  

Consolidated Schedule of Investments as of June 30, 2016 (unaudited)

    F-6  

Consolidated Schedule of Investments as of December 31, 2015

    F-17  

Notes to the Consolidated Financial Statements of New Mountain Finance Corporation

    F-27  

Report of Independent Registered Public Accounting Firm

    F-80  

AUDITED FINANCIAL STATEMENTS

   
 
 

Report of Independent Registered Public Accounting Firm

    F-81  

New Mountain Finance Corporation

       

Consolidated Statements of Assets and Liabilities as of December 31, 2015 and December 31, 2014

    F-82  

Consolidated Statements of Operations for the years ended December 31, 2015, December 31, 2014 and December 31, 2013

    F-83  

Consolidated Statements of Changes in Net Assets for the years ended December 31, 2015, December 31, 2014 and December 31, 2013

    F-84  

Consolidated Statements of Cash Flows for the years ended December 31, 2015, December 31, 2014 and December 31, 2013

    F-85  

Consolidated Schedule of Investments as of December 31, 2015

    F-86  

Consolidated Schedule of Investments as of December 31, 2014

    F-97  

Notes to the Consolidated Financial Statements of New Mountain Finance Corporation

    F-106  

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New Mountain Finance Corporation

Consolidated Statements of Assets and Liabilities

(in thousands, except shares and per share data)

(unaudited)

    June 30,
2016
    December 31,
2015
 

Assets

             

Investments at fair value

             

Non-controlled/non-affiliated investments (cost of $1,383,739 and $1,438,415, respectively)

  $ 1,321,957   $ 1,377,515  

Non-controlled/affiliated investments (cost of $94,105 and $89,047, respectively)

    92,320     87,287  

Controlled investments (cost of $69,139 and $41,254, respectively)

    83,784     47,422  

Total investments at fair value (cost of $1,546,983 and $1,568,716, respectively)

    1,498,061     1,512,224  

Securities purchased under collateralized agreements to resell (cost of $30,000 and $30,000, respectively)

    29,630     29,704  

Cash and cash equivalents

    34,467     30,102  

Interest and dividend receivable

    15,272     13,832  

Receivable from unsettled securities sold

    3,600      

Receivable from affiliates

    953     360  

Other assets

    2,618     1,924  

Total assets

  $ 1,584,601   $ 1,588,146  

Liabilities

             

Borrowings

             

Holdings Credit Facility

  $ 348,013   $ 419,313  

SBA-guaranteed debentures

    121,745     117,745  

Convertible Notes

    115,000     115,000  

NMFC Credit Facility

    87,000     90,000  

Unsecured Notes

    50,000      

Deferred financing costs (net of accumulated amortization of $10,411 and $8,822, respectively)

    (13,915 )   (13,992 )

Net borrowings

    707,843     728,066  

Payable for unsettled securities purchased

    15,832     5,441  

Management fee payable

    5,577     5,466  

Incentive fee payable

    5,449     5,622  

Interest payable

    2,749     2,343  

Deferred tax liability

    868     1,676  

Payable to affiliates

    437     564  

Other liabilities

    2,521     2,060  

Total liabilities

    741,276     751,238  

Commitments and contingencies (See Note 9)

             

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, 64,005,387 and 64,005,387 shares issued, respectively, and 63,756,888 and 64,005,387 shares outstanding, respectively

    640     640  

Paid in capital in excess of par

    899,751     899,713  

Treasury stock at cost, 248,499 and 0 shares held, respectively

    (2,948 )    

Accumulated undistributed net investment income

    4,146     4,164  

Accumulated undistributed net realized gains on investments

    2,383     1,342  

Net unrealized (depreciation) appreciation (net of provision for taxes of $868 and $1,676, respectively)

    (60,647 )   (68,951 )

Total net assets

  $ 843,325   $ 836,908  

Total liabilities and net assets

  $ 1,584,601   $ 1,588,146  

Number of shares outstanding

    63,756,888     64,005,387  

Net asset value per share

  $ 13.23   $ 13.08  

   

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

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New Mountain Finance Corporation

Consolidated Statements of Operations

(in thousands, except shares and per share data)

(unaudited)

    Three Months Ended     Six Months Ended
 

    June 30,
2016
    June 30,
2015
    June 30,
2016
    June 30,
2015
 

Investment income

                         

From non-controlled/non-affiliated investments:

                         

Interest income

  $ 36,302   $ 33,767   $ 72,008   $ 65,621  

Dividend income

    92     201     92     102  

Other income

    997     320     2,219     1,877  

From non-controlled/affiliated investments:

                         

Interest income

    1,627     1,183     3,209     2,226  

Dividend income

    887     951     1,807     1,809  

Other income

    305     308     618     622  

From controlled investments:

                         

Interest income

    483     520     985     970  

Dividend income

    742     643     1,461     1,191  

Other income

    55     12     67     23  

Total investment income

    41,490     37,905     82,466     74,441  

Expenses

                         

Incentive fee

    5,449     5,057     10,834     9,935  

Capital gains incentive fee

        9         490  

Total incentive fees

    5,449     5,066     10,834     10,425  

Management fee

    6,818     6,198     13,654     12,666  

Interest and other financing expenses

    6,771     5,598     13,373     11,075  

Professional fees

    861     909     1,738     1,648  

Administrative expenses

    629     522     1,468     1,157  

Other general and administrative expenses

    384     453     816     882  

Total expenses

    20,912     18,746     41,883     37,853  

Less: management fee waived (See Note 5)

    (1,241 )   (1,247 )   (2,560 )   (2,629 )

Less: expenses waived and reimbursed (See Note 5)

    (63 )       (347 )   (400 )

Net expenses

    19,608     17,499     38,976     34,824  

Net investment income before income taxes

    21,882     20,406     43,490     39,617  

Income tax expense

    50     153     91     302  

Net investment income

    21,832     20,253     43,399     39,315  

Net realized gains (losses):

                         

Non-controlled/non-affiliated investments

    865     (13,338 )   1,041     (13,471 )

Net change in unrealized appreciation (depreciation):

                         

Non-controlled/non-affiliated investments

    13,532     11,970     (882 )   10,508  

Non-controlled/affiliated investments

    1,126     1,600     (25 )   728  

Controlled investments

    7,298     (86 )   8,477     6,734  

Securities purchased under collateralized agreements to resell

    (44 )       (74 )    

Benefit (provision) for taxes

    84     (135 )   808     (636 )

Net realized and unrealized gains (losses)

    22,861     11     9,345     3,863  

Net increase in net assets resulting from operations

  $ 44,693   $ 20,264   $ 52,744   $ 43,178  

Basic earnings per share

  $ 0.70   $ 0.35   $ 0.83   $ 0.74  

Weighted average shares of common stock outstanding — basic (See Note 11)

    63,839,920     58,076,552     63,887,036     58,037,868  

Diluted earnings per share

  $ 0.64   $ 0.33   $ 0.77   $ 0.70  

Weighted average shares of common stock outstanding — diluted (See Note 11)

    71,117,051     65,313,497     71,164,167     65,265,931  

Dividends declared and paid per share

  $ 0.34   $ 0.34   $ 0.68   $ 0.68  

   

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

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New Mountain Finance Corporation

Consolidated Statements of Changes in Net Assets

(in thousands, except shares and per share data)

(unaudited)

    Six Months Ended
 

    June 30, 2016     June 30, 2015
 

Increase (decrease) in net assets resulting from operations:

             

Net investment income

  $ 43,399   $ 39,315  

Net realized gains (losses) on investments

    1,041     (13,471 )

Net change in unrealized appreciation (depreciation) of investments

    7,570     17,970  

Net change in unrealized (depreciation) appreciation of securities purchased under collateralized agreements to resell

    (74 )    

Benefit (provision) for taxes

    808     (636 )

Net increase in net assets resulting from operations

    52,744     43,178  

Capital transactions

             

Deferred offering costs

    38     59  

Dividends declared to stockholders from net investment income

    (43,417 )   (39,465 )

Reinvestment of dividends

        2,384  

Repurchase of shares under repurchase program

    (2,948 )    

Total net decrease in net assets resulting from capital transactions

    (46,327 )   (37,022 )

Net increase in net assets

    6,417     6,156  

Net assets at the beginning of the period

    836,908     802,170  

Net assets at the end of the period

  $ 843,325   $ 808,326  

Capital share activity

             

Shares issued from reinvestment of dividends

        163,931  

Shares repurchased under repurchase program

    (248,499 )    

Net (decrease) increase in shares outstanding

    (248,499 )   163,931  

   

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

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New Mountain Finance Corporation

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

    Six Months Ended
 

    June 30, 2016     June 30, 2015
 

Cash flows from operating activities

             

Net increase in net assets resulting from operations

  $ 52,744   $ 43,178  

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

             

Net realized (gains) losses on investments

    (1,041 )   13,471  

Net change in unrealized (appreciation) depreciation of investments

    (7,570 )   (17,970 )

Net change in unrealized depreciation (appreciation) of securities purchased under collateralized agreements to resell

    74      

Amortization of purchase discount

    (1,617 )   (1,176 )

Amortization of deferred financing costs

    1,589     1,419  

Non-cash investment income

    (3,356 )   (3,209 )

(Increase) decrease in operating assets:

             

Purchase of investments and delayed draw facilities

    (163,888 )   (187,045 )

Proceeds from sales and paydowns of investments

    198,211     315,219  

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

    43     54  

Cash paid for purchase of drawn portion of revolving credit facilities

        (3,050 )

Cash paid on drawn revolvers

    (8,851 )   (970 )

Cash repayments on drawn revolvers

    2,232     475  

Interest and dividend receivable

    (1,440 )   288  

Receivable from unsettled securities sold

    (3,600 )   8,912  

Receivable from affiliates

    (593 )   128  

Other assets

    (423 )   (1,162 )

Increase (decrease) in operating liabilities:

             

Payable for unsettled securities purchased

    10,391     (26,460 )

Management fee payable

    111     (193 )

Incentive fee payable

    (173 )   254  

Interest payable

    406     8  

Deferred tax liability

    (808 )   636  

Payable to affiliates

    (127 )   (362 )

Capital gains incentive fee payable

        490  

Other liabilities

    257     (658 )

Net cash flows provided by operating activities

    72,571     142,277  

Cash flows from financing activities

             

Dividends paid

    (43,417 )   (37,081 )

Offering costs paid

    (53 )   (56 )

Proceeds from Holdings Credit Facility

    103,300     138,750  

Repayment of Holdings Credit Facility

    (174,600 )   (247,000 )

Proceeds from SBA-guaranteed debentures

    4,000     17,500  

Proceeds from NMFC Credit Facility

    71,000     51,300  

Repayment of NMFC Credit Facility

    (74,000 )   (63,300 )

Proceeds from Unsecured Notes

    50,000      

Deferred financing costs paid

    (1,488 )   (1,609 )

Repurchase of shares under repurchase program

    (2,948 )    

Net cash flows used in financing activities

    (68,206 )   (141,496 )

Net increase in cash and cash equivalents

    4,365     781  

Cash and cash equivalents at the beginning of the period

    30,102     23,445  

Cash and cash equivalents at the end of the period

  $ 34,467   $ 24,226  

Supplemental disclosure of cash flow information

             

Cash interest paid

  $ 10,960   $ 9,303  

Income taxes paid

    3     143  

Non-cash operating activities:

             

Non-cash activity on investments

  $ 167   $ 60,652  

Non-cash financing activities:

             

Value of shares issued in connection with dividend reinvestment plan

  $   $ 2,384  

Accrual for offering costs

    817     824  

Accrual for deferred financing costs

    106     127  

   

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

F-5


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments

June 30, 2016

(in thousands, except shares)

(unaudited)

Portfolio Company, Location and Industry(1)

  Type of Investment   Interest Rate(10)   Maturity /
Expiration
Date
    Principal
Amount,
Par Value
or Shares
    Cost     Fair
Value
    Percent
of Net
Assets
 

Non-Controlled/Non-Affiliated Investments

                                     

Funded Debt Investments — Australia

                                     

Project Sunshine IV Pty Ltd**

                                     

Media

  First lien(2)   8.00% (L + 7.00%/M)   9/23/2019   $ 7,755   $ 7,725   $ 7,523     0.89 %

Total Funded Debt Investments — Australia

              $ 7,755   $ 7,725   $ 7,523     0.89 %

Funded Debt Investments — Luxembourg

                                     

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

                                     

Software

  Second lien(2)   10.50% (L + 9.25%/Q)   7/30/2020   $ 24,630   $ 24,349   $ 17,240        

  Second lien(3)   10.50% (L + 9.25%/Q)   7/30/2020     8,204     8,329     5,743        

                32,834     32,678     22,983     2.73 %

Total Funded Debt Investments — Luxembourg

              $ 32,834   $ 32,678   $ 22,983     2.73 %

Funded Debt Investments — Netherlands

                                     

Eiger Acquisition B.V. (Eiger Co-Borrower, LLC)**

                                     

Software

  Second lien(3)   10.13% (L + 9.13%/Q)   2/17/2023   $ 10,000   $ 9,337   $ 9,450     1.12 %

Total Funded Debt Investments — Netherlands

              $ 10,000   $ 9,337   $ 9,450     1.12 %

Funded Debt Investments — United Kingdom

                                     

Air Newco LLC**

                                     

Software

  Second lien(3)   10.50% (L + 9.50%/Q)   1/31/2023   $ 32,500   $ 31,774   $ 30,265     3.59 %

Total Funded Debt Investments — United Kingdom

              $ 32,500   $ 31,774   $ 30,265     3.59 %

Funded Debt Investments — United States

                                     

Engility Corporation (fka TASC, Inc.)

                                     

Federal Services

  First lien(2)   7.00% (L + 6.00%/Q)   5/22/2020   $ 27,600   $ 27,325   $ 27,651        

  Second lien(3)   12.00%/M   5/21/2021     12,500     12,104     12,552        

  Second lien(3)   12.00%/M   5/21/2021     4,000     3,974     4,017        

                44,100     43,403     44,220     5.24 %

Deltek, Inc.

                                     

Software

  Second lien(3)   9.50% (L + 8.50%/Q)   6/26/2023     21,000     20,982     21,276        

  Second lien(2)   9.50% (L + 8.50%/Q)   6/26/2023     20,000     19,629     20,263        

                41,000     40,611     41,539     4.93 %

Hill International, Inc.

                                     

Business Services

  First lien(2)   7.75% (L + 6.75%/Q)   9/28/2020     41,756     41,315     41,443     4.91 %

Navex Global, Inc.

                                     

Software

  First lien(4)   5.75% (L + 4.75%/Q)   11/19/2021     4,574     4,537     4,545        

  First lien(2)   5.75% (L + 4.75%/Q)   11/19/2021     2,589     2,568     2,573        

  Second lien(4)   9.75% (L + 8.75%/Q)   11/18/2022     18,187     17,972     17,734        

  Second lien(3)   9.75% (L + 8.75%/Q)   11/18/2022     15,313     14,831     14,930        

                40,663     39,908     39,782     4.72 %

AssuredPartners, Inc.

                                     

Business Services

  Second lien(2)   10.00% (L + 9.00%/M)   10/20/2023     20,000     19,246     19,762        

  Second lien(3)   10.00% (L + 9.00%/M)   10/20/2023     20,200     19,444     19,960        

                40,200     38,690     39,722     4.71 %

   

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

F-6


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

June 30, 2016

(in thousands, except shares)

(unaudited)

Portfolio Company, Location and Industry(1)

  Type of Investment   Interest Rate(10)   Maturity /
Expiration
Date
    Principal
Amount,
Par Value
or Shares
    Cost     Fair
Value
    Percent
of Net
Assets
 

TIBCO Software Inc.

                                     

Software

  First lien(2)   6.50% (L + 5.50%/M)   12/4/2020   $ 29,625   $ 28,474   $ 27,181        

  Subordinated(3)   11.38%/S   12/1/2021     15,000     14,635     12,000        

                44,625     43,109     39,181     4.65 %

Kronos Incorporated

                                     

Software

  Second lien(2)   9.75% (L + 8.50%/Q)   4/30/2020     32,632     32,454     32,931        

  Second lien(3)   9.75% (L + 8.50%/Q)   4/30/2020     4,999     4,962     5,044        

                37,631     37,416     37,975     4.50 %

ProQuest LLC

                                     

Business Services

  Second lien(3)   10.00% (L + 9.00%/Q)   12/15/2022     35,000     34,337     35,000     4.15 %

Ascend Learning, LLC

                                     

Education

  Second lien(3)   9.50% (L + 8.50%/Q)   11/30/2020     35,227     34,860     33,906     4.02 %

CRGT Inc.

                                     

Federal Services

  First lien(2)   7.50% (L + 6.50%/M)   12/19/2020     32,408     32,203     32,164     3.81 %

Valet Waste Holdings, Inc.

                                     

Business Services

  First lien(2)   8.00% (L + 7.00%/Q)   9/24/2021     29,775     29,442     29,404        

  First lien(3)(11) — Drawn   8.00% (L + 7.00%/Q)   9/24/2021     2,250     2,222     2,222        

                32,025     31,664     31,626     3.75 %

PetVet Care Centers LLC

                                     

Consumer Services

  Second lien(3)   10.25% (L + 9.25%/Q)   6/17/2021     24,000     23,804     24,329        

  Second lien(3)   10.50% (L + 9.50%/Q)   6/17/2021     6,500     6,438     6,630        

                30,500     30,242     30,959     3.67 %

Rocket Software, Inc.

                                     

Software

  Second lien(2)   10.25% (L + 8.75%/Q)   2/8/2019     30,875     30,793     30,810     3.65 %

VetCor Professional Practices LLC

                                     

Consumer Services

  First lien(4)   7.25% (L + 6.25%/Q)   4/20/2021     19,404     19,241     19,598        

  First lien(2)   7.25% (L + 6.25%/Q)   4/20/2021     7,832     7,676     7,911        

  First lien(4)(11) — Drawn   7.25% (L + 6.25%/Q)   4/20/2021     2,265     2,244     2,288        

  First lien(3)(11) — Drawn   7.25% (L + 6.25%/Q)   4/20/2021     675     668     682        

                30,176     29,829     30,479     3.61 %

CompassLearning, Inc.(15)

                                     

Education

  First lien(2)   8.00% (L + 6.75%/Q)   11/26/2018     30,000     29,605     29,828     3.54 %

Integro Parent Inc.

                                     

Business Services

  First lien(2)   6.75% (L + 5.75%/Q)   10/31/2022     18,887     18,538     18,604        

  First lien(2)   6.75% (L + 5.75%/Q)   10/31/2022     1,019     1,000     1,003        

  Second lien(3)   10.25% (L + 9.25%/Q)   10/30/2023     10,000     9,906     9,650        

                29,906     29,444     29,257     3.47 %

Ryan, LLC

                                     

Business Services

  First lien(2)   6.75% (L + 5.75%/M)   8/7/2020     26,600     26,263     26,069     3.09 %

DigiCert Holdings, Inc.

                                     

Software

  First lien(2)   6.00% (L + 5.00%/Q)   10/21/2021     24,875     24,200     24,752     2.94 %

Precyse Acquisition Corp.

                                     

Healthcare Services

  Second lien(2)   10.75% (L + 9.75%/Q)   4/20/2023     25,000     24,570     24,563     2.91 %

AAC Holding Corp.

                                     

Education

  First lien(2)   8.25% (L + 7.25%/M)   9/30/2020     24,621     24,299     24,253     2.88 %

KeyPoint Government Solutions, Inc.

                                     

Federal Services

  First lien(2)   7.75% (L + 6.50%/Q)   11/13/2017     24,143     23,977     24,023     2.85 %

   

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

F-7


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

June 30, 2016

(in thousands, except shares)

(unaudited)

Portfolio Company, Location and Industry(1)

  Type of Investment   Interest Rate(10)   Maturity /
Expiration
Date
    Principal
Amount,
Par Value
or Shares
    Cost     Fair
Value
    Percent
of Net
Assets
 

Pelican Products, Inc.

                                     

Business Products

  Second lien(3)   9.25% (L + 8.25%/Q)   4/9/2021   $ 15,500   $ 15,512   $ 14,105        

  Second lien(2)   9.25% (L + 8.25%/Q)   4/9/2021     10,000     10,111     9,100        

                25,500     25,623     23,205     2.75 %

EN Engineering, LLC

                                     

Business Services

  First lien(2)   7.00% (L + 6.00%/Q)   6/30/2021     21,214     21,030     21,002        

  First lien(2)(11) — Drawn   8.50% (P + 5.00%/Q)   6/30/2021     2,197     2,177     2,175        

                23,411     23,207     23,177     2.75 %

TWDiamondback Holdings Corp.(18)

                                     

Diamondback Drugs of Delaware, L.L.C. (TWDiamondback II Holdings LLC)

                                     

Distribution & Logistics

  First lien(4)   9.75% (L + 8.75%/Q)   11/19/2019     19,895     19,895     20,156        

  First lien(3)   9.75% (L + 8.75%/Q)   11/19/2019     2,158     2,158     2,186        

  First lien(4)   9.75% (L + 8.75%/Q)   11/19/2019     605     605     613        

                22,658     22,658     22,955     2.72 %

Vision Solutions, Inc.

                                     

Software

  First lien(2)   7.50% (L + 6.50%/Q)   6/16/2022     22,500     22,276     22,275     2.64 %

Severin Acquisition, LLC

                                     

Software

  Second lien(4)   9.75% (L + 8.75%/Q)   7/29/2022     15,000     14,864     14,850        

  Second lien(4)   9.75% (L + 8.75%/Q)   7/29/2022     4,154     4,115     4,112        

  Second lien(4)   10.25% (L + 9.25%/Q)   7/29/2022     3,273     3,242     3,305        

                22,427     22,221     22,267     2.64 %

TW-NHME Holdings Corp.(23)

                                     

National HME, Inc.

                                     

Healthcare Services

  Second lien(4)   10.25% (L + 9.25%/Q)   7/14/2022     21,500     21,252     21,231        

  Second lien(3)   10.25% (L + 9.25%/Q)   7/14/2022     500     494     494        

                22,000     21,746     21,725     2.58 %

Sierra Hamilton LLC / Sierra Hamilton Finance, Inc.

                                     

Energy

  First lien(2)   12.25%/S   12/15/2018     25,000     25,000     19,500        

  First lien(3)   12.25%/S   12/15/2018     2,660     2,144     2,075        

                27,660     27,144     21,575     2.56 %

Confie Seguros Holding II Co.

                                     

Consumer Services

  Second lien(2)   10.25% (L + 9.00%/M)   5/8/2019     18,886     18,811     17,988        

  Second lien(3)   10.25% (L + 9.00%/M)   5/8/2019     3,571     3,631     3,402        

                22,457     22,442     21,390     2.54 %

Weston Solutions, Inc.

                                     

Business Services

  Subordinated(4)   16.00%/Q   7/3/2019     20,000     20,000     20,311     2.41 %

IT'SUGAR LLC

                                     

Retail

  First lien(4)   10.50% (L + 9.50%/Q)   10/23/2019     20,895     20,200     20,082     2.38 %

Aricent Technologies

                                     

Business Services

  Second lien(2)   9.50% (L + 8.50%/Q)   4/14/2022     20,000     19,887     16,200        

  Second lien(3)   9.50% (L + 8.50%/Q)   4/14/2022     4,000     3,733     3,240        

                24,000     23,620     19,440     2.31 %

   

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

F-8


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

June 30, 2016

(in thousands, except shares)

(unaudited)

Portfolio Company, Location and Industry(1)

  Type of Investment   Interest Rate(10)   Maturity /
Expiration
Date
    Principal
Amount,
Par Value
or Shares
    Cost     Fair
Value
    Percent
of Net
Assets
 

DCA Investment Holding, LLC

                                     

Healthcare Services

  First lien(2)   6.25% (L + 5.25%/Q)   7/2/2021   $ 17,721   $ 17,569   $ 17,544        

  First lien(3)(11) — Drawn   7.75% (P + 4.25%/Q)   7/2/2021     1,244     1,231     1,231        

                18,965     18,800     18,775     2.23 %

First American Payment Systems, L.P.

                                     

Business Services

  Second lien(2)   10.75% (L + 9.50%/M)   4/12/2019     18,643     18,451     17,990     2.13 %

iPipeline, Inc. (Internet Pipeline, Inc.)

                                     

Software

  First lien(4)   8.25% (L + 7.25%/Q)   8/4/2022     17,865     17,704     17,686     2.10 %

YP Holdings LLC / Print Media Holdings LLC(12)

                                     

YP LLC / Print Media LLC

                                     

Media

  First lien(2)   8.00% (L + 6.75%/M)   6/4/2018     18,320     18,208     17,233     2.04 %

AgKnowledge Holdings Company, Inc.

                                     

Business Services

  Second lien(2)   9.25% (L + 8.25%/M)   7/23/2020     18,500     18,365     17,122     2.03 %

Netsmart Inc. / Netsmart Technologies, Inc.

                                     

Healthcare Information Technology

  Second lien(2)   10.50% (L + 9.50%/Q)   10/19/2023     15,000     14,631     14,850     1.76 %

SW Holdings, LLC

                                     

Business Services

  Second lien(4)   9.75% (L + 8.75%/Q)   12/30/2021     14,265     14,138     14,122     1.67 %

Poseidon Intermediate, LLC

                                     

Software

  Second lien(2)   9.50% (L + 8.50%/Q)   8/15/2023     13,000     12,820     12,805     1.52 %

American Tire Distributors, Inc.

                                     

Distribution & Logistics

  Subordinated(3)   10.25%/S   3/1/2022     13,000     12,810     11,473     1.36 %

Transtar Holding Company

                                     

Distribution & Logistics

  Second lien(2)   12.00% (L + 10.75%/Q)(8)   10/9/2019     28,300     28,011     8,490        

  Second lien(3)   12.00% (L + 10.75%/Q)(8)   10/9/2019     9,564     2,889     2,869        

                37,864     30,900     11,359     1.35 %

Smile Brands Group Inc.

                                     

Healthcare Services

  First lien(2)   9.00% (L + 6.25% + 1.50% PIK/Q)*   8/16/2019     12,243     12,145     10,635     1.26 %

PowerPlan Holdings, Inc.

                                     

Software

  Second lien(2)   10.75% (L + 9.75%/Q)   2/23/2023     10,000     9,912     9,908     1.17 %

Harley Marine Services, Inc.

                                     

Distribution & Logistics

  Second lien(2)   10.50% (L + 9.25%/Q)   12/20/2019     9,000     8,883     8,955     1.06 %

QC McKissock Investment, LLC(17)

                                     

McKissock, LLC

                                     

Education

  First lien(2)   7.50% (L + 6.50%/Q)   8/5/2019     4,796     4,764     4,796        

  First lien(2)   7.50% (L + 6.50%/Q)   8/5/2019     3,096     3,076     3,096        

  First lien(2)   7.50% (L + 6.50%/Q)   8/5/2019     999     992     999        

                8,891     8,832     8,891     1.05 %

TTM Technologies, Inc.**

                                     

Business Products

  First lien(2)   6.00% (L + 5.00%/Q)   5/31/2021     8,859     8,510     8,781     1.04 %

Greenway Health, LLC (fka Vitera Healthcare Solutions, LLC)

                                     

Software

  First lien(2)   6.00% (L + 5.00%/Q)   11/4/2020     1,950     1,937     1,877        

  Second lien(2)   9.25% (L + 8.25%/Q)   11/4/2021     7,000     6,922     6,300        

                8,950     8,859     8,177     0.97 %

Permian Tank & Manufacturing, Inc.

                                     

Energy

  First lien(2)   10.50%/S(8)   1/15/2018     24,357     24,460     7,185     0.85 %

J.D. Power and Associates

                                     

Business Services

  Second lien(3)   9.50% (L + 8.50%/Q)   6/9/2024(26)     7,000     6,895     6,895     0.82 %

   

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

F-9


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

June 30, 2016

(in thousands, except shares)

(unaudited)

Portfolio Company, Location and Industry(1)

  Type of Investment   Interest Rate(10)   Maturity /
Expiration
Date
    Principal
Amount,
Par Value
or Shares
    Cost     Fair
Value
    Percent
of Net
Assets
 

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

                                     

Federal Services

  First lien(2)   9.00% (L + 7.50%/Q)   4/21/2017   $ 6,396   $ 6,377   $ 5,917     0.70 %

Solera LLC / Solera Finance, Inc.

                                     

Software

  Subordinated(3)   10.50%/S   3/1/2024     5,000     4,757     5,280     0.63 %

Packaging Coordinators, Inc.(13)

                                     

Healthcare Products

  Second lien(3)   9.00% (L + 8.00%/Q)   8/1/2022     5,000     4,959     5,000     0.59 %

Immucor, Inc.

                                     

Healthcare Services

  Subordinated(2)(9)   11.13%/S   8/15/2019     5,000     4,967     4,575     0.54 %

Vencore, Inc. (fka The SI Organization Inc.)

                                     

Federal Services

  Second lien(3)   9.75% (L + 8.75%/Q)   5/23/2020     4,000     3,920     3,920     0.46 %

Brock Holdings III, Inc.

                                     

Industrial Services

  Second lien(2)   10.00% (L + 8.25%/Q)   3/16/2018     3,000     2,984     2,700     0.32 %

Synarc-Biocore Holdings, LLC

                                     

Healthcare Services

  Second lien(3)   9.25% (L + 8.25%/Q)   3/10/2022     2,500     2,480     2,413     0.29 %

York Risk Services Holding Corp.

                                     

Business Services

  Subordinated(3)   8.50%/S   10/1/2022     3,000     3,000     2,227     0.26 %

Ensemble S Merger Sub, Inc.

                                     

Software

  Subordinated(3)   9.00%/S   9/30/2023     2,000     1,936     1,983     0.24 %

Education Management Corporation(22)

                                     

Education Management II LLC

                                     

Education

  First lien(2)   5.50% (L + 4.50%/Q)   7/2/2020     250     239     72        

  First lien(3)   5.50% (L + 4.50%/Q)   7/2/2020     141     135     39        

  First lien(2)   8.50% (L + 1.00% + 6.50% PIK/Q)*   7/2/2020     452     394     27        

  First lien(3)   8.50% (L + 1.00% + 6.50% PIK/Q)*   7/2/2020     255     223     15        

                1,098     991     153     0.02 %

ATI Acquisition Company (fka Ability Acquisition, Inc.)(14)

                                     

Education

  First lien(2)   17.25% (P + 10.00% + 4.00% PIK/Q)(8)*   6/30/2012 — Past Due     1,665     1,434            

  First lien(2)   17.25% (P + 10.00% + 4.00% PIK/Q)(8)*   6/30/2012 — Past Due     103     94            

                1,768     1,528         %

Total Funded Debt Investments — United States

              $ 1,268,323   $ 1,245,097   $ 1,186,963     140.74 %

Total Funded Debt Investments

              $ 1,351,412   $ 1,326,611   $ 1,257,184     149.07 %

Equity — United Kingdom

                                     

Packaging Coordinators, Inc.(13)

                                     

PCI Pharma Holdings UK Limited**

                                     

Healthcare Products

  Ordinary shares(2)         19,427   $ 578   $ 2,528     0.30 %

Total Shares — United Kingdom

                    $ 578   $ 2,528     0.30 %

Equity — United States

                                     

Crowley Holdings Preferred, LLC

                                     

Distribution & Logistics

  Preferred shares(3)(20)   12.00% (10.00% + 2.00% PIK/Q)*       52,580   $ 52,039   $ 52,580     6.23 %

TWDiamondback Holdings Corp.(18)

                                     

Distribution & Logistics

  Preferred shares(4)         200     2,000     2,664     0.32 %

TW-NHME Holdings Corp.(23)

                                     

Healthcare Services

  Preferred shares(4)         100     1,000     1,116        

  Preferred shares(4)         16     158     176        

  Preferred shares(4)         6     68     68        

                      1,226     1,360     0.16 %

   

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

F-10


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

June 30, 2016

(in thousands, except shares)

(unaudited)

Portfolio Company, Location and Industry(1)

  Type of Investment   Interest Rate(10)   Maturity /
Expiration
Date
    Principal
Amount,
Par Value
or Shares
    Cost     Fair
Value
    Percent
of Net
Assets
 

Ancora Acquisition LLC(14)

                                     

Education

  Preferred shares(6)       $ 372   $ 83   $ 393     0.05 %

Education Management Corporation(22)

                                     

Education

  Preferred shares(2)         3,331     200     9        

  Preferred shares(3)         1,879     113     5        

  Ordinary shares(2)         2,994,065     100     75        

  Ordinary shares(3)         1,688,976     56     43        

                      469     132     0.01 %

Total Shares — United States

                    $ 55,817   $ 57,129     6.77 %

Total Shares

                    $ 56,395   $ 59,657     7.07 %

Warrants — United States

                                     

YP Holdings LLC / Print Media Holdings LLC(12)

                                     

YP Equity Investors, LLC

                                     

Media

  Warrants(5)     5/8/2022     5   $   $ 3,628     0.43 %

IT'SUGAR LLC

                                     

Retail

  Warrants(3)     10/23/2025     94,672     817     817     0.10 %

ASP LCG Holdings, Inc.

                                     

Education

  Warrants(3)     5/5/2026     622     37     687     0.08 %

Ancora Acquisition LLC(14)

                                     

Education

  Warrants(6)     8/12/2020     20             %

Total Warrants — United States

                    $ 854   $ 5,132     0.61 %

Total Funded Investments

                    $ 1,383,860   $ 1,321,973     156.75 %

Unfunded Debt Investments — United States

                                     

VetCor Professional Practices LLC

                                     

Consumer Services

  First lien(3)(11) — Undrawn     4/20/2021   $ 2,025   $ (20 ) $ 20        

  First lien(4)(11) — Undrawn     5/12/2017     425     (4 )   4        

  First lien(4)(11) — Undrawn     3/30/2018     500     (10 )   5        

  First lien(2)(11) — Undrawn     6/22/2018     1,644     (33 )   16        

                4,594     (67 )   45     %

DCA Investment Holding, LLC

                                     

Healthcare Services

  First lien(3)(11) — Undrawn     7/2/2021     856     (9 )   (9 )   %

iPipeline, Inc. (Internet Pipeline, Inc.)

                                     

Software

  First lien(3)(11) — Undrawn     8/4/2021     1,000     (10 )   (10 )   %

EN Engineering, LLC

                                     

Business Services

  First lien(2)(11) — Undrawn     12/30/2016     1,368     (7 )   (14 )   %

Valet Waste Holdings, Inc.

                                     

Business Services

  First lien(3)(11) — Undrawn     9/24/2021     2,250     (28 )   (28 )   %

Total Unfunded Debt Investments

              $ 10,068   $ (121 ) $ (16 )   %

Total Non-Controlled/Non-Affiliated Investments

                    $ 1,383,739   $ 1,321,957     156.75 %

Non-Controlled/Affiliated Investments(24)

                                     

Funded Debt Investments — United States

                                     

Tenawa Resource Holdings LLC(16)

                                     

Tenawa Resource Management LLC

                                     

Energy

  First lien(3)   10.50% (Base + 8.00%/Q)   5/12/2019   $ 40,000   $ 39,885   $ 39,151     4.64 %

   

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

F-11


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

June 30, 2016

(in thousands, except shares)

(unaudited)

Portfolio Company, Location and Industry(1)

  Type of Investment   Interest Rate(10)   Maturity /
Expiration
Date
    Principal
Amount,
Par Value
or Shares
    Cost     Fair
Value
    Percent
of Net
Assets
 

Edmentum Ultimate Holdings, LLC(19)

                                     

Edmentum, Inc. (fka Plato, Inc.) (Archipelago Learning, Inc.)

                                     

Education

  Second lien(3)(11) — Drawn   5.00%/Q   6/9/2020   $ 4,002   $ 4,002   $ 4,002        

  Subordinated(3)   8.50% PIK/Q*   6/9/2020     3,950     3,943     3,950        

  Subordinated(2)   10.00% PIK/Q*   6/9/2020     14,417     14,417     11,931        

  Subordinated(3)   10.00% PIK/Q*   6/9/2020     3,547     3,547     2,935        

                25,916     25,909     22,818     2.71 %

Total Funded Debt Investments — United States

              $ 65,916   $ 65,794   $ 61,969     7.35 %

Equity — United States

                                     

NMFC Senior Loan Program I LLC**

                                     

Investment Fund

  Membership interest(3)           $ 23,000   $ 22,820     2.71 %

Edmentum Ultimate Holdings, LLC(19)

                                     

Education

  Ordinary shares(3)         123,968     11     2,357        

  Ordinary shares(2)         107,143     9     2,037        

                      20     4,394     0.52 %

Tenawa Resource Holdings LLC(16)

                                     

QID NGL LLC

                                     

Energy

  Ordinary shares(7)         5,290,997     5,291     3,137     0.37 %

Total Shares — United States

                    $ 28,311   $ 30,351     3.60 %

Unfunded Debt Investments — United States

                                     

Edmentum Ultimate Holdings, LLC(19)

                                     

Edmentum, Inc. (fka Plato, Inc.) (Archipelago Learning, Inc.)

                                     

Education

  Second lien(3)(11) — Undrawn     6/9/2020   $ 878   $   $     %

Total Unfunded Debt Investments

              $ 878   $   $     %

Total Non-Controlled/Affiliated Investments

                    $ 94,105   $ 92,320     10.95 %

Controlled Investments(25)

                                     

Funded Debt Investments — United States

                                     

UniTek Global Services, Inc.

                                     

Business Services

  First lien(2)   8.50% (L + 7.50%/Q)   1/13/2019   $ 10,846   $ 10,846   $ 11,000        

  First lien(2)   9.88% (Base + 7.25% + 1.00% PIK/Q)*   1/13/2019     5,773     5,773     5,845        

  Subordinated(2)   15.00% PIK/Q*   7/13/2019     1,602     1,602     1,631        

  Subordinated(3)   15.00% PIK/Q*   7/13/2019     958     958     976        

                19,179     19,179     19,452     2.31 %

Total Funded Debt Investments — United States

              $ 19,179   $ 19,179   $ 19,452     2.31 %

Equity — United States

                                     

UniTek Global Services, Inc.

                                     

Business Services

  Preferred shares(2)(21)         17,824,939   $ 15,445   $ 15,857        

  Preferred shares(3)(21)         4,925,965     4,268     4,382        

  Ordinary shares(2)         2,096,477     1,925     12,773        

  Ordinary shares(3)         579,366     532     3,530        

                      22,170     36,542     4.33 %

NMFC Senior Loan Program II LLC**

                                     

Investment Fund

  Membership interest(3)             27,790     27,790     3.30 %

Total Shares — United States

                    $ 49,960   $ 64,332     7.63 %

Total Funded Investments

                    $ 69,139   $ 83,784     9.94 %

   

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

F-12


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

June 30, 2016

(in thousands, except shares)

(unaudited)

Portfolio Company, Location and Industry(1)

  Type of Investment   Interest Rate(10)   Maturity /
Expiration
Date
    Principal
Amount,
Par Value
or Shares
    Cost     Fair
Value
    Percent
of Net
Assets
 

Unfunded Debt Investments — United States

                                     

UniTek Global Services, Inc.

                                     

Business Services

  First lien(3)(11) — Undrawn     1/13/2019   $ 2,048   $   $        

  First lien(3)(11) — Undrawn     1/13/2019     758                

                2,806             %

Total Unfunded Debt Investments

              $ 2,806   $   $     %

Total Controlled Investments

                    $ 69,139   $ 83,784     9.94 %

Total Investments

                    $ 1,546,983   $ 1,498,061     177.64 %

(1)
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.

(2)
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.

(3)
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, Morgan Stanley Bank, N.A. and Stifel Bank & Trust as Lenders. See Note 7, Borrowings, for details.

(4)
Investment is held in New Mountain Finance SBIC, L.P.

(5)
Investment is held in NMF YP Holdings, Inc.

(6)
Investment is held in NMF Ancora Holdings, Inc.

(7)
Investment is held in NMF QID NGL Holdings, Inc.

(8)
Investment or a portion of the investment is on non-accrual status. See Note 3, Investments, for details.

(9)
Securities are registered under the Securities Act.

(10)
All interest is payable in cash unless otherwise indicated. A majority of the variable rate debt investments bear interest at a rate that may be determined by reference to the London Interbank Offered Rate (L), the Prime Rate (P) and the alternative base rate (Base) and which resets monthly (M), quarterly (Q), semi-annually (S) or annually (A). For each investment the current interest rate provided reflects the rate in effect as of June 30, 2016.

(11)
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 of the impact of paydowns and cash paid for drawn revolvers or delayed draws.

(12)
The Company holds investments in three related entities of YP Holdings LLC/Print Media 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 and Print Media LLC, wholly-owned subsidiaries of YP Holdings LLC and Print Media Holdings LLC, respectively.

   

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

F-13


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

June 30, 2016

(in thousands, except shares)

(unaudited)

(13)
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.

(14)
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.

(15)
The Company holds an investment in CompassLearning, Inc. that is structured as a first lien last out term loan.

(16)
The Company holds investments in two related entities of Tenawa Resource Holdings LLC. The Company holds 5.25% 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.

(17)
The Company holds investments in QC McKissock Investment, LLC and one related entity of QC McKissock Investment, LLC. The Company holds a first lien term loan in QC McKissock Investment, LLC (which at closing represented 71.1% of the ownership in the Series A common units of McKissock Investment Holdings, LLC) and holds a first lien term loan and a delayed draw term loan in McKissock, LLC, a wholly-owned subsidiary of McKissock Investment Holdings, LLC.

(18)
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.

(19)
The Company holds investments in Edmentum Ultimate Holdings, LLC and its related entities. The Company holds subordinated notes and ordinary equity in Edmentum Ultimate Holdings, LLC and holds a second lien revolver in Edmentum, Inc. and Archipelago Learning, Inc., which are wholly-owned subsidiaries of Edmentum Ultimate Holdings, LLC.

(20)
Total shares reported assumes shares issued for the capitalization of payment-in-kind ("PIK") interest. Actual shares owned total 50,000 as of June 30, 2016.

(21)
The Company holds preferred equity in UniTek Global Services, Inc. that is entitled to receive cumulative preferential dividends at a rate of 13.5% per annum payable in additional shares.

(22)
The Company holds investments in Education Management Corporation and one related entity of Education Management Corporation. The Company holds series A-1 convertible preferred stock and common stock in Education Management Corporation and holds a tranche A first lien term loan and a tranche B first lien term loan in Education Management II LLC, which is an indirect subsidiary of Education Management Corporation.

(23)
The Company holds an equity investment in TW-NHME Holdings Corp., as well as a second lien term loan investment in National HME, Inc., a wholly-owned subsidiary of TW-NHME Holdings Corp.

   

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

F-14


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

June 30, 2016

(in thousands, except shares)

(unaudited)

(24)
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. Fair value as of December 31, 2015 and June 30, 2016 along with transactions during the six months ended June 30, 2016 in which the issuer was a non-controlled/affiliated investment is as follows:

Portfolio Company(1)

    Fair
Value at
December 31,
2015
    Gross
Additions(A)
    Gross
Redemptions(B)
    Net
Realized
Gains
(Losses)
    Net
Change In
Unrealized
Appreciation
(Depreciation)
    Fair
Value at
June 30,
2016
    Interest
Income
    Dividend
Income
    Other
Income
 

Edmentum Ultimate Holdings, LLC/Edmentum Inc. 

  $ 22,782   $ 5,042   $   $   $ (612 ) $ 27,212   $ 1,104   $   $  

NMFC Senior Loan Program I LLC

    21,914                 906     22,820         1,807     593  

Tenawa Resource Holdings LLC

    42,591     16             (319 )   42,288     2,105         25  

Total Non-Controlled/Affiliated Investments

  $ 87,287   $ 5,058   $   $   $ (25 ) $ 92,320   $ 3,209   $ 1,807   $ 618  

(A)
Gross additions include increases in the cost basis of investments resulting from new portfolio investments, PIK interest or dividends, the amortization of discounts, reorganizations or restructurings and the movement of an existing portfolio company into this category from a different category.

(B)
Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, reorganizations or restructurings and the movement of an existing portfolio company out of this category into a different category.
(25)
Denotes investments in which the Company is in "Control", as defined in the Investment Company Act of 1940, as amended, due to owning or holding the power to vote 25.0% or more of the outstanding voting securities of the investment. Fair value as of December 31, 2015 and June 30, 2016 along with transactions during the six months ended June 30, 2016 in which the issuer was a controlled investment is as follows:

Portfolio Company(1)

    Fair
Value at
December 31,
2015
    Gross
Additions(A)
    Gross
Redemptions(B)
    Net
Realized
Gains
(Losses)
    Net
Change In
Unrealized
Appreciation
(Depreciation)
    Fair
Value at
June 30,
2016
    Interest
Income
    Dividend
Income
    Other
Income
 

UniTek Global Services, Inc. 

  $ 47,422   $ 1,680   $ (1,585 ) $   $ 8,477   $ 55,994   $ 985   $ 1,461   $ 67  

NMFC Senior Loan Program II LLC

        27,790                 27,790              

Total Controlled Investments

  $ 47,422   $ 29,470   $ (1,585 ) $   $ 8,477   $ 83,784   $ 985   $ 1,461   $ 67  

(A)
Gross additions include increases in the cost basis of investments resulting from new portfolio investments, PIK interest or dividends, the amortization of discounts, reorganizations or restructurings and the movement of an existing portfolio company into this category from a different category.

(B)
Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, reorganizations or restructurings and the movement of an existing portfolio company out of this category into a different category.
(26)
Investment was unsettled as of June 30, 2016. Maturity date is subject to change once the credit agreement has been executed.

*
All or a portion of interest contains PIK interest.

**
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. As of June 30, 2016, 8.3% of the Company's total assets were non-qualifying assets.

   

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

F-15


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

June 30, 2016

(unaudited)

Investment Type

    June 30, 2016
Percent of Total
Investments
at Fair Value
 

First lien

    41.18 %

Second lien

    42.88 %

Subordinated

    5.29 %

Equity and other

    10.65 %

Total investments

    100.00 %

 

Industry Type

    June 30, 2016
Percent of Total
Investments
at Fair Value
 

Business Services

    25.39 %

Software

    25.17 %

Education

    8.38 %

Federal Services

    7.36 %

Distribution & Logistics

    7.34 %

Healthcare Services

    5.61 %

Consumer Services

    5.53 %

Energy

    4.74 %

Investment Fund

    3.38 %

Business Products

    2.14 %

Media

    1.89 %

Retail

    1.40 %

Healthcare Information Technology

    0.99 %

Healthcare Products

    0.50 %

Industrial Services

    0.18 %

Total investments

    100.00 %

 

Interest Rate Type

    June 30, 2016
Percent of Total
Investments
at Fair Value
 

Floating rates

    86.55 %

Fixed rates

    13.45 %

Total investments

    100.00 %

   

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

F-16


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments

December 31, 2015

(in thousands, except shares)

Portfolio Company, Location and Industry(1)

  Type of Investment   Interest Rate(10)   Maturity /
Expiration
Date
    Principal
Amount,
Par Value
or Shares
    Cost     Fair
Value
    Percent
of Net
Assets
 

Non-Controlled/Non-Affiliated Investments

                                     

Funded Debt Investments — Australia

                                     

Project Sunshine IV Pty Ltd**

                                     

Media

  First lien(2)   8.00% (L + 7.00%/M)   9/23/2019   $ 10,800   $ 10,752   $ 10,314     1.23 %

Total Funded Debt Investments — Australia

              $ 10,800   $ 10,752   $ 10,314     1.23 %

Funded Debt Investments — Luxembourg

                                     

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

                                     

Software

  Second lien(2)   10.50% (L + 9.25%/Q)   7/30/2020   $ 24,630   $ 24,339   $ 19,581        

  Second lien(3)   10.50% (L + 9.25%/Q)   7/30/2020     8,204     8,324     6,522        

                32,834     32,663     26,103     3.12 %

Total Funded Debt Investments — Luxembourg

              $ 32,834   $ 32,663   $ 26,103     3.12 %

Funded Debt Investments — Netherlands

                                     

Eiger Acquisition B.V. (Eiger Co-Borrower, LLC)**

                                     

Software

  Second lien(3)   10.13% (L + 9.13%/Q)   2/17/2023   $ 10,000   $ 9,303   $ 9,049     1.08 %

Total Funded Debt Investments — Netherlands

              $ 10,000   $ 9,303   $ 9,049     1.08 %

Funded Debt Investments — United Kingdom

                                     

Air Newco LLC**

                                     

Software

  Second lien(3)   10.50% (L + 9.50%/Q)   1/31/2023   $ 32,500   $ 31,736   $ 31,363     3.75 %

Total Funded Debt Investments — United Kingdom

              $ 32,500   $ 31,736   $ 31,363     3.75 %

Funded Debt Investments — United States

                                     

Deltek, Inc.

                                     

Software

  Second lien(3)   9.50% (L + 8.50%/Q)   6/26/2023   $ 21,000   $ 20,972   $ 20,948        

  Second lien(2)   9.50% (L + 8.50%/Q)   6/26/2023     20,000     19,619     19,950        

                41,000     40,591     40,898     4.89 %

TIBCO Software Inc.

                                     

Software

  First lien(2)   6.50% (L + 5.50%/M)   12/4/2020     29,775     28,508     27,021        

  Subordinated(3)   11.38%/S   12/1/2021     15,000     14,611     12,600        

                44,775     43,119     39,621     4.73 %

AssuredPartners, Inc.

                                     

Business Services

  Second lien(2)   10.00% (L + 9.00%/Q)   10/20/2023     20,000     19,212     19,600        

  Second lien(3)   10.00% (L + 9.00%/Q)   10/20/2023     20,000     19,212     19,600        

                40,000     38,424     39,200     4.68 %

Kronos Incorporated

                                     

Software

  Second lien(2)   9.75% (L + 8.50%/Q)   4/30/2020     32,641     32,443     32,546        

  Second lien(3)   9.75% (L + 8.50%/Q)   4/30/2020     5,000     4,961     4,985        

                37,641     37,404     37,531     4.48 %

Hill International, Inc.

                                     

Business Services

  First lien(2)   7.75% (L + 6.75%/Q)   9/28/2020     37,056     36,752     36,779     4.39 %

ProQuest LLC

                                     

Business Services

  Second lien(3)   10.00% (L + 9.00%/M)   12/15/2022     35,000     34,302     34,300     4.10 %

Navex Global, Inc.

                                     

Software

  First lien(4)   5.75% (L + 4.75%/Q)   11/19/2021     4,610     4,570     4,471        

  First lien(2)   5.75% (L + 4.75%/Q)   11/19/2021     2,610     2,587     2,531        

  Second lien(4)   9.75% (L + 8.75%/Q)   11/18/2022     17,879     17,683     17,343        

  Second lien(3)   9.75% (L + 8.75%/Q)   11/18/2022     10,121     10,001     9,817        

                35,220     34,841     34,162     4.08 %

   

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

F-17


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2015

(in thousands, except shares)

Portfolio Company, Location and Industry(1)

  Type of Investment   Interest Rate(10)   Maturity /
Expiration
Date
    Principal
Amount,
Par Value
or Shares
    Cost     Fair
Value
    Percent
of Net
Assets
 

Ascend Learning, LLC

                                     

Education

  Second lien(3)   9.50% (L + 8.50%/Q)   11/30/2020   $ 34,727   $ 34,352   $ 33,077     3.95 %

CRGT Inc.

                                     

Federal Services

  First lien(2)   7.50% (L + 6.50%/Q)   12/19/2020     33,261     33,030     32,928     3.93 %

Physio-Control International, Inc.

                                     

Healthcare Products

  Second lien(2)   10.00% (L + 9.00%/Q)   6/5/2023     30,000     29,426     27,451        

  Second lien(3)   10.00% (L + 9.00%/Q)   6/5/2023     4,000     3,703     3,660        

                34,000     33,129     31,111     3.72 %

Valet Waste Holdings, Inc.

                                     

Business Services

  First lien(2)   8.00% (L + 7.00%/Q)   9/24/2021     29,925     29,564     29,505        

  First lien(3)(11)
— Drawn
  8.00% (L + 7.00%/Q)   9/24/2021     1,500     1,481     1,479        

                31,425     31,045     30,984     3.70 %

Rocket Software, Inc.

                                     

Software

  Second lien(2)   10.25% (L + 8.75%/Q)   2/8/2019     30,875     30,781     30,759     3.68 %

TASC, Inc.

                                     

Federal Services

  First lien(2)   7.00% (L + 6.00%/Q)   5/22/2020     28,314     28,001     28,396        

  Second lien(3)   12.00%/Q   5/21/2021     2,000     1,964     2,062        

                30,314     29,965     30,458     3.64 %

Pittsburgh Glass Works, LLC(24)

                                     

Manufacturing

  First lien(2)   10.13% (L + 9.13%/M)   11/25/2021     30,000     29,852     29,850     3.57 %

Integro Parent Inc.

                                     

Business Services

  First lien(2)   6.75% (L + 5.75%/Q)   10/31/2022     17,370     17,029     16,980        

  First lien(2)   6.75% (L + 5.75%/M)   10/31/2022     2,630     2,578     2,570        

  Second lien(3)   10.25% (L + 9.25%/Q)   10/30/2023     10,000     9,901     9,625        

                30,000     29,508     29,175     3.49 %

CompassLearning, Inc.(15)

                                     

Education

  First lien(2)   8.00% (L + 6.75%/Q)   11/26/2018     30,000     29,531     28,471     3.40 %

Ryan, LLC

                                     

Business Services

  First lien(2)   6.75% (L + 5.75%/M)   8/7/2020     27,300     26,918     26,583     3.18 %

McGraw-Hill Global Education Holdings, LLC

                                     

Education

  First lien(2)(9)   9.75%/S   4/1/2021     24,500     24,378     26,093     3.12 %

KeyPoint Government Solutions, Inc.

                                     

Federal Services

  First lien(2)   7.75% (L + 6.50%/M)   11/13/2017     25,876     25,636     25,747     3.08 %

DigiCert Holdings, Inc.

                                     

Software

  First lien(2)   6.00% (L + 5.00%/Q)   10/21/2021     25,000     24,268     24,375     2.91 %

Pelican Products, Inc.

                                     

Business Products

  Second lien(3)   9.25% (L + 8.25%/Q)   4/9/2021     15,500     15,519     14,764        

  Second lien(2)   9.25% (L + 8.25%/Q)   4/9/2021     10,000     10,115     9,524        

                25,500     25,634     24,288     2.90 %

Confie Seguros Holding II Co.

                                     

Consumer Services

  Second lien(2)   10.25% (L + 9.00%/M)   5/8/2019     18,886     18,789     18,673        

  Second lien(3)   10.25% (L + 9.00%/M)   5/8/2019     5,571     5,648     5,508        

                24,457     24,437     24,181     2.89 %

AAC Holding Corp.

                                     

Education

  First lien(2)   8.25% (L + 7.25%/M)   9/30/2020     25,000     24,640     24,110     2.88 %

Transtar Holding Company

                                     

Distribution & Logistics

  Second lien(2)   10.00% (L + 8.75%/Q)   10/9/2019     28,300     27,974     23,630     2.82 %

PetVet Care Centers LLC

                                     

Consumer Services

  Second lien(3)   9.75% (L + 8.75%/Q)   6/17/2021     24,000     23,789     23,149     2.77 %

EN Engineering, L.L.C.

                                     

Business Services

  First lien(2)   7.00% (L + 6.00%/Q)   6/30/2021     21,321     21,121     20,554        

  First lien(2)(11)
— Drawn
  8.50% (P + 5.00%/Q)   6/30/2021     1,223     1,211     1,179        

                22,544     22,332     21,733     2.60 %

   

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

F-18


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2015

(in thousands, except shares)

Portfolio Company, Location and Industry(1)

  Type of Investment   Interest Rate(10)   Maturity /
Expiration
Date
    Principal
Amount,
Par Value
or Shares
    Cost     Fair
Value
    Percent
of Net
Assets
 

Aricent Technologies

                                     

Business Services

  Second lien(2)   9.50% (L + 8.50%/M)   4/14/2022   $ 20,000   $ 19,881   $ 19,133        

  Second lien(3)   9.50% (L + 8.50%/M)   4/14/2022     2,550     2,558     2,440        

                22,550     22,439     21,573     2.58 %

McGraw-Hill School Education Holdings, LLC

                                     

Education

  First lien(2)   6.25% (L + 5.00%/M)   12/18/2019     21,560     21,408     21,237     2.54 %

VetCor Professional Practices LLC

                                     

Consumer Services

  First lien(4)   7.00% (L + 6.00%/Q)   4/20/2021     19,502     19,324     19,254        

  First lien(4)(11)
— Drawn
  7.00% (L + 6.00%/Q)   4/20/2021     1,753     1,736     1,731        

                21,255     21,060     20,985     2.51 %

IT'SUGAR LLC

                                     

Retail

  First lien(4)   10.50% (L + 9.50%/Q)   10/23/2019     21,000     20,215     20,183     2.41 %

Weston Solutions, Inc.

                                     

Business Services

  Subordinated(4)   16.00%/Q   7/3/2019     20,000     20,000     19,430     2.32 %

TWDiamondback Holdings Corp.(18)

                                     

Diamondback Drugs of Delaware, L.L.C. (TWDiamondback II Holdings LLC)

                                     

Distribution & Logistics

  First lien(4)   9.75% (L + 8.75%/Q)   11/19/2019     19,895     19,895     19,117     2.28 %

Severin Acquisition, LLC

                                     

Software

  Second lien(4)   9.25% (L + 8.25%/Q)   7/29/2022     15,000     14,857     14,272        

  Second lien(4)   9.75% (L + 8.75%/Q)   7/29/2022     4,154     4,113     4,112        

                19,154     18,970     18,384     2.20 %

First American Payment Systems, L.P.

                                     

Business Services

  Second lien(2)   10.75% (L + 9.50%/M)   4/12/2019     18,643     18,423     18,362     2.20 %

DCA Investment Holding, LLC

                                     

Healthcare Services

  First lien(2)   6.25% (L + 5.25%/Q)   7/2/2021     17,811     17,645     17,632        

  First lien(3)(11)
— Drawn
  7.75% (P + 4.25%/Q)   7/2/2021     53     52     52        

                17,864     17,697     17,684     2.11 %

YP Holdings LLC / Print Media Holdings LLC(12)

                                     

YP LLC / Print Media LLC

                                     

Media

  First lien(2)   8.00% (L + 6.75%/M)   6/4/2018     18,320     18,182     17,679     2.11 %

iPipeline, Inc. (Internet Pipeline, Inc.)

                                     

Software

  First lien(4)   8.25% (L + 7.25%/Q)   8/4/2022     17,955     17,783     17,550     2.10 %

AgKnowledge Holdings Company, Inc.

                                     

Business Services

  Second lien(2)   9.25% (L + 8.25%/M)   7/23/2020     18,500     18,352     17,066     2.04 %

Vertafore, Inc.

                                     

Software

  Second lien(2)   9.75% (L + 8.25%/M)   10/27/2017     13,855     13,848     13,844        

  Second lien(3)   9.75% (L + 8.25%/M)   10/27/2017     2,000     2,016     1,999        

                15,855     15,864     15,843     1.89 %

GSDM Holdings Corp.

                                     

Healthcare Services

  Subordinated(4)   10.00%/M   6/23/2020     15,000     14,880     15,000     1.79 %

MailSouth, Inc. (d/b/a Mspark)

                                     

Media

  First lien(2)   6.75% (L + 5.00%/Q)   12/14/2016     14,998     14,736     14,586     1.74 %

TW-NHME Holdings Corp.(23)

                                     

National HME, Inc.

                                     

Healthcare Services

  Second lien(4)   10.25% (L + 9.25%/Q)   7/14/2022     14,000     13,833     13,825     1.65 %

Sierra Hamilton LLC / Sierra Hamilton Finance, Inc.

                                     

Energy

  First lien(2)   12.25%/S   12/15/2018     25,000     25,000     12,251        

  First lien(3)   12.25%/S   12/15/2018     2,660     2,064     1,302        

                27,660     27,064     13,553     1.62 %

   

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

F-19


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2015

(in thousands, except shares)

Portfolio Company, Location and Industry(1)

  Type of Investment   Interest Rate(10)   Maturity /
Expiration
Date
    Principal
Amount,
Par Value
or Shares
    Cost     Fair
Value
    Percent
of Net
Assets
 

Vision Solutions, Inc.

                                     

Software

  Second lien(2)   9.50% (L + 8.00%/M)   7/23/2017   $ 14,000   $ 13,978   $ 12,740     1.52 %

SW Holdings, LLC

                                     

Business Services

  Second lien(4)   9.75% (L + 8.75%/Q)   12/30/2021     13,500     13,373     12,701     1.52 %

Poseidon Intermediate, LLC

                                     

Software

  Second lien(2)   9.50% (L + 8.50%/Q)   8/15/2023     13,000     12,811     12,427     1.49 %

American Tire Distributors, Inc.

                                     

Distribution & Logistics

  Subordinated(3)   10.25%/S   3/1/2022     13,000     12,798     11,960     1.43 %

PowerPlan Holdings, Inc.

                                     

Software

  Second lien(2)   10.75% (L + 9.75%/M)   2/23/2023     10,000     9,907     9,573     1.14 %

Permian Tank & Manufacturing, Inc.

                                     

Energy

  First lien(2)   10.50%/S   1/15/2018     24,357     24,493     9,377     1.12 %

TTM Technologies, Inc.**

                                     

Business Products

  First lien(2)   6.00% (L + 5.00%/Q)   5/31/2021     9,980     9,554     9,132     1.09 %

Smile Brands Group Inc.

                                     

Healthcare Services

  First lien(2)   9.00% (L + 6.25% + 1.50% PIK/Q)*   8/16/2019     12,204     12,091     8,878     1.06 %

Harley Marine Services, Inc.

                                     

Distribution & Logistics

  Second lien(2)   10.50% (L + 9.25%/Q)   12/20/2019     9,000     8,868     8,865     1.06 %

QC McKissock Investment, LLC(17)

                                     

McKissock, LLC

                                     

Education

  First lien(2)   7.50% (L + 6.50%/Q)   8/5/2019     4,875     4,838     4,707        

  First lien(2)   7.50% (L + 6.50%/Q)   8/5/2019     3,148     3,124     3,039        

  First lien(2)(11)
— Drawn
  7.50% (L + 6.50%/Q)   8/5/2019     1,016     1,007     981        

                9,039     8,969     8,727     1.04 %

Greenway Health, LLC (fka Vitera Healthcare Solutions, LLC)

                                     

Software

  First lien(2)   6.00% (L + 5.00%/Q)   11/4/2020     1,960     1,946     1,877        

  Second lien(2)   9.25% (L + 8.25%/Q)   11/4/2021     7,000     6,917     6,720        

                8,960     8,863     8,597     1.03 %

Novitex Acquisition, LLC (fka ARSloane Acquisition, LLC)

                                     

Business Services

  First lien(2)   7.50% (L + 6.25%/Q)   7/7/2020     7,242     7,064     6,807     0.81 %

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

                                     

Federal Services

  First lien(2)   9.00% (L + 7.50%/M)   4/21/2017     6,859     6,828     6,344     0.76 %

Brock Holdings III, Inc.

                                     

Industrial Services

  Second lien(2)   10.00% (L + 8.25%/Q)   3/16/2018     7,000     6,953     5,443     0.65 %

Packaging Coordinators, Inc.(13)

                                     

Healthcare Products

  Second lien(3)   9.00% (L + 8.00%/Q)   8/1/2022     5,000     4,957     4,925     0.59 %

Immucor, Inc.

                                     

Healthcare Services

  Subordinated(2)(9)   11.13%/S   8/15/2019     5,000     4,963     4,575     0.55 %

GCA Services Group, Inc.

                                     

Business Services

  Second lien(3)   9.25% (L + 8.00%/Q)   11/2/2020     4,000     3,973     3,950     0.47 %

York Risk Services Holding Corp.

                                     

Business Services

  Subordinated(3)   8.50%/S   10/1/2022     3,000     3,000     2,471     0.30 %

Synarc-Biocore Holdings, LLC

                                     

Healthcare Services

  Second lien(3)   9.25% (L + 8.25%/Q)   3/10/2022     2,500     2,479     2,313     0.28 %

Ensemble S Merger Sub, Inc.

                                     

Software

  Subordinated(3)   9.00%/S   9/30/2023     2,000     1,933     1,940     0.23 %

Education Management Corporation(22)

                                     

Education Management II LLC

                                     

Education

  First lien(2)   5.50% (L + 4.50%/Q)   7/2/2020     250     238     69        

  First lien(3)   5.50% (L + 4.50%/Q)   7/2/2020     141     134     39        

  First lien(2)   8.50% (L + 1.00% + 6.50% PIK/Q)*   7/2/2020     437     375     46        

  First lien(3)   8.50% (L + 1.00% + 6.50% PIK/Q)*   7/2/2020     247     212     26        

                1,075     959     180     0.02 %

   

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

F-20


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2015

(in thousands, except shares)

Portfolio Company, Location and Industry(1)

  Type of Investment   Interest Rate(10)   Maturity /
Expiration
Date
    Principal
Amount,
Par Value
or Shares
    Cost     Fair
Value
    Percent
of Net
Assets
 

ATI Acquisition Company (fka Ability Acquisition, Inc.)(14)

                                     

Education

  First lien(2)   17.25% (P + 10.00% + 4.00% PIK/Q)(8)*   6/30/2012
— Past Due
  $ 1,665   $ 1,434   $        

  First lien(2)   17.25% (P + 10.00% + 4.00% PIK/Q)(8)*   6/30/2012
— Past Due
    103     94            

                1,768     1,528         %

Total Funded Debt Investments — United States

              $ 1,314,464   $ 1,297,775   $ 1,237,175     147.83 %

Total Funded Debt Investments

              $ 1,400,598   $ 1,382,229   $ 1,314,004     157.01 %

Equity — United Kingdom

                                     

Packaging Coordinators, Inc.(13)

                                     

PCI Pharma Holdings UK Limited**

                                     

Healthcare Products

  Ordinary shares(2)         19,427   $ 578   $ 1,612     0.19 %

Total Shares — United Kingdom

                    $ 578   $ 1,612     0.19 %

Equity — United States

                                     

Crowley Holdings Preferred, LLC

                                     

Distribution & Logistics

  Preferred shares(3)(20)   12.00% (10.00% + 2.00% PIK/Q)*       52,058   $ 51,518   $ 51,911     6.20 %

TWDiamondback Holdings Corp.(18)

                                     

Distribution & Logistics

  Preferred shares(4)         200     2,000     2,000     0.24 %

TW-NHME Holdings Corp.(23)

                                     

Healthcare Services

  Preferred shares(4)         100     1,000     1,000     0.12 %

Ancora Acquisition LLC(14)

                                     

Education

  Preferred shares(6)         372     83     393     0.05 %

Education Management Corporation(22)

                                     

Education

  Preferred shares(2)         3,331     200     10        

  Preferred shares(3)         1,879     113     5        

  Ordinary shares(2)         2,994,065     100     202        

  Ordinary shares(3)         1,688,976     56     114        

                      469     331     0.04 %

Total Shares — United States

                    $ 55,070   $ 55,635     6.65 %

Total Shares

                    $ 55,648   $ 57,247     6.84 %

Warrants — United States

                                     

YP Holdings LLC / Print Media Holdings LLC(12)

                                     

YP Equity Investors, LLC

                                     

Media

  Warrants(5)     5/8/2022     5   $   $ 5,304     0.63 %

IT'SUGAR LLC

                                     

Retail

  Warrants(3)     10/23/2025     94,672     817     817     0.10 %

ASP LCG Holdings, Inc.

                                     

Education

  Warrants(3)     5/5/2026     622     37     610     0.07 %

Ancora Acquisition LLC(14)

                                     

Education

  Warrants(6)     8/12/2020     20             %

Total Warrants — United States

                    $ 854   $ 6,731     0.80 %

Total Funded Investments

                    $ 1,438,731   $ 1,377,982     164.65 %

Unfunded Debt Investments — United States

                                     

DCA Investment Holdings, LLC

                                     

Healthcare Services

  First lien(3)(11)
— Undrawn
    7/2/2021   $ 2,047   $ (20 ) $ (20 )   %

iPipeline, Inc. (Internet Pipeline, Inc.)

                                     

Software

  First lien(3)(11)
— Undrawn
    8/4/2021     1,000     (10 )   (23 )   %

Valet Waste Holdings, Inc.

                                     

Business Services

  First lien(3)(11)
— Undrawn
    9/24/2021     3,000     (38 )   (42 )   %

   

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

F-21


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2015

(in thousands, except shares)

Portfolio Company, Location and Industry(1)

  Type of Investment   Interest Rate(10)   Maturity /
Expiration
Date
    Principal
Amount,
Par Value
or Shares
    Cost     Fair
Value
    Percent
of Net
Assets
 

VetCor Professional Practices LLC

                                     

Consumer Services

  First lien(3)(11)
— Undrawn
    4/20/2021   $ 2,700   $ (27 ) $ (34 )      

  First lien(4)(11)
— Undrawn
    4/20/2021     947     (9 )   (12 )      

                3,647     (36 )   (46 )   (0.01 )%

QC McKissock Investment, LLC(17)

                                     

McKissock, LLC

                                     

Education

  First lien(2)(11)
— Undrawn
    12/31/2015     1,862     (19 )   (64 )   (0.01 )%

MailSouth, Inc. (d/b/a Mspark)

                                     

Media

  First lien(3)(11)
— Undrawn
    12/14/2016     1,900     (181 )   (79 )   (0.01 )%

EN Engineering, L.L.C.

                                     

Business Services

  First lien(2)(11)
— Undrawn
    12/30/2016     2,348     (12 )   (85 )   (0.01 )%

TWDiamondback Holdings Corp.(18)

                                     

Diamondback Drugs of Delaware, L.L.C. (TWDiamondback II Holdings LLC)

                                     

Distribution & Logistics

  First lien(3)(11)
— Undrawn
    2/16/2016     2,158         (84 )      

  First lien(4)(11)
— Undrawn
    2/16/2016     605         (24 )      

                2,763         (108 )   (0.01 )%

Total Unfunded Debt Investments

              $ 18,567   $ (316 ) $ (467 )   (0.05 )%

Total Non-Controlled/Non-Affiliated Investments

                    $ 1,438,415   $ 1,377,515     164.60 %

Non-Controlled/Affiliated Investments(25)

                                     

Funded Debt Investments — United States

                                     

Tenawa Resource Holdings LLC(16)

                                     

Tenawa Resource Management LLC

                                     

Energy

  First lien(3)   10.50% (Base + 8.00%/Q)   5/12/2019   $ 40,000   $ 39,869   $ 38,813     4.64 %

Edmentum Ultimate Holdings, LLC(19)

                                     

Education

  Subordinated(3)   8.50% PIK/Q*   6/9/2020     3,786     3,778     3,622        

  Subordinated(2)   10.00% PIK/Q*   6/9/2020     13,715     13,715     10,547        

  Subordinated(3)   10.00% PIK/Q*   6/9/2020     3,374     3,374     2,595        

                20,875     20,867     16,764     2.00 %

Total Funded Debt Investments — United States

              $ 60,875   $ 60,736   $ 55,577     6.64 %

Equity — United States

                                     

NMFC Senior Loan Program I LLC**

                                     

Investment Fund

  Membership interest(3)           $ 23,000   $ 21,914     2.62 %

Edmentum Ultimate Holdings, LLC(19)

                                     

Education

  Ordinary shares(3)         123,968     11     3,341        

  Ordinary shares(2)         107,143     9     2,888        

                      20     6,229     0.74 %

Tenawa Resource Holdings LLC(16)

                                     

QID NGL LLC

                                     

Energy

  Ordinary shares(7)         5,290,997     5,291     3,778     0.45 %

Total Shares — United States

                    $ 28,311   $ 31,921     3.81 %

Unfunded Debt Investments — United States

                                     

Edmentum Ultimate Holdings, LLC(19)

                                     

Edmentum, Inc. (fka Plato, Inc.) (Archipelago Learning, Inc.)

                                     

Education

  Second lien(3)(11)
— Undrawn
    6/9/2020   $ 4,881   $   $ (211 )   (0.02 )%

Total Unfunded Debt Investments

              $ 4,881   $   $ (211 )   (0.02 )%

Total Non-Controlled/Affiliated Investments

                    $ 89,047   $ 87,287     10.43 %

   

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

F-22


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2015

(in thousands, except shares)

Portfolio Company, Location and Industry(1)

  Type of Investment   Interest Rate(10)   Maturity /
Expiration
Date
    Principal
Amount,
Par Value
or Shares
    Cost     Fair
Value
    Percent
of Net
Assets
 

Controlled Investments(26)

                                     

Funded Debt Investments — United States

                                     

UniTek Global Services, Inc.

                                     

Business Services

  First lien(2)   8.50% (L + 7.50%/Q)   1/13/2019   $ 6,786   $ 6,786   $ 6,640        

  First lien(3)   8.50% (L + 7.50%/Q)   1/13/2019     4,060     4,060     3,973        

  First lien(3)   9.50% (L + 7.50% + 1.00% PIK/Q)*   1/13/2019     7,323     7,323     7,257        

  Subordinated(2)   15.00% PIK/Q*   7/13/2019     1,487     1,487     1,417        

  Subordinated(3)   15.00% PIK/Q*   7/13/2019     890     890     848        

                20,546     20,546     20,135     2.40 %

Total Funded Debt Investments — United States

              $ 20,546   $ 20,546   $ 20,135     2.40 %

Equity — United States

                                     

UniTek Global Services, Inc.

                                     

Business Services

  Preferred shares(2)(21)         16,680,037   $ 14,299   $ 13,870        

  Preferred shares(3)(21)         4,609,569     3,952     3,833        

  Ordinary shares(2)         2,096,477     1,925     7,528        

  Ordinary shares(3)         579,366     532     2,081        

                      20,708     27,312     3.26 %

Total Shares — United States

                    $ 20,708   $ 27,312     3.26 %

Total Funded Investments

                    $ 41,254   $ 47,447     5.66 %

Unfunded Debt Investments — United States

                                     

UniTek Global Services, Inc.

                                     

Business Services

  First lien(3)(11)
— Undrawn
    1/13/2019   $ 2,048   $   $ (18 )      

  First lien(3)(11)
— Undrawn
    1/13/2019     758         (7 )      

                2,806         (25 )   %

Total Unfunded Debt Investments

              $ 2,806   $   $ (25 )   %

Total Controlled Investments

                    $ 41,254   $ 47,422     5.66 %

Total Investments

                    $ 1,568,716   $ 1,512,224     180.69 %

(1)
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.

(2)
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.

(3)
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, Morgan Stanley Bank, N.A. and Stifel Bank & Trust as Lenders. See Note 7, Borrowings, for details.

(4)
Investment is held in New Mountain Finance SBIC, L.P.

(5)
Investment is held in NMF YP Holdings, Inc.

(6)
Investment is held in NMF Ancora Holdings, Inc.

(7)
Investment is held in NMF QID NGL Holdings, Inc.

(8)
Investment or a portion of the investment is on non-accrual status. See Note 3, Investments, for details.

   

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

F-23


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2015

(in thousands, except shares)

(9)
Securities are registered under the Securities Act.

(10)
All interest is payable in cash unless otherwise indicated. A majority of the variable rate debt investments bear interest at a rate that may be determined by reference to the London Interbank Offered Rate (L), the Prime Rate (P) and the alternative base rate (Base) and which resets monthly (M), quarterly (Q), semi-annually (S) or annually (A). For each investment the current interest rate provided reflects the rate in effect as of December 31, 2015.

(11)
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.

(12)
The Company holds investments in three related entities of YP Holdings LLC/Print Media 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 and Print Media LLC, wholly-owned subsidiaries of YP Holdings LLC and Print Media Holdings LLC, respectively.

(13)
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.

(14)
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.

(15)
The Company holds an investment in CompassLearning, Inc. that is structured as a first lien last out term loan.

(16)
The Company holds investments in two related entities of Tenawa Resource Holdings LLC. The Company holds 5.25% 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.

(17)
The Company holds investments in QC McKissock Investment, LLC and one related entity of QC McKissock Investment, LLC. The Company holds a first lien term loan in QC McKissock Investment, LLC (which at closing represented 71.1% of the ownership in the Series A common units of McKissock Investment Holdings, LLC) and holds a first lien term loan and a delayed draw term loan in McKissock, LLC, a wholly-owned subsidiary of McKissock Investment Holdings, LLC.

(18)
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.

(19)
The Company holds investments in Edmentum Ultimate Holdings, LLC and its related entities. The Company holds subordinated notes and ordinary equity in Edmentum Ultimate Holdings, LLC and holds a second lien revolver in Edmentum, Inc. and Archipelago Learning, Inc., which are wholly-owned subsidiaries of Edmentum Ultimate Holdings, LLC.

(20)
Total shares reported assumes shares issued for the capitalization of payment-in-kind ("PIK") interest. Actual shares owned total 50,000 as of December 31, 2015.

(21)
The Company holds preferred equity in UniTek Global Services, Inc. that is entitled to receive cumulative preferential dividends at a rate of 13.5% per annum payable in additional shares.

(22)
The Company holds investments in Education Management Corporation and one related entity of Education Management Corporation. The Company holds series A-1 convertible preferred stock and common stock in Education Management Corporation and holds a tranche A first lien term loan and a tranche B first lien term loan in Education Management II LLC, which is an indirect subsidiary of Education Management Corporation.

   

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

F-24


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2015

(in thousands, except shares)

(23)
The Company holds an equity investment in TW-NHME Holdings Corp., as well as a second lien term loan investment in National HME, Inc., a wholly-owned subsidiary of TW-NHME Holdings Corp.

(24)
The Company holds an investment in Pittsburgh Glass Works, LLC that is structured as a first lien last out term loan.

(25)
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. Fair value as of December 31, 2014 and December 31, 2015 along with transactions during the year ended December 31, 2015 in which the issuer was a non-controlled/affiliated investment is as follows:

Portfolio Company(1)

    Fair
Value at
December 31,
2014
    Gross
Additions(A)
    Gross
Redemptions(B)
    Net
Realized
Gains
(Losses)
    Net
Change In
Unrealized
Appreciation
(Depreciation)
    Fair
Value at
December 31,
2015
    Interest
Income
    Dividend
Income
    Other
Income
 

Edmentum Ultimate Holdings, LLC/Edmentum Inc. 

  $   $ 23,937   $ (3,050 ) $   $ 1,895   $ 22,782   $ 1,171   $   $  

NMFC Senior Loan Program I LLC

    22,461                 (547 )   21,914         3,619     1,215  

Tenawa Resource Holdings LLC

        44,572             (1,981 )   42,591     4,231         750  

Total Non-Controlled/Affiliated Investments

  $ 22,461   $ 68,509   $ (3,050 ) $   $ (633 ) $ 87,287   $ 5,402   $ 3,619   $ 1,965  

(A)
Gross additions include increases in the cost basis of investments resulting from new portfolio investments, PIK interest or dividends, the amortization of discounts, reorganizations or restructurings and the movement at fair value of an existing portfolio company into this category from a different category.

(B)
Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, reorganizations or restructurings and the movement of an existing portfolio company out of this category into a different category.
(26)
Denotes investments in which the Company is in "Control", as defined in the Investment Company Act of 1940, as amended, due to owning or holding the power to vote 25.0% or more of the outstanding voting securities of the investment. Fair value as of December 31, 2014 and December 31, 2015 along with transactions during the year ended December 31, 2015 in which the issuer was a controlled investment is as follows:

Portfolio Company(1)

    Fair
Value at
December 31,
2014
    Gross
Additions(A)
    Gross
Redemptions(B)
    Net
Realized
Gains
(Losses)
    Net
Change In
Unrealized
Appreciation
(Depreciation)
    Fair
Value at
December 31,
2015
    Interest
Income
    Dividend
Income
    Other
Income
 

UniTek Global Services, Inc. 

  $   $ 42,780   $ (1,526 ) $   $ 6,168   $ 47,422   $ 2,007   $ 2,559   $ 49  

Total Controlled Investments

  $   $ 42,780   $ (1,526 ) $   $ 6,168   $ 47,422   $ 2,007   $ 2,559   $ 49  

(A)
Gross additions include increases in the cost basis of investments resulting from new portfolio investments, PIK interest or dividends, the amortization of discounts, reorganizations or restructurings and the movement at fair value of an existing portfolio company into this category from a different category.

(B)
Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, reorganizations or restructurings and the movement of an existing portfolio company out of this category into a different category.
*
All or a portion of interest contains PIK interest.

**
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. As of December 31, 2015, 6.8% of the Company's total assets were non-qualifying assets.

   

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

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Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2015

Investment Type

    December 31, 2015
Percent of Total
Investments
at Fair Value
 

First lien

    44.31 %

Second lien

    41.79 %

Subordinated

    5.75 %

Equity and other

    8.15 %

Total investments

    100.00 %

 

Industry Type

    December 31, 2015
Percent of Total
Investments
at Fair Value
 

Software

    24.53 %

Business Services

    24.36 %

Education

    10.97 %

Distribution & Logistics

    7.76 %

Federal Services

    6.31 %

Consumer Services

    4.52 %

Energy

    4.33 %

Healthcare Services

    4.18 %

Media

    3.16 %

Healthcare Products

    2.49 %

Business Products

    2.21 %

Manufacturing

    1.98 %

Investment Fund

    1.45 %

Retail

    1.39 %

Industrial Services

    0.36 %

Total investments

    100.00 %

 

Interest Rate Type

    December 31, 2015
Percent of Total
Investments
at Fair Value
 

Floating rates

    86.26 %

Fixed rates

    13.74 %

Total investments

    100.00 %

   

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

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Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation

June 30, 2016

(in thousands, except share data)

(unaudited)

Note 1. Formation and Business Purpose

New Mountain Finance Corporation

          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 L.L.C. ("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.

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 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

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

June 30, 2016

(in thousands, except share data)

(unaudited)

Note 1. Formation and Business Purpose (Continued)

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 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.

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

F-28


Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

June 30, 2016

(in thousands, except share data)

(unaudited)

Note 1. Formation and Business Purpose (Continued)

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 June 30, 2016, NMFC raised approximately $454,040 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 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.

F-29


Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

June 30, 2016

(in thousands, except share data)

(unaudited)

Note 1. Formation and Business Purpose (Continued)

          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 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.

Current Organization

          The Company's wholly-owned subsidiaries, NMF Ancora Holdings Inc. ("NMF Ancora"), NMF QID NGL Holdings, Inc. ("NMF QID") and NMF YP Holdings Inc. ("NMF YP"), 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). The Company consolidates its tax blocker corporations for accounting purposes. The tax

F-30


Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

June 30, 2016

(in thousands, except share data)

(unaudited)

Note 1. Formation and Business Purpose (Continued)

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 June 30, 2016.

GRAPHIC


*
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

F-31


Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

June 30, 2016

(in thousands, except share data)

(unaudited)

Note 1. Formation and Business Purpose (Continued)

appreciation under the investment criteria used by the Company, however, SBIC LP's investments must be in SBA eligible companies. The Company's portfolio may be concentrated in a limited number of industries. As of June 30, 2016, the Company's top five industry concentrations were business services, software, education, federal services and distribution & logistics.

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 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, NMF QID 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.

          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.

          The Company's interim consolidated financial statements are prepared in accordance with GAAP and pursuant to the requirements for reporting on Form 10-Q and Article 6 or 10 of Regulation S-X. Accordingly, the Company's interim consolidated financial statements do not include all of the information and notes required by GAAP for annual financial statements. In the opinion of management, all adjustments, consisting solely of normal recurring accruals considered necessary for the fair presentation of financial statements for the interim period, have been included. The current period's results of operations will not necessarily be indicative of results that ultimately may be achieved for the fiscal year ending December 31, 2016.

          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

F-32


Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

June 30, 2016

(in thousands, except share data)

(unaudited)

Note 2. Summary of Significant Accounting Policies (Continued)

transactions are accounted for on a trade date basis. The Company's quarterly valuation procedures are set forth in more detail below:

F-33


Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

June 30, 2016

(in thousands, except share data)

(unaudited)

Note 2. Summary of Significant Accounting Policies (Continued)

          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.

          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 June 30, 2016 and December 31, 2015, the Company held one collateralized agreement to resell with a cost basis of $30,000 and $30,000, respectively, and a carrying value of $29,630 and $29,704, respectively, and is collateralized by a second lien bond in Northstar GOM Holdings Group LLC with a fair value of $29,630 and $29,704, respectively. The collateralized agreement to resell is guaranteed by a private hedge fund with the most recently reported assets under management of approximately $690,000 and December 31, 2015 assets under management of approximately $716,590. Pursuant to the terms of the collateralized agreement, the private hedge fund is obligated to repurchase the collateral from the Company at the par value of the collateralized agreement once called upon by the Company or if the private hedge fund's total assets under management fall below the agreed upon thresholds. The collateralized agreement was

F-34


Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

June 30, 2016

(in thousands, except share data)

(unaudited)

Note 2. Summary of Significant Accounting Policies (Continued)

called upon by the Company but the counterparty failed to repurchase the collateral at its par value in accordance with the terms of the collateralized agreement. As of June 30, 2016, litigation is on-going in the state of New York to resolve this matter. The collateralized agreement earned interest at a weighted average rate of 16.0% and 15.0% per annum as of June 30, 2016 and December 31, 2015, respectively.

          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. The Company did not hold any cash equivalents as of June 30, 2016 and December 31, 2015.

          Sales and paydowns of investments:    Realized gains and losses on investments are determined on the specific identification method.

          Interest and dividend 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 and certain preferred equity investments in the portfolio that contain a payment-in-kind ("PIK") interest or dividend provision. PIK interest and dividends are accrued and recorded as income at the contractual rates, if deemed collectible. The PIK interest and dividends are added to the principal or share balances on the capitalization dates and are generally due at maturity or when redeemed by the issuer.

          Dividend income on common equity is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies. Dividend income on preferred securities is recorded as dividend income on an accrual basis to the extent that such amounts are deemed collectible.

          Non-accrual income:    Investments 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 or dividends are reversed when an investment is placed on non-accrual status. Previously capitalized PIK interest or dividends are not reversed when an investment is placed on non-accrual status. Interest or dividend payments received on non-accrual investments may be recognized as income or applied to principal depending upon management's judgment of the ultimate outcome. Non-accrual investments are restored to accrual status when past due principal and interest is paid and, in management's judgment, are likely to remain current.

          Other income:    Other income represents delayed compensation, consent or amendment fees, revolver fees, structuring fees, upfront fees, management fees from a non-controlled/affiliated

F-35


Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

June 30, 2016

(in thousands, except share data)

(unaudited)

Note 2. Summary of Significant Accounting Policies (Continued)

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 and upfront fees are recognized as income when earned, usually when paid at the closing of the investment, and are non-refundable.

          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 over the stated life of the related borrowing. See Note 7, Borrowings, for details. On January 1, 2016, the Company adopted Accounting Standards Update No. 2015-03, Interest — Imputation of Interest Subtopic 835-30 — Simplifying the Presentation of Debt Issuance Costs ("ASU 2015-03"). Upon adoption, the Company revised its presentation of deferred financing costs from an asset to a liability, which is a direct deduction to its debt on the Consolidated Statements of Assets and Liabilities. In addition, the Company retrospectively revised its presentation of $13,992 of deferred financing costs that were previously presented as an asset as of December 31, 2015, which resulted in a decrease to total assets and total liabilities as of December 31, 2015.

          Deferred offering costs — The Company's deferred offering costs consist of fees and expenses incurred in connection with equity offerings and the filing of shelf registration statements. Upon the issuance of shares, offering costs are charged as a direct reduction to net assets. Deferred offering costs are included in other assets on the Company's Consolidated Statements of Assets and Liabilities.

          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 and be subject to tax 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

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

June 30, 2016

(in thousands, except share data)

(unaudited)

Note 2. Summary of Significant Accounting Policies (Continued)

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 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 three and six months ended June 30, 2016, the Company recognized a total income tax benefit of approximately $34 and $717, respectively, for the Company's consolidated subsidiaries. For the three and six months ended June 30, 2016, the Company recorded current income tax expense of approximately $50 and $91, respectively, and deferred income tax benefits of approximately $84 and $808, respectively, which excludes a deferred tax benefit of $44 and $222, respectively, attributable to one of the Company's consolidated subsidiaries. For the three and six months ended June 30, 2015, the Company recognized a total provision for income taxes of approximately $288 and $938, respectively, for the Company's consolidated subsidiaries. For the three and six months ended June 30, 2015, the Company recorded current income tax expense of approximately $153 and $302, respectively, and deferred income tax expense of approximately $135 and $636, respectively.

          As of June 30, 2016 and December 31, 2015, the Company had $868 and $1,676, 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. As of June 30, 2016 and December 31, 2015, the Company had a deferred tax asset of $742 and $520, respectively, attributable to one of the Company's consolidated subsidiaries primarily related to net operating losses. The Company has determined that it is more likely than not that the subsidiary will have insufficient taxable income to realize some portion or all of the deferred tax asset. As such, as of June 30, 2016 and December 31, 2015, a full valuation allowance of $742 and $520, respectively, has been recorded against the deferred tax asset.

          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 uncertain income tax positions that do not meet the more likely than not threshold through December 31, 2015. The 2012

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

June 30, 2016

(in thousands, except share data)

(unaudited)

Note 2. Summary of Significant Accounting Policies (Continued)

through 2015 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 equal to or 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 ask 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 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.

          Share repurchase plan — On February 4, 2016, the Company's board of directors authorized a program for the purpose of repurchasing up to $50,000 worth of the Company's common stock. Under the repurchase program, the Company may, but is not obligated to, repurchase its outstanding common stock in the open market from time to time provided that it complies with the Company's code of ethics and the guidelines specified in Rule 10b-18 of the Exchange Act, including certain price, market volume and timing constraints. In addition, any repurchases will be conducted in accordance with the 1940 Act. Unless amended or extended by the Company's board of directors, the Company expects the repurchase program to be in place until the earlier of December 31, 2016 or until $50,000 of the Company's outstanding shares of common stock have been repurchased. During the three and six months ended June 30, 2016, the Company

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

June 30, 2016

(in thousands, except share data)

(unaudited)

Note 2. Summary of Significant Accounting Policies (Continued)

repurchased a total of 123,549 and 248,499 shares, respectively, of the Company's common stock in the open market for $1,515 and $2,948, respectively, including commissions paid.

          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.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

June 30, 2016

(in thousands, except share data)

(unaudited)

Note 3. Investments

          At June 30, 2016, the Company's investments consisted of the following:

    Cost     Fair Value
 

First lien

  $ 644,882   $ 616,894  

Second lien

    680,009     642,423  

Subordinated

    86,572     79,272  

Equity and other

    135,520     159,472  

Total investments

  $ 1,546,983   $ 1,498,061  

    Cost     Fair Value
 

Business Services

  $ 370,703   $ 380,353  

Software

    390,301     377,108  

Education

    126,633     125,455  

Federal Services

    109,880     110,244  

Distribution & Logistics

    129,290     109,986  

Healthcare Services

    85,925     84,037  

Consumer Services

    82,446     82,873  

Energy

    96,780     71,048  

Investment Fund

    50,790     50,610  

Business Products

    34,133     31,986  

Media

    25,933     28,384  

Retail

    21,017     20,899  

Healthcare Information Technology

    14,631     14,850  

Healthcare Products

    5,537     7,528  

Industrial Services

    2,984     2,700  

Total investments

  $ 1,546,983   $ 1,498,061  

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Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

June 30, 2016

(in thousands, except share data)

(unaudited)

Note 3. Investments (Continued)

          At December 31, 2015, the Company's investments consisted of the following:

    Cost     Fair Value
 

First lien

  $ 711,601   $ 670,023  

Second lien

    656,165     631,985  

Subordinated

    95,429     87,005  

Equity and other

    105,521     123,211  

Total investments

  $ 1,568,716   $ 1,512,224  

    Cost     Fair Value
 

Software

  $ 384,805   $ 370,892  

Business Services

    367,109     368,409  

Education

    167,222     165,947  

Distribution & Logistics

    123,053     117,375  

Federal Services

    95,459     95,477  

Consumer Services

    69,250     68,269  

Energy

    96,717     65,521  

Healthcare Services

    66,923     63,255  

Media

    43,489     47,804  

Healthcare Products

    38,664     37,648  

Business Products

    35,188     33,420  

Manufacturing

    29,852     29,850  

Investment Fund

    23,000     21,914  

Retail

    21,032     21,000  

Industrial Services

    6,953     5,443  

Total investments

  $ 1,568,716   $ 1,512,224  

          During the second quarter of 2016, the Company placed a portion of its first lien position in Permian Tank & Manufacturing, Inc. ("Permian") on non-accrual status due to its ongoing restructuring. As of June 30, 2016, the portion of the Permian first lien position placed on non-accrual status represented an aggregate cost basis of $17,122, an aggregate fair value of $5,030 and total unearned interest income of $825 and $825 for the three and six months then ended.

          During the second quarter of 2016, the Company placed a portion of its second lien position in Transtar Holding Company ("Transtar") on non-accrual status due to its ongoing restructuring. As

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

June 30, 2016

(in thousands, except share data)

(unaudited)

Note 3. Investments (Continued)

of June 30, 2016, the portion of the Transtar second lien position placed on non-accrual status represented an aggregate cost basis of $24,720, an aggregate fair value of $9,087 and total unearned interest income of $842 and $842 for the three and six months then ended.

          As of June 30, 2016, the Company's two super priority first lien positions in ATI Acquisition Company and its related preferred shares and warrants in Ancora Acquisition LLC 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. As of June 30, 2016, the Company's investment had an aggregate cost basis of $1,611, an aggregate fair value of $393 and no unearned interest income for the three and six months then ended. For the three and six months ended June 30, 2015, total unearned interest income was $85 and $168, respectively. As of December 31, 2015, the Company's investment had an aggregate cost basis of $1,611 and an aggregate fair value of $393. As of June 30, 2016 and December 31, 2015, unrealized gains (losses) include a fee that the Company would recognize upon realization of the two super priority first lien debt investments.

          During the first quarter of 2015, the Company placed a portion of its second lien position in Edmentum, Inc. ("Edmentum") on non-accrual status due to its ongoing restructuring. As of March 31, 2015, the Company's investment in Edmentum had an aggregate cost basis of $30,771, an aggregate fair value of $15,575 and total unearned interest income of $438 for the three months then ended. In June 2015, Edmentum completed a restructuring which resulted in a material modification of the original terms and an extinguishment of the Company's original investment in Edmentum. Prior to the extinguishment in June 2015, the Company's original investment in Edmentum had an aggregate cost of $31,636, an aggregate fair value of $16,437 and total unearned interest income of $851 for the six months ended June 30, 2015. The extinguishment resulted in a realized loss of $15,199. Post restructuring, the Company's investments in Edmentum have been restored to full accrual status. As of June 30, 2016, the Company's investments in Edmentum have an aggregate cost basis of $25,929 and an aggregate fair value of $27,212.

          During the first quarter of 2015, the Company's first lien position in Education Management LLC ("EDMC") was non-income producing as a result of the portfolio company undergoing a restructuring. As of December 31, 2014, the Company's investment in EDMC had an aggregate cost basis of $2,987, an aggregate fair value of $1,376 and no unearned interest income for the three months then ended. In January 2015, EDMC completed a restructuring which resulted in a material modification of the original terms and an extinguishment of the Company's original investment in EDMC. Prior to the extinguishment in January 2015, the Company's original investment in EDMC had an aggregate cost of $2,987, an aggregate fair value of $1,376 and no unearned interest income for the period then ended. The extinguishment resulted in a realized loss of $1,611. Post restructuring, the Company's investments in EDMC are income producing. As of June 30, 2016, the Company's investments in EDMC have an aggregate cost basis of $1,460 and an aggregate fair value of $285.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

June 30, 2016

(in thousands, except share data)

(unaudited)

Note 3. Investments (Continued)

          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 Company's investments in UniTek had an aggregate cost basis of $47,357, an aggregate fair value of $35,227 and total unearned interest income of $975 for the year then ended. In January 2015, UniTek emerged from "Pre-Packaged" Chapter 11 Bankruptcy and completed its restructuring. The restructuring resulted in a material modification of the original terms and an extinguishment of the Company's original investments in UniTek. Prior to the extinguishment in January 2015, the Company's original investments in UniTek had an aggregate cost of $52,902, an aggregate fair value of $40,137 and total unearned interest income of $68 for the period then ended. The extinguishment resulted in a realized loss of $12,765. Post restructuring, the Company's investments in UniTek have been restored to full accrual status. As of June 30, 2016, the Company's investments in UniTek have an aggregate cost basis of $41,349 and an aggregate fair value of $55,994.

          As of June 30, 2016, the Company had unfunded commitments on revolving credit facilities and bridge facilities of $9,057 and $0, respectively. As of June 30, 2016, the Company had unfunded commitments in the form of delayed draws or other future funding commitments of $4,695. The unfunded commitments on revolving credit facilities and delayed draws are disclosed on the Company's Consolidated Schedule of Investments as of June 30, 2016.

          As of December 31, 2015, the Company had unfunded commitments on revolving credit facilities and bridge facilities of $17,576 and $0, respectively. As of December 31, 2015, the Company had unfunded commitments in the form of delayed draws or other future funding commitments of $8,678. The unfunded commitments on revolving credit facilities and delayed draws are disclosed on the Company's Consolidated Schedule of Investments as of December 31, 2015.

NMFC Senior Loan Program I LLC

          NMFC Senior Loan Program I LLC ("SLP I") was formed as a Delaware limited liability company on May 27, 2014 and commenced operations on June 10, 2014. 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 "SLP I Agreement") and will continue in existence until June 10, 2019, subject to earlier termination pursuant to certain terms of the SLP I Agreement. The term may be extended for up to one year pursuant to certain terms of the SLP I Agreement. SLP I has a three year re-investment period. 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.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

June 30, 2016

(in thousands, except share data)

(unaudited)

Note 3. Investments (Continued)

          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 June 30, 2016, SLP I had total investments with an aggregate fair value of approximately $338,950, debt outstanding of $245,917 and capital that had been called and funded of $93,000. As of December 31, 2015, SLP I had total investments with an aggregate fair value of approximately $349,704, debt outstanding of $267,617 and capital that had been called and funded of $93,000. The Company's investment in SLP I is disclosed on the Company's Consolidated Schedules of Investments as of June 30, 2016 and December 31, 2015.

          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. No management fee is charged on the Company's investment in SLP I in connection with the administrative services provided to SLP I. For the three and six months ended June 30, 2016, the Company earned approximately $293 and $593, respectively, in management fees related to SLP I which is included in other income. For the three and six months ended June 30, 2015, the Company earned approximately $296 and $597, respectively, in management fees related to SLP I which is included in other income. As of June 30, 2016 and December 31, 2015, approximately $293 and $311, respectively, of management fees related to SLP I was included in receivable from affiliates. For the three and six months ended June 30, 2016, the Company earned approximately $887 and $1,807, respectively, of dividend income related to SLP I, which is included in dividend income. For the three and six months ended June 30, 2015, the Company earned approximately $951 and $1,809, respectively, of dividend income related to SLP I, which is included in dividend income. As of June 30, 2016 and December 31, 2015, approximately $887 and $918, respectively, of dividend income related to SLP I was included in interest and dividend receivable.

Unconsolidated Significant Subsidiaries

          In accordance with Regulation S-X Rule 10-01(b)(1), the Company evaluates its unconsolidated controlled portfolio companies as significant subsidiaries under this rule.

          NMFC Senior Loan Program II LLC ("SLP II") was formed as a Delaware limited liability company on March 9, 2016 and commenced operations on April 12, 2016. SLP II is structured as a private joint venture investment fund between the Company and SkyKnight Income, LLC ("SkyKnight") and operates under a limited liability company agreement (the "SLP II Agreement"). The purpose of the joint venture is to invest primarily in senior secured loans issued by portfolio companies within the Company's core industry verticals. These investments are typically broadly syndicated first lien loans. All investment decisions must be unanimously approved by the board of managers of SLP II, which has equal representation from the Company and SkyKnight. SLP II has a

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Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

June 30, 2016

(in thousands, except share data)

(unaudited)

Note 3. Investments (Continued)

three year investment period and will continue in existence until April 12, 2021. The term may be extended for up to one year pursuant to certain terms of the SLP II Agreement.

          SLP II is capitalized with equity contributions which are called from its members, on a pro-rata basis based on their equity commitments, as transactions are completed. Any decision by SLP II to call down on capital commitments requires approval by the board of managers of SLP II. The Company and SkyKnight have committed to provide $79,400 and $20,600 of equity to SLP II, respectively. As of June 30, 2016 the Company and SkyKnight have contributed $27,790 and $7,210, respectively. The Company's investment in SLP II is disclosed on the Company's Consolidated Schedule of Investments as of June 30, 2016.

          On April 12, 2016, SLP II closed its $275,000 revolving credit facility with Wells Fargo Bank, National Association which matures on April 12, 2021 and bears interest at a rate of LIBOR plus 1.75% per annum. As of June 30, 2016, SLP II had total investments with an aggregate fair value of approximately $167,914 and debt outstanding under its credit facility of $71,600.

          The Company has determined that SLP II is an investment company under ASC 946, however, in accordance with such guidance the Company will generally not consolidate its investment in a company other than a wholly-owned investment company subsidiary. Furthermore, Accounting Standards Codification Topic 810, Consolidation, concludes that in a joint venture where both members have equal decision making authority, it is not appropriate for one member to consolidate the joint venture since neither has control. Accordingly, the Company does not consolidate SLP II.

          As of June 30, 2016, SLP II is not considered a significant unconsolidated subsidiary under Regulation S-X Rule 10-01(b)(1).

          UniTek Global Services, Inc. ("UniTek") is a full service provider of technical services to customers in the wireless telecommunications, public safety, satellite television and broadband cable industries in the U.S. and Canada. UniTek's customers are primarily satellite television, broadband cable and other telecommunications companies, their contractors, and municipalities and related agencies. UniTek's customers utilize its services to build and maintain their infrastructure and networks and to provide residential and commercial fulfillment services, which is critical to their ability to deliver voice, video and data services to end users.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

June 30, 2016

(in thousands, except share data)

(unaudited)

Note 3. Investments (Continued)

          As of June 30, 2016, UniTek is considered a significant unconsolidated subsidiary under Regulation S-X Rule 10-01(b)(1). Based on the requirements under Regulation S-X 10-01(b)(1), the summarized consolidated financial information of UniTek is shown below:

    Three Months Ended     Six Months Ended
 

    June 30, 2016     June 30, 2015     June 30, 2016     June 30, 2015
 

Summary of Operations:

                         

Net sales

  $ 71,567   $ 66,702   $ 139,910   $ 133,024  

Cost of goods sold

    54,839     54,108     107,275     110,315  

Gross profit

    16,728     12,594     32,635     22,709  

Other expenses

    13,712     12,205     27,905     28,772  

Net income (loss) from continuing operations before extraordinary items

    3,016     389     4,730     (6,063 )

Loss from discontinued operations

                 

Net income (loss)

  $ 3,016   $ 389   $ 4,730   $ (6,063 )

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.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

June 30, 2016

(in thousands, except share data)

(unaudited)

Note 3. Investments (Continued)

          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 fluctuate in value resulting in recognized realized gains or losses 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:

          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 and unobservable. Gains and losses for such assets categorized within the Level III table below

F-47


Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

June 30, 2016

(in thousands, except share data)

(unaudited)

Note 4. Fair Value (Continued)

may include changes in fair value that are attributable to both observable inputs and unobservable inputs.

          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 June 30, 2016:

    Total     Level I     Level II     Level III
 

First lien

  $ 616,894   $   $ 285,363   $ 331,531  

Second lien

    642,423         354,286     288,137  

Subordinated

    79,272         37,538     41,734  

Equity and other

    159,472     118     14     159,340  

Total investments

  $ 1,498,061   $ 118   $ 677,201   $ 820,742  

          The following table summarizes the levels in the fair value hierarchy that the Company's portfolio investments fall into as of December 31, 2015:

    Total     Level I     Level II     Level III
 

First lien

  $ 670,023   $   $ 329,133   $ 340,890  

Second lien

    631,985         449,227     182,758  

Subordinated

    87,005         33,546     53,459  

Equity and other

    123,211     316     15     122,880  

Total investments

  $ 1,512,224   $ 316   $ 811,921   $ 699,987  

F-48


Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

June 30, 2016

(in thousands, except share data)

(unaudited)

Note 4. Fair Value (Continued)

          The following table summarizes the changes in fair value of Level III portfolio investments for the three months ended June 30, 2016, 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 June 30, 2016:

    Total     First Lien     Second Lien     Subordinated     Equity and
other
 

Fair value, March 31, 2016

  $ 740,665   $ 343,455   $ 232,593   $ 40,744   $ 123,873  

Total gains or losses included in earnings:

                               

Net realized gains on investments

    1,361     512     849          

Net change in unrealized appreciation (depreciation)

    11,408     4,702     (274 )   376     6,604  

Purchases, including capitalized PIK and revolver fundings

    118,182     36,442     52,263     614     28,863  

Proceeds from sales and paydowns of investments

    (82,688 )   (48,521 )   (34,167 )        

Transfers into Level III(1)

    56,128     19,255     36,873          

Transfers out of Level III(1)

    (24,314 )   (24,314 )            

Fair Value, June 30, 2016

  $ 820,742   $ 331,531   $ 288,137   $ 41,734   $ 159,340  

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

  $ 12,758   $ 5,203   $ 575   $ 376   $ 6,604  

(1)
As of June 30, 2016, 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 reclassification occurred.

F-49


Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

June 30, 2016

(in thousands, except share data)

(unaudited)

Note 4. Fair Value (Continued)

          The following table summarizes the changes in fair value of Level III portfolio investments for the three months ended June 30, 2015, 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 June 30, 2015:

    Total     First Lien     Second Lien     Subordinated     Equity and
other
 

Fair value, March 31, 2015

  $ 389,174   $ 152,658   $ 102,736   $ 38,062   $ 95,718  

Total gains or losses included in earnings:

                               

Net realized (losses) gains on investments

    (14,458 )   398     (14,852 )       (4 )

Net change in unrealized appreciation (depreciation)

    15,341     26     14,367     (3,167 )   4,115  

Purchases, including capitalized PIK and revolver fundings(1)

    65,290     20,150     23,893     20,397     850  

Proceeds from sales and paydowns of investments(1)

    (60,373 )   (2,100 )   (58,277 )       4  

Transfers into Level III(2)

    28,333     28,333              

Fair Value, June 30, 2015

  $ 423,307   $ 199,465   $ 67,867   $ 55,292   $ 100,683  

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

  $ 1,211   $ 370   $ (107 ) $ (3,167 ) $ 4,115  

(1)
Includes reorganizations and restructurings.

(2)
As of June 30, 2015, portfolio investments were transferred into Level III from Level II at fair value as of the beginning of the quarter in which the reclassification occurred.

F-50


Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

June 30, 2016

(in thousands, except share data)

(unaudited)

Note 4. Fair Value (Continued)

          The following table summarizes the changes in fair value of Level III portfolio investments for the six months ended June 30, 2016, 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 June 30, 2016:

    Total     First Lien     Second Lien     Subordinated     Equity and
other
 

Fair value, December 31, 2015

  $ 699,987   $ 340,890   $ 182,758   $ 53,459   $ 122,880  

Total gains or losses included in earnings:

                               

Net realized gains (losses) on investments

    1,508     540     849     119      

Net change in unrealized appreciation (depreciation)

    9,505     6,679     (5,568 )   1,933     6,461  

Purchases, including capitalized PIK and revolver fundings

    141,650     39,071     71,357     1,223     29,999  

Proceeds from sales and paydowns of investments

    (99,757 )   (50,590 )   (34,167 )   (15,000 )    

Transfers into Level III(1)

    92,163     19,255     72,908          

Transfers out of Level III(1)

    (24,314 )   (24,314 )            

Fair Value, June 30, 2016

  $ 820,742   $ 331,531   $ 288,137   $ 41,734   $ 159,340  

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

  $ 7,443   $ 6,539   $ (7,609 ) $ 2,052   $ 6,461  

(1)
As of June 30, 2016, 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 reclassification occurred.

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Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

June 30, 2016

(in thousands, except share data)

(unaudited)

Note 4. Fair Value (Continued)

          The following table summarizes the changes in fair value of Level III portfolio investments for the six months ended June 30, 2015, 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 June 30, 2015:

    Total     First Lien     Second Lien     Subordinated     Equity and
other
 

Fair value, December 31, 2014

  $ 419,681   $ 169,180   $ 134,406   $ 35,470   $ 80,625  

Total gains or losses included in earnings:

                               

Net realized (losses) gains on investments

    (13,016 )   (10,919 )   (14,542 )       12,445  

Net change in unrealized appreciation (depreciation)

    21,783     9,907     13,937     (3,005 )   944  

Purchases, including capitalized PIK and revolver fundings(1)

    125,293     45,504     36,243     22,827     20,719  

Proceeds from sales and paydowns of investments(1)

    (158,767 )   (42,540 )   (102,177 )       (14,050 )

Transfers into Level III(2)

    28,333     28,333              

Fair Value, June 30, 2015

  $ 423,307   $ 199,465   $ 67,867   $ 55,292   $ 100,683  

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

  $ 9,583   $ (619 ) $ (22 ) $ (3,005 ) $ 13,229  

(1)
Includes reorganizations and restructurings.

(2)
As of June 30, 2015, portfolio investments were transferred into Level III from Level II at fair value as of the beginning of the quarter in which the reclassification occurred.

          Except as noted in the tables above, there were no other transfers in or out of Level I, II, or III during the three and six months ended June 30, 2016 and June 30, 2015. Transfers into Level III occur as quotations obtained through pricing services are not deemed representative of fair value as of the balance sheet date and such assets are internally valued. As quotations obtained through pricing services are substantiated through additional market sources, investments are transferred out of Level III. In addition, transfers out of Level III and transfer into Level III occur based on the increase or decrease in the availability of certain observable inputs.

          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

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Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

June 30, 2016

(in thousands, except share data)

(unaudited)

Note 4. Fair Value (Continued)

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.

          For debt investments, the Company may employ the Market Based Approach (as described below) to assess the total enterprise value of the portfolio company, in order to evaluate the enterprise value coverage of the Company's debt investment. For equity investments or in cases where the Market Based Approach implies a lack of enterprise value coverage for the debt investment, the Company may additionally employ a discounted cash flow analysis based on the free cash flows of the portfolio company to assess the total enterprise value.

          After enterprise value coverage is demonstrated for the Company's debt investments through the method(s) above, the Income Based Approach (as described below) may be employed to estimate the fair value of the investment.

          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 and comparable transactions. 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 the enterprise value of the portfolio company. Significant increases or decreases in the EBITDA multiple will result in an increase or decrease in enterprise value, which may result in an increase or decrease in the fair value estimate of the investment. In applying the market based approach as of

F-53


Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

June 30, 2016

(in thousands, except share data)

(unaudited)

Note 4. Fair Value (Continued)

June 30, 2016 and December 31, 2015, the Company used the relevant EBITDA multiple ranges set forth in the table below to determine the enterprise value of its portfolio companies. The Company believes this was a reasonable range in light of current comparable company trading levels and the specific portfolio 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 June 30, 2016 and December 31, 2015, the Company used the discount ranges set forth in the table below to value investments in its portfolio companies.

          The unobservable inputs used in the fair value measurement of the Company's Level III investments as of June 30, 2016 were as follows:

                  Range
 

Type

    Fair Value as of
June 30, 2016
  Approach   Unobservable Input     Low     High     Weighted
Average
 

First lien

  $ 283,732   Market & income approach   EBITDA multiple     5.0x     16.0x     10.3x  

            Discount rate     7.4 %   12.4 %   9.7 %

    25,524   Market quote   Broker quote     N/A     N/A     N/A  

    22,275   Other   N/A(1)     N/A (1)   N/A (1)   N/A (1)

Second lien

    157,473   Market & income approach   EBITDA multiple     6.5x     16.0x     11.5x  

            Discount rate     9.5 %   13.1 %   11.3 %

    118,769   Market quote   Broker quote     N/A     N/A     N/A  

    11,895   Other   N/A(1)     N/A (1)   N/A (1)   N/A (1)

Subordinated

    41,734   Market & income approach   EBITDA multiple     5.0x     8.5x     7.3x  

            Discount rate     9.5 %   18.1 %   15.8 %

Equity and other

    155,308   Market & income approach   EBITDA multiple     2.5x     12.0x     6.2x  

            Discount rate     8.0 %   19.5 %   14.3 %

    1,504   Black Scholes analysis   Expected life in years     9.3     9.8     9.5  

            Volatility     27.0 %   33.8 %   30.7 %

            Discount rate     1.6 %   1.6 %   1.6 %

    2,528   Other   N/A(1)     N/A (1)   N/A (1)   N/A (1)

  $ 820,742                            

(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.

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Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

June 30, 2016

(in thousands, except share data)

(unaudited)

Note 4. Fair Value (Continued)

          The unobservable inputs used in the fair value measurement of the Company's Level III investments as of December 31, 2015 were as follows:

                  Range
 

Type

    Fair Value as of
December 31, 2015
  Approach   Unobservable Input     Low     High     Weighted
Average
 

First lien

  $ 292,507   Market & income approach   EBITDA multiple     4.5x     15.5x     10.0x  

            Discount rate     7.3 %   13.9 %   11.0 %

    30,719   Market quote   Broker quote     N/A     N/A     N/A  

    17,664   Other   N/A(1)     N/A (1)   N/A (1)   N/A (1)

Second lien

    88,977   Market & income approach   EBITDA multiple     6.5x     16.0x     12.3x  

            Discount rate     10.0 %   14.2 %   12.7 %

    41,544   Market quote   Broker quote     N/A     N/A     N/A  

    52,237   Other   N/A(1)     N/A (1)   N/A (1)   N/A (1)

Subordinated

    38,459   Market & income approach   EBITDA multiple     4.5x     9.0x     7.6x  

            Discount rate     10.0 %   19.4 %   17.7 %

    15,000   Other   N/A(1)     N/A (1)   N/A (1)   N/A (1)

Equity and other

    121,453   Market & income approach   EBITDA multiple     2.5x     12.0x     6.3x  

            Discount rate     8.0 %   21.3 %   14.6 %

    1,427   Black Scholes analysis   Expected life in years     9.8     10.3     10.0  

            Volatility     27.0 %   30.3 %   28.9 %

            Discount rate     2.1 %   2.1 %   2.1 %

  $ 699,987                            

(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 June 30, 2016, 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 June 30, 2016 based on a comparison of market interest rates for the Company's borrowings and similar entities. The Unsecured Notes (as defined in Note 7, Borrowings) were issued during the three months ended June 30, 2016 and as such the carrying value approximates fair value as of June 30, 2016. The fair value of the Holdings Credit Facility, NMFC Credit Facility, SBA-guaranteed debentures and Unsecured Notes are considered Level III. The fair value of the Convertible Notes (as defined in Note 7, Borrowings) as of June 30, 2016 was $113,419, 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 June 30, 2016 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.

          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

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Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

June 30, 2016

(in thousands, except share data)

(unaudited)

Note 4. Fair Value (Continued)

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.

          Pursuant to the Investment Management Agreement, 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, less the 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 the IPO, the base management fee calculation has deducted the borrowings under the SLF Credit Facility. The SLF Credit Facility had historically consisted of primarily lower yielding assets at higher advance rates. As part of an amendment to the Company's existing credit facilities with Wells Fargo Bank, National Association, the SLF Credit Facility merged with the Predecessor Holdings Credit Facility and into the Holdings Credit Facility on December 18, 2014 (as defined in

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Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

June 30, 2016

(in thousands, except share data)

(unaudited)

Note 5. Agreements (Continued)

Note 7, Borrowings). Post credit facility merger and to be consistent with the methodology since the IPO, the Investment Adviser will continue to 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, which as of June 30, 2016 and June 30, 2015 approximated $269,625 and $251,508, respectively. The Investment Adviser cannot recoup management fees that the Investment Adviser has previously waived. For the three and six months ended June 30, 2016, management fees waived were approximately $1,241 and $2,560, respectively. For the three and six months ended June 30, 2015, management fees waived were approximately $1,247 and $2,629, respectively.

          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, upfront, 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 June 30, 2016), 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

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Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

June 30, 2016

(in thousands, except share data)

(unaudited)

Note 5. Agreements (Continued)

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:

          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.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

June 30, 2016

(in thousands, except share data)

(unaudited)

Note 5. Agreements (Continued)

          The following table summarizes the management fees and incentive fees incurred by the Company for the three and six months ended June 30, 2016 and June 30, 2015.

    Three Months Ended     Six Months Ended
 

    June 30, 2016     June 30, 2015     June 30, 2016     June 30, 2015
 

Management fee

  $ 6,818   $ 6,198   $ 13,654   $ 12,666  

Less: management fee waiver

    (1,241 )   (1,247 )   (2,560 )   (2,629 )

Total management fee

    5,577     4,951     11,094     10,037  

Incentive fee, excluding accrued capital gains incentive fees

  $ 5,449   $ 5,057   $ 10,834   $ 9,935  

Accrued capital gains incentive fees(1)

  $   $ 9   $   $ 490  

(1)
As of June 30, 2016 and June 30, 2015, 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.

          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.

F-59


Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

June 30, 2016

(in thousands, except share data)

(unaudited)

Note 5. Agreements (Continued)

          The following Consolidated Statement of Operations for the three and six months ended June 30, 2016 is adjusted to reflect this step-up to fair market value.

    Three Months
Ended
June 30, 2016
    Stepped-up
Cost Basis
Adjustments
    Adjusted
Three Months
Ended
June 30, 2016
 

Investment income

                   

Interest income(1)

  $ 38,412   $ (35 ) $ 38,377  

Dividend income(2)

    1,721         1,721  

Other income

    1,357         1,357  

Total investment income(3)

    41,490     (35 )   41,455  

Total expenses pre-incentive fee(4)

    14,209         14,209  

Pre-Incentive Fee Net Investment Income

    27,281     (35 )   27,246  

Incentive fee(5)

    5,449         5,449  

Post-Incentive Fee Net Investment Income

    21,832     (35 )   21,797  

Net realized gains (losses) on investments(6)

    865     (86 )   779  

Net change in unrealized appreciation (depreciation) of investments(6)          

    21,956     121     22,077  

Net change in unrealized (depreciation) appreciation of securities purchased under collateralized agreements to resell

    (44 )       (44 )

Benefit for taxes

    84         84  

Net increase in net assets resulting from operations

  $ 44,693         $ 44,693  

(1)
Includes $950 in PIK interest from investments.

(2)
Includes $742 in PIK dividends from investments.

(3)
Includes income from non-controlled/non-affiliated investments, non-controlled/affiliated investments and controlled investments.

(4)
Includes expense waivers and reimbursements of $63 and management fee waivers of $1,241.

(5)
For the three months ended June 30, 2016, the Company incurred total incentive fees of $5,449, of which $0 is related to capital gains incentive fees on a hypothetical liquidation basis.

(6)
Includes net realized gains and losses on investments and net change in unrealized appreciation (depreciation) of investments from non-controlled/non-affiliated investments, non-controlled/affiliated investments and controlled investments.

F-60


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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

June 30, 2016

(in thousands, except share data)

(unaudited)

Note 5. Agreements (Continued)

    Six Months
Ended
June 30, 2016
    Stepped-up
Cost Basis
Adjustments
    Adjusted
Six Months
Ended
June 30, 2016
 

Investment income

                   

Interest income(1)

  $ 76,202   $ (64 ) $ 76,138  

Dividend income(2)

    3,360         3,360  

Other income

    2,904         2,904  

Total investment income(3)

    82,466     (64 )   82,402  

Total expenses pre-incentive fee(4)

    28,233         28,233  

Pre-Incentive Fee Net Investment Income

    54,233     (64 )   54,169  

Incentive fee(5)

    10,834         10,834  

Post-Incentive Fee Net Investment Income

    43,399     (64 )   43,335  

Net realized gains (losses) on investments(6)

    1,041     (124 )   917  

Net change in unrealized appreciation (depreciation) of investments(6)          

    7,570     188     7,758  

Net change in unrealized (depreciation) appreciation of securities purchased under collateralized agreements to resell

    (74 )       (74 )

Benefit for taxes

    808         808  

Net increase in net assets resulting from operations

  $ 52,744         $ 52,744  

(1)
Includes $1,903 in PIK interest from investments.

(2)
Includes $1,461 in PIK dividends from investments.

(3)
Includes income from non-controlled/non-affiliated investments, non-controlled/affiliated investments and controlled investments.

(4)
Includes expense waivers and reimbursements of $347 and management fee waivers of $2,560.

(5)
For the six months ended June 30, 2016, the Company incurred total incentive fees of $10,834, of which $0 is related to capital gains incentive fees on a hypothetical liquidation basis.

(6)
Includes net realized gains and losses on investments and net change in unrealized appreciation (depreciation) of investments from non-controlled/non-affiliated investments, non-controlled/affiliated investments and controlled investments.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

June 30, 2016

(in thousands, except share data)

(unaudited)

Note 5. Agreements (Continued)

          The following Consolidated Statement of Operations for the three and six months ended June 30, 2015 is adjusted to reflect this step-up to fair market value.

    Three Months
Ended
June 30, 2015
    Stepped-up
Cost Basis
Adjustments
    Adjusted
Three Months
Ended
June 30, 2015
 

Investment income

                   

Interest income(1)

  $ 35,470   $ (33 ) $ 35,437  

Dividend income(2)

    1,795         1,795  

Other income

    640         640  

Total investment income(3)

    37,905     (33 )   37,872  

Total net expenses pre-incentive fee(4)          

    12,586         12,586  

Pre-Incentive Fee Net Investment Income

    25,319     (33 )   25,286  

Incentive fee(5)

    5,066         5,066  

Post-Incentive Fee Net Investment Income

    20,253     (33 )   20,220  

Net realized losses on investments(6)

    (13,338 )   (47 )   (13,385 )

Net change in unrealized appreciation (depreciation) of investments(6)          

    13,484     80     13,564  

Provision for taxes

    (135 )       (135 )

Net increase in net assets resulting from operations

  $ 20,264         $ 20,264  

(1)
Includes $1,492 in PIK interest from investments.

(2)
Includes $643 in PIK dividends from investments.

(3)
Includes income from non-controlled/non-affiliated investments, non-controlled/affiliated investments and controlled investments.

(4)
Includes management fee waivers of $1,247. No expense waivers and reimbursements were noted for the three months ended June 30, 2015.

(5)
For the three months ended June 30, 2015, the Company incurred total incentive fees of $5,066, of which $9 is related to capital gains incentive fees on a hypothetical liquidation basis.

(6)
Includes net change in unrealized appreciation (depreciation) of investments from non-controlled/non-affiliated investments, non-controlled/affiliated investments and controlled investments.

F-62


Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

June 30, 2016

(in thousands, except share data)

(unaudited)

Note 5. Agreements (Continued)

    Six Months
Ended
June 30, 2015
    Stepped-up
Cost Basis
Adjustments
    Adjusted
Six Months
Ended
June 30, 2015
 

Investment income

                   

Interest income(1)

  $ 68,817   $ (66 ) $ 68,751  

Dividend income(2)

    3,102         3,102  

Other income

    2,522         2,522  

Total investment income(3)

    74,441     (66 )   74,375  

Total net expenses pre-incentive fee(4)          

    24,701         24,701  

Pre-Incentive Fee Net Investment Income

    49,740     (66 )   49,674  

Incentive fee(5)

    10,425         10,425  

Post-Incentive Fee Net Investment Income

    39,315     (66 )   39,249  

Net realized losses on investments(6)

    (13,471 )   (47 )   (13,518 )

Net change in unrealized appreciation (depreciation) of investments(6)          

    17,970     113     18,083  

Provision for taxes

    (636 )       (636 )

Net increase in net assets resulting from operations

  $ 43,178         $ 43,178  

(1)
Includes $2,146 in PIK interest from investments.

(2)
Includes $1,191 in PIK dividends from investments.

(3)
Includes income from non-controlled/non-affiliated investments, non-controlled/affiliated investments and controlled investments.

(4)
Includes expense waivers and reimbursements of $400 and management fee waivers of $2,629.

(5)
For the six months ended June 30, 2015, the Company incurred total incentive fees of $10,425, of which $490 is related to capital gains incentive fees on a hypothetical liquidation basis.

(6)
Includes net change in unrealized appreciation (depreciation) of investments from non-controlled/non-affiliated investments, non-controlled/affiliated investments and controlled investments.

          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, the Administrator

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

June 30, 2016

(in thousands, except share data)

(unaudited)

Note 5. Agreements (Continued)

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 three and six months ended June 30, 2016, approximately $363 and $931, respectively, of indirect administrative expenses were included in administrative expenses of which $63 and $347, respectively, of indirect administrative expenses were waived by the Administrator. For the three and six months ended June 30, 2015, approximately $324 and $724, respectively, of indirect administrative expenses were included in administrative expenses of which $0 and $400, respectively, of indirect administrative expenses were waived by the Administrator. As of June 30, 2016 and December 31, 2015, approximately $300 and $374, respectively, 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 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" 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.

Note 6. Related Parties

          The Company has entered into a number of business relationships with affiliated or related parties.

          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.

F-64


Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

June 30, 2016

(in thousands, except share data)

(unaudited)

Note 6. Related Parties (Continued)

          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.

          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. 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 SLF merged with and into NMF Holdings. The Holdings Credit Facility effectively amended and restated the Predecessor

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

June 30, 2016

(in thousands, except share data)

(unaudited)

Note 7. Borrowings (Continued)

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 permitted to borrow up to 25.0%, 45.0% or 70.0% of the purchase price of pledged assets, subject to approval by 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.

          Effective January 1, 2016, the Holdings Credit Facility bears interest at a rate of the London Interbank Offered Rate ("LIBOR") plus 1.75% per annum for Broadly Syndicated Loans (as defined in the Loan and Security Agreement) and LIBOR plus 2.50% per annum for all other investments. Previously, the Holdings Credit Facility bore 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).

          The following table summarizes the interest expense, non-usage fees and amortization of financing costs incurred on the Holdings Credit Facility for the three and six months ended June 30, 2016 and June 30, 2015.

    Three Months Ended     Six Months Ended
 

    June 30, 2016     June 30, 2015     June 30, 2016     June 30, 2015
 

Interest expense

  $ 2,351   $ 2,458   $ 4,994   $ 5,351  

Non-usage fee

  $ 183   $ 151   $ 308   $ 207  

Amortization of financing costs

  $ 401   $ 402   $ 803   $ 799  

Weighted average interest rate

    2.7 %   2.6 %   2.7 %   2.6 %

Effective interest rate

    3.4 %   3.2 %   3.3 %   3.1 %

Average debt outstanding

  $ 348,039   $ 374,180   $ 371,374   $ 411,631  

          As of June 30, 2016 and December 31, 2015, the outstanding balance on the Holdings Credit Facility was $348,013 and $419,313, respectively, and NMF Holdings was in compliance with the applicable covenants in the Holdings Credit Facility on such dates.

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Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

June 30, 2016

(in thousands, except share data)

(unaudited)

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 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 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).

          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 was set to 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 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 NMF SLF's investments, but rather to the performance of the underlying portfolio

F-67


Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

June 30, 2016

(in thousands, except share data)

(unaudited)

Note 7. Borrowings (Continued)

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).

          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, Goldman Sachs Bank USA as the Administrative Agent and Collateral Agent, and Goldman Sachs Bank USA, Morgan Stanley Bank, N.A. and Stifel Bank & Trust 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.

          As of June 30, 2016, the maximum amount of revolving borrowings available under the NMFC Credit Facility was $122,500. 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 generally bears 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% per annum (as defined in the Senior Secured Revolving Credit Agreement).

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Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

June 30, 2016

(in thousands, except share data)

(unaudited)

Note 7. Borrowings (Continued)

          The following table summarizes the interest expense, non-usage fees and amortization of financing costs incurred on the NMFC Credit Facility for the three and six months ended June 30, 2016 and June 30, 2015.

    Three Months Ended     Six Months Ended
 

    June 30, 2016     June 30, 2015     June 30, 2016     June 30, 2015
 

Interest expense

  $ 541   $ 454   $ 1,227   $ 666  

Non-usage fee

  $ 43   $ 13   $ 46   $ 59  

Amortization of financing costs

  $ 92   $ 121   $ 181   $ 182  

Weighted average interest rate

    2.9 %   2.7 %   2.9 %   2.7 %

Effective interest rate

    3.7 %   3.5 %   3.5 %   3.7 %

Average debt outstanding

  $ 72,736   $ 67,108   $ 82,783   $ 49,507  

          As of June 30, 2016 and December 31, 2015, the outstanding balance on the NMFC Credit Facility was $87,000 and $90,000, respectively, 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 $115,000 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. As of the first anniversary, June 3, 2015, of the Convertible Notes, the restrictions under Rule 144A under the Securities Act of 1933 were removed, allowing the Convertible Notes to be eligible and freely tradable without restrictions for resale pursuant to Rule 144(b)(1) 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, which commenced on December 15, 2014. The Convertible Notes will mature on June 15, 2019 unless earlier converted or repurchased at the holder's option.

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Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

June 30, 2016

(in thousands, except share data)

(unaudited)

Note 7. Borrowings (Continued)

          The following table summarizes certain key terms related to the convertible features of the Company's Convertible Notes as of June 30, 2016.

    June 30, 2016
 

Initial conversion premium

    12.5 %

Initial conversion rate(1)

    62.7746  

Initial conversion price

  $ 15.93  

Conversion premium at June 30, 2016

    11.7 %

Conversion rate at June 30, 2016(1)(2)

    63.2794  

Conversion price at June 30, 2016(2)(3)

  $ 15.80  

Last conversion price calculation date

    June 3, 2016  

(1)
Conversion rates denominated in shares of common stock per $1 principal amount of the Convertible Notes converted.

(2)
Represents conversion rate and conversion price, as applicable, taking into account certain de minimis adjustments that will be made on the conversion date.

(3)
The conversion price in effect at June 30, 2016 was calculated on the last anniversary of the issuance and will be calculated again on the next anniversary, unless the exercise price shall have changed by more than 1.0% before the anniversary.

          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 reflected in Note 11, Earnings Per Share, the issuance is considered 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.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

June 30, 2016

(in thousands, except share data)

(unaudited)

Note 7. Borrowings (Continued)

          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.

          The following table summarizes the interest expense and amortization of financing costs incurred on the Convertible Notes for the three and six months ended June 30, 2016 and June 30, 2015.

    Three Months Ended     Six Months Ended
 

    June 30, 2016     June 30, 2015     June 30, 2016     June 30, 2015
 

Interest expense

  $ 1,437   $ 1,437   $ 2,875   $ 2,875  

Amortization of financing costs

  $ 186   $ 186   $ 371   $ 369  

Effective interest rate

    5.7 %   5.7 %   5.7 %   5.7 %

          As of June 30, 2016 and December 31, 2015, the outstanding balance on the Convertible Notes was $115,000 and $115,000, respectively, and NMFC was in compliance with the terms of the Indenture on such dates.

          Unsecured Notes — On May 6, 2016, the Company issued $50,000 in aggregate principal amount of five-year senior unsecured notes that mature on May 15, 2021 (the "Unsecured Notes"), pursuant to a note purchase agreement, dated May 4, 2016 (the "NPA"), to an institutional investor in a private placement. The Unsecured Notes rank pari-passu with the Company's other unsecured indebtedness, including the Company's Convertible Notes. The Unsecured Notes bear interest at an annual rate of 5.313%, payable semi-annually on May 15 and November 15 of each year, starting on November 15, 2016. This interest rate is subject to increase in the event that: (i) subject to certain exceptions, the Unsecured Notes or the Company cease to have an investment grade rating or (ii) the aggregate amount of the Company's unsecured debt falls below $150,000. In each such event, the Company also has the option to offer to prepay the Unsecured Notes at par, in which case holders of the Unsecured Notes who accept the offer would not receive the increased interest rate. In addition, the Company is obligated to offer to prepay the Unsecured Notes at par if the Investment Adviser, or an affiliate thereof, ceases to be the Company's investment adviser or if certain change in control events occur with respect to the Investment Adviser.

          The NPA contains customary terms and conditions for senior unsecured notes issued in a private placement, including, without limitation, an option to offer to prepay all or a portion of the Unsecured Notes at par (plus a make-whole amount, if applicable), affirmative and negative covenants such as information reporting, maintenance of the Company's status as a BDC under the 1940 Act and a RIC under the Internal Revenue Code, minimum stockholders' equity, minimum asset coverage ratio, and prohibitions on certain fundamental changes at the Company or any subsidiary guarantor, as well as customary events of default with customary cure and notice, including, without limitation, nonpayment, misrepresentation in a material respect, breach of covenant, cross-default under other indebtedness of the Company or certain significant

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

June 30, 2016

(in thousands, except share data)

(unaudited)

Note 7. Borrowings (Continued)

subsidiaries, certain judgments and orders, and certain events of bankruptcy. As of June 30, 2016, the outstanding balance on the Unsecured Notes was $50,000 and the Company was in compliance with the terms of the NPA.

          Interest expense incurred on the Unsecured Notes for the three and six months ended June 30, 2016 was $406 and $406, respectively. Amortization of financing costs incurred on the Unsecured Notes for the three and six months ended June 30, 2016 was $37 and $37, respectively. The effective interest rate for the three and six months ended June 30, 2016 was 5.8% and 5.8%, respectively.

          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 June 30, 2016 and December 31, 2015, SBIC LP had regulatory capital of approximately $72,402 and $72,402, respectively, and SBA-guaranteed debentures outstanding of $121,745 and $117,745, respectively. The SBA-guaranteed debentures incur upfront fees of 3.425%, which consists of a 1.00% commitment fee and a 2.425% issuance discount, which are amortized over the

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

June 30, 2016

(in thousands, except share data)

(unaudited)

Note 7. Borrowings (Continued)

life of the SBA-guaranteed debentures. The following table summarizes the Company's SBA-guaranteed debentures as of June 30, 2016.

Issuance Date

  Maturity Date     Debenture
Amount
    Interest
Rate
    SBA Annual
Charge
 

Fixed SBA-guaranteed debentures:

                       

March 25, 2015

  March 1, 2025   $ 37,500     2.517 %   0.355 %

September 23, 2015

  September 1, 2025     37,500     2.829 %   0.355 %

September 23, 2015

  September 1, 2025     28,795     2.829 %   0.742 %

March 23, 2016

  March 1, 2026     13,950     2.507 %   0.742 %

Interim SBA-guaranteed debentures:

                       

  September 1, 2026(1)     1,000     0.950 %   0.742 %

  September 1, 2026(1)     3,000     0.907 %   0.742 %

Total SBA-guaranteed debentures

      $ 121,745              

(1)
Estimated maturity date as interim SBA-guaranteed debentures are expected to pool in September 2016.

          Prior to pooling, the SBA-guaranteed debentures bear interest at an interim floating rate of LIBOR plus 0.30%. Once pooled, which occurs in March and September each year, the SBA-guaranteed debentures bear interest at a fixed rate that is set to the current 10-year treasury rate plus a spread at each pooling date.

          The following table summarizes the interest expense and amortization of financing costs incurred on the SBA-guaranteed debentures for the three and six months ended June 30, 2016 and June 30, 2015.

    Three Months Ended     Six Months Ended
 

    June 30, 2016     June 30, 2015     June 30, 2016     June 30, 2015
 

Interest expense

  $ 937   $ 293   $ 1,820   $ 393  

Amortization of financing costs

  $ 99   $ 39   $ 197   $ 70  

Weighted average interest rate

    3.2 %   2.5 %   3.1 %   1.9 %

Effective interest rate

    3.5 %   2.8 %   3.4 %   2.2 %

Average debt outstanding

  $ 117,998   $ 47,115   $ 117,871   $ 42,334  

          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

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

June 30, 2016

(in thousands, except share data)

(unaudited)

Note 7. Borrowings (Continued)

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 June 30, 2016 and December 31, 2015, 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 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 and be subject to tax 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 will 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 June 30, 2016, the Company had unfunded commitments on revolving credit facilities of $9,057, no outstanding bridge financing commitments and other future funding commitments of $4,695. As of December 31, 2015, the Company had

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

June 30, 2016

(in thousands, except share data)

(unaudited)

Note 9. Commitments and Contingencies (Continued)

unfunded commitments on revolving credit facilities of $17,576, no outstanding bridge financing commitments and other future funding commitments of $8,678. The unfunded commitments on revolving credit facilities and delayed draws are disclosed on the Company's respective Consolidated Schedules of Investments.

          The Company also has revolving borrowings available under the Holdings Credit Facility and the NMFC Credit Facility as of June 30, 2016 and December 31, 2015. See Note 7, Borrowings, for details.

          The Company may from time to time enter into financing commitment letters. As of June 30, 2016 and December 31, 2015, the Company had commitment letters to purchase debt investments in an aggregate par amount of $25,000 and $0, respectively, which could require funding in the future.

          As of June 30, 2016 and December 31, 2015, the Company had unfunded commitments related to an equity investment in SLP II of $51,610 and $0, respectively, which may be funded at the Company's discretion.

Note 10. Net Assets

          The table below illustrates the effect of certain transactions on the net asset accounts of the Company:

   

Common Stock
   

Treasury Stock
   
Paid in
Capital in
    Accumulated
Undistributed
Net Investment
    Accumulated
Undistributed
Net Realized
    Net
Unrealized
(Depreciation)
   

Total
 

    Shares     Par Amount     at Cost     Excess of Par     Income     Gains (Losses)     Appreciation     Net Assets
 

Balance at December 31, 2015

    64,005,387   $ 640   $   $ 899,713   $ 4,164   $ 1,342   $ (68,951 ) $ 836,908  

Issuances of common stock

                                 

Repurchases of common stock

    (248,499 )       (2,948 )                   (2,948 )

Deferred offering costs

                38                 38  

Dividends declared

                    (43,417 )           (43,417 )

Net increase (decrease) in net assets resulting from operations

                    43,399     1,041     8,304     52,744  

Balance at June 30, 2016

    63,756,888   $ 640   $ (2,948 ) $ 899,751   $ 4,146   $ 2,383   $ (60,647 ) $ 843,325  

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

June 30, 2016

(in thousands, except share data)

(unaudited)

Note 11. Earnings Per Share

          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 three and six months ended June 30, 2016 and June 30, 2015:

    Three Months Ended     Six Months Ended
 

    June 30,
2016
    June 30,
2015
    June 30,
2016
    June 30,
2015
 

Earnings per share — basic

                         

Numerator for basic earnings per share:

  $ 44,693   $ 20,264   $ 52,744   $ 43,178  

Denominator for basic weighted average share:

    63,839,920     58,076,552     63,887,036     58,037,868  

Basic earnings per share:

  $ 0.70   $ 0.35   $ 0.83   $ 0.74  

Earnings per share — diluted(1)

                         

Numerator for increase in net assets per share

  $ 44,693   $ 20,264   $ 52,744   $ 43,178  

Adjustment for interest on Convertible Notes and incentive fees, net

    1,150     1,150     2,300     2,300  

Numerator for diluted earnings per share:

  $ 45,843   $ 21,414   $ 55,044   $ 45,478  

Denominator for basic weighted average share

    63,839,920     58,076,552     63,887,036     58,037,868  

Adjustment for dilutive effect of Convertible Notes

    7,277,131     7,236,945     7,277,131     7,228,063  

Denominator for diluted weighted average share

    71,117,051     65,313,497     71,164,167     65,265,931  

Diluted earnings per share

  $ 0.64   $ 0.33   $ 0.77   $ 0.70  

(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.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

June 30, 2016

(in thousands, except share data)

(unaudited)

Note 12. Financial Highlights

          The following information sets forth the Company's financial highlights for the six months ended June 30, 2016 and June 30, 2015.

    Six Months Ended
 

    June 30,
2016
    June 30,
2015
 

Per share data(1):

             

Net asset value, January 1, 2016 and January 1, 2015, respectively

  $ 13.08   $ 13.83  

Net investment income

    0.68     0.68  

Net realized and unrealized gains (losses)

    0.15     0.07  

Total net increase

    0.83     0.75  

Dividends declared to stockholders from net investment income

    (0.68 )   (0.68 )

Net asset value, June 30, 2016 and June 30, 2015, respectively

  $ 13.23   $ 13.90  

Per share market value, June 30, 2016 and June 30, 2015, respectively

  $ 12.90   $ 14.49  

Total return based on market value(2)

    4.36 %   1.58 %

Total return based on net asset value(3)

    6.50 %   5.48 %

Shares outstanding at end of period

    63,756,888     58,161,821  

Average weighted shares outstanding for the period

    63,887,036     58,037,868  

Average net assets for the period

  $ 832,668   $ 807,394  

Ratio to average net assets:

             

Net investment income

    10.48 %   9.82 %

Total expenses, before waivers/reimbursements

    10.14 %   9.53 %

Total expenses, net of waivers/reimbursements

    9.44 %   8.77 %

Average debt outstanding — Holdings Credit Facility

  $ 371,374   $ 411,631  

Average debt outstanding — SBA-guaranteed debentures

    117,871     42,334  

Average debt outstanding — Convertible Notes

    115,000     115,000  

Average debt outstanding — NMFC Credit Facility

    82,783     49,507  

Average debt outstanding — Unsecured Notes(4)

    50,000      

Asset coverage ratio(5)

    240.55 %   257.61 %

Portfolio turnover

    10.97 %   14.01 %

(1)
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).

(2)
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.

(3)
Total return is calculated assuming a purchase at net asset value on the opening of the first day of the year and a sale at net asset value on the last day of the period. Dividends and distributions, if any, are assumed for purposes of this calculation, to be reinvested at the net asset value on the last day of the respective quarter.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

June 30, 2016

(in thousands, except share data)

(unaudited)

Note 12. Financial Highlights (Continued)

(4)
For the six months ended June 30, 2016, average debt outstanding represents the period from May 6, 2016 (issuance of the Unsecured Notes) to June 30, 2016.

(5)
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.

Note 13. Recent Accounting Standards Updates

          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.

          In February 2015, the FASB issued Accounting Standards Update No. 2015-02, Consolidation Topic 810 — Amendments to the Consolidation Analysis ("ASU 2015-02"), which modifies the consolidation analysis in determining if limited partnerships or similar type entities fall under the variable interest model or voting interest model, particularly those that have fee arrangements and related party relationships. ASU 2015-02 was effective for all public entities for interim and annual reporting periods beginning after December 15, 2015. Earlier adoption is permitted. On January 1, 2016, the Company adopted ASU 2015-02. The adoption did not have an impact on the Company's consolidated financial statements and disclosures.

          In April 2015, the FASB issued Accounting Standards Update No. 2015-03, Interest — Imputation of Interest Subtopic 835-30 — Simplifying the Presentation of Debt Issuance Costs ("ASU 2015-03"), which changes the presentation of debt issuance costs in financial statements. Under ASU 2015-03, an entity presents such costs on the statement of assets and liabilities as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs is reported as interest expense. The new standard was effective for all public entities for interim and annual reporting periods beginning after December 15, 2015. Earlier adoption is permitted. On January 1, 2016, the Company adopted ASU 2015-03. Upon adoption, the Company revised its presentation of deferred financing costs from an asset to a liability, which is a direct deduction to its debt on the Consolidated Statements of Assets and Liabilities. In addition, the Company retrospectively revised its presentation of $13,992 of deferred financing costs that were previously presented as an asset as of December 31, 2015, which resulted in a decrease to total assets and total liabilities as of December 31, 2015.

          In January 2016, the FASB issued Accounting Standards Update No. 2016-01, Financial Instruments — Overall Subtopic 825-10 — Recognition and Measurement of Financial Assets and Financial Liabilities ("ASU 2016-01"). ASU 2016-01 amends certain aspects of recognition, measurement, presentation and disclosure of financial assets and liabilities. ASU 2016-01 is effective for financial statements issued for fiscal years beginning after December 15, 2017, and

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

June 30, 2016

(in thousands, except share data)

(unaudited)

Note 13. Recent Accounting Standards Updates (Continued)

interim periods within those fiscal years. The new guidance must be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair values (including disclosure requirements) should be applied prospectively to equity investments that exist as of the date of adoption of ASU 2016-01. The Company is in the process of evaluating the impact that this guidance will have on the Company's consolidated financial statements and disclosures.

Note 14. Subsequent Events

          On August 2, 2016, the Company's board of directors declared a third quarter 2016 distribution of $0.34 per share payable on September 30, 2016 to holders of record as of September 16, 2016.

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LOGO

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of
New Mountain Finance Corporation
New York, New York

          We have reviewed the accompanying consolidated statement of assets and liabilities of New Mountain Finance Corporation and subsidiaries, including the consolidated schedule of investments, as of June 30, 2016, and the related consolidated statements of operations for the three and six month periods ended June 30, 2016 and 2015, and changes in net assets, and cash flows for the six month periods ended June 30, 2016 and 2015. These interim financial statements are the responsibility of the management of New Mountain Finance Corporation.

          We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

          Based on our reviews, we are not aware of any material modifications that should be made to such interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

          We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the statement of assets and liabilities of New Mountain Finance Corporation and subsidiaries as of December 31, 2015, and the related statements of operations, changes in net assets, and cash flows for the year then ended (not presented herein); and in our report dated February 29, 2016, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated statement of assets and liabilities as of December 31, 2015, is fairly stated, in all material respects, in relation to the consolidated statement of assets and liabilities from which it has been derived.

/s/ DELOITTE & TOUCHE LLP

August 3, 2016

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LOGO

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
New Mountain Finance Corporation and subsidiaries
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, 2015 and 2014, and the related consolidated statements of operations, changes in net assets, and cash flows for each of the three years in the period ended December 31, 2015 and the consolidated financial highlights for the period from May 19, 2011 (commencement of operations) to December 31, 2011 and for the years ended December 31, 2015, 2014, 2013 and 2012. These financial statements and financial highlights are the responsibility of the management of the Company. 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). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. 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. We believe that our audits provide a reasonable basis for our opinion.

          In our opinion, such consolidated financial statements and consolidated financial highlights referred to above present fairly, in all material respects, the financial position of New Mountain Finance Corporation and subsidiaries as of December 31, 2015 and 2014, and the results of their operations, changes in their net assets, and their cash flows for each of the three years in the period ended December 31, 2015 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, 2015, 2014, 2013 and 2012 in conformity with accounting principles generally accepted in the United States of America.

          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, 2015, 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 February, 29, 2016, expressed an unqualified opinion on the Company's internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP

New York, New York
February 29, 2016

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New Mountain Finance Corporation

Consolidated Statements of Assets and Liabilities

(in thousands, except shares and per share data)

    December 31,
2015
    December 31,
2014
 

Assets

             

Investments at fair value

             

Non-controlled/non-affiliated investments (cost of $1,438,415 and $1,422,891, respectively)

  $ 1,377,515   $ 1,402,210  

Non-controlled/affiliated investments (cost $89,047 and $23,000, respectively)

    87,287     22,461  

Controlled investments (cost of $41,254 and $0, respectively)

    47,422      

Total investments at fair value (cost $1,568,716 and $1,445,891, respectively)

    1,512,224     1,424,671  

Securities purchased under collateralized agreements to resell (cost of $30,000 and $30,000, respectively)

    29,704     30,000  

Cash and cash equivalents

    30,102     23,445  

Deferred financing costs (net of accumulated amortization of $8,822 and $5,867, respectively)

    13,992     14,052  

Interest and dividend receivable

    13,832     11,744  

Receivable from affiliates

    360     490  

Receivable from unsettled securities sold

        8,912  

Other assets

    1,924     1,606  

Total assets

  $ 1,602,138   $ 1,514,920  

Liabilities

             

Holdings Credit Facility

  $ 419,313   $ 468,108  

SBA-guaranteed debentures

    117,745     37,500  

Convertible Notes

    115,000     115,000  

NMFC Credit Facility

    90,000     50,000  

Incentive fee payable

    5,622     4,803  

Management fee payable

    5,466     5,144  

Payable for unsettled securities purchased

    5,441     26,460  

Interest payable

    2,343     1,352  

Deferred tax liability

    1,676     493  

Payable to affiliates

    564     822  

Other liabilities

    2,060     3,068  

Total liabilities

    765,230     712,750  

Commitments and contingencies (See Note 9)

             

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 64,005,387 and 57,997,890 shares issued and outstanding, respectively

    640     580  

Paid in capital in excess of par

    899,713     817,129  

Accumulated undistributed net investment income

    4,164     2,530  

Accumulated undistributed net realized gains on investments

    1,342     14,131  

Net unrealized (depreciation) appreciation (net of provision for taxes of $1,676 and $493, respectively)

    (68,951 )   (32,200 )

Total net assets

  $ 836,908   $ 802,170  

Total liabilities and net assets

  $ 1,602,138   $ 1,514,920  

Number of shares outstanding

    64,005,387     57,997,890  

Net asset value per share

  $ 13.08   $ 13.83  

   

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

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New Mountain Finance Corporation

Consolidated Statements of Operations

(in thousands, except shares and per share data)

    Years Ended December 31,
 

    2015     2014     2013
 

Investment income(1)

                   

From non-controlled/non-affiliated investments:

                   

Interest income

  $ 132,665   $ 85,123   $  

Dividend income

    (407 )   1,243      

Other income

    5,996     4,023      

From non-controlled/affiliated investments:

                   

Interest income

    5,402          

Dividend income

    3,619     1,066      

Other income

    1,965     468      

From controlled investments:

                   

Interest income

    2,007          

Dividend income

    2,559          

Other income

    49          

Investment income allocated from New Mountain Finance Holdings, L.L.C.(2)

                   

Interest income

        40,515     84,925  

Dividend income

        2,368     3,567  

Other income

        795     2,384  

Total investment income

    153,855     135,601     90,876  

Expenses

                   

Incentive fee(1)

    20,591     12,070      

Capital gains incentive fee(1)

        (8,573 )    

Total incentive fees(1)

    20,591     3,497      

Management fee(1)

    25,858     13,593      

Interest and other financing expenses(1)

    23,374     13,269      

Professional fees(1)

    3,214     2,390      

Administrative expenses(1)

    2,450     1,470      

Other general and administrative expenses(1)

    1,665     1,138      

Net expenses allocated from New Mountain Finance Holdings, L.L.C.(2)

        20,808     40,355  

Total expenses

    77,152     56,165     40,355  

Less: management fee waived (see Note 5)(1)

    (5,219 )   (686 )    

Less: expenses waived and reimbursed (see Note 5)(1)

    (733 )   (380 )    

Net expenses

    71,200     55,099     40,355  

Net investment income before income taxes

    82,655     80,502     50,521  

Income tax expense(1)

    160     436      

Net investment income

    82,495     80,066     50,521  

Net realized (losses) gains:

                   

Non-controlled/non-affiliated investments(1)

    (12,789 )   357      

Investments allocated from New Mountain Finance Holdings, L.L.C.(2)

        8,568     5,427  

Net change in unrealized (depreciation) appreciation:

                   

Non-controlled/non-affiliated investments(1)

    (40,807 )   (43,324 )    

Non-controlled/affiliated investments(1)

    (633 )   (539 )    

Controlled investments(1)

    6,168          

Securities purchased under collateralized agreements to resell(1)

    (296 )        

Investments allocated from New Mountain Finance Holdings, L.L.C.(2)

        940     6,016  

Investment in New Mountain Finance Holdings, L.L.C.(2)

            (44 )

Provision for taxes(1)

    (1,183 )   (493 )    

Net realized and unrealized (losses) gains

    (49,540 )   (34,491 )   11,399  

Net increase in net assets resulting from operations

  $ 32,955   $ 45,575   $ 61,920  

Basic earnings per share

  $ 0.55   $ 0.88   $ 1.76  

Weighted average shares of common stock outstanding — basic (See Note 12)

    59,715,290     51,846,164     35,092,722  

Diluted earnings per share

  $ 0.55   $ 0.86   $ 1.76  

Weighted average shares of common stock outstanding — diluted (See Note 12)

    66,968,089     56,157,835     35,092,722  

Dividends declared and paid per share

  $ 1.36   $ 1.48   $ 1.48  

(1)
For the year ended December 31, 2014, the amounts reported relate to the period from May 8, 2014 to December 31, 2014.

(2)
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.

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New Mountain Finance Corporation

Consolidated Statements of Changes in Net Assets

(in thousands, except share data)

    Years Ended December 31,
 

    2015     2014     2013
 

Increase (decrease) in net assets resulting from operations:

                   

Net investment income(1)

  $ 82,495   $ 57,196   $  

Net investment income allocated from New Mountain Finance Holdings, L.L.C.(2)

        22,870     50,521  

Net realized (losses) gains on investments(1)

    (12,789 )   357      

Net realized gains on investments allocated from New Mountain Finance Holdings, L.L.C.(2)

        8,568     5,427  

Net change in unrealized (depreciation) appreciation of investments(1)

    (35,272 )   (43,863 )    

Net change in unrealized (depreciation) appreciation of securities purchased under collateralized agreements to resell(1)

    (296 )        

Net change in unrealized appreciation (depreciation) of investments allocated from New Mountain Finance Holdings, L.L.C.(2)

        940     6,016  

Net change in unrealized (depreciation) appreciation of investment in New Mountain Finance Holdings, L.L.C.(2)

            (44 )

Provision for taxes(1)

    (1,183 )   (493 )    

Net increase in net assets resulting from operations

    32,955     45,575     61,920  

Capital transactions

                   

Net proceeds from shares sold

    79,415     141,157     100,040  

Deferred offering costs allocated from New Mountain Finance Holdings, L.L.C.(2)

        (250 )   (281 )

Deferred offering costs(1)

    (285 )   (476 )    

Value of shares issued for exchanged units

        38,840     193,262  

Dividends declared to stockholders from net investment income

    (81,002 )   (71,365 )   (50,521 )

Dividends declared to stockholders from net realized gains

        (6,247 )   (1,323 )

Reinvestment of dividends

    3,655     4,829     5,084  

Total net increase in net assets resulting from capital transactions

    1,783     106,488     246,261  

Net increase in net assets

    34,738     152,063     308,181  

Net assets at the beginning of the period

    802,170     650,107     341,926  

Net assets at the end of the period(3)

  $ 836,908   $ 802,170   $ 650,107  

Capital share activity

                   

Shares sold

    5,750,000     9,775,000     7,000,000  

Shares issued for exchanged units

        2,671,938     13,550,000  

Shares issued from reinvestment of dividends

    257,497     326,197     348,504  

Net increase in shares outstanding

    6,007,497     12,773,135     20,898,504  

(1)
For the year ended December 31, 2014, the amounts reported relate to the period from May 8, 2014 to December 31, 2014.

(2)
For the year ended December 31, 2014, the amounts reported relate to the period from January 1, 2014 to May 7, 2014.

(3)
For the years ended December 31, 2015, December 31, 2014 and December 31, 2013, includes accumulated undistributed net investment income of $4,164, $2,530 and $0, respectively.

   

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

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New Mountain Finance Corporation

Consolidated Statements of Cash Flows

(in thousands)

    Years Ended December 31,
 

    2015     2014     2013
 

Cash flows from operating activities

                   

Net increase in net assets resulting from operations

  $ 32,955   $ 45,575   $ 61,920  

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

                   

Net investment income allocated from New Mountain Finance Holdings, L.L.C.(2)

        (22,870 )   (50,521 )

Net realized losses (gains) on investments(1)

    12,789     (357 )    

Net realized gains on investments allocated from New Mountain Finance Holdings, L.L.C.(2)

        (8,568 )   (5,427 )

Net change in unrealized depreciation (appreciation) of investments(1)

    35,272     43,863      

Net change in unrealized depreciation (appreciation) of securities purchased under collateralized agreements to resell

    296          

Net change in unrealized (appreciation) depreciation of investments allocated from New Mountain Finance Holdings, L.L.C.(2)

        (940 )   (6,016 )

Net change in unrealized depreciation (appreciation) in New Mountain Finance Holdings, L.L.C.(2)

            44  

Amortization of purchase discount(1)

    (2,511 )   (1,721 )    

Amortization of deferred financing costs(1)

    2,955     1,713      

Non-cash investment income(1)

    (5,978 )   (3,479 )    

(Increase) decrease in operating assets:

                   

Cash and cash equivalents from New Mountain Finance Holdings, L.L.C.(3)

        957      

Purchase of investments and delayed draw facilities(1)

    (609,667 )   (529,540 )    

Proceeds from sales and paydowns of investments(1)

    483,936     261,747      

Cash received for purchase of undrawn portion of revolving credit or delayed draw facilities(1)

    157     29      

Cash paid for purchase of drawn portion of revolving credit facilities(1)

    (3,227 )   (2,548 )    

Cash paid for drawn revolvers(1)

    (4,376 )        

Cash repayments on drawn revolvers(1)

    6,052     380      

Cash paid for securities purchased under collateralized agreements to resell(1)

        (30,000 )    

Interest and dividend receivable(1)

    (2,088 )   (207 )    

Receivable from affiliates(1)

    130     (106 )    

Receivable from unsettled securities sold(1)

    8,912     (8,912 )    

Other assets(1)

    (156 )   196      

Purchase of investment in New Mountain Finance Holdings, L.L.C.(2)

        (58,644 )   (100,040 )

Distributions from New Mountain Finance Holdings, L.L.C.(2)

        15,247     50,165  

Increase (decrease) in operating liabilities(1):

                   

Incentive fee payable

    819     (1,522 )    

Management fee payable

    322     (911 )    

Payable for unsettled securities purchased

    (21,019 )   17,054      

Interest payable

    991     1,259      

Deferred tax liability

    1,183     493      

Payable to affiliates

    (258 )   589      

Capital gains incentive fee payable

        (8,573 )    

Other liabilities

    (836 )   225      

Net cash flows used in operating activities

    (63,347 )   (289,571 )   (49,875 )

Cash flows from financing activities

                   

Net proceeds from shares sold

    79,415     141,157     100,040  

Dividends paid

    (77,347 )   (72,783 )   (50,165 )

Offering costs paid(1)

    (325 )   (478 )    

Proceeds from Holdings Credit Facility(1)

    400,355     384,721      

Repayment of Holdings Credit Facility(1)

    (449,150 )   (314,400 )    

Proceeds from SBA-guaranteed debentures(1)

    80,245     37,500      

Proceeds from Convertible Notes(1)

        115,000      

Proceeds from NMFC Credit Facility(1)

    148,800     72,000      

Repayment of NMFC Credit Facility(1)

    (108,800 )   (22,000 )    

Proceeds from SLF Credit Facility(1)

        21,255      

Repayment of SLF Credit Facility(1)

        (37,700 )    

Deferred financing costs paid(1)

    (3,189 )   (11,256 )    

Net cash flows provided by financing activities

    70,004     313,016     49,875  

Net increase in cash and cash equivalents

    6,657     23,445      

Cash and cash equivalents at the beginning of the period

    23,445          

Cash and cash equivalents at the end of the period

  $ 30,102   $ 23,445   $  

Supplemental disclosure of cash flow information

                   

Cash interest paid

  $ 18,683   $ 9,924   $  

Income taxes paid

    217     437      

Non-cash operating activities:

                   

Non-cash activity on investments

  $ 60,652   $   $  

Non-cash financing activities:

                   

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

  $   $ 38,840   $ 193,262  

Value of shares issued in connection with dividend reinvestment plan

    3,655     4,829     5,084  

Accrual for offering costs(1)

    638     516      

Accrual for deferred financing costs(1)

    81     375      

Deferred offering costs allocated from New Mountain Finance Holdings, L.L.C(2)

        (250 )   (281 )

SLF Credit Facility merger with the Holdings Credit Facility(1)

        198,555      

(1)
For the year ended December 31, 2014, the amounts reported relate to the period from May 8, 2014 to December 31, 2014.

(2)
For the year ended December 31, 2014, the amounts reported relate to the period from January 1, 2014 to May 7, 2014.

(3)
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.

F-85


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments

December 31, 2015

(in thousands, except shares)

Portfolio Company, Location and Industry(1)

  Type of Investment   Interest Rate(10)   Maturity/Expiration Date     Principal Amount, Par Value or Shares     Cost     Fair
Value
    Percent of Net Assets
 

Non-Controlled/Non-Affiliated Investments

                                     

Funded Debt Investments — Australia

                                     

Project Sunshine IV Pty Ltd**

                                     

Media

  First lien(2)   8.00% (L + 7.00%/M)   9/23/2019   $ 10,800   $ 10,752   $ 10,314     1.23 %

Total Funded Debt Investments — Australia

              $ 10,800   $ 10,752   $ 10,314     1.23 %

Funded Debt Investments — Luxembourg

                                     

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

                                     

Software

  Second lien(2)   10.50% (L + 9.25%/Q)   7/30/2020   $ 24,630   $ 24,339   $ 19,581        

  Second lien(3)   10.50% (L + 9.25%/Q)   7/30/2020     8,204     8,324     6,522        

                32,834     32,663     26,103     3.12 %

Total Funded Debt Investments — Luxembourg

              $ 32,834   $ 32,663   $ 26,103     3.12 %

Funded Debt Investments — Netherlands

                                     

Eiger Acquisition B.V. (Eiger Co-Borrower, LLC)**

                                     

Software

  Second lien(3)   10.13% (L + 9.13%/Q)   2/17/2023   $ 10,000   $ 9,303   $ 9,049     1.08 %

Total Funded Debt Investments — Netherlands

              $ 10,000   $ 9,303   $ 9,049     1.08 %

Funded Debt Investments — United Kingdom

                                     

Air Newco LLC**

                                     

Software

  Second lien(3)   10.50% (L + 9.50%/Q)   1/31/2023   $ 32,500   $ 31,736   $ 31,363     3.75 %

Total Funded Debt Investments — United Kingdom

              $ 32,500   $ 31,736   $ 31,363     3.75 %

Funded Debt Investments — United States

                                     

Deltek, Inc.

                                     

Software

  Second lien(3)   9.50% (L + 8.50%/Q)   6/26/2023   $ 21,000   $ 20,972   $ 20,948        

  Second lien(2)   9.50% (L + 8.50%/Q)   6/26/2023     20,000     19,619     19,950        

                41,000     40,591     40,898     4.89 %

TIBCO Software Inc.

                                     

Software

  First lien(2)   6.50% (L + 5.50%/M)   12/4/2020     29,775     28,508     27,021        

  Subordinated(3)   11.38%/S   12/1/2021     15,000     14,611     12,600        

                44,775     43,119     39,621     4.73 %

AssuredPartners, Inc.

                                     

Business Services

  Second lien(2)   10.00% (L + 9.00%/Q)   10/20/2023     20,000     19,212     19,600        

  Second lien(3)   10.00% (L + 9.00%/Q)   10/20/2023     20,000     19,212     19,600        

                40,000     38,424     39,200     4.68 %

Kronos Incorporated

                                     

Software

  Second lien(2)   9.75% (L + 8.50%/Q)   4/30/2020     32,641     32,443     32,546        

  Second lien(3)   9.75% (L + 8.50%/Q)   4/30/2020     5,000     4,961     4,985        

                37,641     37,404     37,531     4.48 %

Hill International, Inc.

                                     

Business Services

  First lien(2)   7.75% (L + 6.75%/Q)   9/28/2020     37,056     36,752     36,779     4.39 %

ProQuest LLC

                                     

Business Services

  Second lien(3)   10.00% (L + 9.00%/M)   12/15/2022     35,000     34,302     34,300     4.10 %

   

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

F-86


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2015

(in thousands, except shares)

Portfolio Company, Location and Industry(1)

  Type of Investment   Interest Rate(10)   Maturity/Expiration Date     Principal Amount, Par Value or Shares     Cost     Fair
Value
    Percent of Net Assets
 

Navex Global, Inc.

                                     

Software

  First lien(4)   5.75% (L + 4.75%/Q)   11/19/2021   $ 4,610   $ 4,570   $ 4,471        

  First lien(2)   5.75% (L + 4.75%/Q)   11/19/2021     2,610     2,587     2,531        

  Second lien(4)   9.75% (L + 8.75%/Q)   11/18/2022     17,879     17,683     17,343        

  Second lien(3)   9.75% (L + 8.75%/Q)   11/18/2022     10,121     10,001     9,817        

                35,220     34,841     34,162     4.08 %

Ascend Learning, LLC

                                     

Education

  Second lien(3)   9.50% (L + 8.50%/Q)   11/30/2020     34,727     34,352     33,077     3.95 %

CRGT Inc.

                                     

Federal Services

  First lien(2)   7.50% (L + 6.50%/Q)   12/19/2020     33,261     33,030     32,928     3.93 %

Physio-Control International, Inc.

                                     

Healthcare Products

  Second lien(2)   10.00% (L + 9.00%/Q)   6/5/2023     30,000     29,426     27,451        

  Second lien(3)   10.00% (L + 9.00%/Q)   6/5/2023     4,000     3,703     3,660        

                34,000     33,129     31,111     3.72 %

Valet Waste Holdings, Inc.

                                     

Business Services

  First lien(2)   8.00% (L + 7.00%/Q)   9/24/2021     29,925     29,564     29,505        

  First lien(3)(11)
— Drawn
  8.00% (L + 7.00%/Q)   9/24/2021     1,500     1,481     1,479        

                31,425     31,045     30,984     3.70 %

Rocket Software, Inc.

                                     

Software

  Second lien(2)   10.25% (L + 8.75%/Q)   2/8/2019     30,875     30,781     30,759     3.68 %

TASC, Inc.

                                     

Federal Services

  First lien(2)   7.00% (L + 6.00%/Q)   5/22/2020     28,314     28,001     28,396        

  Second lien(3)   12.00%/Q   5/21/2021     2,000     1,964     2,062        

                30,314     29,965     30,458     3.64 %

Pittsburgh Glass Works, LLC(24)

                                     

Manufacturing

  First lien(2)   10.13% (L + 9.13%/M)   11/25/2021     30,000     29,852     29,850     3.57 %

Integro Parent Inc.

                                     

Business Services

  First lien(2)   6.75% (L + 5.75%/Q)   10/31/2022     17,370     17,029     16,980        

  First lien(2)   6.75% (L + 5.75%/M)   10/31/2022     2,630     2,578     2,570        

  Second lien(3)   10.25% (L + 9.25%/Q)   10/30/2023     10,000     9,901     9,625        

                30,000     29,508     29,175     3.49 %

CompassLearning, Inc.(15)

                                     

Education

  First lien(2)   8.00% (L + 6.75%/Q)   11/26/2018     30,000     29,531     28,471     3.40 %

Ryan, LLC

                                     

Business Services

  First lien(2)   6.75% (L + 5.75%/M)   8/7/2020     27,300     26,918     26,583     3.18 %

McGraw-Hill Global Education Holdings, LLC

                                     

Education

  First lien(2)(9)   9.75%/S   4/1/2021     24,500     24,378     26,093     3.12 %

KeyPoint Government Solutions, Inc.

                                     

Federal Services

  First lien(2)   7.75% (L + 6.50%/M)   11/13/2017     25,876     25,636     25,747     3.08 %

DigiCert Holdings, Inc.

                                     

Software

  First lien(2)   6.00% (L + 5.00%/Q)   10/21/2021     25,000     24,268     24,375     2.91 %

Pelican Products, Inc.

                                     

Business Products

  Second lien(3)   9.25% (L + 8.25%/Q)   4/9/2021     15,500     15,519     14,764        

  Second lien(2)   9.25% (L + 8.25%/Q)   4/9/2021     10,000     10,115     9,524        

                25,500     25,634     24,288     2.90 %

Confie Seguros Holding II Co.

                                     

Consumer Services

  Second lien(2)   10.25% (L + 9.00%/M)   5/8/2019     18,886     18,789     18,673        

  Second lien(3)   10.25% (L + 9.00%/M)   5/8/2019     5,571     5,648     5,508        

                24,457     24,437     24,181     2.89 %

AAC Holding Corp.

                                     

Education

  First lien(2)   8.25% (L + 7.25%/M)   9/30/2020     25,000     24,640     24,110     2.88 %

Transtar Holding Company

                                     

Distribution & Logistics

  Second lien(2)   10.00% (L + 8.75%/Q)   10/9/2019     28,300     27,974     23,630     2.82 %

PetVet Care Centers LLC

                                     

Consumer Services

  Second lien(3)   9.75% (L + 8.75%/Q)   6/17/2021     24,000     23,789     23,149     2.77 %

   

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

F-87


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2015

(in thousands, except shares)

Portfolio Company, Location and Industry(1)

  Type of Investment   Interest Rate(10)   Maturity/Expiration Date     Principal Amount, Par Value or Shares     Cost     Fair
Value
    Percent of Net Assets
 

EN Engineering, L.L.C.

                                     

Business Services

  First lien(2)   7.00% (L + 6.00%/Q)   6/30/2021   $ 21,321   $ 21,121   $ 20,554        

  First lien(2)(11)
— Drawn
  8.50% (P + 5.00%/Q)   6/30/2021     1,223     1,211     1,179        

                22,544     22,332     21,733     2.60 %

Aricent Technologies

                                     

Business Services

  Second lien(2)   9.50% (L + 8.50%/M)   4/14/2022     20,000     19,881     19,133        

  Second lien(3)   9.50% (L + 8.50%/M)   4/14/2022     2,550     2,558     2,440        

                22,550     22,439     21,573     2.58 %

McGraw-Hill School Education Holdings, LLC

                                     

Education

  First lien(2)   6.25% (L + 5.00%/M)   12/18/2019     21,560     21,408     21,237     2.54 %

VetCor Professional Practices LLC

                                     

Consumer Services

  First lien(4)   7.00% (L + 6.00%/Q)   4/20/2021     19,502     19,324     19,254        

  First lien(4)(11)
— Drawn
  7.00% (L + 6.00%/Q)   4/20/2021     1,753     1,736     1,731        

                21,255     21,060     20,985     2.51 %

IT'SUGAR LLC

                                     

Retail

  First lien(4)   10.50% (L + 9.50%/Q)   10/23/2019     21,000     20,215     20,183     2.41 %

Weston Solutions, Inc.

                                     

Business Services

  Subordinated(4)   16.00%/Q   7/3/2019     20,000     20,000     19,430     2.32 %

TWDiamondback Holdings Corp.(18)

                                     

Diamondback Drugs of Delaware, L.L.C. (TWDiamondback II Holdings LLC)

                                     

Distribution & Logistics

  First lien(4)   9.75% (L + 8.75%/Q)   11/19/2019     19,895     19,895     19,117     2.28 %

Severin Acquisition, LLC

                                     

Software

  Second lien(4)   9.25% (L + 8.25%/Q)   7/29/2022     15,000     14,857     14,272        

  Second lien(4)   9.75% (L + 8.75%/Q)   7/29/2022     4,154     4,113     4,112        

                19,154     18,970     18,384     2.20 %

First American Payment Systems, L.P.

                                     

Business Services

  Second lien(2)   10.75% (L + 9.50%/M)   4/12/2019     18,643     18,423     18,362     2.20 %

DCA Investment Holding, LLC

                                     

Healthcare Services

  First lien(2)   6.25% (L + 5.25%/Q)   7/2/2021     17,811     17,645     17,632        

  First lien(3)(11)
— Drawn
  7.75% (P + 4.25%/Q)   7/2/2021     53     52     52        

                17,864     17,697     17,684     2.11 %

YP Holdings LLC / Print Media Holdings LLC(12)

                                     

YP LLC / Print Media LLC

                                     

Media

  First lien(2)   8.00% (L + 6.75%/M)   6/4/2018     18,320     18,182     17,679     2.11 %

iPipeline, Inc. (Internet Pipeline, Inc.)

                                     

Software

  First lien(4)   8.25% (L + 7.25%/Q)   8/4/2022     17,955     17,783     17,550     2.10 %

AgKnowledge Holdings Company, Inc.

                                     

Business Services

  Second lien(2)   9.25% (L + 8.25%/M)   7/23/2020     18,500     18,352     17,066     2.04 %

Vertafore, Inc.

                                     

Software

  Second lien(2)   9.75% (L + 8.25%/M)   10/27/2017     13,855     13,848     13,844        

  Second lien(3)   9.75% (L + 8.25%/M)   10/27/2017     2,000     2,016     1,999        

                15,855     15,864     15,843     1.89 %

GSDM Holdings Corp.

                                     

Healthcare Services

  Subordinated(4)   10.00%/M   6/23/2020     15,000     14,880     15,000     1.79 %

MailSouth, Inc. (d/b/a Mspark)

                                     

Media

  First lien(2)   6.75% (L + 5.00%/Q)   12/14/2016     14,998     14,736     14,586     1.74 %

   

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

F-88


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2015

(in thousands, except shares)

Portfolio Company, Location and Industry(1)

  Type of Investment   Interest Rate(10)   Maturity/Expiration Date     Principal Amount, Par Value or Shares     Cost     Fair
Value
    Percent of Net Assets
 

TW-NHME Holdings Corp.(23)

                                     

National HME, Inc.

                                     

Healthcare Services

  Second lien(4)   10.25% (L + 9.25%/Q)   7/14/2022   $ 14,000   $ 13,833   $ 13,825     1.65 %

Sierra Hamilton LLC / Sierra Hamilton Finance, Inc.

                                     

Energy

  First lien(2)   12.25%/S   12/15/2018     25,000     25,000     12,251        

  First lien(3)   12.25%/S   12/15/2018     2,660     2,064     1,302        

                27,660     27,064     13,553     1.62 %

Vision Solutions, Inc.

                                     

Software

  Second lien(2)   9.50% (L + 8.00%/M)   7/23/2017     14,000     13,978     12,740     1.52 %

SW Holdings, LLC

                                     

Business Services

  Second lien(4)   9.75% (L + 8.75%/Q)   12/30/2021     13,500     13,373     12,701     1.52 %

Poseidon Intermediate, LLC

                                     

Software

  Second lien(2)   9.50% (L + 8.50%/Q)   8/15/2023     13,000     12,811     12,427     1.49 %

American Tire Distributors, Inc.

                                     

Distribution & Logistics

  Subordinated(3)   10.25%/S   3/1/2022     13,000     12,798     11,960     1.43 %

PowerPlan Holdings, Inc.

                                     

Software

  Second lien(2)   10.75% (L + 9.75%/M)   2/23/2023     10,000     9,907     9,573     1.14 %

Permian Tank & Manufacturing, Inc.

                                     

Energy

  First lien(2)   10.50%/S   1/15/2018     24,357     24,493     9,377     1.12 %

TTM Technologies, Inc.**

                                     

Business Products

  First lien(2)   6.00% (L + 5.00%/Q)   5/31/2021     9,980     9,554     9,132     1.09 %

Smile Brands Group Inc.

                                     

Healthcare Services

  First lien(2)   9.00% (L + 6.25% + 1.50% PIK/Q)*   8/16/2019     12,204     12,091     8,878     1.06 %

Harley Marine Services, Inc.

                                     

Distribution & Logistics

  Second lien(2)   10.50% (L + 9.25%/Q)   12/20/2019     9,000     8,868     8,865     1.06 %

QC McKissock Investment, LLC(17)

                                     

McKissock, LLC

                                     

Education

  First lien(2)   7.50% (L + 6.50%/Q)   8/5/2019     4,875     4,838     4,707        

  First lien(2)   7.50% (L + 6.50%/Q)   8/5/2019     3,148     3,124     3,039        

  First lien(2)(11)
— Drawn
  7.50% (L + 6.50%/Q)   8/5/2019     1,016     1,007     981        

                9,039     8,969     8,727     1.04 %

Greenway Health, LLC (fka Vitera Healthcare Solutions, LLC)

                                     

Software

  First lien(2)   6.00% (L + 5.00%/Q)   11/4/2020     1,960     1,946     1,877        

  Second lien(2)   9.25% (L + 8.25%/Q)   11/4/2021     7,000     6,917     6,720        

                8,960     8,863     8,597     1.03 %

Novitex Acquisition, LLC (fka ARSloane Acquisition, LLC)

                                     

Business Services

  First lien(2)   7.50% (L + 6.25%/Q)   7/7/2020     7,242     7,064     6,807     0.81 %

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

                                     

Federal Services

  First lien(2)   9.00% (L + 7.50%/M)   4/21/2017     6,859     6,828     6,344     0.76 %

Brock Holdings III, Inc.

                                     

Industrial Services

  Second lien(2)   10.00% (L + 8.25%/Q)   3/16/2018     7,000     6,953     5,443     0.65 %

Packaging Coordinators, Inc.(13)

                                     

Healthcare Products

  Second lien(3)   9.00% (L + 8.00%/Q)   8/1/2022     5,000     4,957     4,925     0.59 %

Immucor, Inc.

                                     

Healthcare Services

  Subordinated(2)(9)   11.13%/S   8/15/2019     5,000     4,963     4,575     0.55 %

GCA Services Group, Inc.

                                     

Business Services

  Second lien(3)   9.25% (L + 8.00%/Q)   11/2/2020     4,000     3,973     3,950     0.47 %

York Risk Services Holding Corp.

                                     

Business Services

  Subordinated(3)   8.50%/S   10/1/2022     3,000     3,000     2,471     0.30 %

Synarc-Biocore Holdings, LLC

                                     

Healthcare Services

  Second lien(3)   9.25% (L + 8.25%/Q)   3/10/2022     2,500     2,479     2,313     0.28 %

Ensemble S Merger Sub, Inc.

                                     

Software

  Subordinated(3)   9.00%/S   9/30/2023     2,000     1,933     1,940     0.23 %

   

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

F-89


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2015

(in thousands, except shares)

Portfolio Company, Location and Industry(1)

  Type of Investment   Interest Rate(10)   Maturity/Expiration Date     Principal Amount, Par Value or Shares     Cost     Fair
Value
    Percent of Net Assets
 

Education Management Corporation(22)

                                     

Education Management II LLC

                                     

Education

  First lien(2)   5.50% (L + 4.50%/Q)   7/2/2020   $ 250   $ 238   $ 69        

  First lien(3)   5.50% (L + 4.50%/Q)   7/2/2020     141     134     39        

  First lien(2)   8.50% (L + 1.00% + 6.50% PIK/Q)*   7/2/2020     437     375     46        

  First lien(3)   8.50% (L + 1.00% + 6.50% PIK/Q)*   7/2/2020     247     212     26        

                1,075     959     180     0.02 %

ATI Acquisition Company (fka Ability Acquisition, Inc.)(14)

                                     

Education

  First lien(2)   17.25% (P + 10.00% + 4.00% PIK/Q)(8)*   6/30/2012
— Past Due
    1,665     1,434            

  First lien(2)   17.25% (P + 10.00% + 4.00% PIK/Q)(8)*   6/30/2012
— Past Due
    103     94            

                1,768     1,528         %

Total Funded Debt Investments — United States

              $ 1,314,464   $ 1,297,775   $ 1,237,175     147.83 %

Total Funded Debt Investments

              $ 1,400,598   $ 1,382,229   $ 1,314,004     157.01 %

Equity — United Kingdom

                                     

Packaging Coordinators, Inc.(13)

                                     

PCI Pharma Holdings UK Limited**

                                     

Healthcare Products

  Ordinary shares(2)         19,427   $ 578   $ 1,612     0.19 %

Total Shares — United Kingdom

                    $ 578   $ 1,612     0.19 %

Equity — United States

                                     

Crowley Holdings Preferred, LLC

                                     

Distribution & Logistics

  Preferred shares(3)(20)   12.00% (10.00% + 2.00% PIK/Q)*       52,058   $ 51,518   $ 51,911     6.20 %

TWDiamondback Holdings Corp.(18)

                                     

Distribution & Logistics

  Preferred shares(4)         200     2,000     2,000     0.24 %

TW-NHME Holdings Corp.(23)

                                     

Healthcare Services

  Preferred shares(4)         100     1,000     1,000     0.12 %

Ancora Acquisition LLC(14)

                                     

Education

  Preferred shares(6)         372     83     393     0.05 %

Education Management Corporation(22)

                                     

Education

  Preferred shares(2)         3,331     200     10        

  Preferred shares(3)         1,879     113     5        

  Ordinary shares(2)         2,994,065     100     202        

  Ordinary shares(3)         1,688,976     56     114        

                      469     331     0.04 %

Total Shares — United States

                    $ 55,070   $ 55,635     6.65 %

Total Shares

                    $ 55,648   $ 57,247     6.84 %

Warrants — United States

                                     

YP Holdings LLC / Print Media Holdings LLC(12)

                                     

YP Equity Investors, LLC

                                     

Media

  Warrants(5)     5/8/2022     5   $   $ 5,304     0.63 %

IT'SUGAR LLC

                                     

Retail

  Warrants(3)     10/23/2025     94,672     817     817     0.10 %

ASP LCG Holdings, Inc.

                                     

Education

  Warrants(3)     5/5/2026     622     37     610     0.07 %

Ancora Acquisition LLC(14)

                                     

Education

  Warrants(6)     8/12/2020     20             %

Total Warrants — United States

                    $ 854   $ 6,731     0.80 %

Total Funded Investments

                    $ 1,438,731   $ 1,377,982     164.65 %

   

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

F-90


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2015

(in thousands, except shares)

Portfolio Company, Location and Industry(1)

  Type of Investment   Interest Rate(10)   Maturity/Expiration Date     Principal Amount, Par Value or Shares     Cost     Fair
Value
    Percent of Net Assets
 

Unfunded Debt Investments — United States

                                     

DCA Investment Holdings, LLC

                                     

Healthcare Services

  First lien(3)(11)
— Undrawn
    7/2/2021   $ 2,047   $ (20 ) $ (20 )   %

iPipeline, Inc. (Internet Pipeline, Inc.)

                                     

Software

  First lien(3)(11)
— Undrawn
    8/4/2021     1,000     (10 )   (23 )   %

Valet Waste Holdings, Inc.

                                     

Business Services

  First lien(3)(11)
— Undrawn
    9/24/2021     3,000     (38 )   (42 )   %

VetCor Professional Practices LLC

                                     

Consumer Services

  First lien(3)(11)
— Undrawn
    4/20/2021     2,700     (27 )   (34 )      

  First lien(4)(11)
— Undrawn
    4/20/2021     947     (9 )   (12 )      

                3,647     (36 )   (46 )   (0.01 )%

QC McKissock Investment, LLC(17)

                                     

McKissock, LLC

                                     

Education

  First lien(2)(11)
— Undrawn
    12/31/2015     1,862     (19 )   (64 )   (0.01 )%

MailSouth, Inc. (d/b/a Mspark)

                                     

Media

  First lien(3)(11)
— Undrawn
    12/14/2016     1,900     (181 )   (79 )   (0.01 )%

EN Engineering, L.L.C.

                                     

Business Services

  First lien(2)(11)
— Undrawn
    12/30/2016     2,348     (12 )   (85 )   (0.01 )%

TWDiamondback Holdings Corp.(18)

                                     

Diamondback Drugs of Delaware, L.L.C. (TWDiamondback II Holdings LLC)

                                     

Distribution & Logistics

  First lien(3)(11)
— Undrawn
    2/16/2016     2,158         (84 )      

  First lien(4)(11)
— Undrawn
    2/16/2016     605         (24 )      

                2,763         (108 )   (0.01 )%

Total Unfunded Debt Investments

              $ 18,567   $ (316 ) $ (467 )   (0.05 )%

Total Non-Controlled/Non-Affiliated Investments

                    $ 1,438,415   $ 1,377,515     164.60 %

Non-Controlled/Affiliated Investments(25)

                                     

Funded Debt Investments — United States

                                     

Tenawa Resource Holdings LLC(16)

                                     

Tenawa Resource Management LLC

                                     

Energy

  First lien(3)   10.50% (Base + 8.00%/Q)   5/12/2019   $ 40,000   $ 39,869   $ 38,813     4.64 %

Edmentum Ultimate Holdings, LLC(19)

                                     

Education

  Subordinated(3)   8.50% PIK/Q*   6/9/2020     3,786     3,778     3,622        

  Subordinated(2)   10.00% PIK/Q*   6/9/2020     13,715     13,715     10,547        

  Subordinated(3)   10.00% PIK/Q*   6/9/2020     3,374     3,374     2,595        

                20,875     20,867     16,764     2.00 %

Total Funded Debt Investments — United States

              $ 60,875   $ 60,736   $ 55,577     6.64 %

   

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

F-91


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2015

(in thousands, except shares)

Portfolio Company, Location and Industry(1)

  Type of Investment   Interest Rate(10)   Maturity/Expiration Date     Principal Amount, Par Value or Shares     Cost     Fair
Value
    Percent of Net Assets
 

Equity — United States

                                     

NMFC Senior Loan Program I LLC**

                                     

Investment Fund

  Membership interest(3)           $ 23,000   $ 21,914     2.62 %

Edmentum Ultimate Holdings, LLC(19)

                                     

Education

  Ordinary shares(3)         123,968     11     3,341        

  Ordinary shares(2)         107,143     9     2,888        

                      20     6,229     0.74 %

Tenawa Resource Holdings LLC(16)

                                     

QID NGL LLC

                                     

Energy

  Ordinary shares(7)         5,290,997     5,291     3,778     0.45 %

Total Shares — United States

                    $ 28,311   $ 31,921     3.81 %

Unfunded Debt Investments — United States

                                     

Edmentum Ultimate Holdings, LLC(19)

                                     

Edmentum, Inc. (fka Plato, Inc.) (Archipelago Learning, Inc.)

                                     

Education

  Second lien(3)(11)
— Undrawn
    6/9/2020   $ 4,881   $   $ (211 )   (0.02 )%

Total Unfunded Debt Investments

              $ 4,881   $   $ (211 )   (0.02 )%

Total Non-Controlled/Affiliated Investments

                    $ 89,047   $ 87,287     10.43 %

Controlled Investments(26)

                                     

Funded Debt Investments — United States

                                     

UniTek Global Services, Inc.

                                     

Business Services

  First lien(2)   8.50% (L + 7.50%/Q)   1/13/2019   $ 6,786   $ 6,786   $ 6,640        

  First lien(3)   8.50% (L + 7.50%/Q)   1/13/2019     4,060     4,060     3,973        

  First lien(3)   9.50% (L + 7.50% + 1.00% PIK/Q)*   1/13/2019     7,323     7,323     7,257        

  Subordinated(2)   15.00% PIK/Q*   7/13/2019     1,487     1,487     1,417        

  Subordinated(3)   15.00% PIK/Q*   7/13/2019     890     890     848        

                20,546     20,546     20,135     2.40 %

Total Funded Debt Investments — United States

              $ 20,546   $ 20,546   $ 20,135     2.40 %

Equity — United States

                                     

UniTek Global Services, Inc.

                                     

Business Services

  Preferred shares(2)(21)         16,680,037   $ 14,299   $ 13,870        

  Preferred shares(3)(21)         4,609,569     3,952     3,833        

  Ordinary shares(2)         2,096,477     1,925     7,528        

  Ordinary shares(3)         579,366     532     2,081        

                      20,708     27,312     3.26 %

Total Shares — United States

                    $ 20,708   $ 27,312     3.26 %

Total Funded Investments

                    $ 41,254   $ 47,447     5.66 %

   

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

F-92


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2015

(in thousands, except shares)

Portfolio Company, Location and Industry(1)

  Type of Investment   Interest Rate(10)   Maturity/Expiration Date     Principal Amount, Par Value or Shares     Cost     Fair
Value
    Percent of Net Assets
 

Unfunded Debt Investments — United States

                                     

UniTek Global Services, Inc.

                                     

Business Services

  First lien(3)(11)
— Undrawn
    1/13/2019   $ 2,048   $   $ (18 )      

  First lien(3)(11)
— Undrawn
    1/13/2019     758         (7 )      

                2,806         (25 )   %

Total Unfunded Debt Investments

              $ 2,806   $   $ (25 )   %

Total Controlled Investments

                    $ 41,254   $ 47,422     5.66 %

Total Investments

                    $ 1,568,716   $ 1,512,224     180.69 %

(1)
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.

(2)
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.

(3)
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, Morgan Stanley Bank, N.A. and Stifel Bank & Trust as Lenders. See Note 7, Borrowings, for details.

(4)
Investment is held in New Mountain Finance SBIC, L.P.

(5)
Investment is held in NMF YP Holdings, Inc.

(6)
Investment is held in NMF Ancora Holdings, Inc.

(7)
Investment is held in NMF QID NGL Holdings, Inc.

(8)
Investment or a portion of the investment is on non-accrual status. See Note 3, Investments, for details.

(9)
Securities are registered under the Securities Act.

(10)
All interest is payable in cash unless otherwise indicated. A majority of the variable rate debt investments bear interest at a rate that may be determined by reference to the London Interbank Offered Rate (L), the Prime Rate (P) and the alternative base rate (Base) and which resets monthly (M), quarterly (Q), semi-annually (S) or annually (A). For each investment the current interest rate provided reflects the rate in effect as of December 31, 2015.

(11)
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.

(12)
The Company holds investments in three related entities of YP Holdings LLC/Print Media 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 and Print Media LLC, wholly-owned subsidiaries of YP Holdings LLC and Print Media Holdings LLC, respectively.

(13)
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 accompanying notes are an integral part of these consolidated financial statements.

F-93


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2015

(in thousands, except shares)

(14)
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.

(15)
The Company holds an investment in CompassLearning, Inc. that is structured as a first lien last out term loan.

(16)
The Company holds investments in two related entities of Tenawa Resource Holdings LLC. The Company holds 5.25% 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.

(17)
The Company holds investments in QC McKissock Investment, LLC and one related entity of QC McKissock Investment, LLC. The Company holds a first lien term loan in QC McKissock Investment, LLC (which at closing represented 71.1% of the ownership in the Series A common units of McKissock Investment Holdings, LLC) and holds a first lien term loan and a delayed draw term loan in McKissock, LLC, a wholly-owned subsidiary of McKissock Investment Holdings, LLC.

(18)
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.

(19)
The Company holds investments in Edmentum Ultimate Holdings, LLC and its related entities. The Company holds subordinated notes and ordinary equity in Edmentum Ultimate Holdings, LLC and holds a second lien revolver in Edmentum, Inc. and Archipelago Learning, Inc., which are wholly-owned subsidiaries of Edmentum Ultimate Holdings, LLC.

(20)
Total shares reported assumes shares issued for the capitalization of PIK interest. Actual shares owned total 50,000 as of December 31, 2015.

(21)
The Company holds preferred equity in UniTek Global Services, Inc. that is entitled to receive cumulative preferential dividends at a rate of 13.5% per annum payable in additional shares.

(22)
The Company holds investments in Education Management Corporation and one related entity of Education Management Corporation. The Company holds series A-1 convertible preferred stock and common stock in Education Management Corporation and holds a tranche A first lien term loan and a tranche B first lien term loan in Education Management II LLC, which is an indirect subsidiary of Education Management Corporation.

(23)
The Company holds an equity investment in TW-NHME Holdings Corp., as well as a second lien term loan investment in National HME, Inc., a wholly-owned subsidiary of TW-NHME Holdings Corp.

(24)
The Company holds an investment in Pittsburgh Glass Works, LLC that is structured as a first lien last out term loan.

   

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

F-94


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2015

(in thousands, except shares)

(25)
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. Fair value as of December 31, 2014 and December 31, 2015 along with transactions during the year ended December 31, 2015 in which the issuer was a non-controlled/affiliated investment is as follows:

Portfolio Company(1)

    Fair
Value at
December 31,
2014
    Gross
Additions
(A)
    Gross
Redemptions
(B)
    Net
Realized
Gains
(Losses)
    Net
Change In
Unrealized
Appreciation
(Depreciation)
    Fair
Value at
December 31,
2015
    Interest
Income
    Dividend
Income
    Other
Income
 

Edmentum Ultimate Holdings, LLC/Edmentum Inc. 

  $   $ 23,937   $ (3,050 ) $   $ 1,895   $ 22,782   $ 1,171   $   $  

NMFC Senior Loan Program I LLC

    22,461                 (547 )   21,914         3,619     1,215  

Tenawa Resource Holdings LLC

        44,572             (1,981 )   42,591     4,231         750  

Total Non-Controlled/Affiliated Investments

  $ 22,461   $ 68,509   $ (3,050 ) $   $ (633 ) $ 87,287   $ 5,402   $ 3,619   $ 1,965  

(A)
Gross additions include increases in the cost basis of investments resulting from new portfolio investments, payment-in-kind ("PIK") interest or dividends, the amortization of discounts, reorganizations or restructurings and the movement at fair value of an existing portfolio company into this category from a different category.

(B)
Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, reorganizations or restructurings and the movement of an existing portfolio company out of this category into a different category.
(26)
Denotes investments in which the Company is in "Control", as defined in the Investment Company Act of 1940, as amended, due to owning or holding the power to vote 25.0% or more of the outstanding voting securities of the investment. Fair value as of December 31, 2014 and December 31, 2015 along with transactions during the year ended December 31, 2015 in which the issuer was a controlled investment is as follows:

Portfolio Company(1)

    Fair
Value at
December 31,
2014
    Gross
Additions
(A)
    Gross
Redemptions
(B)
    Net
Realized
Gains
(Losses)
    Net
Change In
Unrealized
Appreciation
(Depreciation)
    Fair
Value at
December 31,
2015
    Interest
Income
    Dividend
Income
    Other
Income
 

UniTek Global Services, Inc. 

  $   $ 42,780   $ (1,526 ) $   $ 6,168   $ 47,422   $ 2,007   $ 2,559   $ 49  

Total Controlled Investments

  $   $ 42,780   $ (1,526 ) $   $ 6,168   $ 47,422   $ 2,007   $ 2,559   $ 49  

*
All or a portion of interest contains PIK interest.

**
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. As of December 31, 2015, 6.8% of the Company's total assets were non-qualifying assets.

   

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

F-95


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2015

Investment Type
  December 31, 2015
Percent of Total
Investments
at Fair Value

 

First lien

    44.31 %

Second lien

    41.79 %

Subordinated

    5.75 %

Equity and other

    8.15 %

Total investments

    100.00 %

 

Industry Type
  December 31, 2015
Percent of Total
Investments
at Fair Value

 

Software

    24.53 %

Business Services

    24.36 %

Education

    10.97 %

Distribution & Logistics

    7.76 %

Federal Services

    6.31 %

Consumer Services

    4.52 %

Energy

    4.33 %

Healthcare Services

    4.18 %

Media

    3.16 %

Healthcare Products

    2.49 %

Business Products

    2.21 %

Manufacturing

    1.98 %

Investment Fund

    1.45 %

Retail

    1.39 %

Industrial Services

    0.36 %

Total investments

    100.00 %

 

Interest Rate Type
  December 31, 2015
Percent of Total
Investments
at Fair Value

 

Floating rates

    86.26 %

Fixed rates

    13.74 %

Total investments

    100.00 %

   

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

F-96


Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments

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

 

Non-Controlled/Non-Affiliated Investments

                                     

Funded Debt Investments — Australia

                                     

Project Sunshine IV Pty Ltd**

                                     

Media

  First lien(2)   8.00% (Base Rate + 7.00%)   9/23/2019   $ 17,689   $ 17,594   $ 17,888     2.23 %

Total Funded Debt Investments — Australia

              $ 17,689   $ 17,594   $ 17,888     2.23 %

Funded Debt Investments — Luxembourg

                                     

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

                                     

Software

  Second lien(2)   10.50% (Base Rate + 9.25%)   7/30/2020   $ 24,630   $ 24,319   $ 22,905        

  Second lien(3)   10.50% (Base Rate + 9.25%)   7/30/2020     8,204     8,317     7,629        

                32,834     32,636     30,534     3.80 %

Evergreen Skills Lux S.À R.L.**

                                     

Education

  Second lien(3)   9.25% (Base Rate + 8.25%)   4/28/2022     5,000     4,877     4,737     0.59 %

Total Funded Debt Investments — Luxembourg

              $ 37,834   $ 37,513   $ 35,271     4.39 %

Funded Debt Investments — United States

                                     

Ascend Learning, LLC

                                     

Education

  First lien(2)   6.00% (Base Rate + 5.00%)   7/31/2019   $ 14,888   $ 14,824   $ 14,813        

  Second lien(3)   9.50% (Base Rate + 8.50%)   11/30/2020     29,000     28,881     28,855        

                43,888     43,705     43,668     5.44 %

TIBCO Software Inc.**

                                     

Software

  First lien(2)   6.50% (Base Rate + 5.50%)   12/4/2020     30,000     28,512     29,100        

  Subordinated(3)   11.38%   12/1/2021     15,000     14,567     14,550        

                45,000     43,079     43,650     5.44 %

Global Knowledge Training LLC

                                     

Education

  Second lien(2)   12.00% (Base Rate + 8.75%)   10/21/2018     41,450     41,137     41,786     5.21 %

Deltek, Inc.

                                     

Software

  Second lien(2)   10.00% (Base Rate + 8.75%)   10/10/2019     40,000     39,989     40,300        

  Second lien(3)   10.00% (Base Rate + 8.75%)   10/10/2019     1,000     990     1,008        

                41,000     40,979     41,308     5.15 %

Tenawa Resource Holdings LLC(16)

                                     

Tenawa Resource Management LLC

                                     

Energy

  First lien(3)   10.50% (Base Rate + 8.00%)   5/12/2019     40,000     39,838     39,820     4.96 %

Kronos Incorporated

                                     

Software

  Second lien(2)   9.75% (Base Rate + 8.50%)   4/30/2020     32,641     32,407     33,355        

  Second lien(3)   9.75% (Base Rate + 8.50%)   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)   9.75%   4/1/2021     24,500     24,362     27,195        

  First lien(2)   5.75% (Base Rate + 4.75%)   3/22/2019     9,863     9,641     9,830        

                34,363     34,003     37,025     4.62 %

   

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

F-97


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

 

Tolt Solutions, Inc.(15)

                                     

Business Services

  First lien(2)   7.00% (Base Rate + 6.00%)   3/7/2019   $ 18,537   $ 18,538   $ 18,075        

  First lien(2)   12.00% (Base Rate + 11.00%)   3/7/2019     18,800     18,800     18,540        

                37,337     37,338     36,615     4.56 %

Acrisure, LLC

                                     

Business Services

  Second lien(2)   11.50% (Base Rate + 10.50%)   3/31/2020     35,175     34,848     35,471     4.42 %

UniTek Global Services, Inc.

                                     

Business Services

  First lien(2)   15.00% PIK (Base Rate + 13.50% PIK)(7)*   4/15/2018     20,596     20,104     14,706        

  First lien(3)   15.00% PIK (Base Rate + 13.50% PIK)(7)*   4/15/2018     7,772     7,552     5,550        

  First lien(2)   15.00% PIK (Base Rate + 13.50% PIK)(7)*   4/15/2018     6,271     6,116     4,478        

  First lien(3)   15.00% PIK (Base Rate + 13.50% PIK)(7)*   4/15/2018     597     580     426        

  First lien(2)   15.00% PIK (Base Rate + 13.50% PIK)(7)*   4/15/2018     5,213     5,083     3,722        

  First lien(3)   15.00% PIK (Base Rate + 13.50% PIK)(7)*   4/15/2018     496     482     354        

  First lien(3)(11) — Drawn   9.50% (Base Rate + 7.50% + 1.00% PIK)*   1/21/2015     3,381     3,381     3,381        

  First lien(3)(11) — Drawn   10.25% (Base Rate + 4.00% + 5.25% PIK)*   4/15/2016     2,610     2,610     2,610        

                46,936     45,908     35,227     4.39 %

Envision Acquisition Company, LLC

                                     

Healthcare Services

  Second lien(2)   9.75% (Base Rate + 8.75%)   11/4/2021     26,000     25,603     25,772        

  Second lien(3)   9.75% (Base Rate + 8.75%)   11/4/2021     9,250     9,305     9,169        

                35,250     34,908     34,941     4.37 %

Hill International, Inc.

                                     

Business Services

  First lien(2)   7.75% (Base Rate + 6.75%)   9/26/2020     34,913     34,574     34,215     4.27 %

Meritas Schools Holdings, LLC

                                     

Education

  First lien(2)   7.00% (Base Rate + 5.75%)   6/25/2019     21,658     21,487     21,549        

  Second lien(2)   10.00% (Base Rate + 9.00%)   1/23/2021     12,000     11,943     11,820        

                33,658     33,430     33,369     4.16 %

TASC, Inc.

                                     

Federal Services

  First lien(2)   6.50% (Base Rate + 5.50%)   5/22/2020     30,860     30,454     30,108        

  Second lien(3)   12.00%   5/21/2021     2,000     1,960     1,960        

                32,860     32,414     32,068     4.00 %

SRA International, Inc.

                                     

Federal Services

  First lien(2)   6.50% (Base Rate + 5.25%)   7/20/2018     31,765     31,059     31,805     3.96 %

Navex Global, Inc.

                                     

Software

  First lien(4)   5.75% (Base Rate + 4.75%)   11/19/2021     10,547     10,442     10,441        

  First lien(2)   5.75% (Base Rate + 4.75%)   11/19/2021     4,453     4,409     4,409        

  Second lien(4)   9.75% (Base Rate + 8.75%)   11/18/2022     11,953     11,834     11,775        

  Second lien(3)   9.75% (Base Rate + 8.75%)   11/18/2022     5,047     4,997     4,970        

                32,000     31,682     31,595     3.94 %

Rocket Software, Inc.

                                     

Software

  Second lien(2)   10.25% (Base Rate + 8.75%)   2/8/2019     30,875     30,756     30,875     3.85 %

KeyPoint Government Solutions, Inc.

                                     

Federal Services

  First lien(2)   7.75% (Base Rate + 6.50%)   11/13/2017     29,342     28,937     29,359     3.66 %

CompassLearning, Inc.(14)

                                     

Education

  First lien(2)   8.00% (Base Rate + 6.75%)   11/26/2018     30,000     29,391     29,184     3.64 %

   

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

F-98


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

 

Aderant North America, Inc.

                                     

Software

  Second lien(2)   10.00% (Base Rate + 8.75%)   6/20/2019   $ 24,000   $ 23,767   $ 23,940        

  Second lien(3)   10.00% (Base Rate + 8.75%)   6/20/2019     5,000     5,070     4,988        

                29,000     28,837     28,928     3.61 %

Transtar Holding Company

                                     

Distribution & Logistics

  Second lien(2)   10.00% (Base Rate + 8.75%)   10/9/2019     28,300     27,906     27,946     3.48 %

Pelican Products, Inc.

                                     

Business Products

  Second lien(3)   9.25% (Base Rate + 8.25%)   4/9/2021     15,500     15,531     15,306        

  Second lien(2)   9.25% (Base Rate + 8.25%)   4/9/2021     10,000     10,123     9,875        

                25,500     25,654     25,181     3.14 %

YP Holdings LLC(10)

                                     

YP LLC

                                     

Media

  First lien(2)   8.00% (Base Rate + 6.75%)   6/4/2018     24,936     24,678     25,029     3.12 %

CRGT Inc.

                                     

Federal Services

  First lien(2)   7.50% (Base Rate + 6.50%)   12/19/2020     25,000     24,750     24,750     3.09 %

Confie Seguros Holding II Co.

                                     

Consumer Services

  Second lien(2)   10.25% (Base Rate + 9.00%)   5/8/2019     18,886     18,786     18,877        

  Second lien(3)   10.25% (Base Rate + 9.00%)   5/8/2019     5,571     5,647     5,569        

                24,457     24,433     24,446     3.05 %

PetVet Care Centers LLC

                                     

Consumer Services

  Second lien(3)   9.75% (Base Rate + 8.75%)   6/17/2021     24,000     23,761     23,760     2.96 %

Sierra Hamilton LLC / Sierra Hamilton Finance, Inc.

                                     

Energy

  First lien(2)   12.25%   12/15/2018     25,000     25,000     23,250     2.90 %

Aricent Technologies

                                     

Business Services

  Second lien(2)   9.50% (Base Rate + 8.50%)   4/14/2022     20,000     19,871     20,162        

  Second lien(3)   9.50% (Base Rate + 8.50%)   4/14/2022     2,550     2,556     2,571        

                22,550     22,427     22,733     2.83 %

McGraw-Hill School Education Holdings, LLC

                                     

Education

  First lien(2)   6.25% (Base Rate + 5.00%)   12/18/2019     21,780     21,594     21,771     2.71 %

Weston Solutions, Inc.

                                     

Business Services

  Subordinated(4)   16.00% (11.50% + 4.50% PIK)*   7/3/2019     20,458     20,458     20,828     2.60 %

Aspen Dental Management, Inc.

                                     

Healthcare Services

  First lien(2)   7.00% (Base Rate + 5.50%)   10/6/2016     20,862     20,697     20,732     2.58 %

TWDiamondback Holdings Corp.(18)

                                     

Diamondback Drugs of Delaware, L.L.C. (TWDiamondback II Holdings LLC)

                                     

Distribution & Logistics

  First lien(4)   9.75% (Base Rate + 8.75%)   11/19/2019     19,895     19,895     19,895     2.48 %

American Pacific Corporation**

                                     

Specialty Chemicals and Materials

  First lien(2)   7.00% (Base Rate + 6.00%)   2/27/2019     19,850     19,722     19,825     2.47 %

Novitex Acquisition, LLC (fka ARSloane Acquisition, LLC)

                                     

Business Services

  First lien(2)   7.50% (Base Rate + 6.25%)   7/7/2020     19,950     19,592     19,152     2.39 %

eResearchTechnology, Inc.

                                     

Healthcare Services

  First lien(2)   6.00% (Base Rate + 4.75%)   5/2/2018     19,059     18,521     19,083     2.38 %

First American Payment Systems, L.P.

                                     

Business Services

  Second lien(2)   10.75% (Base Rate + 9.50%)   4/12/2019     18,643     18,369     18,457     2.30 %

   

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

F-99


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

 

Permian Tank & Manufacturing, Inc.

                                     

Energy

  First lien(2)   10.50%   1/15/2018   $ 24,357   $ 24,555   $ 18,390     2.29 %

AgKnowledge Holdings Company, Inc.

                                     

Business Services

  Second lien(2)   9.25% (Base Rate + 8.25%)   7/23/2020     18,500     18,326     17,814     2.22 %

Vertafore, Inc.

                                     

Software

  Second lien(2)   9.75% (Base Rate + 8.25%)   10/27/2017     13,855     13,852     13,959        

  Second lien(3)   9.75% (Base Rate + 8.25%)   10/27/2017     2,000     2,017     2,015        

                15,855     15,869     15,974     1.99 %

MailSouth, Inc. (d/b/a Mspark)

                                     

Media

  First lien(2)   6.75% (Base Rate + 4.99%)   12/14/2016     16,778     16,190     15,771     1.97 %

Edmentum, Inc.(fka Plato, Inc.)

                                     

Education

  Second lien(2)   11.25% (Base Rate + 9.75%)   5/17/2019     25,000     24,713     12,500        

  Second lien(3)   11.25% (Base Rate + 9.75%)   5/17/2019     6,150     6,040     3,075        

                31,150     30,753     15,575     1.94 %

GSDM Holdings Corp.

                                     

Healthcare Services

  Subordinated(4)   10.00%   6/23/2020     15,000     14,860     14,642     1.83 %

Smile Brands Group Inc.

                                     

Healthcare Services

  First lien(2)   7.50% (Base Rate + 6.25%)   8/16/2019     14,319     14,154     13,746     1.71 %

Vision Solutions, Inc.

                                     

Software

  Second lien(2)   9.50% (Base Rate + 8.00%)   7/23/2017     14,000     13,966     13,580     1.69 %

Harley Marine Services, Inc.

                                     

Distribution & Logistics

  Second lien(2)   10.50% (Base Rate + 9.25%)   12/20/2019     9,000     8,843     8,910     1.11 %

Vitera Healthcare Solutions, LLC

                                     

Software

  First lien(2)   6.00% (Base Rate + 5.00%)   11/4/2020     1,980     1,964     1,970        

  Second lien(2)   9.25% (Base Rate + 8.25%)   11/4/2021     7,000     6,906     6,825        

                8,980     8,870     8,795     1.10 %

McKissock, LLC

                                     

QC McKissock Investment, LLC

                                     

Education

  First lien(2)   7.50% (Base Rate + 6.50%)   8/5/2019     4,923     4,877     4,844        

  First lien(2)   7.50% (Base Rate + 6.50%)   8/5/2019     3,178     3,149     3,127        

  First lien(2)(11) — Drawn   7.50% (Base Rate + 6.50%)   8/5/2019     576     570     567        

                8,677     8,596     8,538     1.06 %

Asurion, LLC (fka Asurion Corporation)

                                     

Business Services

  Second lien(3)   8.50% (Base Rate + 7.50%)   3/3/2021     5,000     4,934     4,987        

  Second lien(2)   8.50% (Base Rate + 7.50%)   3/3/2021     3,000     2,957     2,993        

                8,000     7,891     7,980     0.99 %

Physio-Control International, Inc.

                                     

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

  First lien(2)   9.00% (Base Rate + 7.50%)   4/21/2017     7,445     7,387     6,626     0.83 %

Brock Holdings III, Inc.

                                     

Industrial Services

  Second lien(2)   10.00% (Base Rate + 8.25%)   3/16/2018     7,000     6,934     5,548     0.69 %

Immucor, Inc.

                                     

Healthcare Services

  Subordinated(2)(9)   11.13%   8/15/2019     5,000     4,957     5,425     0.68 %

Virtual Radiologic Corporation

                                     

Healthcare Information Technology

  First lien(2)   7.25% (Base Rate + 5.50%)   12/22/2016     5,963     5,931     4,979     0.62 %

   

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

F-100


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

 

Packaging Coordinators, Inc.(12)

                                     

Healthcare Products

  Second lien(3)   9.00% (Base Rate + 8.00%)   8/1/2022   $ 5,000   $ 4,952   $ 4,925     0.61 %

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

                                     

Business Services

  Second lien(2)   8.25% (Base Rate + 7.25%)   1/25/2021     5,000     4,940     4,867     0.61 %

Learning Care Group (US) Inc.(17)

                                     

Learning Care Group (US) No. 2 Inc.

                                     

Education

  First lien(2)   5.50% (Base Rate + 4.50%)   5/5/2021     4,465     4,424     4,476     0.56 %

CRC Health Corporation

                                     

Healthcare Services

  Second lien(3)   9.00% (Base Rate + 8.00%)   9/28/2021     4,000     3,925     4,098     0.51 %

GCA Services Group, Inc.

                                     

Business Services

  Second lien(3)   9.25% (Base Rate + 8.00%)   11/1/2020     4,000     3,968     3,955     0.49 %

Sophia Holding Finance LP / Sophia Holding Finance Inc.

                                     

Software

  Subordinated(3)   9.63%   12/1/2018     3,500     3,502     3,531     0.44 %

York Risk Services Holding Corp.

                                     

Business Services

  Subordinated(3)   8.50%   10/1/2022     3,000     3,000     3,011     0.38 %

Winebow Holdings, Inc. (Vinter Group, Inc., The)

                                     

Distribution & Logistics

  Second lien(3)   8.50% (Base Rate + 7.50%)   1/2/2022     3,000     2,979     2,910     0.36 %

Synarc-Biocore Holdings, LLC

                                     

Healthcare Services

  Second lien(3)   9.25% (Base Rate + 8.25%)   3/10/2022     2,500     2,477     2,250     0.28 %

Education Management LLC**

                                     

Education

  First lien(2)   9.25% PIK (Base Rate + 8.00% PIK)*   3/30/2018     1,944     1,902     880        

  First lien(3)   9.25% PIK (Base Rate + 8.00% PIK)*   3/30/2018     1,097     1,085     496        

                3,041     2,987     1,376     0.17 %

ATI Acquisition Company (fka Ability Acquisition, Inc.)(13)

                                     

Education

  First lien(2)   17.25% (Base Rate + 10.00% + 4.00% PIK)(7)*   6/30/2012 — Past Due     1,665     1,434     216        

  First lien(2)   17.25% (Base Rate + 10.00% + 4.00% PIK)(7)*   6/30/2012 — Past Due     103     94     103        

                1,768     1,528     319     0.04 %

Total Funded Debt Investments — United States

              $ 1,338,642   $ 1,325,057   $ 1,291,305     160.98 %

Total Funded Debt Investments

              $ 1,394,165   $ 1,380,164   $ 1,344,464     167.60 %

Equity — United Kingdom

                                     

Packaging Coordinators, Inc.(12)

                                     

PCI Pharma Holdings UK Limited**

                                     

Healthcare Products

  Ordinary shares(2)         19,427   $ 580   $ 1,193     0.15 %

Total Shares — United Kingdom

                    $ 580   $ 1,193     0.15 %

   

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

F-101


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

 

Equity — United States

                                     

Crowley Holdings Preferred, LLC

                                     

Distribution & Logistics

  Preferred shares(3)   12.00% (10.00% + 2.00% PIK)*       35,721   $ 35,721   $ 35,721     4.45 %

Global Knowledge Training LLC

                                     

Education

  Ordinary shares(2)         2         8        

  Preferred shares(2)         2,423         9,739        

                          9,747     1.22 %

Tenawa Resource Holdings LLC(16)

                                     

QID NGL LLC

                                     

Energy

  Ordinary shares(3)         3,000,000   $ 3,000   $ 2,430     0.30 %

TWDiamondback Holdings Corp.(18)

                                     

Distribution & Logistics

  Preferred shares(4)         200     2,000     2,000     0.25 %

Ancora Acquisition LLC(13)

                                     

Education

  Preferred shares(6)         372     83     83     0.01 %

Total Shares — United States

                    $ 40,804   $ 49,981     6.23 %

Total Shares

                    $ 41,384   $ 51,174     6.38 %

Warrants — United States

                                     

Storapod Holding Company, Inc.

                                     

Consumer Services

  Warrants(3)         360,129   $ 156   $ 4,142     0.51 %

YP Holdings LLC(10)

                                     

YP Equity Investors, LLC

                                     

Media

  Warrants(5)         5         2,549     0.32 %

Learning Care Group (US) Inc.(17)

                                     

ASP LCG Holdings, Inc.

                                     

Education

  Warrants(3)         622     37     299     0.04 %

UniTek Global Services, Inc.

                                     

Business Services

  Warrants(3)         1,014,451 (8)   1,449         %

Alion Science and Technology Corporation

                                     

Federal Services

  Warrants(3)         6,000     293         %

Ancora Acquisition LLC(13)

                                     

Education

  Warrants(6)         20             %

Total Warrants — United States

                    $ 1,935   $ 6,990     0.87 %

Total Funded Investments

                    $ 1,423,483   $ 1,402,628     174.85 %

Unfunded Debt Investments — United States

                                     

TWDiamondback Holdings Corp.(18)

                                     

Diamondback Drugs of Delaware, L.L.C. (TWDiamondback II Holdings LLC)

                                     

Distribution & Logistics

  First lien(4)(11) — Undrawn     5/19/2015   $ 2,763   $   $     %

UniTek Global Services, Inc.

                                     

Business Services

  First lien(3)(11) — Undrawn     1/21/2015     5,425                

  First lien(3)(11) — Undrawn     1/21/2015     2,048                

  First lien(3)(11) — Undrawn     1/21/2015     758                

                              %

   

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

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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

 

McKissock, LLC

                                     

Education

  First lien(2)(11) — Undrawn     8/5/2019   $ 2,304   $ (23 ) $ (37 )   %

MailSouth, Inc. (d/b/a Mspark)

                                     

Media

  First lien(3)(11) — Undrawn     12/14/2015     1,900     (181 )   (156 )   (0.02 )%

Aspen Dental Management, Inc.

                                     

Healthcare Services

  First lien(3)(11) — Undrawn     4/6/2016     5,000     (388 )   (225 )   (0.03 )%

Total Unfunded Debt Investments

              $ 20,198   $ (592 ) $ (418 )   (0.05 )%

Total Non-Controlled/Non-Affiliated Investments

                    $ 1,422,891   $ 1,402,210     174.80 %

Non-Controlled/Affiliated Investments(19)

                                     

Equity — United States

                                     

NMFC Senior Loan Program I LLC**

                                     

Investment in Fund

  Membership interest(3)           $ 23,000   $ 22,461     2.80 %

Total Non-Controlled/Affiliated Investments

                    $ 23,000   $ 22,461     2.80 %

Total Investments

                    $ 1,445,891   $ 1,424,671     177.60 %

(1)
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.

(2)
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.

(3)
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 Bank, N.A. as Lenders. See Note 7, Borrowings, for details.

(4)
Investment is held in New Mountain Finance SBIC, L.P.

(5)
Investment is held in NMF YP Holdings, Inc.

(6)
Investment is held in NMF Ancora Holdings, Inc.

(7)
Investment or a portion of the investment is on non-accrual status. See Note 3, Investments, for details.

(8)
The Company holds 1,014,451 warrants in UniTek Global Services, Inc., which represents a 4.41% equity ownership on a fully diluted basis.

(9)
Securities are registered under the Securities Act.

(10)
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.

(11)
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 accompanying notes are an integral part of these consolidated financial statements.

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New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2014

(in thousands, except shares)

(12)
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.

(13)
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.

(14)
The Company holds an investment in CompassLearning, Inc. that is structured as a first lien last out term loan.

(15)
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.

(16)
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.

(17)
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.

(18)
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.

(19)
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 payment-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.

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New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2014

Investment Type

    December 31, 2014
Percent of Total
Investments at Fair Value
 

First lien

    47.58 %

Second lien

    42.41 %

Subordinated

    4.35 %

Equity and other

    5.66 %

Total investments

    100.00 %

 

Industry Type

    December 31, 2014
Percent of Total
Investments at Fair Value
 

Software

    20.16 %

Business Services

    18.27 %

Education

    17.68 %

Federal Services

    8.75 %

Healthcare Services

    8.05 %

Distribution & Logistics

    6.83 %

Energy

    5.89 %

Media

    4.29 %

Consumer Services

    3.67 %

Business Products

    1.77 %

Investment in Fund

    1.58 %

Specialty Chemicals and Materials

    1.39 %

Healthcare Products

    0.93 %

Industrial Services

    0.39 %

Healthcare Information Technology

    0.35 %

Total investments

    100.00 %

 

Interest Rate Type(1)

    December 31, 2014
Percent of Total
Investments at Fair Value
 

Floating rates

    87.68 %

Fixed rates

    12.32 %

Total investments

    100.00 %

(1)
The categories in this table have been corrected for a transposition error in the Company's Form 10-K for the year ended December 31, 2014, as filed with the United States Securities and Exchange Commission on March 2, 2015, wherein the categories were inversely reported.

   

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

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation

December 31, 2015

(in thousands, except share data)

Note 1. Formation and Business Purpose

New Mountain Finance Corporation

          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.

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 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")

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015

(in thousands, except share data)

Note 1. Formation and Business Purpose (Continued)

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 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.

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.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015

(in thousands, except share data)

Note 1. Formation and Business Purpose (Continued)

          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, 2015, NMFC raised approximately $454,040 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 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.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015

(in thousands, except share data)

Note 1. Formation and Business Purpose (Continued)

          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.

          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, 2015, the Company established a wholly-owned subsidiary, NMF QID NGL Holdings, Inc. ("NMF QID"). The Company's wholly-owned subsidiaries, NMF Ancora Holdings Inc. ("NMF Ancora"), NMF QID and NMF YP Holdings Inc. ("NMF YP"), 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). The Company consolidates its tax blocker corporations for accounting purposes. The tax blocker corporations are not consolidated for income tax purposes and may incur income tax expense as a result of their ownership of the 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.,

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015

(in thousands, except share data)

Note 1. Formation and Business Purpose (Continued)

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, 2015.

GRAPHIC


*
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 in SBA eligible companies. The Company's portfolio may be concentrated in a limited number of industries. As of December 31, 2015, the Company's top five industry concentrations were software, business services, education, distribution & logistics and federal services.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015

(in thousands, except share data)

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 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, NMF QID 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

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015

(in thousands, except share data)

Note 2. Summary of Significant Accounting Policies (Continued)

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:

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015

(in thousands, except share data)

Note 2. Summary of Significant Accounting Policies (Continued)

          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, 2015 and December 31, 2014, the Company held one collateralized agreement to resell with a cost basis of $30,000 and $30,000, respectively, and a carrying value of $29,704 and

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015

(in thousands, except share data)

Note 2. Summary of Significant Accounting Policies (Continued)

$30,000, respectively, collateralized by a second lien bond in Northstar GOM Holdings Group LLC with a fair value of $29,704 and $30,000, respectively, and guaranteed by a private hedge fund with approximately $716,590 and $769,390, respectively, of assets under management. Pursuant to the terms of the collateralized agreement, the private hedge fund is obligated to repurchase the collateral from the Company at the par value of the collateralized agreement once called upon by the Company or if the private hedge fund's total assets under management fall below the agreed upon thresholds. The collateralized agreement earned interest at a weighted average rate of 15.0% per annum as of December 31, 2015 and December 31, 2014.

          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. The Company did not hold any cash equivalents as of December 31, 2015 and December 31, 2014.

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 and dividend 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 and certain preferred equity investments in the portfolio that contain a payment-in-kind ("PIK") interest or dividend provision. PIK interest and dividends are accrued and recorded as income at the contractual rates, if deemed collectible. The PIK interest and dividends are added to the principal or share balances on the capitalization dates and are generally due at maturity or when redeemed by the issuer.

          Dividend income on common equity is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies. Dividend income on preferred securities is recorded as dividend income on an accrual basis to the extent that such amounts are deemed collectible.

          Non-accrual income:    Investments 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 or dividends are reversed when an investment is placed on non-accrual status. Previously capitalized PIK interest or dividends are not reversed when an investment is placed on non-accrual status. Interest or dividend payments received on non-accrual investments may be recognized as income or applied to principal depending upon management's judgment of the ultimate outcome. Non-accrual investments are

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015

(in thousands, except share data)

Note 2. Summary of Significant Accounting Policies (Continued)

restored to accrual status when past due principal and interest is paid and, in management's judgment, are likely to remain current.

          Other income:    Other income represents delayed compensation, consent or amendment fees, revolver fees, structuring fees, upfront 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 and upfront 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 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.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015

(in thousands, except share data)

Note 2. Summary of Significant Accounting Policies (Continued)

          Deferred offering costs — The Company's deferred offering costs consist of fees and expenses incurred in connection with equity offerings and the filing of shelf registration statements. Upon the issuance of shares, offering costs are charged as a direct reduction to net assets. Deferred offering costs are included in other assets on the Company's Consolidated Statements of Assets and Liabilities.

          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 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, 2015, the Company recognized a total provision for income taxes of $1,343 for the Company's consolidated subsidiaries. For the year ended December 31, 2015, the Company recorded current income tax expense of approximately $160 and deferred income tax expense of approximately $1,183, which excludes a deferred tax benefit of $520 attributable to one of the Company's consolidated subsidiaries. For the year ended December 31, 2014, the Company recognized a total provision for income taxes of $929 for the Company's consolidated subsidiaries. For the year ended December 31, 2014, the Company recorded current income tax expense of approximately $436 and deferred income tax expense of approximately $493.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015

(in thousands, except share data)

Note 2. Summary of Significant Accounting Policies (Continued)

          As of December 31, 2015 and December 31, 2014, the Company had $1,676 and $493, 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. As of December 31, 2015, the Company had a deferred tax asset of $520 attributable to one of the Company's consolidated subsidiaries primarily related to net operating losses. The Company has determined that it is more likely than not that the subsidiary will have insufficient taxable income to realize some portion or all of the deferred tax asset. As such, a full valuation allowance of $520 has been recorded against the deferred tax asset.

          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 uncertain income tax positions that do not meet the more likely than not threshold through December 31, 2015. The 2012 through 2015 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 equal to or 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 ask 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 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

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015

(in thousands, except share data)

Note 2. Summary of Significant Accounting Policies (Continued)

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 year ended December 31, 2015, the Company adjusted accounting estimates related to the classification of dividend income for distributions received from three of the Company's equity investments. Based on updated tax projections received during the year ended December 31, 2015, the Company decreased dividend income by $533, which decreased the equity investments cost basis by $3 and increased the realized gain by $530 to agree to the tax treatment on the equity investments.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015

(in thousands, except share data)

Note 3. Investments

          At December 31, 2015, the Company's investments consisted of the following:

    Cost     Fair Value
 

First lien

  $ 711,601   $ 670,023  

Second lien

    656,165     631,985  

Subordinated

    95,429     87,005  

Equity and other

    105,521     123,211  

Total investments

  $ 1,568,716   $ 1,512,224  

    Cost     Fair Value
 

Software

  $ 384,805   $ 370,892  

Business Services

    367,109     368,409  

Education

    167,222     165,947  

Distribution & Logistics

    123,053     117,375  

Federal Services

    95,459     95,477  

Consumer Services

    69,250     68,269  

Energy

    96,717     65,521  

Healthcare Services

    66,923     63,255  

Media

    43,489     47,804  

Healthcare Products

    38,664     37,648  

Business Products

    35,188     33,420  

Manufacturing

    29,852     29,850  

Investment Fund

    23,000     21,914  

Retail

    21,032     21,000  

Industrial Services

    6,953     5,443  

Total investments

  $ 1,568,716   $ 1,512,224  

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015

(in thousands, except share data)

Note 3. Investments (Continued)

          At December 31, 2014, the Company's investments consisted of the following:

    Cost     Fair Value
 

First lien

  $ 696,994   $ 677,901  

Second lien

    621,234     604,158  

Subordinated

    61,344     61,987  

Equity and other

    66,319     80,625  

Total investments

  $ 1,445,891   $ 1,424,671  

    Cost     Fair Value
 

Software

  $ 287,538   $ 287,234  

Business Services

    273,088     260,325  

Education

    256,522     251,916  

Federal Services

    124,840     124,608  

Healthcare Services

    114,111     114,692  

Distribution & Logistics

    97,344     97,382  

Energy

    92,393     83,890  

Media

    58,281     61,081  

Consumer Services

    48,350     52,348  

Business Products

    25,654     25,181  

Investment in Fund

    23,000     22,461  

Specialty Chemicals and Materials

    19,722     19,825  

Healthcare Products

    12,183     13,201  

Industrial Services

    6,934     5,548  

Healthcare Information Technology

    5,931     4,979  

Total investments

  $ 1,445,891   $ 1,424,671  

          During the first quarter of 2015, the Company placed a portion of its second lien position in Edmentum, Inc. ("Edmentum") on non-accrual status due to its ongoing restructuring. As of March 31, 2015, the Company's investment in Edmentum had an aggregate cost basis of $30,771, an aggregate fair value of $15,575 and total unearned interest income of $438 for the three months then ended. In June 2015, Edmentum completed a restructuring which resulted in a material modification of the original terms and an extinguishment of the Company's original investment in Edmentum. Prior to the extinguishment in June 2015, the Company's original investment in Edmentum had an aggregate cost of $31,636, an aggregate fair value of $16,437 and total unearned interest income of $851 for the six months ended June 30, 2015. The extinguishment resulted in a realized loss of $15,199. Post restructuring, the Company's investments in Edmentum

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015

(in thousands, except share data)

Note 3. Investments (Continued)

have been restored to full accrual status. As of December 31, 2015, the Company's investments in Edmentum have an aggregate cost basis of $20,887 and an aggregate fair value of $22,782.

          During the first quarter of 2015, the Company's first lien position in Education Management LLC ("EDMC") was non-income producing as a result of the portfolio company undergoing a restructuring. As of December 31, 2014, the Company's investment in EDMC had an aggregate cost basis of $2,987, an aggregate fair value of $1,376 and no unearned interest income for the three months then ended. In January 2015, EDMC completed a restructuring which resulted in a material modification of the original terms and an extinguishment of the Company's original investment in EDMC. Prior to the extinguishment in January 2015, the Company's original investment in EDMC had an aggregate cost of $2,987, an aggregate fair value of $1,376 and no unearned interest income for the period then ended. The extinguishment resulted in a realized loss of $1,611. Post restructuring, the Company's investments in EDMC are income producing. As of December 31, 2015, the Company's investments in EDMC have an aggregate cost basis of $1,428 and an aggregate fair value of $511.

          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 Company's investments in UniTek had an aggregate cost basis of $47,357, an aggregate fair value of $35,227 and total unearned interest income of $975 for the year then ended. In January 2015, UniTek emerged from "Pre-Packaged" Chapter 11 Bankruptcy and completed its restructuring. The restructuring resulted in a material modification of the original terms and an extinguishment of the Company's original investments in UniTek. Prior to the extinguishment in January 2015, the Company's original investments in UniTek had an aggregate cost of $52,902, an aggregate fair value of $40,137 and total unearned interest income of $68 for the period then ended. The extinguishment resulted in a realized loss of $12,765. Post restructuring, the Company's investments in UniTek have been restored to full accrual status. As of December 31, 2015, the Company's investments in UniTek have an aggregate cost basis of $41,254 and an aggregate fair value of $47,422.

          As of December 31, 2015, the Company's two super priority first lien positions in ATI Acquisition Company and its related preferred shares and warrants in Ancora Acquisition LLC 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. As of December 31, 2015, the Company's investment had an aggregate cost basis of $1,611, an aggregate fair value of $393 and total unearned interest income of $83 for the year then ended. As of December 31, 2014, the Company's investments 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, 2015 and December 31, 2014, unrealized gains (losses) include a fee that the Company would recognize upon realization of the two super priority first lien debt investments.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015

(in thousands, except share data)

Note 3. Investments (Continued)

          As of December 31, 2015, the Company had unfunded commitments on revolving credit facilities and bridge facilities of $17,576 and $0, respectively. As of December 31, 2015, the Company had unfunded commitments in the form of delayed draws or other future funding commitments of $8,678. As of December 31, 2015, the Company did not have any commitment letters to purchase debt investments. The unfunded commitments on revolving credit facilities and delayed draws are disclosed on the Company's Consolidated Schedule of Investments as of December 31, 2015.

          As of December 31, 2014, the Company had unfunded commitments on revolving credit facilities and bridge facilities of $8,948 and $0, respectively. As of December 31, 2014, the Company had unfunded commitments in the form of delayed draws or other future funding commitments of $18,475. As of December 31, 2014, the Company did not have any commitment letters to purchase debt investments. The unfunded commitments on revolving credit facilities and delayed draws are disclosed on the Company's Consolidated Schedule of Investments as of December 31, 2014.

NMFC Senior Loan Program I, LLC

          NMFC Senior Loan Program I, LLC ("SLP I") was formed as a Delaware limited liability company on May 27, 2014 and commenced operations on June 10, 2014. 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 invests in senior secured loans issued by companies within the Company's core industry verticals. These investments are typically broadly syndicated first lien loans.

          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, 2015, SLP I had total investments with an aggregate fair value of approximately $349,704, debt outstanding of $267,617 and capital that had been called and funded of $93,000. 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 Company's Consolidated Schedules of Investments as of December 31, 2015 and December 31, 2014.

          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. No management fee is charged on the Company's investment in SLP I in connection with the administrative services provided to SLP I. For the years ended December 31, 2015 and

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015

(in thousands, except share data)

Note 3. Investments (Continued)

December 31, 2014, the Company earned approximately $1,215 and $468, respectively, in management fees related to SLP I which is included in other income. As of December 31, 2015 and December 31, 2014, approximately $311 and $468, respectively, of management fees related to SLP I was included in receivable from affiliates. For the years ended December 31, 2015 and December 31, 2014, the Company earned approximately $3,619 and $1,066, respectively, of dividend income related to SLP I, which is included in dividend income. As of December 31, 2015 and December 31, 2014, approximately $918 and $828, respectively, of dividend income related to SLP I was included in interest and dividend receivable. The Company did not earn management fees or dividend income for the year ended December 31, 2013.

UniTek Global Services, Inc.

          UniTek Global Services, Inc. ("UniTek") is a full service provider of technical services to customers in the wireless telecommunications, public safety, satellite television and broadband cable industries in the U.S. and Canada. UniTek's customers are primarily satellite television, broadband cable and other telecommunications companies, their contractors, and municipalities and related agencies. UniTek's customers utilize its services to build and maintain their infrastructure and networks and to provide residential and commercial fulfillment services, which is critical to their ability to deliver voice, video and data services to end users.

          In accordance with Regulation S-X Rules 3-09 and 4-08(g), the Company evaluates its unconsolidated controlled portfolio companies as significant subsidiaries under the respective rules. As of December 31, 2015, UniTek was considered a significant unconsolidated subsidiary under Regulation S-X Rule 4-08(g). Based on the requirements under Regulation S-X Rule 4-08(g), the summarized consolidated financial information of UniTek is shown below:

    December 31,     December 31,  

Balance Sheet:

    2015     2014
 

Current assets

  $ 78,202   $ 84,473  

Noncurrent assets

    125,241     124,858  

Total assets

  $ 203,443   $ 209,331  

Current liabilities

    36,167     268,091  

Noncurrent liabilities

    123,361     2,638  

Total liabilities

  $ 159,528   $ 270,729  

Total equity

  $ 43,915   $ (61,398 )

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Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015

(in thousands, except share data)

Note 3. Investments (Continued)


    Years Ended December 31,
 

Summary of Operations:

    2015     2014     2013
 

Net sales

  $ 269,893   $ 334,139   $ 471,933  

Cost of goods sold

    218,331     291,672     387,376  

Gross profit

    51,562     42,467     84,557  

Other expenses

    58,863     116,612     135,048  

Net loss from continuing operations before extraordinary items

    (7,301 )   (74,145 )   (50,491 )

Loss from discontinued operations

            (1,582 )

Net loss

  $ (7,301 ) $ (74,145 ) $ (52,073 )

          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 fluctuate in value resulting in recognized realized gains or losses 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

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015

(in thousands, except share data)

Note 4. Fair Value (Continued)

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:

          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 and unobservable. 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 and unobservable inputs.

          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.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015

(in thousands, except share data)

Note 4. Fair Value (Continued)

          The following table summarizes the levels in the fair value hierarchy that the Company's portfolio investments fall into as of December 31, 2015:

    Total     Level I     Level II     Level III
 

First lien

  $ 670,023   $   $ 329,133   $ 340,890  

Second lien

    631,985         449,227     182,758  

Subordinated

    87,005         33,546     53,459  

Equity and other

    123,211     316     15     122,880  

Total investments

  $ 1,512,224   $ 316   $ 811,921   $ 699,987  

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

    Total     Level I     Level II     Level III
 

First lien

  $ 677,901   $   $ 508,721   $ 169,180  

Second lien

    604,158         469,752     134,406  

Subordinated

    61,987         26,517     35,470  

Equity and other

    80,625             80,625  

Total investments

  $ 1,424,671   $   $ 1,004,990   $ 419,681  

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015

(in thousands, except 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, 2015, 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, 2015:

                            Equity and  

    Total     First Lien     Second Lien     Subordinated     other
 

Fair value, December 31, 2014

  $ 419,681   $ 169,180   $ 134,406   $ 35,470   $ 80,625  

Total gains or losses included in earnings:

                               

Net realized (losses) gains on investments

    (12,730 )   (10,895 )   (14,542 )       12,707  

Net change in unrealized appreciation (depreciation) of investments

    12,348     7,048     6,575     (4,797 )   3,522  

Purchases, including capitalized PIK and revolver fundings(1)

    418,208     237,731     116,135     23,709     40,633  

Proceeds from sales and paydowns of investments(1)

    (205,103 )   (84,346 )   (105,227 )   (923 )   (14,607 )

Transfers into Level III(2)

    95,190     49,779     45,411          

Transfers out of Level III(2)

    (27,607 )   (27,607 )            

Fair value, December 31, 2015

  $ 699,987   $ 340,890   $ 182,758   $ 53,459   $ 122,880  

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

  $ (999 ) $ (4,332 ) $ (7,384 ) $ (4,797 ) $ 15,514  

(1)
Includes reorganizations and restructurings.

(2)
As of December 31, 2015, the portfolio companies 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.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015

(in thousands, except 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, 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:

    Total     First Lien     Second Lien     Subordinated     Equity and
other
 

Fair value, December 31, 2013

  $ 153,720   $ 28,411   $ 55,538   $ 5,171   $ 64,600  

Total gains or losses included in earnings:

                               

Net realized gains on investments

    7,329     1,260     581     196     5,292  

Net change in unrealized (depreciation) appreciation of investments

    (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

    (74,968 )   (1,233 )   (42,130 )   (5,559 )   (26,046 )

Transfers into Level III(1)(2)

    109,610     38,253     70,941         416  

Transfers out of Level III(1)

    (20,200 )       (20,200 )        

Fair value, December 31, 2014

  $ 419,681   $ 169,180   $ 134,406   $ 35,470   $ 80,625  

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:

  $ (17,254 ) $ (11,978 ) $ (15,404 ) $ 163   $ 9,965  

(1)
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.

(2)
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.

          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, 2015 and December 31, 2014. Transfers into Level III occur as quotations obtained through pricing services are not deemed representative of fair value as of the balance sheet date and such assets are internally valued. As quotations obtained through pricing services are substantiated through additional market sources, investments are transferred out of Level III. In addition, transfers out of Level III and transfers into Level III occur based on the increase or decrease in the availability of certain observable inputs. The Company invests in

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015

(in thousands, except share data)

Note 4. Fair Value (Continued)

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.

          For debt investments, the Company may employ the Market Based Approach (as described below) to assess the total enterprise value of the portfolio company, in order to evaluate the enterprise value coverage of the Company's debt investment. For equity investments or in cases where the Market Based Approach implies a lack of enterprise value coverage for the debt investment, the Company may additionally employ a discounted cash flow analysis based on the free cash flows of the portfolio company to assess the total enterprise value.

          After enterprise value coverage is demonstrated for the Company's debt investments through the method(s) above, the Income Based Approach (as described below) may be employed to estimate the fair value of the investment.

          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 and comparable transactions. 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

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015

(in thousands, except share data)

Note 4. Fair Value (Continued)

the portfolio company's latest twelve month ("LTM") EBITDA or projected EBITDA to calculate the enterprise value of the portfolio company. Significant increases or decreases in the EBITDA multiple will result in an increase or decrease in enterprise value, which may result in an increase or decrease in the fair value estimate of the investment. In applying the market based approach as of December 31, 2015 and December 31, 2014, the Company used the relevant EBITDA multiple ranges set forth in the table below to determine the enterprise value of its portfolio companies. The Company believes this was a reasonable range in light of current comparable company trading levels and the specific portfolio 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, 2015 and December 31, 2014, the Company used the discount ranges set forth in the table below to value investments in its portfolio companies.

          The unobservable inputs used in the fair value measurement of the Company's Level III investments as of December 31, 2015 were as follows:

    Fair Value                            

    as of             Range
 

    December 31,                         Weighted  

Type

    2015   Approach   Unobservable Input     Low     High     Average
 

First lien

  $ 292,507   Market & income approach   EBITDA multiple     4.5x     15.5x     10.0x  

            Discount rate     7.3 %   13.9 %   11.0 %

    30,719   Market quote   Broker quote     N/A     N/A     N/A  

    17,664   Other   N/A(1)     N/A (1)   N/A (1)   N/A (1)

Second lien

    88,977   Market & income approach   EBITDA multiple     6.5x     16.0x     12.3x  

            Discount rate     10.0 %   14.2 %   12.7 %

    41,544   Market quote   Broker quote     N/A     N/A     N/A  

    52,237   Other   N/A(1)     N/A (1)   N/A (1)   N/A (1)

Subordinated

    38,459   Market & income approach   EBITDA multiple     4.5x     9.0x     7.6x  

            Discount rate     10.0 %   19.4 %   17.7 %

    15,000   Other   N/A(1)     N/A (1)   N/A (1)   N/A (1)

Equity and other

    121,453   Market & income approach   EBITDA multiple     2.5x     12.0x     6.3x  

            Discount rate     8.0 %   21.3 %   14.6 %

    1,427   Black Scholes analysis   Expected life in years     9.8     10.3     10.0  

            Volatility     27.0 %   30.3 %   28.9 %

            Discount rate     2.1 %   2.1 %   2.1 %

  $ 699,987                            

(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.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015

(in thousands, except share data)

Note 4. Fair Value (Continued)

          The unobservable inputs used in the fair value measurement of the Company's Level III investments as of December 31, 2014 were as follows:

    Fair Value                            

    as of             Range
 

    December 31,                         Weighted  

Type

    2014   Approach   Unobservable Input     Low     High     Average
 

First lien

  $ 169,180   Market & income approach   EBITDA multiple     6.5x     12.0x     8.6x  

            Discount rate     8.2 %   16.5 %   12.0 %

Second lien

    92,620   Market & income approach   EBITDA multiple     5.5x     15.5x     10.6x  

            Discount rate     11.0 %   16.0 %   12.7 %

    41,786   Other   N/A(1)     N/A (1)   N/A (1)   N/A (1)

Subordinated

    35,470   Market & income approach   EBITDA multiple     8.0x     12.0x     10.0x  

            Discount rate     10.7 %   17.7 %   14.7 %

Equity and other

    66,437   Market & income approach   EBITDA multiple     7.0x     12.0x     8.1x  

            Discount rate     8.0 %   15.0 %   12.9 %

    9,747   Other   N/A(1)     N/A (1)   N/A (1)   N/A (1)

    4,441   Black Scholes analysis   Expected life in years     11.3     11.3     11.3  

            Volatility     31.6 %   31.6 %   31.6 %

            Discount rate     2.3 %   2.3 %   2.3 %

  $ 419,681                            

(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, 2015, 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, 2015 based on a comparison 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, 2015 was $112,988, 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, 2015 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.

          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

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015

(in thousands, except share data)

Note 4. Fair Value (Continued)

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.

          Pursuant to the Investment Management Agreement, 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, less the 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 the IPO, the base management fee calculation has deducted the borrowings under the SLF Credit Facility. The SLF Credit Facility had historically consisted of primarily lower yielding assets at higher advance rates. As part of an amendment to the Company's existing credit facilities with Wells Fargo Bank, National Association, the SLF Credit Facility merged with the Predecessor Holdings Credit Facility and into the Holdings Credit Facility on December 18, 2014 (as defined in Note 7, Borrowings). Post credit facility merger and to be consistent with the methodology since the IPO, the Investment Adviser will continue to 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, which as of December 31, 2015 and December 31, 2014 was approximately $304,899 and $313,455, respectively. The Investment Adviser cannot recoup management fees that the Investment Adviser has previously waived. For the years ended

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015

(in thousands, except share data)

Note 5. Agreements (Continued)

December 31, 2015 and December 31, 2014, management fees waived were approximately $5,219 and $686. No management fees were waved during the year ended December 31, 2013, as the SLF Credit Facility was in existence during this period.

          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, upfront, 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, 2015), 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

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015

(in thousands, except share data)

Note 5. Agreements (Continued)

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:

          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.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015

(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, 2015, December 31, 2014 and December 31, 2013.

    Years Ended December 31,
 

    2015     2014     2013
 

Management fee

  $ 25,858   $ 13,593   $  

Management fee allocated from NMF Holdings(2)

        5,983     11,812  

Less: management fee waiver

    (5,219 )   (686 )    

Total management fee

    20,639     18,890     11,812  

Incentive fee, excluding accrued capital gains incentive fees

  $ 20,591   $ 12,070   $  

Incentive fee, excluding accrued capital gains incentive fees allocated from NMF Holdings(2)

        6,248     13,050  

Total incentive fee

    20,591     18,318     13,050  

Accrued capital gains incentive fees(1)

  $   $ (8,573 ) $  

Accrued capital gains incentive fees allocated from NMF Holdings(1)(2)

        2,024     2,351  

Total accrued capital gains incentive fees

        (6,549 )   2,351  

(1)
As of December 31, 2015 and 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.

(2)
For the year ended December 31, 2013, the Company is reflecting its proportionate share of the Predecessor Operating Company's management, incentive and capital gains incentive fees. For the year ended December 31, 2013, the management, incentive and accrued capital gains incentive fees at NMF Holdings were $14,905, $16,502 and $3,229, 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.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015

(in thousands, except share data)

Note 5. Agreements (Continued)

          The following Consolidated Statement of Operations for the year ended December 31, 2015 is adjusted to reflect this step-up to fair market value.

    Year Ended
December 31, 2015
    Stepped-up
Cost Basis
Adjustments
    Adjusted
Year Ended
December 31, 2015
 

Investment income

                   

Interest income(1)

  $ 140,074   $ (131 ) $ 139,943  

Dividend income(2)

    5,771         5,771  

Other income

    8,010         8,010  

Total investment income(3)

    153,855     (131 )   153,724  

Total expenses pre-incentive fee(4)              

    50,769         50,769  

Pre-Incentive Fee Net Investment Income

    103,086     (131 )   102,955  

Incentive fee(5)

    20,591         20,591  

Post-Incentive Fee Net Investment Income

    82,495     (131 )   82,364  

Net realized losses on investments(6)

    (12,789 )   (78 )   (12,867 )

Net change in unrealized (depreciation) appreciation of investments(6)

    (35,272 )   209     (35,063 )

Net change in unrealized (depreciation) appreciation of securities purchased under collateralized agreements to resell

    (296 )       (296 )

Provision for taxes

    (1,183 )       (1,183 )

Net increase in net assets resulting from operations

  $ 32,955         $ 32,955  

(1)
Includes $3,942 in PIK interest from investments.

(2)
Includes $2,559 in PIK dividends from investments.

(3)
Includes income from non-controlled/non-affiliated investments, non-controlled/affiliated investments and controlled investments.

(4)
Includes expense waivers and reimbursements of $733 and management fee waivers of $5,219.

(5)
For the year ended December 31, 2015, the Company incurred total incentive fees of $20,591, of which none is related to capital gains incentive fees on a hypothetical liquidation basis.

(6)
Includes net realized gains and losses on investments and net change in unrealized (deprecation) appreciation of investments from non-controlled/non-affiliated investments, non-controlled/affiliated investments and controlled investments.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015

(in thousands, except share data)

Note 5. Agreements (Continued)

          The following Consolidated Statement of Operations for the year ended December 31, 2014 is adjusted to reflect this step-up to fair market value.

    Year Ended
December 31, 2014
    Stepped-up
Cost Basis
Adjustments
    Adjusted
Year Ended
December 31, 2014
 

Investment income

                   

Interest income(1)

  $ 85,123   $ (193 ) $ 84,930  

Dividend income

    2,309         2,309  

Other income

    4,491         4,491  

Investment income allocated from NMF Holdings

                   

Interest income(1)

    40,515         40,515  

Dividend income

    2,368         2,368  

Other income

    795         795  

Total investment income(2)

    135,601     (193 )   135,408  

Total expenses pre-incentive fee(3)          

    43,766         43,766  

Pre-Incentive Fee Net Investment Income

    91,835     (193 )   91,642  

Incentive fee(4)

    11,769         11,769  

Post-Incentive Fee Net Investment Income

    80,066     (193 )   79,873  

Net realized gains (losses) on investments

    357     (456 )   (99 )

Net realized gains on investment allocated from NMF Holdings

    8,568         8,568  

Net change in unrealized (depreciation) appreciation of investments(5)

    (43,863 )   649     (43,214 )

Net change in unrealized appreciation (depreciation) of investments allocated from NMF Holdings

    940         940  

Provision for taxes

    (493 )       (493 )

Net increase in net assets resulting from operations

  $ 45,575         $ 45,575  

(1)
Includes $4,644 in PIK interest from investments.

(2)
Includes income from non-controlled/non-affiliated investments.

(3)
Includes expense waivers and reimbursements of $1,145 and management fee waivers of $686.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015

(in thousands, except share data)

Note 5. Agreements (Continued)

(4)
For the year ended December 31, 2014, the Company and the 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.

(5)
Includes net change in unrealized (depreciation) appreciation of investments from non-controlled/non-affiliated and non-controlled/affiliated investments.

          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.

    Year Ended
December 31, 2013
    Stepped-up
Cost Basis
Adjustments
    Adjusted
Year Ended
December 31, 2013
 

Investment income

                   

Interest income(1)

  $ 107,027   $ (896 ) $ 106,131  

Dividend income

    5,049         5,049  

Other income

    2,836         2,836  

Total investment income

    114,912     (896 )   114,016  

Total expenses pre-incentive fee(2)

    31,504         31,504  

Pre-Incentive Fee Net Investment Income

    83,408     (896 )   82,512  

Incentive fee(3)

    19,731         19,731  

Post-Incentive Fee Net Investment Income

    63,677     (896 )   62,781  

Net realized gains (losses) on investments

    7,253 (4)   (3,158 )   4,095  

Net change in unrealized appreciation (depreciation) of investments

    7,994     4,054     12,048  

Net increase in members' capital resulting from operations          

  $ 78,924         $ 78,924  

(1)
Includes $3,428 in PIK interest from investments.

(2)
Includes expense waivers and reimbursements of $3,233.

(3)
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.

(4)
Includes $1,722 of realized gains on investments resulting from the modification of terms on one debt investment that was accounted for as an extinguishment.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015

(in thousands, except share data)

Note 5. Agreements (Continued)

          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, 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 years ended December 31, 2015, December 31, 2014 and December 31, 2013, approximately $1,431, $1,395 and $1,180, respectively, of indirect administrative expenses were included in administrative expenses of which $733, $770 and $1,180, respectively, of indirect administrative expenses were waived by the Administrator. As of December 31, 2015 and December 31, 2014, $374 and $326, respectively, of indirect administrative expenses were included in payable to affiliates as the expenses were payable to the Administrator.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015

(in thousands, except share data)

Note 5. Agreements (Continued)

          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, 2015, December 31, 2014 and December 31, 2013:

    Years Ended
December 31,
 

    2015     2014     2013
 

Administrative expenses

  $ 733   $ 380   $  

Administrative expenses allocated from NMF Holdings

        390     1,180  

Professional fees

             

Professional fees allocated from NMF Holdings

        375     1,360  

Other general and administrative expenses

             

Other general and administrative expenses allocated from NMF Holdings

             

Total expense reimbursement

  $ 733   $ 1,145   $ 2,540  

          As of December 31, 2015 and December 31, 2014, no expense waivers and reimbursements were receivable from an affiliate. As of December 31, 2013, $399 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" 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.

Note 6. Related Parties

          The Company has entered into a number of business relationships with affiliated or related parties.

          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.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015

(in thousands, except share data)

Note 6. Related Parties (Continued)

          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.

          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. 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 SLF 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.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015

(in thousands, except share data)

Note 7. Borrowings (Continued)

          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 permitted to borrow up to 25.0%, 45.0% or 70.0% of the purchase price of pledged assets, subject to approval by 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 London Interbank Offered Rate ("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. 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 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

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015

(in thousands, except share data)

Note 7. Borrowings (Continued)

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 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, non-usage fees and amortization of financing costs incurred, together, on the Holdings Credit Facility and the Predecessor Holdings Credit Facility for the years ended December 31, 2015, December 31, 2014 and December 31, 2013.

    Years Ended December 31,
 

    2015     2014     2013
 

Interest expense

  $ 10,512   $ 7,147   $ 5,487  

Non-usage fee

  $ 500   $ 243   $ 367  

Amortization of financing costs

  $ 1,612   $ 893   $ 682  

Weighted average interest rate

    2.6 %   2.9 %   2.9 %

Effective interest rate

    3.2 %   3.4 %   3.6 %

Average debt outstanding

  $ 394,945   $ 244,598   $ 184,124  

          As of December 31, 2015 and December 31, 2014, the outstanding balance on the Holdings Credit Facility was $419,313 and $468,108, respectively, and as of December 31, 2013, the outstanding balance on the Predecessor Holdings Credit Facility was $221,849, and NMF Holdings was in compliance 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 was set to 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 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 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.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015

(in thousands, except share data)

Note 7. Borrowings (Continued)

          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, non-usage fees and amortization of financing costs incurred on the SLF Credit Facility for the years ended December 31, 2015, December 31, 2014 and December 31, 2013.

    Years Ended December 31,
 

    2015(1)     2014(2)     2013
 

Interest expense

  $   $ 4,549   $ 4,891  

Non-usage fee

  $   $ 28   $ 3  

Amortization of financing costs

  $   $ 846   $ 864  

Weighted average interest rate

    %   2.2 %   2.3 %

Effective interest rate

    %   2.6 %   2.7 %

Average debt outstanding

  $   $ 209,333   $ 214,317  

(1)
Not applicable, as the SLF Credit Facility merged with and into the Holdings Credit Facility on December 18, 2014.

(2)
For the year ended December 31, 2014, amounts reported relate to the period from January 1, 2014 to December 17, 2014 (date of merger).

          As of December 31, 2015 and December 31, 2014, the SLF Credit Facility had merged with the Holdings Credit Facility. As of December 31, 2013, the outstanding balance on the SLF Credit Facility was $214,668, and NMF SLF was in compliance with the applicable covenants in the SLF Credit Facility on such date.

          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, Goldman Sachs Bank USA as the Administrative Agent and Collateral Agent, and Goldman Sachs Bank USA, Morgan Stanley Bank, N.A. and Stifel Bank & Trust 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 $95,000, as amended on June 26, 2015. The Company is permitted to borrow at various advance rates depending on the type of portfolio investment as outlined in the Senior Secured Revolving

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015

(in thousands, except share data)

Note 7. Borrowings (Continued)

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 generally bears 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% per annum (as defined in the Senior Secured Revolving Credit Agreement).

          The following table summarizes the interest expense, non-usage fees and amortization of financing costs incurred on the NMFC Credit Facility for the years ended December 31, 2015, December 31, 2014 and December 31, 2013.

    Years Ended December 31,
 

    2015     2014(1)     2013(2)
 

Interest expense

  $ 1,653   $ 175   $  

Non-usage fee

  $ 104   $ 86   $  

Amortization of financing costs

  $ 360   $ 121   $  

Weighted average interest rate

    2.7 %   2.7 %   %

Effective interest rate

    3.5 %   3.4 %   %

Average debt outstanding

  $ 60,477   $ 11,227   $  

(1)
For the year ended December 31, 2014, amounts reported relate to the period from June 4, 2014 (commencement of the NMFC Credit Facility) to December 31, 2014.

(2)
Not applicable, as the NMFC Credit Facility commenced on June 4, 2014.

          As of December 31, 2015 and December 31, 2014, the outstanding balance on the NMFC Credit Facility was $90,000 and $50,000, respectively, 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 $115,000 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. As of the first anniversary, June 3, 2015, of the Convertible Notes, the restrictions under Rule 144A under the Securities Act of 1933 were removed, allowing the Convertible Notes to be eligible and freely tradable without restrictions for resale pursuant to Rule 144(b)(1) 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, which commenced on December 15, 2014. The Convertible Notes will mature on June 15, 2019 unless earlier converted or repurchased at the holder's option.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015

(in thousands, except share data)

Note 7. Borrowings (Continued)

          The following table summarizes certain key terms related to the convertible features of the Company's Convertible Notes as of December 31, 2015.

    December 31, 2015
 

Initial conversion premium

    12.5 %

Initial conversion rate(1)

    62.7746  

Initial conversion price

  $ 15.93  

Conversion premium at December 31, 2015

    11.7 %

Conversion rate at December 31, 2015(1)(2)

    63.2794  

Conversion price at December 31, 2015(2)(3)

  $ 15.80  

Last conversion price calculation date

    June 3, 2015  

(1)
Conversion rates denominated in shares of common stock per $1 principal amount of the Convertible Notes converted.

(2)
Represents conversion rate and conversion price, as applicable, taking into account certain de minimis adjustments that will be made on the conversion date.

(3)
The conversion price in effect at December 31, 2015 was calculated on the last anniversary of the issuance and will be adjusted again on the next anniversary, unless the exercise price shall have changed by more than 1.0% before the anniversary.

          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 reflected in Note 12, Earnings Per Share, the issuance is considered 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

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015

(in thousands, except share data)

Note 7. Borrowings (Continued)

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.

          The following table summarizes the interest expense and amortization of financing costs incurred on the Convertible Notes for the years ended December 31, 2015, December 31, 2014 and December 31, 2013.

    Years Ended December 31,
 

    2015     2014(1)     2013(2)
 

Interest expense

  $ 5,750   $ 3,322   $  

Amortization of financing costs

  $ 743   $ 432   $  

Effective interest rate

    5.6 %   5.6 %   %

(1)
For the year ended December 31, 2014, amounts reported relate to the period from June 3, 2014 (commencement of the Convertible Notes) to December 31, 2014.

(2)
Not applicable, as the Convertible Notes commenced on June 3, 2014.

          As of December 31, 2015 and December 31, 2014, the outstanding balance on the Convertible Notes was $115,000 and $115,000, respectively, and NMFC was in compliance with the terms of the Indenture on such dates.

          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.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015

(in thousands, except share data)

Note 7. Borrowings (Continued)

          As of December 31, 2015 and December 31, 2014, SBIC LP had regulatory capital of approximately $72,402 and $42,168, respectively, and SBA-guaranteed debentures outstanding of $117,745 and $37,500, respectively. The SBA-guaranteed debentures incur upfront fees of 3.425%, which consists of a 1.00% commitment fee and a 2.425% issuance discount, which are amortized over the life of the SBA-guaranteed debentures. The following table summarizes the Company's SBA-guaranteed debentures as of December 31, 2015.

Issuance Date

  Maturity Date     Debenture
Amount
    Interest
Rate
    SBA Annual
Charge
 

Fixed SBA-guaranteed debentures:

                       

March 25, 2015

  March 1, 2025   $ 37,500     2.517 %   0.355 %

September 23, 2015

  September 1, 2025     37,500     2.829 %   0.355 %

September 23, 2015

  September 1, 2025     28,795     2.829 %   0.742 %

Interim SBA-guaranteed debentures:

                       

  March 1, 2026(1)     7,000     0.760 %   0.742 %

  March 1, 2026(1)     6,950     0.887 %   0.742 %

Total SBA-guaranteed debentures

      $ 117,745              

(1)
Estimated maturity date as interim SBA-guaranteed debentures are expected to pool in March 2016.

          Prior to pooling, the SBA-guaranteed debentures bear interest at an interim floating rate of LIBOR plus 0.30%. Once pooled, which occurs in March and September each year, the SBA-guaranteed debentures bear interest at a fixed rate that is set to the current 10-year treasury rate plus a spread at each pooling date.

          The following table summarizes the interest expense and amortization of financing costs incurred on the SBA-guaranteed debentures for the years ended December 31, 2015, December 31, 2014 and December 31, 2013.

    Years Ended December 31,
 

    2015     2014(1)     2013(2)
 

Interest expense

  $ 1,701   $ 34   $  

Amortization of financing costs

  $ 240   $ 12   $  

Weighted average interest rate

    2.4 %   0.9 %   %

Effective interest rate

    2.7 %   1.3 %   %

Average debt outstanding

  $ 71,921   $ 29,167   $  

(1)
For the year ended December 31, 2014, amounts reported relate to the period from August 1, 2014 (receipt of the SBIC license) to December 31, 2014. The initial SBA-guaranteed debenture borrowing occurred on November 17, 2014.

(2)
Not applicable, as the SBIC LP received an SBIC license from the SBA on August 1, 2014.

          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

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015

(in thousands, except share data)

Note 7. Borrowings (Continued)

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, 2015 and 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 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 will 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

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015

(in thousands, except share data)

Note 9. Commitments and Contingencies (Continued)

commitments or delayed draw commitments. As of December 31, 2015, the Company had unfunded commitments on revolving credit facilities of $17,576, no outstanding bridge financing commitments and other future funding commitments of $8,678. 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 delayed draws are disclosed on the Company's respective Consolidated Schedules of Investments.

          The Company also has revolving borrowings available under the Holdings Credit Facility and the NMFC Credit Facility as of December 31, 2015 and 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, 2015 and December 31, 2014, the 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, 2015, December 31, 2014 and December 31, 2013, the Company's reclassifications of amounts for book purposes arising from permanent book/tax differences related to return of capital distributions were as follows:

    Years Ended December 31,
 

    2015     2014     2013
 

Undistributed net investment income

  $ 141   $ (6,171 ) $  

Distributions in excess of net realized gains

        6,397      

Additional paid-in-capital

    (141 )   (226 )    

          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

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015

(in thousands, except share data)

Note 10. Distributions (Continued)

tax character of distributions paid by the Company for the years ended December 31, 2015, December 31, 2014 and December 31, 2013 were estimated to be as follows:

    Years Ended December 31,
 

    2015     2014     2013
 

Ordinary income (non-qualified)

  $ 80,967   $ 73,968   $ 44,778  

Ordinary income (qualified)

        664     2,742  

Capital gains

        2,754     4,324  

Return of capital

    35     226      

Total

  $ 81,002   $ 77,612   $ 51,844  

          As of December 31, 2015, December 31, 2014 and December 31, 2013, the costs of investments for the Company for tax purposes were $1,587,189, $1,474,075 and $642,704, respectively.

          At December 31, 2015, December 31, 2014 and December 31, 2013, 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.

          As of December 31, 2015, December 31, 2014 and December 31, 2013, the Company's components of accumulated earnings (deficit) on a tax basis were as follows:

    Years Ended December 31,
 

    2015     2014     2013
 

Accumulated capital gains (capital loss carryforwards)

  $ (19,081 ) $   $  

Other temporary differences

    2,991     4,775     10,070  

Undistributed ordinary income

            3,856  

Unrealized (appreciation) depreciation

    (57,424 )   (30,383 )(1)   2,346  

Total

  $ (73,514 ) $ (25,608 ) $ 16,272  

(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, 2015, the Company does not expect to incur any excise

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015

(in thousands, except share data)

Note 10. Distributions (Continued)

taxes. For the years ended December 31, 2014 and December 31, 2013, the Company did not incur any excise taxes.

          The following information is hereby provided with respect to distributions declared during the calendar years ended December 31, 2015, December 31, 2014 and December 31, 2013:

    Years Ended December 31,
 

(unaudited)

    2015     2014     2013
 

Dividends per share

  $ 1.36   $ 1.48   $ 1.48  

Ordinary dividends

    99.96 %   96.16 %   91.66 %

Long-term capital gains

    %   3.55 %   8.34 %

Qualified dividend income

    %   0.89 %   5.77 %

Dividends received deduction

    %   %   %

Interest-related dividends(1)

    90.71 %   89.11 %   93.05 %

Qualified short-term capital gains(1)

    %   0.47 %   %

Return of capital

    0.04 %   0.29 %   %

(1)
Represents the portion of the taxable ordinary dividends eligible for exemption from U.S. withholding tax for nonresident aliens and foreign corporations.

          Dividends and distributions that were reinvested through the Company's dividend reinvestment plan are treated, for tax purposes, as if they had been paid in cash. Therefore, stockholders who participated in the dividend reinvestment plan should also refer to the information as provided in the table above.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015

(in thousands, except share data)

Note 11. Net Assets

          The table below illustrates the effect of certain transactions on the net asset accounts of the Company:

    Common Stock     Paid in
Capital in
Excess
    Accumulated
Undistributed
Net Investment
    Accumulated
Undistributed
Net Realized
    Net
Unrealized
Appreciation
    Total
 

    Shares     Par Amount     of Par     Income     Gains (Losses)     (Depreciation)     Net Assets
 

Balance at December 31, 2012

    24,326,251   $ 243   $ 335,487   $   $ 952   $ 5,244   $ 341,926  

Issuances of common stock

    20,898,504     209     298,177                 298,386  

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

            (281 )               (281 )

Dividends declared

                (50,521 )   (1,323 )       (51,844 )

Net increase in net assets resulting from operations

                50,521     5,427     5,972     61,920  

Balance at December 31, 2013

    45,224,755   $ 452   $ 633,383   $   $ 5,056   $ 11,216   $ 650,107  

Issuances of common stock

    12,773,135     128     184,698                 184,826  

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

            (250 )               (250 )

Deferred offering costs

            (476 )               (476 )

Dividends declared

                (71,365 )   (6,247 )       (77,612 )

Net increase (decrease) in net assets resulting from operations

                80,066     8,925     (43,416 )   45,575  

Tax reclassifications related to return of capital distributions (See Note 10)

            (226 )   (6,171 )   6,397          

Balance at December 31, 2014

    57,997,890   $ 580   $ 817,129   $ 2,530   $ 14,131   $ (32,200 ) $ 802,170  

Issuances of common stock

    6,007,497     60     83,010                 83,070  

Deferred offering costs

            (285 )               (285 )

Dividends declared

                (81,002 )           (81,002 )

Net increase (decrease) in net assets resulting from operations

                82,495     (12,789 )   (36,751 )   32,955  

Tax reclassifications related to return of capital distributions (See Note 10)

            (141 )   141              

Balance at December 31, 2015

    64,005,387   $ 640   $ 899,713   $ 4,164   $ 1,342   $ (68,951 ) $ 836,908  

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015

(in thousands, except share data)

Note 12. Earnings Per Share

          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, 2015, December 31, 2014 and December 31, 2013:

    Years Ended December 31,
 

    2015     2014     2013
 

Earnings per share — basic

                   

Numerator for basic earnings per share:

  $ 32,955   $ 45,575   $ 61,920  

Denominator for basic weighted average share:

    59,715,290     51,846,164     35,092,722  

Basic earnings per share:

  $ 0.55   $ 0.88   $ 1.76  

Earnings per share — diluted(1)

                   

Numerator for increase in net assets per share

  $ 32,955   $ 45,575   $ 61,920  

Adjustment for interest on Convertible Notes and incentive fees, net

    4,600     2,658      

Numerator for diluted earnings per share:

  $ 37,555   $ 48,233   $ 61,920  

Denominator for basic weighted average share

    59,715,290     51,846,164     35,092,722  

Adjustment for dilutive effect of Convertible Notes

    7,252,799     4,311,671      

Denominator for diluted weighted average share

    66,968,089     56,157,835     35,092,722  

Diluted earnings per share

  $ 0.55   $ 0.86   $ 1.76  

(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, 2015, there was anti-dilution. For the year ended December 31, 2014, there was no anti-dilution. For the year ended December 31, 2013, 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 year then ended, the earnings per share would be $1.79.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015

(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, 2015, 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.

    Years Ended December 31,     May 19, 2011
(commencement of
operations) to
 

    2015     2014     2013     2012     December 31, 2011(2)
 

Per share data(1):

                               

Net asset value at the beginning of the period

  $ 13.83   $ 14.38   $ 14.06   $ 13.60   $ 13.50  

Net investment income

    1.38     1.10              

Net realized and unrealized gains (losses)(3)

    (0.77 )   (0.80 )            

Net increase (decrease) in net assets resulting from operations allocated from NMF Holdings:

                               

Net investment income(4)

        0.44     1.45     1.33     0.78  

Net realized and unrealized gains (losses)(3)(4)

        0.19     0.35     0.84     (0.40 )

Total net increase

    0.61     0.93     1.80     2.17     0.38  

Net change in unrealized appreciation (depreciation) of investment in NMF Holdings

                    0.58  

Dividends declared to stockholders from net investment income

    (1.36 )   (1.36 )   (1.45 )   (1.28 )   (0.78 )

Dividends declared to stockholders from net realized gains

        (0.12 )   (0.03 )   (0.43 )   (0.08 )

Net asset value at the end of the period

  $ 13.08   $ 13.83   $ 14.38   $ 14.06   $ 13.60  

Per share market value at the end of the period

  $ 13.02   $ 14.94   $ 15.04   $ 14.90   $ 13.41  

Total return based on market value(5)

    (4.00 )%   9.66 %   11.62 %   24.84 %   4.16 %

Total return based on net asset value(6)

    4.32 %   6.56 %   13.27 %   16.61 %   2.82 %

Shares outstanding at end of period

    64,005,387     57,997,890     45,224,755     24,326,251     10,697,691  

Average weighted shares outstanding for the period

    59,715,290     51,846,164     35,092,722     14,860,838     10,697,691  

Average net assets for the period

  $ 832,805   $ 749,732   $ 502,822   $ 196,312   $ 147,766  

Ratio to average net assets(7):

                               

Net investment income

    9.91 %   10.68 %   10.10 %   9.53 %   9.08 %

Total expenses, before waivers/reimbursements

    9.28 %   7.65 %   8.53 %   9.61 %   6.62 %

Total expenses, net of waivers/reimbursements

    8.57 %   7.41 %   8.13 %   8.55 %   5.79 %

(1)
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).

(2)
Data presented from May 19, 2011 to December 31, 2011 as the fund became unitized on May 19, 2011, the IPO date.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015

(in thousands, except share data)

Note 13. Financial Highlights (Continued)

(3)
Includes the accretive effect of common stock issuances per share, which for the years ended December 31, 2015, December 31, 2014, December 31, 2013 and December 31, 2012 were $0.06, $0.05, $0.04, and $0.03 respectively. No additional common stock issuances were made during 2011 after the IPO.

(4)
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, 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.

(5)
For the years ended December 31, 2015, 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 period and assuming a purchase of common stock at 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.

(6)
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.

(7)
Ratio to average net assets for the years ended December 31, 2014, December 31, 2013, 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 years ended December 31, 2015 and December 31, 2014 and NMF Holdings for the years ended December 31, 2013, December 31, 2012 and December 31, 2011.

    NMFC
Years Ended
December 31,
    NMF Holdings
Years Ended December 31,
 

    2015     2014     2013     2012     2011
 

Average debt outstanding — Holdings Credit Facility(1)

  $ 394,945   $ 243,693   $ 184,124   $ 133,600   $ 61,561  

Average debt outstanding — SLF Credit Facility(2)

        208,377     214,317     181,395     133,825  

Average debt outstanding — Convertible Notes(3)

    115,000     115,000              

Average debt outstanding — SBA-guaranteed debentures(4)

    71,921     29,167              

Average debt outstanding — NMFC Credit Facility(5)

    60,477     11,227              

Asset coverage ratio(6)

    234.05 %   226.70 %   257.73 %   235.31 %   242.56 %

Portfolio turnover(7)

    33.93 %   29.51 %   40.52 %   52.02 %   42.13 %

(1)
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

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015

(in thousands, except share data)

Note 13. Financial Highlights (Continued)

(2)
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 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.

(3)
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.

(4)
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.

(5)
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.

(6)
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.

(7)
For the year ended December 31, 2014, portfolio turnover represents the investment activity of the Predecessor Operating Company and the Company.

Note 14. Selected Quarterly Financial Data (unaudited)

          The below selected quarterly financial data is for the Company.

    Total Investment
Income
    Net Investment
Income
    Total Net Realized
(Losses) Gains and
Net Changes in
Unrealized
Appreciation
(Depreciation) of
Investments(1)
    Net Increase
(Decrease) in Net
Assets Resulting
from Operations
 

Quarter Ended

    Total     Per Share     Total     Per Share     Total     Per Share     Total     Per Share
 

December 31, 2015

  $ 41,967   $ 0.66   $ 22,521   $ 0.35   $ (42,548 ) $ (0.66 ) $ (20,027 ) $ (0.31 )

September 30, 2015

    37,447     0.64     20,659     0.35     (10,855 )   (0.18 )   9,804     0.17  

June 30, 2015

    37,905     0.65     20,253     0.35     11         20,264     0.35  

March 31, 2015

    36,536     0.63     19,062     0.33     3,852     0.07     22,914     0.40  

December 31, 2014

 
$

36,748
 
$

0.65
 
$

25,919
 
$

0.46
 
$

(34,865

)

$

(0.62

)

$

(8,946

)

$

(0.16

)

September 30, 2014

    34,706     0.67     20,800     0.40     (13,389 )   (0.26 )   7,411     0.14  

June 30, 2014

    33,708     0.65     17,289     0.34     6,373     0.12     23,662     0.46  

March 31, 2014

    30,439     0.65     16,058     0.34     7,390     0.16     23,448     0.50  

December 31, 2013

 
$

26,783
 
$

0.60
 
$

14,826
 
$

0.33
 
$

3,119
 
$

0.07
 
$

17,945
 
$

0.40
 

September 30, 2013

    22,012     0.58     10,803     0.29     6,664     0.17     17,467     0.46  

June 30, 2013

    26,400     0.82     17,674     0.55     (6,682 )   (0.21 )   10,992     0.34  

March 31, 2013

    15,681     0.62     7,218     0.28     8,298     0.33     15,516     0.61  

(1)
Includes securities purchased under collateralized agreements to resell, benefit (provision) for taxes and the accretive effect of common stock issuances per share, if applicable.

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015

(in thousands, except share data)

Note 15. Recent Accounting Standards Updates

          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 adoption of ASU 2014-11 did not have a material impact on the Company's 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.

          In February 2015, the FASB issued Accounting Standards Update No. 2015-02, Consolidation Topic 810 — Amendments to the Consolidation Analysis ("ASU 2015-02"), which modifies the consolidation analysis in determining if limited partnerships or similar type entities fall under the variable interest model or voting interest model, particularly those that have fee arrangements and related party relationships. ASU 2015-02 will be effective for all public entities for interim and annual reporting periods beginning after December 15, 2015. Earlier adoption is permitted. The Company is in the process of evaluating the impact that this guidance will have on its consolidated financial statements and disclosures.

          In April 2015, the FASB issued Accounting Standards Update No. 2015-03, Interest — Imputation of Interest Subtopic 835-30 — Simplifying the Presentation of Debt Issuance Costs ("ASU 2015-03"), which changes the presentation of debt issuance costs in financial statements. Under ASU 2015-03, an entity presents such costs on the statement of assets and liabilities as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs is reported as interest expense. The new standard will be effective for all public entities for interim and annual reporting periods beginning after December 15, 2015. Earlier adoption is permitted. The Company is in the process of evaluating the impact that this guidance will have on its consolidated financial statements and disclosures.

          In May 2015, the FASB issued Accounting Standards Update No. 2015-07, Fair Value Measurement Topic 820 — Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent) ("ASU 2015-07"), which amends the presentation of investments

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015

(in thousands, except share data)

Note 15. Recent Accounting Standards Updates (Continued)

measured at net asset value, as a practical expedient for fair value, from the fair value hierarchy. Under ASU 2015-07, an entity would remove investments measured using the practical expedient from the fair value hierarchy. ASU 2015-07 will be effective for annual and interim reporting periods after December 15, 2015. The Company is in the process of evaluating the impact that this guidance will have on its consolidated financial statements and disclosures.

Note 16. Subsequent Events

          On February 4, 2016, the Company's board of directors authorized a program for the purpose of repurchasing up to $50.0 million worth of the Company's common stock. Under the repurchase program, the Company may, but is not obligated to, repurchase outstanding common stock in the open market from time to time provided that the Company complies with its code of ethics and the guidelines specified in Rule 10b-18 of the Exchange Act, including certain price, market volume and timing constraints. In addition, any repurchases will be conducted in accordance with the 1940 Act. Unless amended or extended by the Company's board of directors, the Company expects the repurchase program to be in place until the earlier of December 31, 2016 or until $50.0 million of its outstanding shares of common stock have been repurchased.

          The Company's board of directors authorized the repurchase program because it believes the sustained market volatility and uncertainty may cause the Company's common stock to be undervalued from time to time. The timing and number of shares to be repurchased will depend on a number of factors, including market conditions. There are no assurances that the Company will engage in repurchases, but if market conditions warrant, the Company now has the ability to take advantage of situations where management believes share repurchases would be advantageous to the Company and its shareholders.

          On February 22, 2016, the Company's board of directors declared a first quarter 2016 distribution of $0.34 per share payable on March 31, 2016 to holders of record as of March 17, 2016.

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Table of Contents

 

5,000,000 Shares

New Mountain Finance Corporation

Common Stock



PRELIMINARY PROSPECTUS SUPPLEMENT




Wells Fargo Securities

 

Morgan Stanley

 

Goldman, Sachs & Co.

 

Keefe, Bruyette & Woods
                    
A Stifel Company
    Baird    
Janney Montgomery Scott       Oppenheimer & Co.