Rob Hamwee - President & CEO Steve Klinsky - Chairman, NMFC & CEO, New Mountain Capital Dave Cordova - CFO.

Ryan Lynch – KBW.

Welcome to the New Mountain Finance Corporation Second Quarter 2015 Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to Rob Hamwee. Please go ahead..

Thank you and good morning everyone and welcome to New Mountain Finance Corporation’s second quarter earnings call for 2015. On the line with me here today are Steve Klinsky, Chairman of NMFC and CEO of New Mountain Capital and Dave Cordova, CFO of NMFC.

As described in our press release Dave has decided to relocate his family to the West Coast both for personal reasons and to pursue an entrepreneurial opportunity and will be leaving us later this month.

While we miss Dave and I would like to take moment here to thank him for his great efforts these past years on behalf of NMFC we do have an incredibly strong and deep finance team further supported by the full infrastructure if New Mountain Capital with our Controller, Melody Siu stepping in as Interim CFO and Adam Weinstein Former CFO of NMFC and current CFO of New Mountain overseeing the finance department we’re in great hands while we search for a permanent replacement.

Steve Klinsky is now going to make some introductory remarks before he does I would like to ask Dave to make some important statements regarding today's call..

Thank you, Rob. I would like to advice everyone that today's call and webcast are being recorded. Please note that they are the property of New Mountain Finance Corporation and that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available on our earnings press release.

I would also like to call your attention to the customary Safe Harbor disclosure and our August 5, 2015 press release and on page two of the slide presentation regarding forward-looking statements.

Today’s conference call and webcast may include forward-looking statements and projections, and we ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from those statements and projections.

We do not undertake to update our forward-looking statements or projections unless required to by law. Any references to New Mountain Capital or New Mountain are referring to New Mountain Capital, LLC or its affiliates and may be referring to our investment advisor, New Mountain Finance Advisors BDC, L.L.C. where appropriate.

To obtain copies of our latest SEC filings and to access the slide presentation that we will be referencing throughout this call, please visit our website at www.newmountainfinance.com or call us at 212-720-0300.

At this time, I’d like to turn the call over to Steve Klinsky who will give some highlights beginning on page four of the slide presentation.

Steve?.

Rob and Dave will go through the details in a moment but let me start by presenting the highlights of another strong quarter for New Mountain Finance. New Mountain Finance's adjusted net investment income for the quarter ended June 30, 2015 was $0.35 per share the high-end of our guidance of $0.33 to $0.35 per share.

This more than covers our Q2 dividend of $0.34 per share. The company’s book value on June 30 was $13.90 per share an increase of $0.01 from last quarter. We are also able to announce our regular dividend for the current quarter which will again be $0.34 per share.

The overall credit quality of the company's loan portfolio continues to be strong, there was no material negative credit migration in the quarter and no new loans were placed on nonaccrual.

Since the inception of our debt effort in 2008 we have had only two issuers with a realized default loss representing less than 0.2% of cumulative investments made to date. The company invested $120 million in gross originations in Q2 and $213 million of repayments in the quarter.

However since quarter end we have had 124 million of originations against de minimis repayments maintaining leverage at the high end of our range. In summary we’re pleased with NMFC's continued performance and progress. With that let me turn the call back over to Rob Hamwee, NMFC's CEO..

Thank you, Steve. Before diving into the details of the quarter, as always, I’d like to give everyone a brief review of NMFC and our strategy.

As outlined on page 6 of our presentation NMFC is externally managed by New Mountain Capital, a leading private equity firm with over $15 billion of assets under management and 100 staff members, including over 60 investment professionals.

Since the inception of our debt investment program in 2008, we have taken New Mountain’s approach to private equity and applied it to corporate credit with a consistent focus on defensive growth business models and extensive fundamental research within industries that are already well-known to New Mountain.

Or, more simply put, we invest in recession resistant businesses that we really know and that we really like. We believe this approach results in a differentiated and sustainable model that allows us to generate attractive risk-adjusted rates of return across changing cycles and market conditions.

To achieve our mandate, we utilize the existing New Mountain investment team as our primary underwriting resource. Turning to page 7 you can see our total return performance from our IPO in May 2011 through August 4, 2015.

In the four plus years since our IPO we have generated a compounded annual return to our investors of 12.5%, significantly above our regular dividend yield and dramatically higher than our peers in the high yield index.

Page 8 goes into a little more detail around relative performance against our peer set benchmarking against the 10 largest externally managed BDCs that have been public at least as long as we have.

We attribute the success to, one, our differentiated underwriting platform two our ability to consistently generate the vast majority of our NII from stable cash interest income and an amount that covers our dividend; three, our focus on running the business with an efficient balance sheet and always fully utilizing inexpensive appropriately structured leverage before accessing more expensive equity and four, our alignment of shareholder and management interest.

As outlined on page 10, credit spreads have been generally stable since our last call as macroeconomic uncertainty has largely offset reduced asset supply. Risks premiums still remains somewhat elevated but base rate remain historical. We continue to see significantly elevated credit spread and smaller less liquid credits.

Given the continued focus in the market on the possibility of future short term and long term rate increases we wanted to highlight NMFC’s defensive positioning relative to this potential issue. As you can see on page 11, 81% of our portfolio is invested in floating rate debt.

Therefore even in the face of a material rise in interest rates, assuming of consistently shape yield curved we would not expect to see a significant change in our book value.

Furthermore at the table of the bottom of the page demonstrate a meaningful rise in short term rate will generally increase our NII per share with the only exception being a modest rise having a slightly negative impact as the cost of the majority of our borrowings rise, while our interest income does not initially go up given the presence of LIBOR floors on our assets.

Our highest priority continues to be our focus on risk control and credit performance, which we believe over time, is the single biggest differentiator of total return in the BDC space.

If you refer to page 12, we once again lay out the cost basis of our investments with the current 06/30/15 portfolio and our cumulative investments since the inception of our credit business in 2008 and then show what has migrated down the performance ladder.

Since inception, we have made investments of nearly $3.3 billion in 158 portfolio companies, of which only four representing just $36 million of cost have migrated to non-accrual and only two representing $6 million of cost has thus far resulted in a realized default loss.

Approximately 98% of our portfolio at fair market value is currently rated 1 or 2 on our internal scale. Page 13 shows leverage multiples for all of our holdings above $7.5 million when we entered into an investment and leverage levels for the same investment as of the end of the current quarter.

Well not a perfect metric to be asset by asset trend and leverage multiple is a good snapshot of credit performance and helps provide some degree of empirical, fundamental support for our internal ratings and marks.

As you can see by looking at the two tables, leverage multiples are roughly flat or trending in the right direction with the only a few exception. The chart on Page 14 helps track the company's overall economic performance since it's IPO. At the top of the page we still have the regular quarterly dividend is being covered out of net investment income.

As you can see we continue to more than cover 100% of our cumulative regular dividend out of NII. On the bottom of the page we focus on below the line item. First we look at realized gains and realized credit and other losses.

As you can see looking at the row highlighted in green we've had success generating real economic gains every year through a combination of equity gains, portfolio company dividend and trading profit.

Conversely realized losses including default losses highlighted in orange have been significantly smaller and less frequent and show that we are not avoiding non-accruals by Southern poor credit and a material loss prior to actual default.

The net cumulative impact of this success to-date is highlighted in blue which was accumulative net realized gains of $43.7 million since our IPO. Next we look at unrealized appreciation and deprecation. This quarter small mark to market gains on underlying assets were broadly offset by similarly sized mark to market losses.

As you can see highlighted in grey we have cumulative net unrealized depreciation of $31.8 million. Finally, we combined net realized with unrealized depreciation to drive the final line on the table which in the yellow box shows a current cumulative net realized and unrealized appreciation of $12 million.

The point here is to show that on both the realized and combined, realized and unrealized basis we have consistently and methodically more than offset any credit losses for impairment with below the line gains elsewhere in the portfolio.

Our market driven volatility around unrealized appreciation and depreciation may cause the bottom line number to vary overtime true economic gains and losses will accumulate in the realized bucket where we will strive to retain a positive balance.

Moving on to portfolio activity as seen on pages 15 and 16, origination in the quarter ran at historically consistent phase totaling a $120 million, however repayments were unusually large at $213 million. This trends as we grow the quarter to-date as we have had 124 million of origination so far against the de minimis [indiscernible].

Additionally we have a fairly robust future origination pipeline and limited visible repayments. The net impact of that on a pro forma basis we continue to be fully invested and full levered with the statutory debt to equity ratio of 0.71 and an economic debt to equity ratio 0.84.

Pages 17 shows the recent ramp up of the FBA guaranteed debentures we continue to have success finding the attractively priced in structured loans to businesses [indiscernible] that fit within the mandate SBIC program because the FDA debentures are not counted for purposes of measuring our statutory leverage a key constraint against the [indiscernible] of the business, the increasing utilization of the debentures provide meaningful incremental earnings all else being equal.

In fact assuming a constant portfolio yield statutory leverage ate and share count, the SBIC program generates approximately $0.02 of incremental NII for every $25 million of debt incurred, thus the recent ongoing ramp up if it continue successfully can provide us with an important source of positive marginal earnings to offset any future potential earnings headwinds.

Page 18 and 19 show the impact of Q2 investment and disposition activity on asset type and yield respectively. Both assets origination and repayment were heavily weighted towards secondly lean investment, yield on origination were moderately higher than those on disposals and consistent with the portfolio as a whole.

The net impact is that portfolio yield overall is slightly up to 10.8% in terms of the portfolio review on page 20 the key statics as of 6/30 was very similar to 03/31.

The asset mix has shifted modestly towards non-first lean, as always we maintain our portfolio comprise with the companies in the defense growth industries like software, education, business services and healthcare that we believe will outperform in an uncertain economic environment.

Finally as illustrated on page 21 we have a broadly diversified portfolio with our largest investment in 3.5% of fair value and the top 15 investment accounting for 41% of fair value. With that I will now turn it over to our CFO Dave Cordova to discuss the financial statements and key financial metrics.

David?.

Thank you, Rob. For more details on the financial results in today's commentary please refer to the Form 10-Q that was filed last evening with the SEC. Now, I would like to turn your attention to slide 22. The portfolio had just over $1.3 billion in investment at fair value at June 30, 2015 and total assets of just under 1.4 billion.

We had total liabilities of 583.8 million of which, total statutory debt outstanding was 512.9 million, excluding 55 million of drawn SBA-guaranteed debentures. Net asset value of 808.3 million or $13.90 per share was up $0.01 from the prior quarter. As of June 30, our statutory debt-to-equity ratio was 0.63 to 1.

Taking into account unfunded commitments and investment activity during the first 35 days of the third quarter our statutory pro forma debt to equity ratio is 0.71 to 1. On Slide 23, we show the historical NAV per share and leverage ratios, which are broadly consistent with our current target leverage of between 0.7 to 0.8 to 1.

We also show the NAV adjusted for the cumulative impact of special dividends, which portrays a more accurate reflection of true economic value creation. On Slide 24, we show our quarterly income statement results. We believe that our adjusted NII, is the most appropriate measure of our quarterly performance.

This slide highlights that while realizations and unrealized appreciation/depreciation can be volatile below the line, we continue to generate stable net investment income above the line.

Focusing on the quarter ended June 30, 2015, we earned total investment income of approximately $37.9 million up 4% from the prior quarter and primarily attributable to prepayment fees received on five investments. Total net expenses of $17.7 million increased $0.7 million from the prior quarter primarily driven by higher G&A expense.

As mentioned on prior calls due to the merger of our Wells Fargo credit facilities and consistent with the methodology since IPO the investment advisory will waive management fees on the leverage associated with those assets that share the same underlying yield characteristics with investment leveraged under the legacy SLF credit facility.

This results in an effective management fee of 1.4% for the second quarter which is broadly in line with the prior quarters.

It is expected based on our current portfolio construct that the 2015 effective management fee will be broadly consistent with the prior year and it is important to note that the investment advisor cannot recoup management fees previously way.

In total this results in second quarter adjusted NII of 20.2 million or $0.35 per weighted average share which is at the high-end of our guidance provided on May 6, 2015 of $0.33 to $0.35 per share and more than covers our Q2 regular dividend of $0.34 per share.

In total for the quarter ended June 30, 2015 we had an increase in net assets resulting from operations of 22.3 million.

As slide 25 demonstrates our total investment income is predominantly paid in cash though the amount of pre-payment fees vary from quarter to quarter based on repayment our historical earnings has consistent shown some material pre-payment fee income.

Therefore we showed total interest income as a percentage of total investment income both with and without pre-payment fees which is one measurement of the stability and predictability of our investment income.

Turning to slide 26 as briefly discussed earlier our adjusted NII for the second quarter more than covered our Q2 dividend, given our belief that our Q3, 2015 NII will fall in the previously declared expected range of $0.33 to $0.35 per share our Board of Directors has declared Q3, 2015 dividend of $0.34 per share in line with the past 13 quarters.

The Q3, 2015 quarterly dividend of $0.34 per share will be paid on September 30, 2015 to holders of record on September 16, 2015.

Finally, on slide 27 we highlight our various financing sources, during the quarter we added [indiscernible] bank trust as an additional lender to our NMFC credit facility with a $15 million commitment bringing the total commitments under the facility to $95 million.

Taking into account SBA-guaranteed debentures related to our SBIC license, we now have $865 million of total pro forma borrowing capacity.

As a reminder, our Wells Fargo credit facility covenants are generally tied to the operating performance of the underlying businesses that we lend to rather than the marks of our investments at any given time and we have no maturities until 2019. At this time, I would like to turn the call back over to Rob..

Thanks, Dave. We continue to remain our intention to consistently pay at $0.34 per share on a quarterly basis for future quarters so long as the adjusted NII covers the dividend in line with our current expectations. In closing I would just like to say that we continue to be extremely pleased with our performance to-date.

Most importantly from a credit perspective our portfolio continues to be very healthy. Once again we like to thank you for your support and interest and at this point turns things back to the operator to begin Q&A.

Operator?.

[Operator Instructions]. And we have a question from Jonathan Bock from Wells Fargo. Please go ahead..

Shane [ph] for Jon Bock. Just in regards to your outlook of calming repayments if we look at your book there is fair amount of stuff that’s well marked high-yielding and originated in the 2012 - 2013 vintages.

So [indiscernible] feel there do you see the market coming down or just these are names that are going to stick with you or how do you look at that?.

I mean we do look at it, it's also a little hard to tell on a name by name basis because repayments are driven by a lot of different factors but I think on balance our expectation continues to be that over the course of any given year we’re going to be kind of consistent with historical trends roughly 30% repayment rate.

We obviously had a big spike last quarter but this quarter is looking to be very low in terms of repayment so they tend to be a little bit of idiosyncratic and less a function in our case at least in the last six months the function of the market than just specific M&A events other things at the underlying portfolio companies.

So I think the short answer is we would expect repayment the next 12 to 24 months to be consistent with the pace of repayments over the last 3 or 4 years on a percentage basis..

And just one specific on we’re seeing SRA looking like an asset pending IPO, was that in your anticipated pipeline and do you guys have call protection there?.

That’s an old loan so the call protection that we did have has run-off it's in sort of our medium term pipeline, it's not something that we expect to see in Q3 but when we look ahead to Q4 that’s when we would get to expect to get repaid there..

[Operator Instructions]. We have a question from Ryan Lynch from KBW. Please go ahead..

First one is related to the SBIC, you guys have a $150 million of capacity about 104 million drawn currently quarter to date in the third quarter so it's about 45 million with capacity on the first license.

So as we look forward, can you just walk us through what if any time constraints there are for you guys to obtain a second license?.

Yes I mean there are material time constraints you know we would expect I don’t want obviously prejudge anything but our hope is that we will be approved for [indiscernible] license and I think it's reasonable to accept that second license to come into play at some point in 2016 probably middle end of the year..

And then you guys have been pretty proactive about working through troubled investments in the past, you guys have entered into a few restructurings over the past year. Can you just give us an update on how your investments at [indiscernible] and UniTek are performing now with their new capital structures in place..

I mean I think so far both are pretty much consistent with what we have laid out over the last few quarters. I think we’re generally encouraged by that early post restructuring operating results at those companies.

I think the mark still they will fairly reflect both appropriate balance between risk sand opportunities but we’re feeling generally good about -- both are performing in-line with the expectations we had as of the restructuring in the last few quarters..

And our next question is from Robert Davis from Round Table Wealth Management [ph]. Please go ahead..

Quick question, I am recognizing it's rather small part of the portfolio but with regard to the energy exposure that I think is about 8% and what are you seeing with regard to those loans and their performance going forward..

Yes I mean it's a good question, it is something we do spend a fair bit of time on.

I think it's important to point out and I think it was a few quarters ago we outlined, this was the four major investments that again none of them are traditional EMP, so really the two that are materially impacted by the rise and fall of crude prices which is Permian Tank In Sierra Hamilton [ph] definitely being impacted they both are niche service providers to the domestic energy industry and so they both have capital structures that we believe allows them even at the current level of activity to continue to meet their obligations to their creditor and [indiscernible] both cases and they have with decent liquidity and free cash flow.

So we’re monitoring them closely but we don’t think there are payment issues based on our modeling lease until for the foreseeable future but we’re modeling and closely we have marks in both down maturely as it's reflected in our book value..

And second question, regarding the prepayments you said it was unusually large I think were your words.

Was there any common denominator across them on why there was such a surge of repayments?.

It's really very idiosyncratic, it was a couple of M&A event that will happen to close in the same quarter, it was one opportunistic refinancing but no there is no common theme it was really just more happened -- even the quarter they are concentrated in the second half of the quarter it was really kind of strange but nothing special that occurred or no common theme..

And last question regarding new originations, are you able to speak in terms of where those loans are pricing and are you doing anything different or marginally different for these new loans regarding floors or any other structure?.

So in terms of where they are pricing, we have got some data on page 16 for the loans it's a pretty good sample size right, how active we have been quarter to date and you can see I mean we’re still getting yields that are consistent in the portfolio so we’re feeling good about you know the market.

I think the market is broadly stable in terms of yields and spreads so when we find businesses that we like and that we know and we can structure a loan that makes sense.

We’re able to achieve historically consistent yields and I think the data bears that out and then in terms of any real changes not really, the market has again been pretty, it hasn’t don’t particularly more lender friendly or particularly less lender friendly in the last few quarters things are broadly consisted in terms of floors, covenants and other structural elements beyond pricing..

And we a follow-up question from Ryan Lynch from KBW. Please go ahead..

Yes I just had one follow-up on energy, given the current disruption in the energy market and with your history of making some investments in that industry.

Could we expect you guys to take advantage of the disruption and make any investments in the energy market for now, are you guys more focused on just cost trading on the [indiscernible] energy portfolio and working through investments?.

We’re going to remain opportunistic as I think you know we did some quarters ago and turn to joint venture arrangement with a very talented group of energy experts in Texas who are real geologists and engineers in the space and we are looking at a lot of things.

We’re setting the bar very high because we’re not taking the view of what is going to 80 or 30.

So you know I think just to give people some context that the sort of bar we have set is the ability to use the forward curves to hedge our risk to the point where we can get our money back with a decent return irrespective of energy prices and then there is upside beyond that if energy prices go up.

We have not yet seen the market pricing opportunities to that level but it doesn’t mean it's not going to come as you get into hedges rolling off if you get into borrowing base redeterminations etcetera, so we are being patient, we’re looking at lot of things, we’re working with again a group that we think is exceptionally well positioned for middle market, lower middle market opportunities that aren't going to be seen in New York and we’re willing to pull the trigger if and when we find something that we believe has the right criteria..

And ladies and gentlemen this would conclude our question and answer session. I would like to turn the conference back over to Rob Hamwee for any closing remarks..

Well thanks everyone for your time and interest and we look forward to speaking with everyone next quarter and obviously in the interim..