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

Qualifying Assets

        Under the 1940 Act, a BDC may not acquire any asset other than assets of the type listed in Section 55(a) of the 1940 Act, which are referred to as qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70.0% of the BDC's total assets. Since NMFC and AIV Holdings have no assets other than their ownership of units of the Operating Company and have no material long-term liabilities, NMFC and AIV Holdings look to the Operating Company's assets for purposes of satisfying these requirements. The principal categories of qualifying assets relevant to our business are any of the following:

1)

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



(a)

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



(b)

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



(c)

satisfies any of the following:



(i)

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



(ii)

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



(iii)

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



(iv)

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



2)

Securities of any eligible portfolio company that the Operating Company controls.

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3)

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



4)

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

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5)

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



6)

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

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

        As of December 31, 2012, 7.9%2013, 3.7% of the Operating Company's total assets were not qualifying assets.

Managerial Assistance to Portfolio Companies

        In order to count portfolio securities as qualifying assets for the purpose of the 70.0% test, the Operating Company must either control the issuer of the securities or must offer to make available to the issuer of the securities (other than small and solvent companies described above) significant managerial assistance, except that, where the Operating Company purchases such securities in conjunction with one or more other persons acting together, one of the other persons in the group may make available such managerial assistance. Making available managerial assistance means, among other things, any arrangement whereby the BDC offers to provide, and, if accepted, does so provide, significant guidance and counsel concerning the management, operations or business objectives and policies of a portfolio company. The Administrator or its affiliate provides such managerial assistance on the Operating Company's behalf to portfolio companies that request this assistance.

Temporary Investments

        Pending investments in other types of qualifying assets, the Operating Company's investments may consist of cash, cash equivalents, U.S. government securities or high-quality debt securities maturing in one year or less from the time of investment (collectively, as "temporary investments"), so that 70.0% of the Operating Company's assets are qualifying assets. Typically, the Operating Company will invest in U.S. Treasury bills or in repurchase agreements, provided that such agreements are fully collateralized by cash or securities issued by the U.S. government or its agencies. A repurchase agreement involves the purchase by an investor, such as the Operating Company, of a specified security and the simultaneous agreement by the seller to repurchase it at an agreed-upon future date and at a price that is greater than the purchase price by an amount that reflects an agreed-upon interest rate. There is no percentage restriction on the proportion of the Operating Company's assets that may be invested in such repurchase agreements. However, if more than 25.0% of the Operating Company's total assets constitute repurchase agreements from a single counterparty, NMFC and AIV Holdings would not meet the Diversification Tests in order to qualify as a RIC for federal income tax purposes. Thus, the Operating Company does not intend to enter into repurchase agreements with a single counterparty in

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excess of this limit. The Investment Adviser will monitor the creditworthiness of the counterparties with which the Operating Company enters into repurchase agreement transactions.

Senior Securities

        The Operating Company is permitted, under specified conditions, to issue multiple classes of debt and one class of membership units senior to its common membership units if the Operating Company's asset coverage, as defined in the 1940 Act, is at least equal to 200.0% immediately after each such issuance. In addition, while any senior securities remain outstanding (other than any indebtedness issued in consideration of a privately arranged loan, such as any indebtedness outstanding under the Operating Company's Amended and Restated Loan and Security Agreement with Wells Fargo Bank, National Association, dated May 19, 2011, as amended on December 18, 2012 (the "Holdings Credit

rules, by it and that are engaged in the same or similar or related trades or businesses or of certain "qualified publicly traded partnerships". Failure to meet these requirements may result in the Operating Company having to dispose of certain investments quickly in order to prevent the




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loss of NMFC's and AIV Holdings' RIC status. Because most of the Operating Company's investments are intended to be in private companies, and therefore may be relatively illiquid, any such dispositions could be made at disadvantageous prices and could result in substantial losses.

        Although there is no authority directly applicable to NMFC and AIV Holdings and thus the matter is not free from doubt, it is expected that NMFC and AIV Holdings is treated as if they directly invested in their pro rata share of the Operating Company's assets for purposes of satisfying the asset diversification requirement. However, there can be no assurance that the IRS will not successfully assert that NMFC and AIV Holdings do not meet the asset diversification requirement because they are unable to look to the Operating Company's assets for purpose of that requirement. In that case, NMFC and AIV Holdings would fail to qualify as RICs and thus become subject to corporate-levelcorporate- level federal income tax (and any applicable state and local taxes).

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

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

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

NMFC and AIV Holdings may not be able to pay you distributions on their common stock, their distributions to you may not grow over time and a portion of their distributions to you may be a return of capital for federal income tax purposes.

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




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        In addition, because NMFC and AIV Holdings are holding companies, NMFC and AIV Holdings are only able to pay distributions on their common stock from distributions received from the




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Operating Company. The Operating Company intends to make distributions to its members that will be sufficient to enable NMFC and AIV Holdings to pay quarterly distributions to their stockholders and to obtain and maintain their status as RICs. However, there can be no assurances that the Operating Company will make distributions to its members in the future. Accordingly, NMFC and AIV Holdings cannot assure you that they will pay distributions to you in the future.

NMFC and AIV Holdings may have difficulty paying their required distributions if the Operating Company recognizes taxable income before or without receiving cash representing such income.

        For federal income tax purposes, NMFC and AIV Holdings include in their taxable income their allocable share of certain amounts that the Operating Company has not yet received in cash, such as original issue discount or accruals on a contingent payment debt instrument, which may occur if the Operating Company receives warrants in connection with the origination of a loan or possibly in other circumstances or contracted PIK interest, which generally represents contractual interest added to the loan balance and due at the end of the loan term. NMFC and AIV Holdings allocable share of such original issue discount and PIK interest are included in NMFC and AIV Holdings taxable income before the Operating Company receives any corresponding cash payments. NMFC and AIV Holdings also may be required to include in their taxable income their allocable share of certain other amounts that the Operating Company will not receive in cash.

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

        It is expected that, if the Operating Company does not make cash distributions to AIV Holdings in amounts sufficient for AIV Holdings to meet the annual distribution requirement necessary for AIV Holdings to qualify as a RIC, Guardian AIV would consent to be treated as if it received distributions from AIV Holdings sufficient to satisfy the annual distribution requirement necessary for AIV Holdings to qualify as a RIC. This would result in phantom (i.e. non-cash) taxable income to Guardian AIV.

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

        Changes in the laws or regulations or the interpretations of the laws and regulations that govern BDCs, RICs or non-depository commercial lenders could significantly affect our operations and our cost of doing business. The Companies and the Operating Company's portfolio companies are subject to federal, state and local laws and regulations. New legislation may be enacted or new interpretations, rulings or regulations could be adopted, any of which could materially adversely affect our business, including with respect to the types of investments the Operating Company is permitted to make, and your interest as a stockholder potentially with retroactive effect. In addition, any changes to the laws




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and regulations governing the Operating Company's operations relating to permitted investments may cause the Operating Company to alter its investment strategy in order to avail itself of new or different




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opportunities. These changes could result in material changes to the strategies and plans set forth in this prospectus and may result in the Operating Company's investment focus shifting from the areas of expertise of the Investment Adviser to other types of investments in which the Investment Adviser may have less expertise or little or no experience. Any such changes, if they occur, could have a material adverse effect on our business, results of operations and financial condition and, consequently, the value of your investment in us.

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

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

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

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

Pending legislation may allow the Operating Company to incur additional leverage.

        As a BDC, under the 1940 Act the Operating Company generally is not permitted to incur indebtedness unless immediately after such borrowing the Operating Company has an asset coverage for total borrowings of at least 200.0% (i.e., the amount of debt may not exceed 50.0% of the value of the Operating Company's total assets or the Operating Company may borrow an amount equal to




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100.0% of net assets). Recent legislation introduced in the U.S. House of Representatives, if passed, would modify this section of the 1940 Act and increase the amount of debt that BDCs may incur by modifying the percentage from 200.0% to 150.0%. As a result, the Operating Company may be able to incur additional indebtedness in the future and therefore your risk of an investment in NMFC's and AIV Holdings' common stock may increase.

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

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




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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 NMFC and the market price of NMFC's common stock.

        The Companies are subject to the Sarbanes-Oxley Act, and the related rules and regulations promulgated by the Securities and Exchange Commission. Under current Securities and Exchange Commission rules beginning with our fiscal year ending December 31, 2012, the Operating Company's management is required to report on their internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act, and rules and regulations of the Securities and Exchange Commission thereunder. The Companies are required to review on an annual basis their respective internal control over financial reporting, and on a quarterly and annual basis to evaluate and disclose changes in our respective internal control over financial reporting. As a result, the Companies mayexpect to incur significant additional expenses in the near term, which may negatively impact the Operating Company's financial performance and the Operating Company's ability to make distributions to its members and, consequently, NMFC's and AIV Holdings' ability to make distributions to their 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 neither of the Companies may be 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 the Companies are unable to maintain or achieve compliance with Section 404 of the Sarbanes-Oxley Act and related rules, the Operating Company and, consequently, the market price of NMFC and AIV Holdings common stock may be adversely affected.

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

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




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

RISKS RELATING TO THE OPERATING COMPANY'S INVESTMENTS

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

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

•

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






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



•

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



•

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



•

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



•

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

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

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

        The Operating Company invests primarily in privately held companies. There is generally little public information about these companies, and, as a result, the Operating Company must rely on the ability of the Investment Adviser to obtain adequate information to evaluate the potential returns from, and risks related to, investing in these companies. If the Operating Company is unable to uncover all material information about these companies, it may not make a fully informed investment decision, and it may lose money on its investments. Also, privately held companies frequently have less diverse




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product lines and smaller market presence than larger competitors. They are, thus, generally more vulnerable to economic downturns and may experience substantial variations in operating results. These factors could adversely affect the Operating Company's investment returns.

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

        The Operating Company's portfolio may be concentrated in a limited number of industries. For example, as of December 31, 2013, the Operating Company's investments in the software, the education, the business services, and the distribution & logistics industries represented approximately 22.3%, 21.1%, 13.1% and 10.8%, respectively, of the fair value of the Operating Company's portfolio. A downturn in any particular industry in which the Operating Company is invested could significantly impact the portfolio companies operating in that industry, and accordingly, the aggregate returns that the Operating Company realizes from its investment in such portfolio companies.

        Specifically, companies in the software industry often have narrow product lines and small market shares. Because of rapid technological change, the average selling prices of products and some services provided by software companies have historically decreased over their productive lives. As a result, the average selling prices of products and services offered by software companies in which we invest may decrease over time. In addition, companies in the education industry are required to comply with extensive regulatory and accreditation requirements, which could be subject to change by Congress, and which can limit their access to federal aid or similar loan programs, or otherwise increase their compliance costs. Likewise, 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. Finally, companies in the distribution & logistics industry are subject to complex and stringent aviation, transportation, environmental, security, labor, employment and other governmental laws and regulations, both in the U.S. and in the other countries. In addition, companies in the distribution & logistics industry may be impacted by global climate change, including severe weather or other natural disasters, changes in regulation in response to climate change and changing prices for energy commodities. If an industry in which the Operating Company has significant investments suffers from adverse business or economic conditions, as these industries have to varying degrees, a material portion of its investment portfolio could be affected adversely, which, in turn, could adversely affect the Operating Company's financial position and results of operations.

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

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




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

        From time to time, the Operating Company may invest in other types of investments which are not its primary focus, including investments in the securities and obligations of distressed and bankrupt issuers, including debt obligations that are in covenant or payment default. Such investments generally




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are considered speculative. The repayment of defaulted obligations is subject to significant uncertainties. Defaulted obligations might be repaid only after lengthy workout or bankruptcy proceedings, during which the issuer of those obligations might not make any interest or other payments.

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

        The Operating Company invests, and will continue to invest, in companies whose securities are not publicly traded and whose securities will be subject to legal and other restrictions on resale or will otherwise be less liquid than publicly traded securities. The illiquidity of these investments may make it difficult for the Operating Company to sell these investments when desired. In addition, if the Operating Company is required or otherwise chooses to liquidate all or a portion of its portfolio quickly, it may realize significantly less than the value at which it had previously recorded these investments. The Operating Company's investments are usually subject to contractual or legal restrictions on resale or are otherwise illiquid because there is usually no established trading market for such investments. Because most of the Operating Company's investments are illiquid, the Operating Company may be unable to dispose of them in which case NMFC or AIV Holdings could fail to qualify as a RIC and/or BDC, or the Operating Company may be unable to do so at a favorable price, and, as a result, the Operating Company NMFC and AIV HoldingsNMFC may suffer losses.

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

        As a BDC, the Operating Company is required to carry its investments at market value or, if no market value is ascertainable, at fair value as determined in good faith by its board of directors. Because NMFC and AIV Holdings areis a holding companiescompany with no direct operations of theirits own, and theirits only business and sole asset are theiris its ownership of common membership units of the Operating Company, NMFC's and AIV Holdings' net asset value will be based on the Operating Company's valuation of its investments and their respectiveits percentage interest in the Operating Company. As part of the valuation process, the Operating Company may take into account the following types of factors, if relevant, in determining the fair value of its investments:

•

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



•

the enterprise value of a portfolio company;



•

the nature and realizable value of any collateral;



•

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



•

the markets in which the portfolio company does business; and



•

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

        When an external event such as a purchase transaction, public offering or subsequent sale occurs, the Operating Company will use the pricing indicated by the external event to corroborate its valuation.




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The Operating Company will record decreases in the market values or fair values of its investments as unrealized depreciation. Declines in prices and liquidity in the corporate debt markets may result in significant net unrealized depreciation in its portfolio. The effect of all of these factors on the Operating Company's portfolio may reduce the Operating Company's net asset value, and, indirectly, NMFC's and AIV Holdings' net asset value based on their respective percentage interest in the Operating Company, by increasing net unrealized depreciation in the Operating Company's portfolio. Depending on market conditions, the Operating Company could incur substantial realized losses and may suffer additional unrealized losses in future periods, which could have a material adverse effect on its business, financial condition, results of operations and cash flows.




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

        Following an initial investment in a portfolio company, the Operating Company may make additional investments in that portfolio company as "follow-on" investments, in order to (i) increase or maintain in whole or in part its equity ownership percentage, (ii) exercise warrants, options or convertible securities that were acquired in the original or subsequent financing or (iii) attempt to preserve or enhance the value of its investment. The Operating Company may elect not to make follow-on investments or may otherwise lack sufficient funds to make these investments. The Operating Company has the discretion to make follow-on investments, subject to the availability of capital resources. If the Operating Company fails to make follow-on investments, the continued viability of a portfolio company and its investment may, in some circumstances, be jeopardized and we could miss an opportunity for the Operating Company to increase its participation in a successful operation. Even if the Operating Company has sufficient capital to make a desired follow-on investment, it may elect not to make a follow-on investment because it may not want to increase its concentration of risk, either because it prefers other opportunities or because it is subject to BDC requirements that would prevent such follow-on investments or such follow-on investments would adversely impact NMFC's and AIV Holdings' ability to maintain their respectiveits RIC status.

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

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

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

        Most of the Operating Company's investments will involve private securities. In connection with the disposition of an investment in private securities, the Operating Company may be required to make representations about the business and financial affairs of the portfolio company typical of those made




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in connection with the sale of a business. The Operating Company may also be required to indemnify the purchasers of such investment to the extent that any such representations turn out to be inaccurate or with respect to certain potential liabilities. These arrangements may result in contingent liabilities that ultimately yield funding obligations that must be satisfied through the Operating Company's return of certain distributions previously made to it.

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

        Even though the Operating Company may have structured certain of its investments as senior loans, if one of its portfolio companies were to go bankrupt, depending on the facts and circumstances,




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including the extent to which the Operating Company actually provided managerial assistance to that portfolio company, a bankruptcy court might re-characterize its debt investment and subordinate all or a portion of the Operating Company's claim to that of other creditors. The Operating Company may also be subject to lender liability claims for actions taken by it with respect to a borrower's business or instances where it exercises control over the borrower. It is possible that the Operating Company could become subject to a lender's liability claim, including as a result of actions taken in rendering significant managerial assistance.

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

        Certain loans to portfolio companies will be secured on a second priority basis by the same collateral securing senior secured debt of such companies. The first priority liens on the collateral will secure the portfolio company's obligations under any outstanding senior debt and may secure certain other future debt that may be permitted to be incurred by the portfolio company under the agreements governing the loans. The holders of obligations secured by the first priority liens on the collateral will generally control the liquidation of and be entitled to receive proceeds from any realization of the collateral to repay their obligations in full before the Operating Company. In addition, the value of the collateral in the event of liquidation will depend on market and economic conditions, the availability of buyers and other factors. There can be no assurance that the proceeds, if any, from the sale or sales of all of the collateral would be sufficient to satisfy the loan obligations secured by the second priority liens after payment in full of all obligations secured by the first priority liens on the collateral. If such proceeds are not sufficient to repay amounts outstanding under the loan obligations secured by the second priority liens, then the Operating Company, to the extent not repaid from the proceeds of the sale of the collateral, will only have an unsecured claim against the portfolio company's remaining assets, if any.

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




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The Operating Company generally does not control its portfolio companies.

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




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as readily as it would otherwise like to or at favorable prices which could decrease the value of its investments.

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

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

        In addition, levels of the U.S. government's spending in future periods are very difficult to predict and subject to significant risks. Significant budgetary constraints may result in further reductions to projected spending levels. In particular, U.S. government expenditures are subject to the potential for automatic reductions, generally referred to as "sequestration". Sequestration which is in the process of being implemented, is expected tomay result in significant additional reductions to spending by the U.S. government on both existing and new contracts as well as disruption of ongoing programs. Also, we expect that budgetary constraints and ongoing concerns regarding the U.S. national debt will continue to place downward pressure on U.S. government spending levels. Due to these and other factors, overall U.S. government spending could decline, which could result in significant reductions to the revenues, cash flow and profits of the Operating Company's portfolio companies.

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

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

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

        A portfolio company's failure to satisfy financial or operating covenants imposed by the Operating Company or other lenders could lead to defaults and, potentially, termination of its loans and foreclosure on its secured assets, which could trigger cross-defaults under other agreements and




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jeopardize a portfolio company's ability to meet its obligations under the debt or equity securities that the Operating Company holds.

        The Operating Company may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms, which may include the waiver of certain financial covenants, with a defaulting portfolio company. In addition, lenders in certain cases can be subject to lender liability claims for actions taken by them when they become too involved in the borrower's business or exercise




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control over a borrower. It is possible that the Operating Company could become subject to a lender's liability claim, including as a result of actions taken if it renders significant managerial assistance to the borrower. Furthermore, if one of the Operating Company's portfolio companies were to file for bankruptcy protection, even though the Operating Company may have structured its investment as senior secured debt, depending on the facts and circumstances, including the extent to which the Operating Company provided managerial assistance to that portfolio company, a bankruptcy court might re-characterize its debt holding and subordinate all or a portion of the Operating Company's claim to claims of other creditors.

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

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

The Operating Company may not realize gains from its equity investments.

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

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

        Historically, the Operating Company's investment strategy consisted primarily of secondary market purchases in debt securities. The Operating Company recently adjusted its investment strategy to also include significantly more primary originations. While loans the Operating Company originates and loans itsit purchases in the secondary market face many of the same risks associated with the financing of leveraged companies, the Operating Company may be exposed to different risks depending on specific




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business considerations for secondary market purchases or origination of loans. Primary originations require substantially more time and resources for sourcing, diligencing and monitoring investments, which may consume a significant portion of the Operating Company's resources. Further, the valuation process for primary originations may be more cumbersome and uncertain due to the lack of comparable market quotes for the investment and would likely require more frequent review by a third-party valuation firm. This may result in greater costs for the Operating Company and fluctuations in the quarterly valuations of investments that are primary originations. As a result, this strategy may result in different returns from these investments than the types of returns itthe Operating Company has historically experienced from secondary market purchases of debt securities.




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

        The 1940 Act generally requires that 70.0% of the Operating Company's investments be in issuers each of whom is organized under the laws of, and has its principal place of business in, any state of the U.S.,United States, the District of Columbia, Puerto Rico, the Virgin Islands or any other possession of the U.S.United States. The Operating Company's investment strategy does not presently contemplate significant investments in securities of non-U.S. companies. However, the Operating Company may desire to make such investments in the future, to the extent that such transactions and investments are permitted under the 1940 Act. The Operating Company expects that these investments would focus on the same types of investments that it makes in U.S. middle-marketmiddle market companies and accordingly would be complementary to its overall strategy and enhance the diversity of its holdings. Investing in foreign companies could expose the Operating Company to additional risks not typically associated with investing in U.S. companies. These risks include changes in exchange control regulations, political and social instability, expropriation, imposition of foreign taxes, less liquid markets and less available information than is generally the case in the U.S.,United States, 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. The Operating Company may employ hedging techniques to minimize these risks, but it can offer no assurance that it will, in fact, hedge currency risk, or that if it does, such strategies will be effective.

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

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




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could create, such transactions may expose the Operating Company and, indirectly, NMFC and AIV Holdings to risk of loss.

        While the Operating Company may enter into these types of transactions to seek to reduce currency exchange rate and interest rate risks, unanticipated changes in currency exchange rates or interest rates could result in poorer overall investment performance than if it had not engaged in any such hedging transactions. In addition, the degree of correlation between price movements of the instruments used in a hedging strategy and price movements in the portfolio positions being hedged could vary. Moreover, for a variety of reasons, the Operating Company might not seek to establish a perfect correlation between the hedging instruments and the portfolio holdings being hedged. Any imperfect correlation could prevent the Operating Company from achieving the intended hedge and




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expose the Operating Company NMFC and AIV HoldingsNMFC to risk of loss. In addition, it might not be possible to hedge fully or perfectly against currency fluctuations affecting the value of securities denominated in non-U.S. currencies because the value of those securities would likely fluctuate as a result of factors not related to currency fluctuations.

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

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

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

NMFC and AIV Holdings are holding companies with no direct operations of their own, and will depend on distributions from the Operating Company to meet their ongoing obligations.

        NMFC and AIV Holdings are holding companies with no direct operations of their own, and their only business and sole asset are their respective direct ownership of common membership units of the Operating Company. As a result, all investment decisions relating to the Operating Company's portfolio will be made by the Investment Adviser under the supervision of the Operating Company's board of directors, which may be different from NMFC's or AIV Holdings' board of directors. Although the Operating Company's Limited Liability Company Operating Agreement provides that in accordance with the 1940 Act and to the extent required thereby, NMFC and AIV Holdings will "pass through" their respective votes on all matters subject to a member vote, including with respect to the election of the Operating Company's directors, NMFC and AIV Holdings will not, and indirectly, the stockholders of NMFC and AIV Holdings will not, have any control over the Operating Company's day-to-day operations and investment decisions.




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        NMFC and AIV Holdings also do not have any independent ability to generate revenue, and their only sources of cash flow from operations are distributions from the Operating Company. Consequently, NMFC and AIV Holdings rely on the Operating Company to cover the expenses of their day-to-day business, including expenses incident to NMFC's status as a public company. Pursuant to the Administration Agreement, the Operating Company will reimburse the Administrator for NMFC's and AIV Holdings' allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations to NMFC and AIV Holdings under the Administration Agreement. However, if the Operating Company cannot or does not make the payments required pursuant to the Administration Agreement, NMFC and AIV Holdings may be unable to cover these expenses.

        In addition, since NMFC and AIV Holdings are holding companies, their ability to pay distributions to their stockholders depends on the prior distribution from the Operating Company of cash in an amount sufficient to pay quarterly distributions and to obtain and maintain their statuses as RICs. The distribution of cash flows by the Operating Company to NMFC and AIV Holdings is subject to statutory restrictions under the Delaware Limited Liability Company Act, the 1940 Act and contractual restrictions under the Credit Facilities or any other debt financing facility that may limit the Operating Company's or NMF SLF's ability to make distributions. In addition, any distributions and payments of fees or costs will be based upon the Operating Company's financial performance. Any distributions of cash will be made on a pro rata basis to all of the Operating Company's members, including NMFC and Guardian AIV, indirectly, through AIV Holdings, in accordance with each unit holders' respective percentage interest.

New Mountain Capital or its affiliates may have interests that differ from your interests as stockholders of NMFC.

        Guardian AIV indirectly owns, through AIV Holdings, approximately 40.0%5.6% of the common membership units of the Operating Company as of December 31, 2012.2013. New Mountain Capital's interests, the interests of the partners in Guardian AIV and the interests of those persons affiliated with New Mountain Capital that participated in the Concurrent Private Placement may differ from, or conflict with, your interests as stockholders of NMFC. For example, conflicts arising under the Registration Rights Agreement will be resolved as set forth therein. Under the Registration Rights




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Agreement, AIV Holdings and the Operating Company's Chairman and a related entity will have priority over NMFC or any other NMFC stockholder when selling any shares of NMFC common stock pursuant to their exercise of registration rights under that agreement.

        Circumstances may arise in the future when the interests of the Operating Company's members conflict with the interests of NMFC's stockholders. The Operating Company's board of directors and the board of directors of NMFC are comprised of the same members. However, the Operating Company's board of directors owes fiduciary duties to its members that could conflict with the fiduciary duties NMFC's board of directors owes to its stockholders.

Any future exchange by AIV Holdings of units of the Operating Company for shares of NMFC's common stock would significantly dilute the voting power of NMFC's current stockholders with respect to the election of NMFC directors or other matters that require the approval of NMFC stockholders only. In addition, the interests of the partners of Guardian AIV following such exchange by AIV Holdings may be adverse to the interests of NMFC's stockholders and could limit your ability to influence the outcome of key transactions, including any change of control.

        Pursuant to the terms of the Operating Company's Limited Liability Company Operating Agreement, AIV Holdings will have the right to exchange its units for shares of NMFC's common stock on a one-for-one basis at anytime. Guardian AIV indirectly owns, through AIV Holdings, approximately 40.0% of the units of the Operating Company as of December 31, 2012. If AIV Holdings exercised its exchange rights with respect to a significant number of units, the voting power of NMFC's stockholders would be significantly diluted. As a result, Guardian AIV, indirectly through AIV Holdings, would retain significant influence over decisions that require the approval of NMFC's stockholders exclusively (such as the election of its directors and the approval of mergers or other significant corporate transactions) regardless of whether or not NMFC's other stockholders believe that such decisions are in NMFC's own best interests. If AIV Holdings exercised its exchange rights in full, Guardian AIV, indirectly through AIV Holdings would own approximately 40.0% of all outstanding shares of NMFC's common stock as of December 31, 2012. However, these entities would not exercise voting control over their shares of common stock because the right to vote those shares would be passed through to the partners of these entities. These investors, along with those persons affiliated with New Mountain Capital that participated in the Concurrent Private Placement, may have interests that differ from your interests, and they may vote in a way with which you disagree and that may be adverse to your interests as stockholders of NMFC. The concentration of ownership of NMFC's common stock following the exercise of AIV Holdings' exchange right may also have the effect of delaying, preventing or deterring a change of control of NMFC, could deprive NMFC's stockholders of an opportunity to receive a premium for their common stock as part of a sale of NMFC and may adversely affect the market price of NMFC's common stock.

RISKS RELATING TO NEW MOUNTAIN FINANCE CORPORATION'SNMFC's COMMON STOCK

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

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

•

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



•

investor demand for shares of NMFC's common stock;




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•

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



•

the inability to raise equity capital;



•

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



•

fluctuations in interest rates;



•

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



•

operating performance of companies comparable to the Operating Company;



•

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



•

NMFC's or the Operating Company's loss of status as or ability to operate as BDCs;



•

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



•

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



•

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



•

general economic conditions, trends and other external factors;



•

departures of key personnel; or



•

loss of a major source of funding.

        In addition, NMFC is required to continue to meet certain listing standards in order for its common stock to remain listed on the New York Stock Exchange ("NYSE"). On January 2, 2013, the Companies received a letter of public reprimand from the NYSE indicating that NMFC had failed to comply with Section 204.12 of the NYSE Listed Company Manual requiring ten days prior notice of a record date, in connection with the announcement of a special dividend distribution. WhileIf NMFC believes that it is not currently at risk of beingwere to be delisted by the NYSE, if it was to be delisted, the liquidity of NMFC's common stock would be materially impaired.

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

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

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

        Sales of substantial amounts of NMFC's common stock, including by itself directly, AIV Holdings, if it exercises its right to exchange its common membership units of the Operating Company for shares of NMFC's common stock on a one-for-one basis, or New Mountain Guardian Partners, L.P. or its transferees or the perception that such sales could occur, could materially adversely affect the prevailing market prices for NMFC's common stock. AIV Holdings currently intends to sell its interest in the Operating Company's business as soon as practicable from time to time, depending on market conditions and any applicable contractual or legal restrictions. AIV Holdings, and the Investment Adviser, if applicable with respect to any common membership units received as payment of the incentive fee, have the right, subject to certain conditions, to require NMFC to register under the




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stock held by them or that may be issued to and held by them upon exercise by AIV Holdings of the exchange right.

        In addition, NMFC has granted AIV Holdings, the Operating Company's Chairman, an entity related to the Operating Company's Chairman and the Investment Adviser, if applicable with respect to any common membership units received as payment of the incentive fee, and their permitted transferees certain "piggyback" registration rights which allow them to include their shares in any future registrations of NMFC equity securities, whether or not that registration relates to a primary offering by NMFC or a secondary offering by or on behalf of any of NMFC's stockholders or AIV Holdings. In particular, these parties will have priority over NMFC and any other of its stockholders in any registration that is an underwritten offering. Any such filing or the perception that such a filing may occur, could cause the prevailing market price of NMFC's common stock to decline and may impact NMFC's ability to sell equity to finance the Operating Company's operations. If substantial amounts of NMFC's common stock were sold, this could impair its ability to raise additional capital through the sale of securities should NMFC desire to do so.

Certain provisions of NMFC's certificate of incorporation and bylaws, the Delaware General Corporation Law as well as other aspects of our structure, including Guardian AIV's substantial interest in the Operating Company, could deter takeover attempts and have an adverse impact on the price of NMFC's common stock.

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

•

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



•

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



•

do not provide for cumulative voting;



•

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



•

provide that NMFC's directors may be removed only for cause;



•

require supermajority voting to effect certain amendments to NMFC's certificate of incorporation and bylaws; and



•

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

        These anti-takeover provisions may inhibit a change in control in circumstances that could give the holders of NMFC's common stock the opportunity to realize a premium over the market price for its common stock. The Credit Facilities also include covenants that, among other things, restrict its ability to dispose of assets, incur additional indebtedness, make restricted payments, create liens on assets, make investments, make acquisitions and engage in mergers or consolidations. The Credit Facilities also include change of control provisions that accelerate the indebtedness under this facility in the event of certain change of control events. In addition, certain aspects of our structure, including Guardian AIV's substantial interest in the Operating Company may have the effect of discouraging a third party from making an acquisition proposal for NMFC.




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

        Shares of closed-end investment companies have frequently traded at a market price that is less than the net asset value that is attributable to those shares. In part as a result of adverse economic conditions and increasing pressure within the financial sector of which the Companies are a part, NMFC's common stock has at times traded below its net asset value per share since NMFC's IPO on May 19, 2011. NMFC's shares could once again trade at a discount to net asset value. The possibility that NMFC's shares of common stock may trade at a discount from net asset value over the long term is separate and distinct from the risk that the Companies' net asset value will decrease. The Companies cannot predict whether shares of NMFC's common stock will trade above, at or below its net asset value. If NMFC's common stock trades below its net asset value, NMFC will generally not be able to issue additional shares of NMFC's common stock at its market price without first obtaining the approval for such issuance from its stockholders and its independent directors. If additional funds are not available to the Operating Company, the Companies could be forced to curtail or cease the Operating Company's new lending and investment activities, and the Companies' net asset value could decrease and the Companies' level of distributions could be impacted.

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

        The Companies cannot assure you that the Companies will achieve investment results or maintain a tax status that will allow or require any specified level of cash distributions or year-to-year increases in cash distributions. In particular, the Operating Company's future dividends, and subsequently, NMFC's and AIV Holdings' future dividends, are dependent upon the investment income they receive on the Operating Company's portfolio investments. To the extent such investment income declines, the Companies' ability to pay future dividends may be harmed.

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




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Holders of any preferred stock NMFC 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 NMFC's common stock and preferred stock, both by the 1940 Act and by requirements imposed by rating agencies, if any, or the terms of the Operating Company's credit facilities, if any, might impair our ability to maintain our qualification as a RIC for federal income tax purposes. While we would intend to redeem NMFC's 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.

Item 1B.    Unresolved Staff Comments


        Not applicable.

Item 2.    Properties


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

Item 3.    Legal Proceedings


        We, New Mountain Finance Advisers BDC, L.L.C.The Companies, the Investment Adviser and New Mountain Finance Administration, L.L.C.,the Administrator are not currently subject to any material pending legal proceedings threatened against us as of December 31, 2012.2013. From time to time, we may be a party to certain legal proceedings incidental to the normal course of our business including the enforcement of our rights under contracts with our portfolio companies. While the outcome of these legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a material effect upon our business, financial condition or results of operations.

Item 4.    Mine Safety Disclosures


        Not applicable.




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PART II


        The terms "we", "us", "our" and the "Companies" refers to the collective: New Mountain Finance Holdings, L.L.C., New Mountain Finance Corporation and New Mountain Finance AIV Holdings Corporation.

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


Price Range of Common Stock and Distributions

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

					Closing Sales Price(3)																			Closing Sales Price(3)
											Premium or Discount of High Sales to NAV(4)			Premium or Discount of Low Sales to NAV(4)																Premium or Discount of High Sales to NAV(4)			Premium or Discount of Low Sales to NAV(4)
		NAV Per Share(2)															Declared Dividends Per Share(5)				NAV Per Share(2)															Declared Dividends Per Share(5)
Fiscal Year Ended					High			Low											Premium or Discount of Low Sales to NAV(4)					High			Low											Premium or Discount of Low Sales to NAV(4)
December 31, 2013
Fourth Quarter																					$	14.38		$	15.19		$	14.05			5.63	%		(2.29	)%	$	0.34
Third Quarter																					$	14.32		$	14.90		$	14.21			4.05	%		(0.77	)%	$	0.46	(7)
Second Quarter																					$	14.32		$	15.60		$	13.82			8.94	%		(3.49	)%	$	0.34
First Quarter																					$	14.31		$	15.45		$	14.30			7.97	%		(0.07	)%	$	0.34
December 31, 2012
Fourth Quarter		$	14.06		$	15.18		$	13.75			8.0	%		(2.2	)%	$	0.48	(7)		$	14.06		$	15.18		$	13.75			7.97	%		(2.20	)%	$	0.48	(8)
Third Quarter		$	14.10		$	15.50		$	14.18			9.9	%		0.6	%	$	0.34			$	14.10		$	15.50		$	14.18			9.93	%		0.57	%	$	0.34
Second Quarter		$	13.83		$	14.29		$	13.28			3.3	%		(4.0	)%	$	0.57	(8)		$	13.83		$	14.29		$	13.28			3.33	%		(3.98	)%	$	0.57	(9)
First Quarter		$	14.05		$	13.75		$	13.14			(2.1	)%		(6.5	)%	$	0.32			$	14.05		$	13.75		$	13.14			(2.14	)%		(6.48	)%	$	0.32
December 31, 2011(1)
Fourth Quarter		$	13.60		$	13.41		$	12.27			(1.4	)%		(9.8	)%	$	0.30			$	13.60		$	13.41		$	12.27			(1.40	)%		(9.78	)%	$	0.30
Third Quarter		$	13.32		$	13.37		$	10.77			0.4	%		(19.1	)%	$	0.29			$	13.32		$	13.37		$	10.77			0.38	%		(19.14	)%	$	0.29
Second Quarter(6)		$	14.25		$	13.55		$	12.35			(4.9	)%		(13.3	)%	$	0.27			$	14.25		$	13.55		$	12.35			(4.91	)%		(13.33	)%	$	0.27

---

(1)

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



(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 dividends.



(4)

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



(5)

Represents the dividend paid for the specified quarter.



(6)

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



(7)

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



(8)

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





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(8)(9)

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

        On March 5, 2013, the last reported sales price of NMFC's common stock was $15.25 per share. As of March 5, 2013, the Operating Company had two record holders, which were NMFC and AIV Holdings, whereas NMFC had approximately 13 stockholders of record and approximately two beneficial owners whose shares are held in the names of brokers, dealers, funds, trusts and clearing




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agencies, and AIV Holdings had one record holder, which was New Mountain Guardian AIV, L.P. ("Guardian AIV").

New Mountain Finance Holdings, L.L.C. (the "Operating Company") and New Mountain Finance AIV Holdings Corporation ("AIV Holdings") are not publicly traded entities.

        On March 4, 2014, the last reported sales price of NMFC's common stock was $14.79 per share. As of March 4, 2014, the Operating Company had one record holder, which was NMFC, whereas NMFC had approximately 11 stockholders of record and approximately two beneficial owners whose shares are held in the names of brokers, dealers, funds, trusts and clearing agencies. AIV Holdings had one record holder, which was New Mountain Guardian AIV, L.P. ("Guardian AIV").

Dividends

        Since NMFC and AIV Holdings are holding companies, distributions will be paid on their common stock from distributions received from the Operating Company. The Operating Company intends to make distributions to its unit holders that will be sufficient to enable NMFC and AIV Holdings to pay quarterly distributions to their stockholders and to obtain and maintain their status as regulated investment companies ("RIC"). NMFC and AIV Holdings intend to distribute approximately their entire portion of the Operating Company's Adjusted Net Investment Income on a quarterly basis and substantially their entire portion of the Operating Company's taxable income on an annual basis, except that they may retain certain net capital gains for reinvestment.

        NMFC has adopted an "opt out" dividend reinvestment plan on behalf of its stockholders, whereas NMFC stockholders' cash dividends will be automatically reinvested in additional shares of NMFC's common stock, unless the stockholder elects to receive cash. Cash dividends reinvested in additional shares of NMFC's common stock will be automatically reinvested by NMFC into additional units of the Operating Company.

        NMFC applies the following in implementing the dividend reinvestment plan. If the price at which newly issued shares are to be credited to stockholders' accounts is greater than 110.0% of the last determined net asset value of the shares, NMFC will use only newly issued shares to implement its dividend reinvestment plan. Under such circumstances, the number of shares to be issued to a stockholder is determined by dividing the total dollar amount of the distribution payable to such stockholder by the market price per share of NMFC's common stock on the NYSE on the distribution payment date. Market price per share on that date will be the closing price for such shares on the NYSE or, if no sale is reported for such day, the average of their electronically reported bid and asked prices. If NMFC uses newly issued shares to implement the plan, NMFC will receive, on a one-for-one basis, additional units of the Operating Company in exchange for cash distributions that are reinvested in shares of NMFC's common stock under the dividend reinvestment plan.

        If the price at which newly issued shares are to be credited to stockholders' accounts is less than 110.0% of the last determined net asset value of the shares, NMFC will either issue new shares or instruct the plan administrator to purchase shares in the open market to satisfy the additional shares required. Shares purchased in open market transactions by the plan administrator will be allocated to a stockholder based on the average purchase price, excluding any brokerage charges or other charges, of all shares of common stock purchased in the open market. The number of shares of NMFC's common stock to be outstanding after giving effect to payment of the distribution cannot be established until the value per share at which additional shares will be issued has been determined and elections of NMFC's stockholders have been tabulated. AIV Holdings does not intend to reinvest any distributions received from the Operating Company in additional shares of the Operating Company. SeeItem 8.—Financial Statements and Supplementary Data—Note 2, Summary of Significant Accounting Policies for additional information.




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

Date Declared		Record Date		Payment Date		Amount				Record Date		Payment Date		Amount
December 27, 2012(1)		December 31, 2012		January 31, 2013		$	0.14
November 8, 2013										December 17, 2013		December 31, 2013		$	0.34
August 7, 2013										September 16, 2013		September 30, 2013			0.34
August 7, 2013										August 20, 2013		August 30, 2013			0.12	(1)
May 6, 2013										June 14, 2013		June 28, 2013			0.34
March 6, 2013										March 15, 2013		March 28, 2013			0.34
​									​	​	​	​	​		​	​
														$	1.48
December 27, 2012										December 31, 2012		January 31, 2013		$	0.14	(2)
November 6, 2012		December 14, 2012		December 28, 2012			0.34			December 14, 2012		December 28, 2012			0.34
August 8, 2012		September 14, 2012		September 28, 2012			0.34			September 14, 2012		September 28, 2012			0.34
May 8, 2012		June 15, 2012		June 29, 2012			0.34			June 15, 2012		June 29, 2012			0.34
May 8, 2012(2)		May 21, 2012		May 31, 2012			0.23
May 8, 2012										May 21, 2012		May 31, 2012			0.23	(3)
March 7, 2012		March 15, 2012		March 30, 2012			0.32			March 15, 2012		March 30, 2012			0.32
​									​	​	​	​	​		​	​
														$	1.71
November 8, 2011		December 15, 2011		December 30, 2011		$	0.30			December 15, 2011		December 30, 2011		$	0.30
August 10, 2011		September 15, 2011		September 30, 2011			0.29			September 15, 2011		September 30, 2011			0.29
August 10, 2011		August 22, 2011		August 31, 2011			0.27			August 22, 2011		August 31, 2011			0.27
​									​	​	​	​	​		​	​
														$	0.86
​									​	​	​	​	​		​	​
Total						$	2.57							$	4.05
​									​	​	​	​	​		​	​
​									​	​	​	​	​		​	​

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(1)

Special dividend related to a distribution received attributable to the Operating Company's investment in YP Equity Investors LLC.



(2)

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



(2)(3)

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




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        The following table reflects the cash distributions, including dividends and returns of capital, if any, that have been declared by the Operating Company's board of directors on a per share/unit basis, and subsequently AIV Holdings' board of directors, since NMFC's IPO:

Date Declared		Record Date		Payment Date			Amount (in millions)(1)				Record Date		Payment Date		Amount (in millions)
December 27, 2012(2)		December 31, 2012			January 31, 2013		$	2.3
November 8, 2013											December 17, 2013(1)		December 31, 2013		$	0.9	(2)
August 7, 2013											September 16, 2013(3)		September 30, 2013			2.2
August 7, 2013											August 20, 2013(3)		August 30, 2013			0.8	(4)
May 6, 2013											June 14, 2013(5)		June 28, 2013			3.8	(6)
March 6, 2013											March 15, 2013(7)		March 28, 2013(8)			5.5	(9)
​										​	​	​	​	​		​	​
															$	13.2
December 27, 2012											December 31, 2012(7)		January 31, 2013		$	2.3	(10)
November 6, 2012		December 14, 2012			December 28, 2012	(3)		5.5			December 14, 2012(7)		December 28, 2012(11)			5.5
August 8, 2012		September 14, 2012			September 28, 2012			6.9	(5)		September 14, 2012(12)		September 28, 2012			6.9	(13)
May 8, 2012		June 15, 2012			June 29, 2012	(7)		6.9			June 15, 2012(12)		June 29, 2012(14)			6.9
May 8, 2012(6)		May 21, 2012			May 31, 2012			4.6
May 8, 2012											May 21, 2012(12)		May 31, 2012			4.6	(15)
March 7, 2012		March 15, 2012			March 30, 2012	(4)		6.5			March 15, 2012(12)		March 30, 2012(16)			6.5
​										​	​	​	​	​		​	​
															$	32.7
November 8, 2011		December 15, 2011			December 30, 2011		$	6.1			December 15, 2011(12)		December 30, 2011		$	6.1
August 10, 2011		September 15, 2011			September 30, 2011			5.9			September 15, 2011(12)		September 30, 2011			5.9
August 10, 2011		August 22, 2011			August 31, 2011			5.4			August 22, 2011(12)		August 31, 2011			5.4
​										​	​	​	​	​		​	​
															$	17.4
​										​	​	​	​	​		​	​
Total							$	50.1							$	63.3
​										​	​	​	​	​		​	​
​										​	​	​	​	​		​	​

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(1)

ForAs of the record dates from August 22, 2011 through September 14, 2012 and for the record dates from December 14, 2012 through December 31, 2012,date, AIV Holdings owned 20,221,9382,671,938 units of the Operating Company. AIV Holdings received a total dividend for the amounts and subsequently AIV Holdings' board of directors declared total dividends in the same amounts payable to the holders of record as of the record date.



(2)

This amount does not include the distribution to Guardian AIV of $54.2 million in connection with net proceeds from the October 17, 2013 underwritten secondary public offering of NMFC's common stock on behalf of AIV Holdings.



(3)

As of the record date, AIV Holdings owned 6,571,938 units of the Operating Company. AIV Holdings received a total dividend for the amounts and subsequently AIV Holdings' board of directors declared total dividends in the same amounts payable to the holders of record as of the record date.



(4)

Special dividend related to a distribution received attributable to the Operating Company's investment in YP Equity Investors LLC.



(5)

As of the record date, AIV Holdings owned 11,321,938 units of the Operating Company. AIV Holdings received a total dividend for the amounts and subsequently AIV Holdings' board of directors declared total dividends in the same amounts payable to the holders of record as of the record date.



(6)

This amount does not include the distribution to Guardian AIV of $66.9 million in connection with net proceeds from the June 21, 2013 underwritten secondary public offering of NMFC's common stock on behalf of AIV Holdings.




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(7)

As of the respective record dates, AIV Holdings owned 16,221,938 units of the Operating Company, respectively.Company. AIV Holdings received a total dividend for the respective amounts and subsequently AIV Holdings' board of directors declared total dividends in the same amounts payable to the holders of record as of the respective record dates.



(2)(8)

Actual cash payment was made on April 5, 2013.



(9)

This amount does not include the distribution to Guardian AIV of $67.8 million in connection with net proceeds from the March 25, 2013 underwritten secondary public offering of NMFC's common stock on behalf of AIV Holdings.



(10)

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






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(3)(11)

Actual cash payment was made on January 7, 2013.



(4)(12)

Actual cash payment was made on April 4, 2012.As of the respective record dates, AIV Holdings owned 20,221,938 units of the Operating Company. AIV Holdings received a total dividend for the respective amounts and subsequently AIV Holdings' board of directors declared total dividends in the same amounts payable to the holders of record as of the respective record dates.



(5)(13)

This amount does not include the distribution to Guardian AIV of $58.2 million in connection with net proceeds from the September 28, 2012 underwritten secondary public offering.offering of NMFC's common stock on behalf of AIV Holdings.



(6)(14)

Actual cash payment was made on July 9, 2012.



(15)

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



(7)(16)

Actual cash payment was made on July 9,April 4, 2012.

        Tax characteristics of all dividends paid by NMFC and AIV Holdings were reported to stockholders on Form 1099 after the end of the calendar year. Future quarterly dividends, if any, for the Companies will be determined by their respective board of directors.

Unregistered Sales of Equity Securities

        We did not engage in unregistered sales of securities during the year ended December 31, 2012.2013.

Issuer Purchases of Equity Securities

        For the quarter ended December 31, 2012,2013, NMFC did not purchase any of its common stock in the open market.




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Stock Performance Graph

        This graph compares the return on NMFC's common stock with that of the Standard & Poor's 500 Total Return Index ("S&P 500 TR") and the Russell 2000 Index Total Return ("Russell 2000 TR") as we do not believe that there is an appropriate index of companies with an investment strategy similar to our own with which to compare the return on ourNMFC's common stock, for the period May 19, 2011 (commencement of operations) to December 31, 2012.2013. The graph assumes that, on May 19, 2011, a person invested $100 in each of ourNMFC's common stock, the S&P 500 TR and the Russell 2000 TR. The




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graph measures total stockholder return, which takes into account both changes in stock price and dividends. It assumes that dividends paid are invested in like securities.


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




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




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Item 6.    Selected Financial Data


        The selected financial data should be read in conjunction with the respective financial statements and related combined notes thereto andItem 7.—Management's Discussion and Analysis of Financial Condition and Results of Operations included in this report. Financial information for the years ended December 31, 2013, December 31, 2012, December 31, 2011, December 31, 2010 and December 31, 2009, and for the period from October 29, 2008 (commencement of operations) to December 31, 2008, has been derived from the Operating Company's financial statements that were audited by Deloitte & Touche LLP ("Deloitte"), an independent registered public accounting firm.




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        The below selected financial and other data is for the Operating Company.

(in thousands except sharesunits and per shareunit data)

		Year ended December 31,												Period from October 29, 2008 (commencement of operations) to December 31, 2008				Years ended December 31,
New Mountain Finance Holdings, L.L.C. Statement of Operations Data:		2012			2011			2010			2009
New Mountain Finance Holdings, L.L.C.																		2013			2012			2011			2010			2009
Statement of Operations Data:
Total investment income		$	85,786		$	56,523		$	41,375		$	21,767		$	256			$	114,912		$	85,786		$	56,523		$	41,375		$	21,767
Net expenses			40,569			17,998			3,911			1,359			—				51,235			40,569			17,998			3,911			1,359
Net investment income			45,217			38,525			37,464			20,408			256				63,677			45,217			38,525			37,464			20,408
Net realized and unrealized gains (losses)			28,779			(6,848	)		26,328			105,272			(1,435	)			15,247			28,779			(6,848	)		26,328			105,272
Net increase (decrease) in net assets resulting from operations			73,996			31,677			63,792			125,680			(1,179	)			78,924			73,996			31,677			63,792			125,680
Per share data:
Per unit data:
Net asset value		$	14.06		$	13.60			N/A			N/A			N/A			$	14.38		$	14.06		$	13.60			N/A			N/A
Net increase (decrease) in net assets resulting from operations (basic and diluted)			2.18			1.02			N/A			N/A			N/A				1.79			2.18			1.02			N/A			N/A
Dividends declared(1)			1.71			0.86			N/A			N/A			N/A				1.48			1.71			0.86			N/A			N/A
Balance sheet data:
Total assets		$	1,025,564		$	730,579		$	460,224		$	330,558		$	61,669			$	1,147,841		$	1,025,564		$	730,579		$	460,224		$	330,558
Holdings Credit Facility																			221,849			206,938			129,038			59,697			77,745
SLF Credit Facility			214,262			165,928			56,936			—			—				214,668			214,262			165,928			56,936			—
Holdings Credit Facility			206,938			129,038			59,697			77,745			—
Total net assets			569,939			420,502			241,927			239,441			30,354				688,516			569,939			420,502			241,927			239,441
Other data:
Total return at net asset value(2)			16.61	%		10.09	%		26.54	%		76.38	%		NM				13.27	%		16.61	%		10.09	%		26.54	%		76.38	%
Number of portfolio companies at year end			63			55			43			24			6				59			63			55			43			24
Total new investments for the year		$	673,218		$	493,331		$	332,708		$	268,382		$	63,018			$	529,307		$	673,218		$	493,331		$	332,708		$	268,382
Investment sales and prepayments for the year		$	423,874		$	231,962		$	258,202		$	125,430		$	132
Investment sales and repayments for the year																		$	426,561		$	423,874		$	231,962		$	258,202		$	125,430
Weighted average Yield to Maturity on debt portfolio at year end (unaudited)(3)			10.1	%		10.7	%		—	(4)		—	(4)		—	(4)			10.6	%		10.1	%		10.7	%		—	(4)		—	(4)
Weighted average Adjusted Yield to Maturity on debt portfolio at year end (unaudited)(5)			—	(5)		13.1	%		12.5	%		12.7	%		18.8	%
Weighted average common membership outstanding for the period			34,011,738			30,919,629			N/A			N/A			N/A
Weighted average Adjusted Yield to Maturity on debt portfolio at year end (unaudited)																			—	(5)		—	(5)		13.1	%		12.5	%		12.7	%
Weighted average common membership units outstanding for the year																			44,021,920			34,011,738			30,919,629	(6)		N/A			N/A
Portfolio turnover			52.02	%		42.13	%		76.69	%		57.50	%		0.22	%			40.52	%		52.02	%		42.13	%		76.69	%		57.50	%

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N/A—Fund was not unitized as of December 31, 2010 December 31, 2009 and December 31, 2008.2009.

NM—Total return from commencement of operations through

(1)

Dividends declared in the year ended December 31, 2008 was deemed not meaningful due2013 include a $0.12 per unit special dividend related to a distribution received attributable to the scaling of operations during this short time period.




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(1)

Operating Company's 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 the Operating Company's 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 federal income or excise tax




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



(2)

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



(3)

The Operating Company's 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.



(4)

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



(5)

"Adjusted Yield to Maturity" assumes that the investments in the Operating Company's 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 the Operating Company, 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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        The below selected financial and other data is for NMFC.

(in thousands except shares and per share data)

New Mountain Finance Corporation Statement of Operations Data:		Year ended December 31, 2012			Period from May 19, 2011 (commencement of operations) to December 31, 2011
															Period from May 19, 2011 (commencement of operations) to December 31, 2011
									Years ended December 31,
New Mountain Finance Corporation									2013			2012
Statement of Operations Data:
Total investment income allocated from the Operating Company		$	37,511		$	13,669			$	90,876		$	37,511		$	13,669
Net expenses allocated from the Operating Company			17,719			5,324				40,355			17,719			5,324
Net investment income allocated from the Operating Company			19,792			8,345				50,521			19,792			8,345
Net realized and unrealized gains (losses) allocated from the Operating Company			12,087			(4,235	)			11,443			12,087			(4,235	)
Net change in unrealized (depreciation) appreciation of investment in the Operating Company			(95	)		6,221				(44	)		(95	)		6,221
Net increase (decrease) in net assets resulting from operations			31,784			10,331				61,920			31,784			10,331
Per share data:
Net asset value		$	14.06		$	13.60			$	14.38		$	14.06		$	13.60
Net increase (decrease) in net assets resulting from operations (basic)			2.14			0.97				1.76			2.14			0.97
Net increase (decrease) in net assets resulting from operations (diluted)			2.18			0.38				1.79			2.18			0.38
Dividends declared(1)			1.71			0.86				1.48			1.71			0.86
Balance sheet data:
Total assets		$	345,331		$	145,487			$	650,107		$	345,331		$	145,487
Total net assets			341,926			145,487				650,107			341,926			145,487
Other data:
Total return at market value(2)			24.84	%		4.16	%			11.62	%		24.84	%		4.16	%
Total return at net asset value(3)			16.61	%		2.82	%			13.27	%		16.61	%		2.82	%
Weighted average shares outstanding for the period			14,860,838			10,697,691				35,092,722			14,860,838			10,697,691

---

(1)

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



(2)

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



(3)

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,




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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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(in thousands)

New Mountain Finance AIV Holdings Corporation Statement of Operations Data:		Year ended December 31, 2012			Period from May 19, 2011 (commencement of operations) to December 31, 2011
															Period from May 19, 2011 (commencement of operations) to December 31, 2011
									Years ended December 31,
New Mountain Finance AIV Holdings Corporation									2013			2012
Statement of Operations Data:
Total investment income allocated from the Operating Company		$	48,276		$	25,838			$	24,036		$	48,276		$	25,838
Net expenses allocated from the Operating Company			22,850			10,063				10,881			22,850			10,063
Net investment income allocated from the Operating Company			25,426			15,775				13,155			25,426			15,775
Net realized and unrealized gains (losses) allocated from the Operating Company			16,692			(8,005	)			3,804			16,692			(8,005	)
Net change in unrealized appreciation (depreciation) of investment in the Operating Company			1,997			(6,212	)
Net change in unrealized (depreciation) appreciation of investment in the Operating Company										(4,349	)		1,997			(6,212	)
Net increase (decrease) in net assets resulting from operations			44,115			1,558				12,610			44,115			1,558
Balance sheet data:
Total assets		$	235,799		$	275,015			$	38,409		$	235,799		$	275,015
Total net assets			228,013			275,015				38,409			228,013			275,015
Other data:
Total return at net asset value(1)			18.04	%		(5.44	)%			7.69	%		18.04	%		(5.44	)%
Weighted average shares outstanding at year end			100			100
Weighted average shares outstanding for the period										100			100			100
Dividends declared(2)		$	32,660		$	17,391			$	13,296		$	32,660		$	17,391

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(1)

For the yearyears ended December 31, 2013, December 31, 2012 and for the period May 19, 2011 to December 31, 2011, total return is calculated assuming a purchase at net asset value on the opening of the first day of the respective period and a sale of net asset value on the last business day of the period.respective year. Dividends and distributions, if any, are assumed for purposes of this calculation, to be reinvested at the net asset value on the last business day of the respective quarter.



(2)

Dividends declared in the year ended December 31, 2013 include a $0.8 million special dividend related to a distribution received attributable to the Operating Company's investment in YP Equity Investors LLC. Dividends declared in the year ended December 31, 2012 include a $4.6 million special dividend related to estimated realized capital gains attributable to the Operating Company's investments in Lawson Software, Inc. and Infor Lux Bond Company and a $2.3 million special dividend intended to minimize to the greatest extent possible NMFC'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, and December 31, 2012 and March 31, 2013, were made on April 4, 2012, July 9, 2012, and January 7, 2013 and April 5, 2013, respectively. This amount does not include the distributiondistributions to Guardian AIV of $58.2 million, $67.8 million, $66.9 million and $54.2 million in connection with net proceeds before offering costs from the September 28, 2012, March 25, 2013, June 21, 2013 and October 17, 2013 underwritten secondary public offering.offerings.




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


        The information in management's discussion and analysis of financial condition and results of operations relates to each of the three separate registrants: New Mountain Finance Holdings, L.L.C., New Mountain Finance Corporation and New Mountain Finance AIV Holdings Corporation (collectively, "we", "us", "our" or the "Companies"). Information that relates to an individual registrant will be specifically referenced by the respective company. None of the Companies makes any representation as to the information related solely to the other registrants other than itself.

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

Forward-Looking Statements

        The information contained in this section should be read in conjunction with the financial data and financial statements and combined notes thereto appearing inItem 8.—Financial Statements and Supplementary Data, contained in this annual report. Some of the statements in this report (including in the following discussion) constitute forward-looking statements, which relate to future events or the future performance or financial condition of New Mountain Finance Holdings, L.L.C. (the "Operating Company" or the "Master Fund"), New Mountain Finance Corporation ("NMFC") or New Mountain Finance AIV Holdings Corporation ("AIV Holdings"). The forward-looking statements contained in this section involve a number of risks and uncertainties, including:

•

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



•

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



•

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



•

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



•

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



•

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



•

the risk factors set forth inItem 1A.—Risk Factors.

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

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




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Overview

        The Operating Company is a Delaware limited liability company. The Operating Company is externally managed and has elected to be treated as a business development company ("BDC") under the Investment Company Act of 1940, as amended (the "1940 Act"). As such, the Operating Company




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is obligated to comply with certain regulatory requirements. The Operating Company intends to be treated as a partnership for federal income tax purposes for so long as it has at least two members.

        The Operating Company is externally managed by the Investment Adviser. New Mountain Finance Administration, L.L.C. (the "Administrator") provides the administrative services necessary for operations. The Investment Adviser and Administrator are wholly-owned subsidiaries of New Mountain Capital (defined as New Mountain Capital Group, L.L.C. and its affiliates). New Mountain Capital is a firm with a track record of investing in the middle market and with assets under management (which includes amounts committed, not all of which have been drawn down and invested to date) totaling approximately $9.0more than $12.0 billion as of December 31, 2012.2013, which includes total assets held by the Operating Company. New Mountain Capital focuses on investing in defensive growth companies across its private equity, public equity, and credit investment vehicles. The Operating Company, formerly known as New Mountain Guardian (Leveraged), L.L.C., was originally formed as a subsidiary of New Mountain Guardian AIV, L.P. ("Guardian AIV") by New Mountain Capital in October 2008. Guardian AIV was formed through an allocation of approximately $300.0 million of the $5.1 billion of commitments supporting New Mountain Partners III, L.P., a private equity fund managed by New Mountain Capital. In February 2009, New Mountain Capital formed a co-investment vehicle, New Mountain Guardian Partners, L.P., comprising $20.4 million of commitments. New Mountain Guardian (Leveraged), L.L.C. and New Mountain Guardian Partners, L.P., together with their respective direct and indirect wholly-owned subsidiaries, are defined as the "Predecessor Entities".

        NMFC is a Delaware corporation that was originally incorporated on June 29, 2010. NMFC is a closed-end, non-diversified management investment company that has elected to be treated as a BDC under the 1940 Act. As such, NMFC is obligated to comply with certain regulatory requirements. NMFC has elected to be treated, and intends to comply with the requirements to continue to qualify annually, as a regulated investment company ("RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended, (the "Code").

        AIV Holdings is a Delaware corporation that was originally incorporated on March 11, 2011. Guardian AIV, a Delaware limited partnership, is AIV Holdings' sole stockholder. AIV Holdings is a closed-end, non-diversified management investment company that has elected to be treated as a BDC under the 1940 Act. As such, AIV Holdings is obligated to comply with certain regulatory requirements. AIV Holdings has elected to be treated, and intends to comply with the requirements to continue to qualify annually, as a RIC under the Code.

        On May 19, 2011, NMFC priced its initial public offering (the "IPO") of 7,272,727 shares of common stock at a public offering price of $13.75 per share. Concurrently with the closing of the IPO and at the public offering price of $13.75 per share, NMFC sold an additional 2,172,000 shares of its common stock to certain executives and employees of, and other individuals affiliated with, New Mountain Capital in a concurrent private placement (the "Concurrent Private Placement"). Additionally, 1,252,964 shares were issued to the limited partners of New Mountain Guardian Partners, L.P. at that time for their ownership interest in the Predecessor Entities. In connection with NMFC's IPO and through a series of transactions, the Operating Company owns all of the operations of the Predecessor Entities, including all of the assets and liabilities related to such operations.

        NMFC and AIV Holdings are holding companies with no direct operations of their own, and their sole asset is their ownership in the Operating Company. NMFC and AIV Holdings each entered into a joinder agreement with respect to the Limited Liability Company Agreement, as amended and restated, of the Operating Company, pursuant to which NMFC and AIV Holdings were admitted as members of




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the Operating Company. NMFC acquired from the Operating Company, with the gross proceeds of the IPO and the Concurrent Private Placement, common membership units ("units") of the Operating Company (the number of units are equal to the number of shares of NMFC's common stock sold in the IPO and the Concurrent Private Placement). Additionally, NMFC received units of the Operating




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Company equal to the number of shares of common stock of NMFC issued to the limited partners of New Mountain Guardian Partners, L.P. Guardian AIV was the parent of the Operating Company prior to the IPO and, as a result of the transactions completed in connection with the IPO, obtained units in the Operating Company. Guardian AIV contributed its units in the Operating Company to its newly formed subsidiary, AIV Holdings, in exchange for common stock of AIV Holdings. AIV Holdings has the right to exchange all or any portion of its units in the Operating Company for shares of NMFC's common stock on a one-for-one basis at anytime.any time.

        Since NMFC's IPO, and through December 31, 2012,2013, NMFC raised approximately $133.4$233.4 million in net proceeds from additional offerings of common stock and issued shares of its common stock valued at approximately $56.3$249.6 million toon behalf of AIV Holdings for exchanged units. NMFC acquired from the Operating Company units of the Operating Company equal to the number of shares of NMFC's common stock sold in the additional offerings. As of December 31, 2013, NMFC and AIV Holdings owned approximately 94.4% and 5.6%, respectively, of the units of the Operating Company.

        The current structure was designed to generally prevent NMFC and its stockholders 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 and its stockholders.Holdings. The result is that any distributions made to NMFC's stockholders that are attributable to such gains generally will not be treated as taxable dividends but rather as return of capital.




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        The diagram below depicts ourthe Companies' organizational structure as of December 31, 2012.2013.



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*

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



**

These common membership units are exchangeable into shares of NMFC common stock on a one-for-one basis.



***

New Mountain Finance SPV Funding, L.L.C. ("NMF SLF").

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

        As of December 31, 2012,2013, the Operating Company's net asset value was $569.9$688.5 million and its portfolio had a fair value of approximately $989.8$1,115.7 million in 6359 portfolio companies, with a weighted average Yield to Maturity of approximately 10.1%10.6%. This Yield to Maturity calculation assumes that all




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investments not on non-accrual are purchased at fair value on December 31, 20122013 and held until their respective maturities with no prepayments or losses and exited at par at maturity. The actual yield to maturity may be higher or lower due to the future selection of the London Interbank Offered Rate ("LIBOR") contracts by the individual companies in the Operating Company's portfolio or other factors.




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Recent Developments

        On January 27, 2014, NMFC announced that the U.S. Small Business Administration ("SBA") issued a "green light" letter inviting NMFC to continue its application process to obtain a license to form and operate a Small Business Investment Company ("SBIC") subsidiary. If approved, a SBIC license would provide NMFC with an incremental source of attractive long-term capital.

        Receipt of a green light letter from the SBA does not assure an applicant that the SBA will ultimately issue an SBIC license, and NMFC has received no assurance or indication from the SBA that it will receive a SBIC license, or of the timeframe in which it would receive a license, should one ultimately be granted.

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

        On March 6, 2013,4, 2014, the Operating Company's board of directors, and subsequently NMFC's board of directors, declared a first quarter 20132014 distribution of $0.34 per unit/share payable on March 28, 201331, 2014 to holders of record as of March 15, 2013. Subsequently, AIV Holdings' board of directors declared a dividend payable on March 28, 2013 to holders of record as of March 15, 2013 in an amount equal to $0.34 per unit multiplied by the total number of units owned by AIV Holdings of the Operating Company as of the record date.17, 2014.

Critical Accounting Policies

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

Basis of Accounting

        The Operating Company consolidates its wholly-owned subsidiary, New Mountain Finance SPV Funding, L.L.C. ("NMF SLF").SLF. NMFC and AIV Holdings do not consolidate the Operating Company. NMFC and AIV Holdings apply investment company master-feeder financial statement presentation, as described in Accounting Standards Codification 946,Financial Services—Investment Companies, ("ASC 946") to their interest in the Operating Company. NMFC and AIV Holdings observe that it is industry practice to follow the presentation prescribed for a master fund-feeder fund structure in ASC 946 in instances in which a master fund is owned by more than one feeder fund and that such presentation provides stockholders of NMFC and AIV Holdings with a clearer depiction of their investment in the Master Fund.master fund.




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Valuation and Leveling of Portfolio Investments

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

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

(1)

Investments for which market quotations are readily available on an exchange are valued at such market quotations based on the closing price indicated from independent pricing services.



(2)

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



a.

Bond quotes are obtained through independent pricing services. Internal reviews are performed by the investment professionals of the Investment Adviser to ensure that the quote obtained is representative of fair value in accordance with GAAP and if so, the




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quote is used. If the Investment Adviser is unable to sufficiently validate the quote(s) internally and if the investment's par value or its fair value exceeds the materiality threshold, the investment is valued similarly to those assets with no readily available quotes (see (3) below);

and



b.

For investments other than bonds, the investment professionals of the Investment Adviser lookOperating Company looks at the number of quotes readily available and performperforms the following:



i.

Investments for which two or more quotes are received from a pricing service are valued using the mean of the mean of the bid and ask of the quotes obtained;



ii.

Investments for which one quote is received from a pricing service are validated internally. The investment professionals of the Investment Adviser analyze the market quotes obtained using an array of valuation methods (further described below) to validate the fair value. If the Investment Adviser is unable to sufficiently validate the quote internally and if the investment's par value or its fair value exceeds the materiality threshold, the investment is valued similarly to those assets with no readily available quotes (see (3) below).



(3)

Investments for which quotations are not readily available through exchanges, pricing services, brokers, or dealers are valued through a multi-step valuation process:



a.

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



b.

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



c.

If an investment falls into (3) above for four consecutive quarters and if the investment's par value or its fair value exceeds the materiality threshold, then at least once each fiscal year, the valuation for each portfolio investment for which the investment professionalsOperating Company does




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not have a readily available market quotation will be reviewed by an independent valuation firm engaged by the Operating Company'sCompanies' board of directors; and



d.

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

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

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

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

Level I—Quoted prices (unadjusted) are available in active markets for identical investments and the Operating Company has the ability to access such quotes as of the reporting date. The type of investments which would generally be included in Level I include active exchange-traded equity securities and exchange-traded derivatives. As required by Accounting Standards Codification 820,Fair Value Measurements and Disclosures ("ASC 820"), the Operating Company, to the extent that




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we hold it holds such investments, does not adjust the quoted price for these investments, even in situations where the Operating Company holds a large position and a sale could reasonably impact the quoted price.

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

•

Quoted prices for similar assets or liabilities in active markets;



•

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



•

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



•

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

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

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




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(Levels I and II) and unobservable (Level III). Gains and losses for such assets categorized within the Level III table below may include changes in fair value that are attributable to both observable inputs (Levels II and III) and unobservable inputs (Level III).

        The inputs into the determination of fair value require significant judgment or estimation by management and consideration of factors specific to each investment. A review of the fair value hierarchy classifications is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in the transfer of certain investments within the fair value hierarchy from period to period. Reclassifications impacting the fair value hierarchy are reported as transfers in/out of the respective leveling categories as of the beginning of the quarter in which the reclassifications occur.

        The following table summarizes the levels in the fair value hierarchy that the Operating Company's portfolio investments fall into as of December 31, 2012:2013:

(in thousands)

		Total			Level I			Level II			Level III
(in thousands)															Total			Level I			Level II			Level III
First lien		$	493,502		$	—		$	450,617		$	42,885			$	553,549		$	—		$	525,138		$	28,411
Second lien			441,073			—			397,818			43,255				468,945			—			413,407			55,538
Subordinated			45,148			—			22,257			22,891				26,863			—			21,692			5,171
Equity and other			10,097			—			—			10,097				66,294			1,694			—			64,600
​														​		​	​		​	​		​	​		​	​
Total investments		$	989,820		$	—		$	870,692		$	119,128			$	1,115,651		$	1,694		$	960,237		$	153,720
​														​		​	​		​	​		​	​		​	​
​														​		​	​		​	​		​	​		​	​

        NMFC and AIV Holdings are holding companies with no direct operations of their own, and their sole asset is their ownership in the Operating Company. NMFC's and AIV Holdings' investments in the Operating Company are carried at fair value and represent the pro-rata interest in the net assets of the Operating Company as of the applicable reporting date. NMFC and AIV Holdings value their ownership interest on a quarterly basis, or more frequently if required under the 1940 Act.

        The Operating Company generally uses the following framework when determining the fair value of investments where there are little, if any, market activity or observable pricing inputs.

        Company Performance, Financial Review, and Analysis:    Prior to investment, as part of its due diligence process, the Operating Company evaluates the overall performance and financial stability of the portfolio company. Post investment, the Operating Company analyzes each portfolio company's current operating performance and relevant financial trends versus prior year and budgeted results, including, but not limited to, factors affecting its revenue and earnings before interest, taxes, depreciation, and amortization ("EBITDA") growth, margin trends, liquidity position, covenant




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compliance and changes to its capital structure. The Operating Company also attempts to identify and subsequently track any developments at the portfolio company, within its customer or vendor base or within the industry or the macroeconomic environment, generally, that may alter any material element of its original investment thesis. This analysis is specific to each portfolio company. The Operating Company leverages the knowledge gained from its original due diligence process, augmented by this subsequent monitoring, to continually refine its outlook for each of its portfolio companies and ultimately form the valuation of its investment in each portfolio company. When an external event such as a purchase transaction, public offering or subsequent sale occurs, the Operating Company will consider the pricing indicated by the external event to corroborate the private valuation.

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




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company's latest twelve month ("LTM") EBITDA or projected EBITDA to calculate portfolio company enterprise value. In applying the market based approach as of December 31, 2012,2013, the Operating Company used athe relevant EBITDA range of 4.00x to 12.90x for first lien debt investments, 4.50x to 8.00x for second lien debt investments and 5.50x and 8.50x for subordinated debt investmentsranges set forth in the table below to determine the enterprise value of seveninvestments in six of its portfolio companies. The Operating Company believes this was a reasonable range in light of current comparable company trading levels and the specific companies involved.

        Income Based Approach:    The Operating Company also typically uses a discounted cash flow analysis to estimate the fair value of the investment. Projected cash flows represent the relevant security's contractual interest, fee and principal payments plus the assumption of full principal recovery at the investment's expected maturity date. These cash flows are discounted at a rate established utilizing a yield calibration approach, which incorporates changes in the credit quality (as measured by relevant statistics) of the portfolio company, as compared to changes in the yield associated with comparable credit quality market indices, between the date of origination and the valuation date. In applying the income based approach as of December 31, 2012,2013, the Operating Company used athe discount range of 6.0% to 18.0% for first lien debt investments, 11.3% to 12.5% for second lien debt investments and 12.8% to 22.3% for subordinated debt investmentsranges set forth in the table below to value seveninvestments in eight of its portfolio companies.

									Range
Type		Fair Value			Approach		Unobservable Input		Low			High			Weighted Average
First lien		$	28,411		Market approach		EBITDA multiple			7.0	x		10.0	x		8.5	x
					Income approach		Discount rate			9.2	%		10.2	%		9.7	%
Second lien			55,538		Market approach		EBITDA multiple			5.0	x		7.5	x		6.2	x
					Income approach		Discount rate			10.1	%		11.7	%		11.1	%
Subordinated			5,171		Market approach		EBITDA multiple			7.0	x		9.0	x		8.0	x
					Income approach		Discount rate			13.0	%		15.0	%		14.0	%
Equity and other			64,600		Market approach		EBITDA multiple			1.3	x		7.5	x		4.7	x
					Income approach		Discount rate			8.0	%		20.0	%		13.6	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
		$	153,720		Black Scholes analysis		Expected life in years			2.0			4.0			2.6
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
							Volatility			21.0	%		36.6	%		27.9	%
							Discount rate			0.3	%		3.0	%		0.8	%

Revenue Recognition

        The Operating Company's revenue recognition policies are as follows:

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

        Interest income:Interest income, including amortization of premium and discount using the effective interest method, is recorded on the accrual basis and periodically assessed for collectability. Interest income also includes interest earned from cash on hand. Upon the prepayment of a loan or debt security, any prepayment penalties are recorded as part of interest income. The Operating Company has loans in the portfolio that contain a payment-in-kind ("PIK") provision. PIK represents interest that is accrued and recorded as interest income at the contractual rates, added to the loan principal on the respective capitalization dates, and generally due at maturity.




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        Non-accrual income:Loans are placed on non-accrual status when principal or interest payments are past due 30 days or more and when there is reasonable doubt that principal or interest will be collected. Accrued cash and un-capitalized PIK interest is generally reversed when a loan is placed on non-accrual status. Previously capitalized PIK interest is not reversed when an




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investment is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management's judgment of the ultimate outcome. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in management's judgment, are likely to remain current.

        Dividend income:    Dividend income is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies.

        Other income:Other income represents delayed compensation, consent or amendment fees, revolver fees and other miscellaneous fees received. Delayed compensation is income earned from counterparties on trades that do not settle within a set number of business days after trade date. Other income may also include fees from bridge loans. The Operating Company may from time to time enter into bridge financing commitments, an obligation to provide interim financing to a counterparty until permanent credit can be obtained. These commitments are short-term in nature and may expire unfunded. A fee is received by the Operating Company for providing such commitments.

        NMFC's and AIV Holdings' revenue recognition policies are as follows:

        Revenue, expenses, and capital gains (losses):At each quarterly valuation date, the Operating Company's investment income, expenses, net realized gains (losses), and net increase (decrease) in unrealized appreciation (depreciation) are allocated to NMFC and AIV Holdings based on their pro-rata interest in the net assets of the Operating Company. This is recorded on NMFC's and AIV Holdings' Statements of Operations. Realized gains and losses are recorded upon sales of NMFC's and AIV Holdings' investments in the Operating Company. Net change in unrealized appreciation (depreciation) of investment in New Mountain Finance Holdings, L.L.C. is the difference between the net asset value per share and the closing price per share for shares issued as part of the dividend reinvestment plan on the dividend payment date. This net change in unrealized appreciation (depreciation) of investment in New Mountain Finance Holdings, L.L.C. includes the unrealized appreciation (depreciation) from the IPO. NMFC used the proceeds from its IPO and Concurrent Private Placement to purchase units in the Operating Company at $13.75 per unit (its IPO price per share). At the IPO date, $13.75 per unit represented a discount to the actual net asset value per unit of the Operating Company. As a result, NMFC experienced immediate unrealized appreciation on its investment in the Operating Company.investment. Concurrently, AIV Holdings experienced immediate unrealized depreciation on its investment in the Operating Company equal to the difference between NMFC's IPO price of $13.75 per unit and the actual net asset value per unit.

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

        With respect to the expenses incident to any registration of shares of NMFC's common stock issued in exchange for AIV Holdings' units of the Operating Company, AIV Holdings is directly responsible for the expenses of any demand registration (including underwriters' discounts or commissions) and their pro-rata share of any "piggyback" registration expenses.

Monitoring of Portfolio Investments

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




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

•

Investment Rating 1—Investment is performing materially above expectations;



•

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



•

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



•

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

        As of December 31, 2012,2013, all investments in the Operating Company's portfolio had an Investment Rating of 1 or 2 with the exception of two portfolio company names; one with an Investment Rating of 3 and the other with an Investment Rating of 4. During the quarter ended December 31, 2013, the Operating Company sold its first lien position in ATI Acquisition Company, resulting in a realized loss of $4.3 million. Prior to the sale, this investment had a cost basis of $4.3 million, a zero fair value and total unearned interest income of $0.6 million for the year ended. As of December 31, 2012,2013, the Operating Company's two super priority first lien positions in ATI Acquisition Company and related equity positions in Ancora Acquisition LLC had an Investment Rating of 4 due to the underlying business encountering significant regulatory constraints which have led to the portfolio company's underperformance. As of December 31, 2012,2013, the Operating Company's originaltwo super priority first lien positionpositions in ATI Acquisition Company remained on non-accrual status due to the inability of the portfolio company to service its interest payments for the quarteryear then ended and uncertainty about its ability to pay such amounts in the future. During the third quarter of 2013, the Operating Company received preferred shares and warrants in Ancora Acquisition LLC, in relation to the two super priority first lien positions in ATI Acquisition Company. As of December 31, 2012, this first lien debt2013, the Operating Company's investment in ATI Acquisition Company and Ancora Acquisition LLC had aan aggregate cost basis of $4.3$1.6 million, aan aggregate fair value of zero$0.4 million and total unearned interest income of $0.7$0.3 million for the year then ended. Additionally, the Operating Company's two super priority first lien debt investments in ATI Acquisition Company had a combined cost basis of $1.6 million and a combined fair value of $0.8 million as of December 31, 2012. Unrealized gains (losses) include a fee that the Operating Company would receive upon maturity of the two super priority first lien debt investments. During the third quarter of 2012, the Operating Company placed the super priority first lien positions on non-accrual status as well, resulting in total unearned interest income of $0.3 million for the year ended December 31, 2012. As of December 31, 2012, the Operating Company's total investment in ATI Acquisition Company had an aggregate cost basis of $5.9 million and an aggregate fair value of $0.8 million, putting the entire ATI Acquisition Company's positions on non-accrual status.

Portfolio and Investment Activity

        The fair value of the Operating Company's investments was approximately $1,115.7 million in 59 portfolio companies at December 31, 2013, $989.8 million in 63 portfolio companies at December 31, 2012 and $703.5 million in 55 portfolio companies at December 31, 2011 and $441.1 million in 43 portfolio companies at December 31, 2010.




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        The following table shows the Operating Company's portfolio and investment activity for the years ended December 31, 2012, December 31, 2011 and December 31, 2010:

		Years ended December 31,
(in millions)		2012			2011			2010
New investments in 45, 37 and 34 portfolio companies, respectively		$	673.2		$	493.3		$	332.7
Debt repayments in existing portfolio companies			299.2			146.4			40.3
Sales of securities in 22, 17 and 16 portfolio companies, respectively			124.7			85.6			217.9
Change in unrealized appreciation on 48, 17 and 36 portfolio companies, respectively			27.0			6.1			13.0
Change in unrealized depreciation on 30, 48 and 18 portfolio companies, respectively			(17.1	)		(29.2	)		(53.0	)

        At2013, December 31, 2012 and December 31, 2011,2011:

		Years ended December 31,
(in millions)		2013			2012			2011
New investments in 34, 45 and 37 portfolio companies, respectively		$	529.3		$	673.2		$	493.3
Debt repayments in existing portfolio companies			395.4			299.2			146.4
Sales of securities in 12, 22 and 17 portfolio companies, respectively			31.2			124.7			85.6
Change in unrealized appreciation on 45, 48 and 17 portfolio companies, respectively			27.9			27.0			6.1
Change in unrealized depreciation on 29, 30 and 48 portfolio companies, respectively			(19.9	)		(17.1	)		(29.2	)




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        At December 31, 2013 and December 31, 2012, the Operating Company's weighted average Yield to Maturity was approximately 10.1%10.6% and 10.7%10.1%, respectively.

Recent Accounting Standards Updates

        In May 2011,June 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2011-04, 2013-08,Financial Services—Investment Companies (Topic 946)—Amendments to Achieve Common Fair Valuethe Scope, Measurement and Disclosure Requirements in U.S. GAAP and IFRSs ("ASU 2011-04"2013-08"), which provides clarification about howcontains new guidance on assessing whether an entity is an investment company, requiring non-controlling ownership interests in investment companies to measurebe measured at fair value and improves comparability of fair value measurements presented and disclosed in accordance with GAAP and International Financial Reporting Standards. The amendments included inrequiring certain additional disclosures. ASU 2011-04 clarify the FASB's intent about the application of existing fair value measurement and disclosure requirements outlined in ASC 820, as well as include some instances of changes to particular principles or requirements. ASU 2011-04 clarifies that (i) the concept of the highest and best use valuation premise applies only to nonfinancial assets, (ii) instruments classified in stockholders' equity should be valued from the perspective of a market participant that holds that instrument as an asset, and (iii) quantitative information should be disclosed about unobservable inputs used in a fair value measurement that is categorized within Level III of the fair value hierarchy. ASU 2011-04 changes the guidance in (i) permitting an exception to ASC 820 by allowing an entity to measure the fair value of a group of financial assets and financial liabilities exposed to market and credit risks to be consistent with the entity's net risk exposures, instead of gross risk, (ii) applying premiums and discounts in a fair value measurement lacking a Level I inputs to be consistent with the ASC 820 requirements of fair value measurement but that applying premiums and discounts in a fair value measurement related to size as a characteristic of the holding rather than as a characteristic of the asset or liability is not permitted, and (iii) requiring additional disclosures about fair value measurements categorized within Level III of the fair value hierarchy, including the valuation processes used and the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs. ASU 2011-042013-08 is effective for the interim and annual periods beginning after December 15, 2011.2013. The adoption of ASU 2011-04 did2013-08 is not expected to have a significantmaterial impact on the Companies' financial statements. Additional disclosure was added where applicable.

Results of Operations

        Since NMFC and AIV Holdings are holding companies with no direct operations of their own, and their only business and sole asset are their ownership of common membership units of the Operating Company, NMFC's and AIV Holdings' results of operations are based on the Operating Company's results of operations.

        Under GAAP, NMFC's IPO did not step-up the cost basis of the Operating Company's existing investments to fair market value at the IPO date. Since the total value of the Operating Company's investments at the time of the IPO was greater than the investments' cost basis, a larger amount of




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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 or mature in the future. The Operating Company tracks the transferred (or fair market) value of each of its investment 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. SeeItem 8.—Financial Statements and Supplementary Data—Note 5, Agreements for additional details.




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        The following table for the Operating Company for the year ended December 31, 20122013 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, 2012			Stepped-up Cost Basis Adjustments			Incentive Fee Adjustments(1)			Adjusted year ended December 31, 2012				Year ended December 31, 2013			Stepped-up Cost Basis Adjustments			Incentive Fee Adjustments(1)			Adjusted year ended December 31, 2013
Investment income
Interest income		$	83,646		$	(3,476	)	$	—		$	80,170			$	107,027		$	(896	)	$	—		$	106,131
Dividend income			812			—			—			812				5,049			—			—			5,049
Other income			1,328			—			—			1,328				2,836			—			—			2,836
​														​		​	​		​	​		​	​		​	​
Total investment income			85,786			(3,476	)		—			82,310				114,912			(896	)		—			114,016
Total expenses pre-incentive fee			24,625			—			—			24,625
​														​		​	​		​	​		​	​		​	​
Total expenses pre-incentive fee(2)																31,504			—			—			31,504
​														​		​	​		​	​		​	​		​	​
Pre-Incentive Fee Net Investment Income			61,161			(3,476	)		—			57,685				83,408			(896	)		—			82,512
​														​		​	​		​	​		​	​		​	​
Incentive fee			15,944			—			(4,407	)		11,537				19,731			—			(3,229	)		16,502
​														​		​	​		​	​		​	​		​	​
Post-Incentive Fee Net Investment Income			45,217			(3,476	)		4,407			46,148				63,677			(896	)		3,229			66,010
​														​		​	​		​	​		​	​		​	​
Net realized gains (losses) on investments			18,851			(6,958	)		—			11,893				7,253			(3,158	)		—			4,095
Net change in unrealized appreciation of investments			9,928			10,434			—			20,362				7,994			4,054			—			12,048
Capital gains incentive fees			—			—			(4,407	)		(4,407	)			—			—			(3,229	)		(3,229	)
Net increase in capital resulting from operations		$	73,996								$	73,996
​														​		​	​		​	​		​	​		​	​
Net increase in members' capital resulting from operations															$	78,924								$	78,924
​														​		​	​		​	​		​	​		​	​
​														​		​	​		​	​		​	​		​	​

---

(1)

For the year ended December 31, 2012,2013, the Operating Company incurred total incentive fees of $15.9$19.7 million, of which $4.4$3.2 million related to capital gains incentive fees on a hypothetical liquidation basis.



(2)

Includes expense waivers and reimbursements of $3.2 million.

        For the year ended December 31, 2012,2013, the Operating Company had a $3.5$0.9 million adjustment to interest income for amortization, a decrease of $6.9$3.2 million to net realized gains and an increase of $10.4$4.1 million to net change in unrealized appreciation to adjust for the stepped-up cost basis of the transferred investments as discussed above. For the year ended December 31, 2012,2013, total adjusted interestinvestment income of $80.2$114.0 million consisted of approximately $71.9$94.5 million in cash interest from investments, approximately $2.2$3.4 million in payment-in-kindPIK interest from investments, approximately $3.6$5.8 million in prepayment fees, and net amortization of purchase premiums and discounts and origination fees of approximately $2.5 million.million, approximately $5.0 million in dividend income and approximately $2.8 million in other income. The Operating Company's Adjusted Net Investment Income was $46.1$66.0 million for the year ended December 31, 2012.




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        In accordance with GAAP, for the year ended December 31, 2012,2013, the Operating Company accrued $4.4$3.2 million of hypothetical capital gains incentive fee based upon the cumulative net Adjusted Realized Capital Gains and Adjusted Realized Capital Losses and the cumulative net Adjusted Unrealized Capital Appreciation and Adjusted Unrealized Capital Depreciation on investments held at the end of each period. Actual amounts paid to the Investment Adviser are consistent with the Investment Management Agreement and are based only on actual Adjusted Realized Capital Gains computed net of all Adjusted Realized Capital Losses and Adjusted Unrealized Capital Depreciation on a cumulative basis from inception through the end of each calendar year as if the entire portfolio was sold at fair value. As of December 31, 2012, no actual2013, approximately $1.1 million of capital gains incentive feefees was owed under the Investment Management Agreement, as cumulative net Adjusted Realized Capital




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Gains did not exceedexceeded cumulative Adjusted Unrealized Capital Depreciation. As of December 31, 2013, no payments have been made relating to the capital gains incentive fee.

        The following table for the Operating Company for the year ended December 31, 2012 is adjusted to reflect the step-up to fair market value and the allocation of the incentive fees related to hypothetical capital gains out of the adjusted post-incentive fee net investment income.

(in thousands)		Year ended December 31, 2012			Stepped-up Cost Basis Adjustments			Incentive Fee Adjustments(1)			Adjusted year ended December 31, 2012
Investment income
Interest income		$	83,646		$	(3,476	)	$	—		$	80,170
Dividend income			812			—			—			812
Other income			1,328			—			—			1,328
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total investment income			85,786			(3,476	)		—			82,310
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total expenses pre-incentive fee(2)			24,625			—			—			24,625
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Pre-Incentive Fee Net Investment Income			61,161			(3,476	)		—			57,685
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Incentive fee			15,944			—			(4,407	)		11,537
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Post-Incentive Fee Net Investment Income			45,217			(3,476	)		4,407			46,148
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Net realized gains (losses) on investments			18,851			(6,958	)		—			11,893
Net change in unrealized appreciation of investments			9,928			10,434			—			20,362
Capital gains incentive fees			—			—			(4,407	)		(4,407	)
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Net increase in members' capital resulting from operations		$	73,996								$	73,996
​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​

---

(1)

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



(2)

Includes expense waivers and reimbursements of $2.5 million.

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




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        The following table for the Operating Company for the period May 19, 2011 (effective date of the Investment Management Agreement) to December 31, 2011 is adjusted to reflect the step-up to fair market value.

(in thousands)		Period from May 19, 2011 to December 31, 2011			Adjustments			Adjusted Period from May 19, 2011 to December 31, 2011				Period from May 19, 2011 to December 31, 2011			Stepped-up Cost Basis Adjustments			Adjusted period from May 19, 2011 to December 31, 2011
Investment income
Interest income		$	38,836		$	(2,019	)	$	36,817			$	38,836		$	(2,019	)	$	36,817
Other income			670			—			670				670			—			670
​											​		​	​		​	​		​	​
Total investment income			39,506			(2,019	)		37,487				39,506			(2,019	)		37,487
Total expenses pre-incentive fee			11,863			—			11,863
​											​		​	​		​	​		​	​
Total expenses pre-incentive fee(1)													11,863			—			11,863
​											​		​	​		​	​		​	​
Pre-Incentive Fee Net Investment Income			27,643			(2,019	)		25,624				27,643			(2,019	)		25,624
Incentive fee(1)			3,522			—			3,522
​											​		​	​		​	​		​	​
Incentive fee(2)													3,522			—			3,522
​											​		​	​		​	​		​	​
Post-Incentive Fee Net Investment Income			24,121			(2,019	)		22,102				24,121			(2,019	)		22,102
​											​		​	​		​	​		​	​
Net realized gains (losses) on investments			3,298			(2,422	)		876				3,298			(2,422	)		876
Net change in unrealized (depreciation) appreciation of investments			(15,538	)		4,441			(11,097	)			(15,538	)		4,441			(11,097	)
Net increase in capital resulting from operations		$	11,881					$	11,881
​											​		​	​		​	​		​	​
Net increase in members' capital resulting from operations												$	11,881					$	11,881
​											​		​	​		​	​		​	​
​											​		​	​		​	​		​	​

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(1)

Includes expense waivers and reimbursements of $2.2 million.



(2)

For the year ended December 31, 2011, the Operating Company had no incentive fees related to capital gains incentive fees on a hypothetical liquidation basis.

        For the period May 19, 2011 (effective date of the Investment Management Agreement) to December 31, 2011, the Operating Company had a $2.0 million adjustment to interest income for amortization, a decrease of $2.4 million to realized gains and an increase of $4.4 million to unrealized depreciation to adjust for the stepped-up cost basis of the transferred investments as discussed above. The Operating Company's Adjusted Net Investment Income was $22.1 million for the period May 19, 2011 (effective date of the Investment Management Agreement) to December 31, 2011.




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Results of Operations for the Operating Company for the Years Ended December 31, 2012,2013, December 31, 20112012 and December 31, 20102011

Revenue

		Years ended December 31,										Years ended December 31,
(in thousands)		2012			2011			2010				2013			2012			2011
Interest income		$	83,646		$	55,809		$	40,485			$	107,027		$	83,646		$	55,809
Dividend income			812			—			—				5,049			812			—
Other income			1,328			714			890				2,836			1,328			714
​											​		​	​		​	​		​	​
Total investment income		$	85,786		$	56,523		$	41,375			$	114,912		$	85,786		$	56,523
​											​		​	​		​	​		​	​
​											​		​	​		​	​		​	​

        The Operating Company's total investment income increased by $29.1 million for the year ended December 31, 2013 as compared to the year ended December 31, 2012. The 34.0% increase in investment income results from the increase in interest and other income for the year ended December 31, 2013, which was primarily attributable to larger invested balances, driven by the proceeds




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from the 2012 and 2013 primary offerings of NMFC's common stock, the Operating Company's use of leverage for its revolving credit facilities to originate new investments and prepayment fees received associated with the early repayments or partial repayments of 20 different portfolio companies held by the Operating Company as of December 31, 2012. Additionally, the Operating Company's other income increased due to commitment fees received from three bridge facilities and consent, amendment and forbearance fees received associated with 10 different portfolio companies held by the Operating Company as of December 31, 2012. The increase in dividend income for the year ended December 31, 2013 was attributable to distributions received from two portfolio companies, which was recorded as dividend income.

        The Operating Company's total investment income increased by $29.3 million for the year ended December 31, 2012 as compared to the year ended December 31, 2011. The 51.8% increase in investment income from the year ended 2011 to the year ended 2012 was primarily attributable to larger invested balances, mainly driven by the proceeds from the July 2012 and December 2012 equity offerings, and the Operating Company's use of leverage from its revolving credit facilities to originate new investments. In the year ended December 31, 2012, the Operating Company's other income increased due to commitment fees received from three bridge facilities and fees received associated with amendments of 14 different portfolio companies. Additionally, during the year ended December 31, 2012, the Operating Company received distributions from two portfolio companies, which was recorded as dividend income.

        The Operating Company's total investment income increased by $15.1 million for the year ended December 31, 2011 as compared to the year ended December 31, 2010. The 36.6% increase in investment income from the year ended 2010 to the year ended 2011 was primarily attributable to larger invested balances, which was mainly driven by the proceeds of the IPO on May 19, 2011 and the formation of NMF SLF. NMF SLF, formed on October 7, 2010, uses cash injected by the Operating Company and leverage from its revolving credit facility to invest primarily in first lien debt securities. Additionally in 2011, the Operating Company's interest income increased due to prepayment premiums associated with the refinancing and early repayment of the debt of multiple portfolio companies.

Operating Expenses

		Years ended December 31,										Years ended December 31,
(in thousands)		2012			2011			2010				2013			2012			2011
Management fee												$	14,905		$	11,109		$	4,938
Incentive fee		$	15,944		$	3,522		$	—				16,502			11,537			3,522
Management fee			11,109			4,938			71
Capital gains incentive fee(1)													3,229			4,407			—
Interest and other credit facility expenses			10,085			7,086			2,948				12,470			10,085			7,086
Administrative fees													3,429			2,426			1,615
Professional fees			1,021			722			327				2,349			2,091			2,037
Other expenses			2,410			1,730			565				1,584			1,374			986
Total operating expenses		$	40,569		$	17,998		$	3,911
​											​		​	​		​	​		​	​
Total expenses													54,468			43,029			20,184
​											​		​	​		​	​		​	​
Less: expenses waived and reimbursed													(3,233	)		(2,460	)		(2,186	)
​											​		​	​		​	​		​	​
Net expenses												$	51,235		$	40,569		$	17,998
​											​		​	​		​	​		​	​
​											​		​	​		​	​		​	​

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(1)

For the year ended December 31, 2012, the total incentive fees incurred of $15.9 million included $4.4 million related to capitalCapital gains incentive fees onfee accrual assumes a hypothetical liquidation basis.

        The Operating Company's total net operating expenses increased by $10.7 million for the year ended December 31, 2013 as compared to the year ended December 31, 2012. The Operating Company's management fees increased by $3.8 million and incentive fees increased by $5.0 million for the year ended December 31, 2013 as compared to the year ended December 31, 2012. The increase in management and incentive fees from the year ended December 31, 2012 to the year ended December 31, 2013 was attributable to larger invested balances, driven by the proceeds from the 2012 and 2013 primary offerings of NMFC's common stock, the Operating Company's use of leverage from its revolving credit facilities to originate new investments and the receipt of a dividend distribution from one of the Operating Company's warrant investments. The Operating Company's capital gains incentive fees decreased $1.2 million for the year ended December 31, 2013 as compared to the year ended December 31, 2012, which was attributable to lower net Adjusted Realized Capital Gains (Losses) and Adjusted Unrealized Capital Appreciation (Depreciation) of investments during the period. As of December 31, 2013, approximately $1.1 million of capital gains incentive fees was owed




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under the Investment Management Agreement, as cumulative net Adjusted Realized Gains exceeded cumulative Adjusted Unrealized Depreciation. As of December 31, 2013, no payments have been made relating to the capital gains incentive fee.

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

        The Operating Company's total net operating expenses increased by $22.6 million for the year ended December 31, 2012 as compared to the year ended December 31, 2011. The Operating Company's management fees increased by $6.2 million and incentive fees increased by $6.2 million and $12.4$8.0 million, respectively, for the year ended December 31, 2012 as compared to the year ended December 31, 2011. The increase in




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management and incentive fees from the year ended December 31, 2011 to the year ended December 31, 2012 was attributable to larger invested balances, driven by the proceeds from the July 2012 and December 2012 equityprimary offerings of NMFC's common stock and the Operating Company's use of leverage from its revolving credit facilities to originate new investments. As a result of the net increase in Adjusted Realized Capital Gains (Losses) and Adjusted Unrealized Capital Appreciation (Depreciation), a capital gains incentive fees accrual of $4.4 million was booked for the year ended December 31, 2012. No capital gains incentive fees were booked for the year ended December 31, 2011. As a result of the IPO on May 19, 2011, the Operating Company pays management fees and incentive fees under its Investment Management Agreement, which provides a different basis for the calculation of these fees as compared to amounts previously paid prior to the completion of the IPO. As such, management and incentive fees were calculated in accordance with this agreement for a full year in 2012 as compared to a partial year in 2011. Prior to the IPO, an affiliate of the Predecessor Entities paid a majority of the management and incentive fees.

        Interest and other credit facility expenses increased by $3.0 million during the year ended December 31, 2012, primarily due to the increase of average debt outstanding from $61.6 million to $133.6 million for the Holdings Credit Facility and from $133.8 million to $181.4 million for the SLF Credit Facility for the year ended December 31, 2011 compared to December 31, 2012. For the yearsyear ended December 31, 2012, and December 31, 2011, the Operating Company incurred $2.5 million and $2.2less than $0.1 million in other expenses that were abovenot subject to the expense cap pursuant to the Administration Agreement as amended and restated, and further restricted by the Operating Company.

        The No expenses were incurred by the Operating Company's total operating expenses increased by $14.1 millionCompany outside the expense cap for the year ended December 31, 2011 as compared to the year ended December 31, 2010. The Operating Company's management fees and incentive fees increased by $4.9 million and $3.5 million, respectively, for the year ended December 31, 2011 as compared to the year ended December 31, 2010. As a result of the IPO on May 19, 2011, the Operating Company pays management fees and incentive fees under its Investment Management Agreement, which provides a different basis for the calculation of these fees as compared to amounts previously paid prior to the completion of the IPO. Prior to the IPO, an affiliate of the Predecessor Entities paid a majority of the management and incentive fees.

        Interest and other credit facility expenses increased by $4.1 million during the year ended December 31, 2011. The credit facility of NMF SLF was originally executed in October 2010 and, therefore, it was not outstanding for the full year ended December 31, 2010. Costs associated with the closing of the credit facility of NMF SLF are capitalized and charged against income as other credit facility expense.

        Historical operating expenses do not reflect the allocation of certain professional fees, administrative and other expenses that have been incurred following the completion of the IPO. Accordingly, the Operating Company's historical operating expenses are not comparable to its operating expenses after the completion of the IPO on May 19, 2011.

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

		Years ended December 31,										Years ended December 31,
(in thousands)		2012			2011			2010				2013			2012			2011
Net realized gains on investments		$	18,851		$	16,252		$	66,287			$	7,253		$	18,851		$	16,252
Net change in unrealized appreciation (depreciation) of investments			9,928			(23,100	)		(39,959	)			7,994			9,928			(23,100	)
​											​		​	​		​	​		​	​
Total net realized gains and net change in unrealized appreciation (depreciation) of investments		$	28,779		$	(6,848	)	$	26,328			$	15,247		$	28,779		$	(6,848	)
​											​		​	​		​	​		​	​
​											​		​	​		​	​		​	​




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        The Operating Company's net realized and unrealized gains or losses resulted in a net gain of $15.2 million for the year ended December 31, 2013 compared to a net gain of $28.8 million for the year ended December 31, 2012, compared toand a net loss of $6.8 million for the same period in 2011, and a net gain of $26.3 million for the same period in 2010.2011. We look at




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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, 2013 was primarily driven by sales or repayment of investments with fair values in excess of December 31, 2012 valuations, resulting in net realized gains being greater than the reversal of the cumulative net unrealized gains for those investments. Additionally, during the year ended December 31, 2013, a distribution from a warrant investment resulted in a realized gain of approximately $1.1 million, the modification of terms on one debt investment that was accounted for as an extinguishment resulted in a realized gain of $1.7 million and the sale of the first lien position in ATI Acquisition Company resulted in a realized loss of $4.3 million. The total net gain for the year ended December 31, 2012 was primarily related to the overall increase in the market and the quality of the Operating Company's portfolio, directly impacting the prices of the Operating Company's portfolio. The appreciation of the Operating Company's portfolio and the sale or repayment of investments with fair values in excess of December 31, 2011 valuations, resulted in net realized gains being greater than the reversal of the cumulative net unrealized gains for those investments. The total net loss for the year ended December 31, 2011 was primarily related to the overall market decline, directly impacting the prices of the Operating Company's portfolio. The total net gain for the year ended December 31, 2010 was primarily driven by the continued appreciation of the Operating Company's portfolio and the sale of investments with fair values in excess of December 31, 2009 valuations, resulting in realized gains being greater than the reversal of the cumulative unrealized gains for those investments.

Liquidity and Capital Resources

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

        GuardianSince NMFC's IPO, and through December 31, 2013, NMFC raised approximately $233.4 million in net proceeds from additional offerings of common stock and issued shares valued at approximately $249.6 million on behalf of AIV and New Mountain Guardian Partners, L.P. contributed a portfolio toHoldings for exchanged units. NMFC acquired from the Operating Company in connection with the IPO of NMFC, receiving 20,221,938 units of the Operating Company and 1,252,964equal to the number of shares of NMFC's common stock sold in the additional offerings.

        On March 25, 2013, NMFC respectively. On May 19, 2011, NMFC priced its initialcompleted a public offering of 7,272,7272,000,000 shares of its common stock and an underwritten secondary public offering of 4,000,000 shares of its common stock on behalf of a selling stockholder, AIV Holdings, 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. NMFC used the gross proceeds from the IPO and Concurrent Private Placement to acquire units in the Operating Company.

        On July 10, 2012, NMFC's shelf registration statement became effective. On July 17, 2012, NMFC completed a public offering of 5,250,000 shares of its common stock at a public offering price of $14.35$14.30 per share. In connection with thisthe underwritten secondary public offering, the underwriters purchased an additional 676,802900,000 shares of NMFC's common stock from AIV Holdings with the exercise of the overallotment option to purchase up to an additional 787,500900,000 shares of common stock. The Operating Company received net proceeds of $28.4 million in connection with the sale of 2,000,000 shares by NMFC of its common stock. NMFC did not receive any proceeds from the sale of shares of NMFC's common stock by AIV Holdings. The Operating Company and NMFC bore only their allocable portion of offering expenses related to the public offering of 2,000,000 shares, and did not bear any expenses in connection with the secondary public offering of the 4,900,000 shares of NMFC's common stock on behalf of AIV Holdings, which were borne by AIV Holdings.

        On September 28, 2012,June 21, 2013, NMFC completed a public offering of 2,000,000 shares of its common stock and an underwritten secondary public offering of 4,000,000 shares of its common stock at a public offering price of $15.00 per share on behalf of a selling stockholder, AIV Holdings. No shares were sold by NMFC, and it did not receive any proceeds from this secondary public offering. The Operating Company and NMFC did not bear any expenses in connection with the offering. The offering expenses were borne by the selling stockholder, AIV Holdings.

        On December 7, 2012, NMFC completed a public offering of 3,250,000 shares of its common stockHoldings, at a public offering price of $14.80$14.55 per share. In connection with the underwritten secondary public offering, the underwriters purchased an additional 320,063750,000 shares of NMFC's common stock from AIV Holdings with the exercise of the overallotment option to purchase up to an additional 487,500900,000 shares of common stock. The Operating Company received net proceeds of $28.6 million in connection with the sale of 2,000,000 shares by NMFC of its common stock. NMFC did not receive any proceeds from the sale of shares of NMFC's common stock by AIV Holdings. The Operating Company and NMFC bore only their allocable portion of offering expenses related to the public offering of 2,000,000 shares, and did not bear any expenses in connection with the secondary public offering of the 4,750,000 shares of NMFC's common stock on behalf of AIV Holdings, which were borne by AIV Holdings.




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        On October 17, 2013, NMFC completed a public offering of 3,000,000 shares of its common stock and an underwritten secondary public offering of 3,000,000 shares of its common stock on behalf of a selling stockholder, AIV Holdings, at a public offering price of $14.34 per share. In connection with the underwritten secondary public offering, the underwriters purchased an additional 900,000 shares of NMFC's common stock from AIV Holdings with the exercise of the overallotment option to purchase up to an additional 900,000 shares of common stock. The Operating Company received net proceeds of $43.0 million in connection with the sale of 3,000,000 shares by NMFC of its common stock. NMFC did not receive any proceeds from the sale of shares of NMFC's common stock by AIV Holdings. The Operating Company and NMFC bore only their allocable portion of offering expenses related to the public offering of 3,000,000 shares, and did not bear any expenses in connection with the secondary public offering of the 3,900,000 shares of NMFC's common stock on behalf of AIV Holdings, which were borne by AIV Holdings.

        The Operating Company's liquidity is generated and generally available through advances from the revolving credit facilities, from cash flows from operations, and, we expect, through periodic follow-on equity offerings of NMFC.




Table In addition, we may from time to time enter into additional debt facilities, increase the size of Contentsexisting 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, 2012,2013, December 31, 20112012 and December 31, 2010,2011, the Operating Company had cash and cash equivalents of approximately $15.0 million, $12.8 million $15.3 million and $10.7$15.3 million, respectively. Cash (used in) provided byused in operating activities for the years ended December 31, 2013, December 31, 2012 and December 31, 2011 and December 31, 2010 was approximately $(40.4) million, $(212.6) million $(316.3) million and $29.1$(316.3) million, respectively. We expect that all current liquidity needs by the Operating Company will be met with cash flows from operations and other activities.

Credit Facilities

        Holdings Credit Facility—The Loan and Security Agreement, as amended and restated, dated May 19, 2011 (the "Holdings Credit Facility") among the Operating Company as the Borrower and Collateral Administrator, Wells Fargo Securities, L.L.C. as the Administrative Agent, and Wells Fargo Bank, National Association, as the Collateral Custodian, is structured as a revolving credit facility and matures on October 27, 2016, as amended on May 8, 2012.

        The maximum amount of revolving borrowings available under the Holdings Credit Facility is $210.0$280.0 million, as amended on December 18, 2012.October 28, 2013. As of December 31, 2012,2013, the Operating Company was permitted to borrow up to 45.0% or 25.0% of the purchase price of pledged first lien or non-first lien debt securities, and up to 70.0% and 45.0% of the purchase price of specified first lien debt securities and specified non-first lien debt securities, respectively, subject to approval by Wells Fargo Bank, National Association. The credit facilityHoldings Credit Facility is collateralized by all of the investments of the Operating Company on an investment by investment basis. All fees associated with the origination or upsizing of the Holdings Credit Facility are capitalized on the Operating Company's Consolidated Statement of Assets, Liabilities, and Members' Capital and charged against income as other credit facility expenses over the life of the Holdings Credit Facility. The Holdings Credit Facility contains certain customary affirmative and negative covenants and events of default, including the occurrence of a change in control. In addition, the Holdings Credit Facility requires the Operating Company to maintain a minimum asset coverage ratio. However, the covenants are generally not tied to mark to market fluctuations in the prices of the Operating Company's investments, but rather to the performance of the underlying portfolio companies.




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        The Holdings Credit Facility (as well as the Predecessor Credit Facility) bears interest at a rate of the London Interbank Offered Rate ("LIBOR") plus 2.75% per annum, as amended on May 8, 2012, and charges a non-usage fee, based on the unused facility amount multiplied by the Non-Usage Fee Rate (as defined in the credit agreement).

        The following table summarizes the interest expense and non-usage fees incurred by the Operating Company on the Holdings Credit Facility for the years ended December 31, 2012,2013, December 31, 20112012 and December 31, 2010:2011.

		Years ended December 31,										Years ended December 31,
(in millions)		2012			2011			2010				2013			2012			2011
Interest expense		$	4.2		$	2.0		$	2.2			$	5.5		$	4.2		$	2.0
Non-usage fee		$	0.3		$	0.6		$	0.3			$	0.4		$	0.3		$	0.6
Weighted average interest rate			3.1	%		3.2	%		3.3	%			2.9	%		3.1	%		3.2	%
Average debt outstanding		$	133.6		$	61.6		$	68.3			$	184.1		$	133.6		$	61.6

        The outstanding balance of Holdings Credit Facility as of December 31, 2013, December 31, 2012 and December 31, 2011 and December 31, 2010 was $221.8 million, $206.9 million $129.0 million and $59.7$129.0 million, respectively. As of December 31, 2013, December 31, 2012 and December 31, 2011, and December 31, 2010, the Operating Company iswas not aware of any instances of non-compliance related to the Holdings Credit Facility on such dates.




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        SLF Credit Facility—The Operating Company's senior loan fund'sNMF SLF's Loan and Security Agreement, as amended and restated, dated October 27, 2010 (the "SLF Credit Facility") among NMF SLF as the Borrower, the Operating Company as the Collateral Administrator, Wells Fargo Securities, L.L.C. as the Administrative Agent, and Wells Fargo Bank, National Association, as the Collateral Custodian, is structured as a revolving credit facility and matures on October 27, 2016, as amended on May 8, 2012. The maximum amount of revolving borrowings available under the SLF Credit Facility is $215.0 million, as amended on December 18, 2012. The loan is non-recourse to the Operating Company and secured by all assets owned by the borrower on an investment by investment basis. All fees associated with the origination or upsizing of the SLF Credit Facility are capitalized on the Consolidated Statement of Assets, Liabilities, and Members' Capital and charged against income as other credit facility expenses over the life of the SLF Credit Facility. The SLF Credit Facility contains certain customary affirmative and negative covenants and events of default, including the occurrence of a change in control. The covenants are generally not tied to mark to market fluctuations in the prices of ourthe Operating Company's investments, but rather to the performance of the underlying portfolio companies.

        As of December 31, 2012, the SLF Credit Facility permitted borrowings of up to 70.0% of the purchase price of pledged debt securities subject to approval by Wells Fargo Bank, National Association. Due to a fifthan amendment to the SLF Credit Facility on October 27, 2011, NMF SLF is no longer restricted from the purchase or sale of loans with an affiliate. Therefore, specified first lien loans can be moved as collateral between the Holdings Credit Facility and the SLF Credit Facility.

        As of December 31, 2013, the SLF Credit Facility permits borrowings of up to 70.0% of the purchase price of pledged first lien debt securities and up to 25.0% of the purchase price of specified second lien loans, of which, up to 25.0% of the aggregate outstanding loan balance of all pledged debt securities in the SLF Credit Facility is allowed to be derived from second lien loans, subject to approval by Wells Fargo Bank, National Association, as amended on March 11, 2013.

        The SLF Credit Facility bears interest at a rate of LIBOR plus 2.00% per annum for first lien loans and 2.75% for second lien loans, respectively, as amended on May 8, 2012.March 11, 2013. A non-usage fee is paid, based on the unused facility amount multiplied by the Non-Usage Fee Rate (as defined in the credit agreement).




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        The following table summarizes the interest expense and non-usage fees incurred by the Operating Company on the SLF Credit Facility for the years ended December 31, 2012,2013, December 31, 20112012 and the period from October 7, 2010 (commencement of NMF SLF operations) to December 31, 2010:2011.

		Years ended December 31,
								From October 7, 2010 (commencement of NMF SLF operations) to December 31, 2010				Years ended December 31,
(in millions)		2012			2011							2013			2012			2011
Interest expense		$	4.2		$	3.4		$	0.1			$	4.9		$	4.2		$	3.4
Non-usage fee		$	0.0	(1)	$	0.1		$	0.1			$	—	(1)	$	—	(1)	$	0.1
Weighted average interest rate			2.3	%		2.5	%		2.5	%			2.3	%		2.3	%		2.5	%
Average debt outstanding		$	181.4		$	133.8		$	27.7			$	214.3		$	181.4		$	133.8

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(1)

For the year ended December 31, 2013 and December 31, 2012, the total non-usage fee was less than $0.1 million.$50 thousand.

        The outstanding balance as of December 31, 2013, December 31, 2012 and December 31, 2011 and December 31, 2010 was $214.7 million, $214.3 million $165.9 million and $56.9$165.9 million, respectively. As of December 31, 2013, December 31, 2012 and December 31, 2011, and December 31, 2010, NMF SLF iswas not aware of any instances of non-compliance related to the SLF Credit Facility on such dates.

Off-Balance Sheet Arrangements

        The Operating Company may become a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of its portfolio companies. These instruments may include commitments to extend credit and involve, to varying degrees, elements of liquidity and credit risk in excess of the amount recognized in the balance sheet. As of December 31, 20122013 and December 31, 2011,2012, the Operating Company had outstanding commitments to third parties to fund investments totaling $10.5$15.5 million and $27.0$10.5 million, respectively, under various undrawn revolving credit facilities, delayed draw commitments or other future funding commitments.




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        The Operating Company may from time to time enter into financing commitment letters or bridge financing commitments, which could require funding in the future. As of December 31, 20122013 and December 31, 2011,2012, the Operating Company did not enter into any commitment letters to purchase debt investments. As of December 31, 2011,2013 and December 31, 2012, the Operating Company had not entered into any bridge financing commitments which could require funding in an aggregate par amount of $35.0 million. There were no such bridge financing commitments outstanding as of December 31, 2012.the future.

Borrowings

        The Operating Company had borrowings of $206.9$221.8 million and $129.0$206.9 million outstanding as of December 31, 20122013 and December 31, 2011,2012, respectively, under the Holdings Credit Facility. The Operating Company had borrowings of $214.3$214.7 million and $165.9$214.3 million outstanding as of December 31, 20122013 and December 31, 2011,2012, respectively, under the SLF Credit Facility.




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Contractual Obligations

        A summary of the Operating Company's significant contractual payment obligations as of December 31, 20122013 is as follows:

					Contractual Obligations Payments Due by Period (in thousands)																Contractual Obligations Payments Due by Period (in millions)
		Total			Less than 1 Year			1 - 3 Years			3 - 5 Years			More than 5 Years				Total			Less than 1 Year			1 - 3 Years			3 - 5 Years			More than 5 Years
Holdings Credit Facility(1)		$	206,938		$	—		$	—		$	206,938		$	—			$	221.8		$	—		$	221.8		$	—		$	—
SLF Credit Facility(2)			214,262			—			—			214,262			—				214.7			—			214.7			—			—
​																	​		​	​		​	​		​	​		​	​		​	​
Total Contractual Obligations		$	421,200		$	—		$	—		$	421,200		$	—			$	436.5		$	—		$	436.5		$	—		$	—

---

(1)

Under the terms of the $210.0$280.0 million Holdings Credit Facility, all outstanding borrowings under that facility ($206.9221.8 million as of December 31, 2012) were required to2013) must be repaid on or before October 27, 2016. As of December 31, 2012,2013, there was approximately $3.1$58.2 million of possible capacity remaining under the Holdings Credit Facility.



(2)

Under the terms of the $215.0 million SLF Credit Facility, all outstanding borrowings under that facility ($214.3214.7 million as of December 31, 2012)2013) must be repaid on or before October 27, 2016. As of December 31, 2012,2013, there was approximately $0.7$0.3 million of possible capacity remaining under the SLF Credit Facility.

        The Operating Company has certain contracts under which it has material future commitments. The Operating Company has $10.5$15.5 million of undrawn funding commitments as of December 31, 20122013 related to its participation as a lender in revolving credit facilities, delayed draw commitments or other future funding commitments of the Operating Company's portfolio companies. As of December 31, 2012,2013, the Operating Company did not enter into any bridge financing commitments, which could require funding in the future.

        We have entered into the Investment Management Agreement with the Investment Adviser in accordance with the 1940 Act. Under the Investment Management Agreement, the Investment Adviser has agreed to provide the Operating Company with investment advisory and management services. We have agreed to pay for these services (1) a management fee and (2) an incentive fee based on its performance.

        We have also entered into an administration agreement, as amended and restated (the "Administration Agreement"),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




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respective day-to-day operations. The Administrator has also agreed to perform, or oversee the performance of, our financial records, our reports to stockholders / unit holders and reports filed with the Securities and Exchange Commission.

        If any of the contractual obligations discussed above are terminated, our costs under any new agreements that are entered into may increase. In addition, we would likely incur significant time and expense in locating alternative parties to provide the services we expect to receive under the Investment Management Agreement and the Administration Agreement.

Distributions and Dividends

        Dividends declared and paid to stockholders / unit holders of the Companies for the year ended December 31, 20122013 totaled $59.4 million,$65.1 million.




Table of which $3.4 million remained as an outstanding payable to NMFC and its stockholders as of December 31, 2012 and $7.8 million remained as an outstanding payable to AIV Holdings and its stockholders as of December 31, 2012. Separately, AIV Holdings declared and distributed additional dividends of $58.2 million to its sole stockholder, Guardian AIV, in connection with proceeds from the September 28, 2012 underwritten secondary public offering.Contents

        The following table summarizes ourthe Operating Company's and NMFC's quarterly cash distributions, including dividends and returns of capital, if any, per unit/share that have been declared by the Operating Company's board of directors, and subsequently NMFC's board of directors, since NMFC's IPO:

Fiscal Year Ended		Date Declared		Record Date		Payment Date		Per Share/ Unit Amount				Date Declared		Record Date		Payment Date		Per Share/ Unit Amount
December 31, 2013
Fourth Quarter												November 8, 2013		December 17, 2013		December 31, 2013		$	0.34
Third Quarter												August 7, 2013		September 16, 2013		September 30, 2013			0.34
Third Quarter												August 7, 2013		August 20, 2013		August 30, 2013			0.12	(1)
Second Quarter												May 6, 2013		June 14, 2013		June 28, 2013			0.34
First Quarter												March 6, 2013		March 15, 2013		March 28, 2013			0.34
​											​	​	​	​	​	​	​		​	​
																		$	1.48
December 31, 2012
Fourth Quarter(1)		December 27, 2012		December 31, 2012		January 31, 2013		$	0.14
Fourth Quarter												December 27, 2012		December 31, 2012		January 31, 2013		$	0.14	(2)
Fourth Quarter		November 6, 2012		December 14, 2012		December 28, 2012			0.34			November 6, 2012		December 14, 2012		December 28, 2012			0.34
Third Quarter		August 8, 2012		September 14, 2012		September 28, 2012			0.34			August 8, 2012		September 14, 2012		September 28, 2012			0.34
Second Quarter		May 8, 2012		June 15, 2012		June 29, 2012			0.34			May 8, 2012		June 15, 2012		June 29, 2012			0.34
Second Quarter(2)		May 8, 2012		May 21, 2012		May 31, 2012			0.23
Second Quarter												May 8, 2012		May 21, 2012		May 31, 2012			0.23	(3)
First Quarter		March 7, 2012		March 15, 2012		March 30, 2012			0.32			March 7, 2012		March 15, 2012		March 30, 2012			0.32
​											​	​	​	​	​	​	​		​	​
																		$	1.71
December 31, 2011
Fourth Quarter		November 8, 2011		December 15, 2011		December 30, 2011		$	0.30			November 8, 2011		December 15, 2011		December 30, 2011		$	0.30
Third Quarter		August 10, 2011		September 15, 2011		September 30, 2011			0.29			August 10, 2011		September 15, 2011		September 30, 2011			0.29
Second Quarter		August 10, 2011		August 22, 2011		August 31, 2011			0.27			August 10, 2011		August 22, 2011		August 31, 2011			0.27
​											​	​	​	​	​	​	​		​	​
																		$	0.86
​											​	​	​	​	​	​	​		​	​
Total								$	2.57									$	4.05
​											​	​	​	​	​	​	​		​	​
​											​	​	​	​	​	​	​		​	​

---

(1)

Special dividend related to a distribution received attributable to the Operating Company's investment in YP Equity Investors LLC.



(2)

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



(2)(3)

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




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        The following table summarizes ourAIV Holdings' quarterly cash distributions, including dividends and returns of capital, if any, that have been declared by the Operating Company's board of directors on a per share/unit basis, and subsequently AIV Holdings' board of directors, since NMFC's IPO:

Fiscal Year Ended		Date Declared		Record Date		Payment Date		Amount (in millions)
December 31, 2012
Fourth Quarter(1)(2)		December 27, 2012		December 31, 2012		January 31, 2013		$	2.3
Fourth Quarter(1)		November 6, 2012		December 14, 2012		December 28, 2012(3)			5.5
Third Quarter(4)		August 8, 2012		September 14, 2012		September 28, 2012			6.9	(5)
Second Quarter(4)		May 8, 2012		June 15, 2012		June 29, 2012(7)			6.9
Second Quarter(4)(6)		May 8, 2012		May 21, 2012		May 31, 2012			4.6
First Quarter(4)		March 7, 2012		March 15, 2012		March 30, 2012(8)			6.5
December 31, 2011(4)
Fourth Quarter		November 8, 2011		December 15, 2011		December 30, 2011		$	6.1
Third Quarter		August 10, 2011		September 15, 2011		September 30, 2011			5.9
Second Quarter		August 10, 2011		August 22, 2011		August 31, 2011			5.4
Total								$	50.1

Fiscal Year Ended		Date Declared		Record Date		Payment Date		Amount (in millions)
December 31, 2013
Fourth Quarter		November 8, 2013		December 17, 2013(1)		December 31, 2013		$	0.9	(2)
Third Quarter		August 7, 2013		September 16, 2013(3)		September 30, 2013			2.2
Third Quarter		August 7, 2013		August 20, 2013(3)		August 30, 2013			0.8	(4)
Second Quarter		May 6, 2013		June 14, 2013(5)		June 28, 2013			3.8	(6)
First Quarter		March 6, 2013		March 15, 2013(7)		March 28, 2013(8)			5.5	(9)
​	​	​	​	​	​	​	​	​	​	​
								$	13.2
December 31, 2012
Fourth Quarter		December 27, 2012		December 31, 2012(7)		January 31, 2013		$	2.3	(10)
Fourth Quarter		November 6, 2012		December 14, 2012(7)		December 28, 2012(11)			5.5
Third Quarter		August 8, 2012		September 14, 2012(12)		September 28, 2012			6.9	(13)
Second Quarter		May 8, 2012		June 15, 2012(12)		June 29, 2012(14)			6.9
Second Quarter		May 8, 2012		May 21, 2012(12)		May 31, 2012			4.6	(15)
First Quarter		March 7, 2012		March 15, 2012(12)		March 30, 2012(16)			6.5
​	​	​	​	​	​	​	​	​	​	​
								$	32.7
December 31, 2011
Fourth Quarter		November 8, 2011		December 15, 2011(12)		December 30, 2011		$	6.1
Third Quarter		August 10, 2011		September 15, 2011(12)		September 30, 2011			5.9
Second Quarter		August 10, 2011		August 22, 2011(12)		August 31, 2011			5.4
​	​	​	​	​	​	​	​	​	​	​
								$	17.4
​	​	​	​	​	​	​	​	​	​	​
Total								$	63.3
​	​	​	​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​	​	​	​

---

(1)

As of the record date, AIV Holdings owned 2,671,938 units of the Operating Company. AIV Holdings received a total dividend for the amounts and subsequently AIV Holdings' board of directors declared total dividends in the same amounts payable to the holders of record as of the record date.



(2)

This amount does not include the distribution to Guardian AIV of $54.2 million in connection with net proceeds from the October 17, 2013 underwritten secondary public offering of NMFC's common stock on behalf of AIV Holdings.



(3)

As of the record date, AIV Holdings owned 6,571,938 units of the Operating Company. AIV Holdings received a total dividend for the amounts and subsequently AIV Holdings' board of directors declared total dividends in the same amounts payable to the holders of record as of the record date.



(4)

Special dividend related to a distribution received attributable to the Operating Company's investment in YP Equity Investors LLC.



(5)

As of the record date, AIV Holdings owned 11,321,938 units of the Operating Company. AIV Holdings received a total dividend for the amounts and subsequently AIV Holdings' board of directors declared total dividends in the same amounts payable to the holders of record as of the record date.



(6)

This amount does not include the distribution to Guardian AIV of $66.9 million in connection with net proceeds from the June 21, 2013 underwritten secondary public offering of NMFC's common stock on behalf of AIV Holdings.



(7)

As of the respective record dates, AIV Holdings owned 16,221,938 units of the Operating Company. AIV Holdings received a total dividend for the respective amounts and subsequently AIV Holdings' board of directors declared total dividends in the same amounts payable to the holders of record as of the respective record dates.



(2)(8)

Actual cash payment was made on April 5, 2013.




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(9)

This amount does not include the distribution to Guardian AIV of $67.8 million in connection with net proceeds from the March 25, 2013 underwritten secondary public offering of NMFC's common stock on behalf of AIV Holdings.



(10)

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



(3)(11)

Actual cash payment was made on January 7, 2013.



(4)(12)

As of the respective record dates, AIV Holdings owned 20,221,938 units of the Operating Company. AIV Holdings received a total dividend for the respective amounts and subsequently AIV Holdings' board of directors declared total dividends in the same amounts payable to the holders of record as of the respective record dates.



(5)(13)

This amount does not include the distribution to Guardian AIV of $58.2 million in connection with net proceeds from the September 28, 2012 underwritten secondary public offering.offering of NMFC's common stock on behalf of AIV Holdings.



(6)(14)

Actual cash payment was made on July 9, 2012.



(15)

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



(7)

Actual cash payment was made on July 9, 2012.



(8)(16)

Actual cash payment was made on April 4, 2012.

        Tax characteristics of all dividends paid by NMFC and AIV Holdings were reported to stockholders on Form 1099 after the end of the calendar year. Future quarterly dividends, if any, for the Companies will be determined by their respective board of directors.

        Since NMFC and AIV Holdings are holding companies, all distributions on their common stock will be paid from distributions received from the Operating Company. The Operating Company intends to make distributions to its unit holders that will be sufficient to enable NMFC and AIV Holdings to pay quarterly distributions to their stockholders and to obtain and maintain their status as RICs. Under certain circumstances, the distributions that the Operating Company makes to its members may not be sufficient for AIV Holdings to satisfy the annual distribution requirement necessary for AIV Holdings to qualify as a RIC. In that case, it is expected that Guardian AIV would consent to be treated as if it received distributions from AIV Holdings sufficient to satisfy the annual distribution requirement. Guardian AIV would be required to include the consent dividend in its taxable income as a dividend




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from AIV Holdings, which would result in phantom (i.e., non-cash) taxable income to Guardian AIV. AIV Holdings intends to make quarterly distributions to Guardian AIV out of assets legally available for distribution each quarter. NMFC intends to distribute approximately its entire portion of the Operating Company's Adjusted Net Investment Income on a quarterly basis and substantially its entire portion of the Operating Company's taxable income on an annual basis, except that it may retain certain net capital gains for reinvestment.

        NMFC maintains an "opt out" dividend reinvestment plan for its common stockholders. As a result, if the Operating Company declares a dividend, then NMFC stockholders' cash dividends will be automatically reinvested in additional shares of NMFC's common stock, unless they specifically "opt out" of the dividend reinvestment plan so as to receive cash dividends. Cash dividends reinvested in additional shares of NMFC's common stock will be automatically reinvested by NMFC in the Operating Company in exchange for additional units of the Operating Company. SeeItem 8—Financial Statements and Supplementary Data—Note 2, Summary of Significant Accounting Policies for additional details regarding NMFC's dividend reinvestment plan.

        AIV Holdings does not intend to reinvest any distributions received in additional units of the Operating Company.




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Related Parties

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

•

Together, NMFC and AIV Holdings own all the outstanding units of the Operating Company. As of December 31, 2012,2013, NMFC and AIV Holdings own approximately 60.0%94.4% and 40.0%5.6%, respectively, of the units of the Operating Company.



•

The Operating Company has entered into anthe 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 Companies have entered into an Administration Agreement, with the Administrator, a wholly-owned subsidiary of New Mountain Capital. The Administrator arranges office space for the Companies and provides office equipment and administrative services necessary to conduct their respective day-to-day operations pursuant to the Administration Agreement. The Operating Company reimburses the Administrator for the allocable portion of overhead and other expenses incurred by it in performing its obligations to the Companies under the Administration Agreement, including rent, the fees and expenses associated with performing administrative, finance, and compliance functions, and the compensation of the Operating Company's chief financial officer and chief compliance officer and their respective staffs. Pursuant to the Administration Agreement as amended and restated, and further restricted by the Operating Company, expenses payable to the Administrator by the Operating Company as well as other direct and indirect expenses (excluding interest, other credit facility expense, trading expenses and management and incentive fees) has been capped at $3.5 million for the time period from April 1, 2012 to March 31, 2013 and capped at $4.25 million for the time period from April 1, 2013 to March 31, 2014. The expense cap will expire on March 31, 2014. Thereafter, the Administrator may, in its own discretion, submit to the Operating Company for reimbursement some or all of the expenses that the Administrator has incurred on behalf of the Operating Company during any quarterly period. As a result, the amount of expenses for which the Operating Company will have to reimburse the Administrator may fluctuate in future quarterly periods and there can be no assurance given as to when, or if, the Administrator may determine to limit the expenses that the Administrator submits to the Operating Company for reimbursement in the future. However, it is expected that the Administrator will continue to support part of the expense burden of the Operating Company in the near future.



•

The Companies, the Investment Adviser and the Administrator have entered into a royalty-free Trademark License Agreement, as amended, with New Mountain Capital, pursuant to which New Mountain Capital has agreed to grant the Companies, the Investment Adviser and the Administrator, a non-exclusive, royalty-free license to use the name "New Mountain" and "New Mountain Finance".




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        In addition, NMFC and the Operating Company have adopted a formal code of ethics that governs the conduct of their respective officers and directors. These officers and directors also remain subject to the duties imposed by the 1940 Act, the Delaware General Corporation Law and the Delaware Limited Liability Company Act.

        The Investment Adviser and its affiliates may also manage other funds in the future that may have investment mandates that are similar, in whole and in part, with the Operating Company's investment mandates. The Investment Adviser and its affiliates may determine that an investment is appropriate




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for the Operating Company and for one or more of those other funds. In such event, depending on the availability of such investment and other appropriate factors, the Investment Adviser or its affiliates may determine that 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 Securities and Exchange Commission and its staff, and consistent with the Investment Adviser's allocation procedures.

        Concurrently with the IPO, NMFC sold an additional 2,172,000 shares of its common stock to certain executives and employees of, and other individuals affiliated with, New Mountain Capital in the Concurrent Private Placement.

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk


        The Operating Company is subject to certain financial market risks, such as interest rate fluctuations. During the year ended December 31, 2012,2013, certain of the loans held in the Operating Company's portfolio had floating interest rates. Interest rates on the loans held within the Operating Company's portfolioAs of December 31, 2013, approximately 85% of investments are typically basedat fair value (excluding investments on floating LIBOR,non-accrual, revolvers, and non-interest bearing equity investments) represent floating-rate investments with many of these assets also having a LIBOR floor.floor (includes investments bearing prime interest rate contracts) and approximately 15% of investments represent fixed-rate investments. Additionally, the Operating Company's senior secured revolving credit facilities are also subject to floating interest rates and are currently paid based on one-month floating LIBOR rates.

        The following table estimates the potential changes in net cash flow generated from interest income and expenses, should interest rates increase by 100, 200 or 300 basis points, or decrease by 25 basis points. Interest income is calculated as revenue from interest generated from the Operating Company's portfolio of investments held on December 31, 2012.2013. Interest expense is calculated based on the terms of the Operating Company's two outstanding revolving credit facilities. For the Operating Company's floating rate credit facilities, the Operating Company uses the outstanding balance as of December 31, 2012.2013. Interest expense on the Operating Company's floating rate credit facilities are calculated using the interest rate as of December 31, 2012,2013 adjusted for the hypothetical changes in rates, as shown below. The base interest rate case assumes the rates on the Operating Company's portfolio investments remain unchanged from the actual effective interest rates as of December 31, 2012.2013. These hypothetical calculations are based on a model of the investments in the Operating Company'sour portfolio, held as of December 31, 2012,2013, 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			0.76	%(1)
Base Interest Rate			—	%
+100 Basis Points			(4.34	)%
+200 Basis Points			0.17	%
+300 Basis Points			5.60	%

---

Change in Interest Rates		Estimated Percentage Change in Interest Income Net of Interest Expense (unaudited)
-25 Basis Points			1.13	%
Base Interest Rate			—	%
+100 Basis Points			(3.91	)%
+200 Basis Points			0.63	%
+300 Basis Points			6.72	%

(1)

Limited to the lesser of the December 31, 2013 LIBOR rates or a decrease of 25 basis points.

        The Operating Company was not exposed to any foreign currency exchange risks as of December 31, 2012.2013.




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Item 8.    Financial Statements and Supplementary Data



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		PAGE
AUDITED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm			91100
New Mountain Finance Holdings, L.L.C.
Consolidated Statements of Assets, Liabilities and Members' Capital as of December 31, 20122013 and December 31, 20112012			92102
Consolidated Statements of Operations for the years ended December 31, 2012,2013, December 31, 20112012 and December 31, 20102011			93103
Consolidated Statements of Changes in Members' Capital for the years ended December 31, 2012,2013, December 31, 20112012 and December 31, 20102011			94104
Consolidated Statements of Cash Flows for the years ended December 31, 2012,2013, December 31, 20112012 and December 31, 20102011			95105
Consolidated Schedule of Investments as of December 31, 2013			106
Consolidated Schedule of Investments as of December 31, 2012			96113
Consolidated Schedule of Investments as of December 31, 2011			101
New Mountain Finance Corporation
StatementStatements of Assets and Liabilities as of December 31, 20122013 and December 31, 20112012			106118
Statements of Operations for the yearyears ended December 31, 2013, December 31, 2012 and from May 19, 2011 (commencement of operations) to December 31, 2011			107119
StatementStatements of Changes in Net Assets for the yearyears ended December 31, 2013, December 31, 2012 and from May 19, 2011 (commencement of operations) to December 31, 2011			108120
StatementStatements of Cash Flows for the yearyears ended December 31, 2013, December 31, 2012 and from May 19, 2011 (commencement of operations) to December 31, 2011			109121
New Mountain Finance AIV Holdings Corporation
StatementStatements of Assets and Liabilities as of December 31, 20122013 and December 31, 20112012			110122
Statements of Operations for the yearyears ended December 31, 2013, December 31, 2012 and from May 19, 2011 (commencement of operations) to December 31, 2011			111123
StatementStatements of Changes in Net Assets for the yearyears ended December 31, 2013, December 31, 2012 and from May 19, 2011 (commencement of operations) to December 31, 2011			112124
StatementStatements of Cash Flows for the yearyears ended December 31, 2013, December 31, 2012 and from May 19, 2011 (commencement of operations) to December 31, 2011			113125
Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C., the Financial Statements of New Mountain Finance Corporation and the Financial Statements of New Mountain Finance AIV Holdings Corporation			114126




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Boards of Directors and Investorsinvestors of
New Mountain Finance Holdings, L.L.C.,
New Mountain Finance Corporation and
New Mountain Finance AIV Holdings Corporation
New York, New York

        We have audited the accompanying consolidated statement of assets, liabilities and members' capital of New Mountain Finance Holdings, L.L.C., including the consolidated scheduleschedules of investments as of December 31, 20122013 and 2011,2012, and the related consolidated statements of operations, consolidated statements of changes in members' capital, and cash flows for the three years in the period ended December 31, 20122013 and the financial highlights for the period from October 29, 2008 (commencement of operations) to December 31, 2008 and each of the fourfive years in the period ended December 31, 2012.2013. Also, we have audited the statements of assets and liabilities of New Mountain Finance Corporation and New Mountain Finance AIV Holdings Corporation as of December 31, 20122013 and 2011,2012, and the related statements of operations, changes in net assets, cash flows and the financial highlights for the period from May 19, 2011(commencement of operations) to December 31, 2011 and for the yearyears ended December 31, 2013 and 2012. These financial statements are the responsibility of the management of New Mountain Finance Holdings, L.L.C., New Mountain Finance Corporation and New Mountain Finance AIV Holdings Corporation. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. New Mountain Finance Holdings, L.L.C. and New Mountain Finance AIV Holdings Corporation are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. Our audits of New Mountain Finance Holdings, L.L.C. and New Mountain Finance AIV Holdings Corporation included consideration of their internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of their internal control over financial reporting. Accordingly we express no such opinion for New Mountain Finance Holdings, L.L.C. and New Mountain Finance AIV Holdings Corporation. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of investments as of December 31, 20122013 and 2011,2012, by correspondence with the custodian, loan agent or borrower; where replies were not received, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, such financial statements and financial highlights referred to above present fairly, in all material respects, the consolidated financial position of New Mountain Finance Holdings, L.L.C. as of December 31, 20122013 and 2011,2012, and the consolidated results of its operations, its consolidated changes in members' capital, and its consolidated cash flows for each of the three years in the period ended December 31, 20122013 and the financial highlights for the period from October 29, 2008 (commencement of operations) to December 31, 2008 and each of the fourfive years in the period ended December 31,2012;31,2013; and the financial positions of New Mountain Finance Corporation and New Mountain Finance AIV Holdings Corporation as of December 31, 20122013 and 20112012 and the results of their operations, changes in their net assets, their cash flows, and the financial highlights for the period from May 19, 2011(commencement of operations) to December 31, 2011 and for the yearyears ended




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December 31, 2013 and 2012, in conformity with accounting principles generally accepted in the United States of America.

        As discussed in Note 16, on February 3, 2014, New Mountain Finance AIV Holdings sold its remaining units in New Mountain Finance Holdings, L.L.C. (the "Operating Company") and no longer owns any units of the Operating Company.

        We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), New Mountain Finance Corporation's internal control over financial reporting as of December 31, 2012,2013, based on the criteria established in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 6, 20135, 2014, expressed an unqualified opinion on New Mountain Finance Corporation's internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP


New York, New York
March 6, 20135, 2014





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New Mountain Finance Holdings, L.L.C.

Consolidated Statements of Assets, Liabilities and Members' Capital

(in thousands, except units and per unit data)

		December 31, 2013			December 31, 2012
Assets
Investments at fair value (cost of $1,094,080 and $976,243, respectively)		$	1,115,651		$	989,820
Cash and cash equivalents			14,981			12,752
Interest and dividend receivable			10,531			6,340
Deferred credit facility costs (net of accumulated amortization of $3,562 and $2,016, respectively)			4,727			5,490
Receivable from affiliate			459			534
Receivable from unsettled securities sold			—			9,962
Other assets			1,492			666
​	​	​	​	​	​	​	​
Total assets		$	1,147,841		$	1,025,564
​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​
Liabilities
Holdings Credit Facility			221,849			206,938
SLF Credit Facility			214,668			214,262
Capital gains incentive fee payable			7,636			4,407
Incentive fee payable			4,104			3,390
Management fee payable			3,856			3,222
Payable for unsettled securities purchased			3,690			9,700
Interest payable			814			712
Payable to affiliate			80			—
Dividends payable			—			11,192
Other liabilities			2,628			1,802
​	​	​	​	​	​	​	​
Total liabilities			459,325			455,625
Members' Capital			688,516			569,939
​	​	​	​	​	​	​	​
Total liabilities and members' capital		$	1,147,841		$	1,025,564
​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​
Outstanding common membership units			47,896,693			40,548,189
Capital per unit		$	14.38		$	14.06

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




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New Mountain Finance Holdings, L.L.C.

Consolidated Statements of Operations

(in thousands)

		Years ended December 31,
		2013			2012			2011
Investment income
Interest income		$	107,027		$	83,646		$	55,809
Dividend income			5,049			812			—
Other income			2,836			1,328			714
​	​	​	​	​	​	​	​	​	​	​
Total investment income			114,912			85,786			56,523
​	​	​	​	​	​	​	​	​	​	​
Expenses
Incentive fee			16,502			11,537			3,522
Capital gains incentive fee			3,229			4,407			—
​	​	​	​	​	​	​	​	​	​	​
Total incentive fees			19,731			15,944			3,522
Management fee			14,905			11,109			4,938
Interest and other credit facility expenses			12,470			10,085			7,086
Administrative expenses			3,429			2,426			1,615
Professional fees			2,349			2,091			2,037
Other general and administrative expenses			1,584			1,374			986
​	​	​	​	​	​	​	​	​	​	​
Total expenses			54,468			43,029			20,184
Less: expenses waived and reimbursed (see Note 5)			(3,233	)		(2,460	)		(2,186	)
​	​	​	​	​	​	​	​	​	​	​
Net expenses			51,235			40,569			17,998
​	​	​	​	​	​	​	​	​	​	​
Net investment income			63,677			45,217			38,525
Net realized gains on investments			7,253			18,851			16,252
Net change in unrealized appreciation (depreciation) of investments			7,994			9,928			(23,100	)
​	​	​	​	​	​	​	​	​	​	​
Net increase in members' capital resulting from operations		$	78,924		$	73,996		$	31,677
​	​	​	​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​	​	​	​

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




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New Mountain Finance Holdings, L.L.C.



Consolidated Statements of Assets, Liabilities andChanges in Members' Capital


(in thousands)

		December 31, 2012			December 31, 2011
Assets
Investments at fair value (cost of $976,243,063 and $699,864,784, respectively)		$	989,819,613		$	703,513,560
Cash and cash equivalents			12,752,075			15,318,811
Receivable from unsettled securities sold			9,962,209			—
Interest and dividend receivable			6,340,146			7,307,092
Deferred credit facility costs (net of accumulated amortization of $2,015,763 and $855,955, respectively)			5,490,266			3,713,739
Receivable from affiliate			533,407			369,017
Other assets			665,872			356,486
Total assets		$	1,025,563,588		$	730,578,705
Liabilities
SLF Credit Facility			214,262,314			165,928,000
Holdings Credit Facility			206,938,049			129,037,813
Dividends payable			11,192,205			—
Payable for unsettled securities purchased			9,700,000			7,604,931
Incentive fee payable			7,796,928			2,317,328
Management fee payable			3,221,547			2,200,354
Interest payable			712,093			1,747,095
Other liabilities			1,801,889			1,241,366
Total liabilities			455,625,025			310,076,887
Members' Capital			569,938,563			420,501,818
Total liabilities and members' capital		$	1,025,563,588		$	730,578,705
Outstanding common membership units			40,548,189			30,919,629
Capital per unit		$	14.06		$	13.60

		Years ended December 31,
		2013			2012			2011
Increase (decrease) in members' capital resulting from operations:
Net investment income		$	63,677		$	45,217		$	38,525
Net realized gains on investments			7,253			18,851			16,252
Net change in unrealized appreciation (depreciation) of investments			7,994			9,928			(23,100	)
​	​	​	​	​	​	​	​	​	​	​
Net increase in members' capital resulting from operations			78,924			73,996			31,677
Contributions			100,040			133,428			195,295
Distributions			—			—			(10,249	)
Dividends declared			(65,140	)		(59,378	)		(26,591	)
Offering costs			(331	)		(564	)		(11,557	)
Reinvestment of dividends			5,084			1,955			—
​	​	​	​	​	​	​	​	​	​	​
Net increase in members' capital			118,577			149,437			178,575
Members' capital at the beginning of the period			569,939			420,502			241,927
​	​	​	​	​	​	​	​	​	​	​
Members' capital at the end of the period		$	688,516		$	569,939		$	420,502
​	​	​	​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​	​	​	​

   

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




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New Mountain Finance Holdings, L.L.C.



Consolidated Statements of Operations
Cash Flows

(in thousands)

		Year ended December 31,
		2012			2011			2010
Investment income
Interest income		$	83,645,911		$	55,809,453		$	40,485,158
Dividend income			811,800			—			—
Other income			1,328,300			713,991			889,619
Total investment income			85,786,011			56,523,444			41,374,777
Expenses
Incentive fee			15,943,910			3,522,330			—
Management fee			11,109,053			4,938,004			70,999
Interest and other credit facility expenses			10,084,639			7,086,019			2,948,460
Administrative expenses (net of reimbursable expenses of $1,389,953, $870,032 and $0, respectively)			1,036,020			744,959			401,133
Professional fees (net of reimbursable expenses of $1,069,904, $1,315,733 and $0, respectively)			1,021,194			721,578			327,331
Other general and administrative expenses			1,373,715			985,283			162,593
Total expenses			40,568,531			17,998,173			3,910,516
Net investment income			45,217,480			38,525,271			37,464,261
Net realized gains on investments			18,851,239			16,252,062			66,287,267
Net change in unrealized appreciation (depreciation) of investments			9,927,774			(23,100,241	)		(39,959,267	)
Net increase in capital resulting from operations		$	73,996,493		$	31,677,092		$	63,792,261

		Years ended December 31,
		2013			2012			2011
Cash flows from operating activities
Net increase in members' capital resulting from operations		$	78,924		$	73,996		$	31,677
Adjustments to reconcile net (increase) decrease in members' capital resulting from operations to net cash (used in) provided by operating activities:
Net realized gains on investments			(7,253	)		(18,851	)		(16,252	)
Net change in unrealized (appreciation) depreciation of investments			(7,994	)		(9,928	)		23,100
Amortization of purchase discount			(3,365	)		(5,996	)		(5,862	)
Amortization of deferred credit facility costs			1,546			1,160			786
Non-cash investment income			(4,473	)		(2,187	)		(1,538	)
(Increase) decrease in operating assets:
Purchase of investments			(529,695	)		(673,355	)		(494,694	)
Proceeds from sales and paydowns of investments			426,561			423,874			231,962
Cash received for purchase of undrawn portion of revolving credit or delayed draw facilities			388			137			1,363
Cash paid for drawn revolver			—			(12,705	)		(535	)
Cash repayments on drawn revolvers			—			12,705			—
Interest and dividend receivable			(4,191	)		967			(4,299	)
Receivable from affiliate			75			(165	)		(369	)
Receivable from unsettled securities sold			9,962			(9,962	)		—
Other assets			(225	)		(50	)		(351	)
Increase (decrease) in operating liabilities:
Capital gains incentive fee payable			3,229			4,407			—
Incentive fee payable			714			1,073			2,317
Management fee payable			634			1,021			2,200
Payable for unsettled securities purchased			(6,010	)		2,095			(86,857	)
Interest payable			102			(1,035	)		934
Payable to affiliate			80			—			(394	)
Other liabilities			639			151			534
​	​	​	​	​	​	​	​	​	​	​
Net cash flows used in operating activities			(40,352	)		(212,648	)		(316,278	)
​	​	​	​	​	​	​	​	​	​	​
Cash flows from financing activities
Contributions			100,040			133,428			195,295
Distributions			—			—			(10,249	)
Dividends paid			(71,248	)		(46,231	)		(26,591	)
Offering costs paid			(720	)		(268	)		(11,557	)
Proceeds from Holdings Credit Facility			457,978			523,099			336,508
Repayment of Holdings Credit Facility			(443,067	)		(445,199	)		(267,168	)
Proceeds from SLF Credit Facility			23,306			112,993			172,060
Repayment of SLF Credit Facility			(22,900	)		(64,659	)		(63,068	)
Deferred credit facility costs paid			(808	)		(3,082	)		(4,377	)
​	​	​	​	​	​	​	​	​	​	​
Net cash flows provided by financing activities			42,581			210,081			320,853
​	​	​	​	​	​	​	​	​	​	​
Net increase (decrease) in cash and cash equivalents			2,229			(2,567	)		4,575
Cash and cash equivalents at the beginning of the period			12,752			15,319			10,744
​	​	​	​	​	​	​	​	​	​	​
Cash and cash equivalents at the end of the period		$	14,981		$	12,752		$	15,319
​	​	​	​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​	​	​	​
Supplemental disclosure of cash flow information
Cash interest paid		$	10,323		$	9,433		$	4,358
Non-cash operating activities:
Non-cash activity on investments		$	1,986		$	—		$	—
Non-cash financing activities:
Dividends declared and payable		$	—		$	11,192		$	—
Value of members' capital issued in connection with dividend reinvestment plan			5,084			1,955			—
Accrual for offering costs			768			556			—
Accrual for deferred credit facility costs			21			46			192

   

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




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New Mountain Finance Holdings, L.L.C.

Consolidated Schedule of Investments

December 31, 2013

(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 Members' Capital
Funded Debt Investments—Bermuda
Stratus Technologies Bermuda Holdings Ltd.(4)**
Stratus Technologies Bermuda Ltd. / Stratus Technologies, Inc.
Information Technology		First lien(2)(7)		12.00%			3/29/2015		$	6,497		$	6,335		$	6,529			0.95	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total Funded Debt Investments—Bermuda									$	6,497		$	6,335		$	6,529			0.95	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Funded Debt Investments—Cayman Islands
Pinnacle Holdco S.à r.l. / Pinnacle (US) Acquisition Co Limited**
Software		Second lien(2)		10.50% (Base Rate + 9.25%)			7/30/2020		$	30,000		$	29,472		$	30,362			4.41	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total Funded Debt Investments—Cayman Islands									$	30,000		$	29,472		$	30,362			4.41	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Funded Debt Investments—United States
McGraw-Hill Global Education Holdings, LLC
Education		First lien(2)		9.75%			4/1/2021		$	24,500		$	24,348		$	27,195
		First lien(3)		9.00% (Base Rate + 7.75%)			3/22/2019			17,850			17,367			18,225
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
										42,350			41,715			45,420			6.60	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Deltek, Inc.
Software		Second lien(2)		10.00% (Base Rate + 8.75%)			10/10/2019			41,000			40,977			41,820			6.07	%
Global Knowledge Training LLC
Education		Second lien(2)		11.00% (Base Rate + 9.75%)			10/21/2018			41,450			41,070			41,450			6.02	%
UniTek Global Services, Inc.
Business Services		First lien(2)		15.00% (Base Rate + 9.50% + 4.00% PIK)*			4/15/2018			26,382			25,508			26,382
		First lien(2)		15.00% (Base Rate + 9.50% + 4.00% PIK)*			4/15/2018			6,387			6,176			6,387
		First lien(2)		15.00% (Base Rate + 9.50% + 4.00% PIK)*			4/15/2018			5,309			5,133			5,309
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
										38,078			36,817			38,078			5.53	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Edmentum, Inc.(fka Plato, Inc.)
Education		First lien(3)		5.50% (Base Rate + 4.50%)			5/17/2018			6,433			6,240			6,465
		Second lien(2)		11.25% (Base Rate + 9.75%)			5/17/2019			31,150			30,685			31,578
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
										37,583			36,925			38,043			5.52	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
SRA International, Inc.
Federal Services		First lien(2)		6.50% (Base Rate + 5.25%)			7/20/2018			34,750			33,784			34,475			5.01	%
Kronos Incorporated
Software		Second lien(2)		9.75% (Base Rate + 8.50%)			4/30/2020			31,341			31,055			32,542			4.73	%
Rocket Software, Inc.
Software		Second lien(2)		10.25% (Base Rate + 8.75%)			2/8/2019			30,875			30,731			31,029			4.51	%
Novell, Inc. (fka Attachmate Corporation, NetIQ Corporation)
Software		First lien(3)		7.25% (Base Rate + 5.75%)			11/22/2017			6,951			6,847			7,080
		Second lien(2)		11.00% (Base Rate + 9.50%)			11/22/2018			23,353			22,780			22,876
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
										30,304			29,627			29,956			4.35	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​

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




Table of Contents


New Mountain Finance Holdings, L.L.C.



Consolidated StatementsSchedule of Changes Investments (Continued)

December 31, 2013

(in Members' Capital
thousands, except shares)

		Year ended December 31,
		2012			2011			2010
Increase (decrease) in members' capital resulting from operations:
Net investment income		$	45,217,480		$	38,525,271		$	37,464,261
Net realized gains on investments			18,851,239			16,252,062			66,287,267
Net change in unrealized appreciation (depreciation) of investments			9,927,774			(23,100,241	)		(39,959,267	)
Net increase in members' capital resulting from operations			73,996,493			31,677,092			63,792,261
Distributions			—			(10,249,155	)		(115,940,206	)
Contributions			133,428,296			195,294,674			54,634,523
Dividends declared			(59,378,278	)		(26,590,881	)		—
Offering costs			(564,736	)		—			—
Reinvestment of dividends			1,954,970			(11,557,173	)		—
Net increase in members' capital			149,436,745			178,574,557			2,486,578
Members' capital at the beginning of the period			420,501,818			241,927,261			239,440,683
Members' capital at the end of the period		$	569,938,563		$	420,501,818		$	241,927,261

Portfolio Company, Location and Industry(1)		Type of Investment		Interest Rate		Maturity Date			Principal Amount, Par Value or Shares			Cost			Fair Value			Percent of Members' Capital
JHCI Acquisition, Inc.
Distribution & Logistics		First lien(3)		7.00% (Base Rate + 5.75%)			7/11/2019		$	19,536		$	19,262		$	19,548
		Second lien(3)		11.00% (Base Rate + 9.75%)			7/11/2020			10,000			9,705			9,898
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
										29,536			28,967			29,446			4.28	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
CompassLearning, Inc.(12)
Education		First lien(2)		8.00% (Base Rate + 6.75%)			11/26/2018			30,000			29,261			29,250			4.25	%
Transtar Holding Company
Distribution & Logistics		Second lien(2)		9.75% (Base Rate + 8.50%)			10/9/2019			28,300			27,842			27,168			3.95	%
KeyPoint Government Solutions, Inc.
Federal Services		First lien(3)		7.25% (Base Rate + 6.00%)			11/13/2017			16,784			16,448			16,616
		First lien(2)		7.25% (Base Rate + 6.00%)			11/13/2017			10,116			9,953			10,015
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
										26,900			26,401			26,631			3.87	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Meritas Schools Holdings, LLC
Education		First lien(3)		7.00% (Base Rate + 5.75%)			6/25/2019			19,950			19,763			20,087
		First lien(2)		7.00% (Base Rate + 5.75%)			6/25/2019			5,920			5,865			5,961
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
										25,870			25,628			26,048			3.78	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Sierra Hamilton LLC / Sierra Hamilton Finance, Inc.
Energy		First lien(2)		12.25%			12/15/2018			25,000			25,000			25,000			3.63	%
Permian Tank & Manufacturing, Inc.
Energy		First lien(2)		10.50%			1/15/2018			24,500			24,757			24,255			3.52	%
Aderant North America, Inc.
Software		Second lien(2)		10.00% (Base Rate + 8.75%)			6/20/2019			22,500			22,201			23,203			3.37	%
YP Holdings LLC(8)
YP LLC
Media		First lien(2)		8.04% (Base Rate + 6.71%)			6/4/2018			22,400			21,892			22,722			3.30	%
McGraw-Hill School Education Holdings, LLC
Education		First lien(3)		6.25% (Base Rate + 5.00%)			12/18/2019			13,000			12,870			12,870
		First lien(2)		6.25% (Base Rate + 5.00%)			12/18/2019			9,000			8,910			8,910
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
										22,000			21,780			21,780			3.16	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Aspen Dental Management, Inc.
Healthcare Services		First lien(3)		7.00% (Base Rate + 5.50%)			10/6/2016			21,077			20,820			20,813			3.02	%
LM U.S. Member LLC (and LM U.S. Corp Acquisition Inc.)
Business Services		Second lien(3)		9.50% (Base Rate + 8.25%)			10/26/2020			20,000			19,731			20,308			2.95	%
Envision Acquisition Company, LLC
Healthcare Services		Second lien(2)		9.75% (Base Rate + 8.75%)			11/4/2021			20,000			19,605	��		20,075			2.91	%
ARSloane Acquisition, LLC
Business Services		First lien(3)		7.50% (Base Rate + 6.25%)			10/1/2019			19,950			19,754			19,992			2.90	%
eResearchTechnology, Inc.
Healthcare Services		First lien(3)		6.00% (Base Rate + 4.75%)			5/2/2018			19,750			19,047			19,874			2.89	%
Distribution International, Inc.
Distribution & Logistics		First lien(2)		7.50% (Base Rate + 6.50%)			7/16/2019			19,900			19,527			19,813			2.88	%

   

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




Table of Contents


New Mountain Finance Holdings, L.L.C.

Consolidated Schedule of Investments (Continued)

December 31, 2013

(in thousands, except shares)

Portfolio Company, Location and Industry(1)		Type of Investment		Interest Rate		Maturity Date			Principal Amount, Par Value or Shares			Cost			Fair Value			Percent of Members' Capital
First American Payment Systems, L.P.
Business Services		Second lien(3)		10.75% (Base Rate + 9.50%)			4/12/2019		$	20,000		$	19,654		$	19,800			2.88	%
Merrill Communications LLC
Business Services		First lien(3)		7.25% (Base Rate + 6.25%)			3/8/2018			19,425			19,246			19,759			2.87	%
Insight Pharmaceuticals LLC
Healthcare Products		Second lien(3)		13.25% (Base Rate + 11.75%)			8/25/2017			19,310			18,766			19,021			2.76	%
St. George's University Scholastic Services LLC
Education		First lien(3)		8.50% (Base Rate + 7.00%)			12/20/2017			17,379			17,082			17,530			2.55	%
Sotera Defense Solutions, Inc. (Global Defense Technology & Systems, Inc.)
Federal Services		First lien(3)		7.50% (Base Rate + 6.00%)			4/21/2017			18,316			18,127			16,118			2.34	%
Confie Seguros Holding II Co.
Consumer Services		Second lien(3)		10.25% (Base Rate + 9.00%)			5/8/2019			14,886			14,762			15,034			2.18	%
OpenLink International, Inc.
Software		First lien(3)		7.75% (Base Rate + 6.25%)			10/30/2017			14,700			14,496			14,774			2.15	%
Smile Brands Group Inc.
Healthcare Services		First lien(3)		7.50% (Base Rate + 6.25%)			8/16/2019			14,464			14,261			14,307			2.08	%
Brock Holdings III, Inc.
Industrial Services		Second lien(2)		10.00% (Base Rate + 8.25%)			3/16/2018			14,000			13,858			14,263			2.07	%
Vision Solutions, Inc.
Software		Second lien(2)		9.50% (Base Rate + 8.00%)			7/23/2017			14,000			13,957			14,140			2.05	%
Packaging Coordinators, Inc.(10)
Healthcare Products		Second lien(2)		9.50% (Base Rate + 8.25%)			11/10/2020			14,000			13,868			14,088			2.05	%
Lonestar Intermediate Super Holdings, LLC
Business Services		Subordinated(2)		11.00% (Base Rate + 9.50%)			9/2/2019			12,000			11,701			12,419			1.80	%
Van Wagner Communications, LLC
Media		First lien(2)		6.25% (Base Rate + 5.00%)			8/3/2018			11,761			11,583			11,997			1.74	%
Vertafore, Inc.
Software		Second lien(2)		9.75% (Base Rate + 8.25%)			10/29/2017			10,000			9,937			10,198			1.48	%
TransFirst Holdings, Inc.
Business Services		Second lien(3)		11.00% (Base Rate + 9.75%)			6/27/2018			10,000			9,741			10,138			1.47	%
MailSouth, Inc.
Media		First lien(3)		6.76% (Base Rate + 4.96%)			12/14/2016			9,410			9,333			9,269			1.35	%
Vitera Healthcare Solutions, LLC
Software		First lien(3)		6.00% (Base Rate + 5.00%)			11/4/2020			2,000			1,980			2,000
		Second lien(2)		9.25% (Base Rate + 8.25%)			11/4/2021			7,000			6,897			7,070
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
										9,000			8,877			9,070			1.32	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Harley Marine Services, Inc.
Distribution & Logistics		Second lien(2)		10.50% (Base Rate + 9.25%)			12/20/2019			9,000			8,820			8,820			1.28	%
Consona Holdings, Inc.
Software		First lien(3)		7.25% (Base Rate + 6.00%)			8/6/2018			8,394			8,326			8,457			1.23	%
Physio-Control International, Inc.
Healthcare Products		First lien(2)		9.88%			1/15/2019			6,651			6,651			7,482			1.09	%
Virtual Radiologic Corporation
Healthcare Information Technology		First lien(3)		7.25% (Base Rate + 5.50%)			12/22/2016			13,563			13,454			7,324			1.06	%

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




Table of Contents


New Mountain Finance Holdings, L.L.C.

Consolidated Schedule of Investments (Continued)

December 31, 2013

(in thousands, except shares)

Portfolio Company, Location and Industry(1)		Type of Investment		Interest Rate		Maturity Date			Principal Amount, Par Value or Shares			Cost			Fair Value			Percent of Members' Capital
Alion Science and Technology Corporation
Federal Services		First lien(2)(7)		12.00% (10.00% + 2.00% PIK)*			11/1/2014		$	6,447		$	6,360		$	6,570			0.95	%
Immucor, Inc.
Healthcare Services		Subordinated(2)(7)		11.13%			8/15/2019			5,000			4,950			5,650			0.82	%
Learning Care Group (US), Inc.
Education		Subordinated(2)		15.00% PIK*			5/8/2020			4,371			4,253			4,371
		Subordinated(2)		15.00% PIK*			5/8/2020			800			746			800
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
										5,171			4,999			5,171			0.75	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Education Management LLC**
Education		First lien(3)		8.25% (Base Rate + 7.00%)			3/30/2018			5,003			4,888			5,028			0.73	%
GCA Services Group, Inc.
Business Services		Second lien(2)		9.25% (Base Rate + 8.00%)			11/1/2020			4,000			3,964			4,064			0.59	%
Sophia Holding Finance LP / Sophia Holding Finance Inc.
Software		Subordinated(2)		9.63%			12/1/2018			3,500			3,502			3,623			0.53	%
ATI Acquisition Company (fka Ability Acquisition, Inc.)(11)
Education		First lien(2)		17.25% (Base Rate + 10.00% + 4.00% PIK)(5)*			6/30/2012— Past Due			1,665			1,434			233
		First lien(2)		17.25% (Base Rate + 10.00% + 4.00% PIK)(5)*			6/30/2012— Past Due			103			94			103
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
										1,768			1,528			336			0.05	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total Funded Debt Investments—United States									$	1,016,562		$	1,001,605		$	1,013,641			147.22	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total Funded Debt Investments									$	1,053,059		$	1,037,412		$	1,050,532			152.58	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Equity—Bermuda
Stratus Technologies Bermuda Holdings Ltd.(4)**
Information Technology		Ordinary shares(2)		—			—			156,247		$	65		$	46
		Preferred shares(2)		—			—			35,558			15			10
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
													80			56			0.01	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total Shares—Bermuda												$	80		$	56			0.01	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Equity—United States
Crowley Holdings Preferred, LLC
Distribution & Logistics		Preferred shares(2)		12.00% (10.00% + 2.00% PIK)*			—			35,000		$	35,000		$	35,000			5.08	%
Black Elk Energy Offshore Operations, LLC
Energy		Preferred shares(2)		17.00%			—			20,000,000			20,000			20,000			2.91	%
Global Knowledge Training LLC
Education		Ordinary shares(2)		—			—			2			—			3
		Preferred shares(2)		—			—			2,423			—			3,006
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
													—			3,009			0.44	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Packaging Coordinators, Inc.(10)
Packaging Coordinators Holdings, LLC
Healthcare Products		Ordinary shares(2)		—			—			19,427			1,000			1,181			0.17	%

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




Table of Contents


New Mountain Finance Holdings, L.L.C.



Consolidated StatementsSchedule of Cash Flows
Investments (Continued)

December 31, 2013

(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 Members' Capital
Ancora Acquisition LLC(11)
Education		Preferred shares(2)			—			—			372		$	83		$	83			0.01	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total Shares—United States													$	56,083		$	59,273			8.61	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total Shares													$	56,163		$	59,329			8.62	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Warrants—United States
Learning Care Group (US), Inc.
Education		Warrants(2)			—			—			844		$	194		$	503
		Warrants(2)			—			—			3,589			61			2,136
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
														255			2,639			0.38	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
YP Holdings LLC(8)
YP Equity Investors LLC
Media		Warrants(2)			—			—			5			—			1,944			0.28	%
UniTek Global Services, Inc.
Business Services		Warrants(2)			—			—			1,014,451	(6)		1,449			1,694			0.25	%
Storapod Holding Company, Inc.
Consumer Services		Warrants(2)			—			—			360,129			156			594			0.09	%
Alion Science and Technology Corporation
Federal Services		Warrants(2)			—			—			6,000			293			94			0.01	%
Ancora Acquisition LLC(11)
Education		Warrants(2)			—			—			20			—			—			—	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total Warrants—United States													$	2,153		$	6,965			1.01	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total Funded Investments													$	1,095,728		$	1,116,826			162.21	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Unfunded Debt Investments—United States
Aspen Dental Management, Inc.
Healthcare Services		First lien(2)(9)—Undrawn			—			4/6/2016		$	5,000		$	(388	)	$	(388	)		(0.06	)%
Advantage Sales & Marketing Inc.
Business Services		First lien(2)(9)—Undrawn			—			12/17/2015			10,500			(1,260	)		(787	)		(0.11	)%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total Unfunded Debt Investments										$	15,500		$	(1,648	)	$	(1,175	)		(0.17	)%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total Investments													$	1,094,080		$	1,115,651			162.04	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​

---

		Year ended December 31,
		2012			2011			2010
Cash flows from operating activities
Net increase in members' capital resulting from operations		$	73,996,493		$	31,677,092		$	63,792,261
Adjustments to reconcile net (increase) decrease in members' capital resulting from operations to net cash (used in) provided by operating activities:
Net realized gains on investments			(18,851,239	)		(16,252,062	)		(66,287,267	)
Net change in unrealized (appreciation) depreciation of investments			(9,927,774	)		23,100,241			39,959,267
Amortization of purchase discount			(5,995,901	)		(5,861,691	)		(16,326,857	)
Amortization of deferred credit facility costs			1,159,808			786,046			69,909
Non-cash interest income			(2,187,027	)		(1,538,462	)		(3,374,086	)
(Increase) decrease in operating assets:
Purchase of investments			(673,354,807	)		(494,693,776	)		(332,708,278	)
Proceeds from sales and paydowns of investments			423,874,005			231,962,469			260,039,529
Cash received for purchase of undrawn portion of revolving credit or delayed draw facilities			136,691			1,363,154			—
Cash paid for sale of undrawn portion of revolving credit or delayed draw facilities			—			—			(1,837,500	)
Cash paid for drawn revolver			(12,705,000	)		(535,593	)		—
Cash repayments on drawn revolvers			12,705,000			—			—
Receivable from unsettled securities sold			(9,962,209	)		—			5,124,622
Interest and dividend receivable			966,946			(4,299,305	)		(2,209,025	)
Receivable from affiliate			(164,390	)		(369,017	)		—
Other assets			(50,113	)		(350,644	)		(4,435	)
Increase (decrease) in operating liabilities:
Payable for unsettled securities purchased			2,095,069			(86,857,569	)		82,230,235
Incentive fee payable			5,479,600			2,317,328			—
Management fee payable			1,021,193			2,200,354			—
Interest payable			(1,035,002	)		933,903			340,503
Payable to affiliate			—			(394,279	)		(190,500	)
Other liabilities			150,867			533,795			432,931
Net cash flows (used in) provided by operating activities			(212,647,790	)		(316,278,016	)		29,051,309
Cash flows from financing activities
Contributions			133,428,296			195,294,674			54,634,523
Distributions			—			(10,249,155	)		(115,940,206	)
Dividends paid			(46,231,103	)		(26,590,881	)		—
Offering costs paid			(267,917	)		(11,557,173	)		—
Proceeds from Holdings Credit Facility			523,099,161			336,508,450			44,850,495
Repayment of Holdings Credit Facility			(445,198,925	)		(267,167,575	)		(62,898,232	)
Proceeds from SLF Credit Facility			112,993,365			172,060,007			56,936,000
Repayment of SLF Credit Facility			(64,659,051	)		(63,068,007	)		—
Deferred credit facility costs paid			(3,082,772	)		(4,377,595	)		—
Net cash flows provided by (used in) financing activities			210,081,054			320,852,745			(22,417,420	)
Net (decrease) increase in cash and cash equivalents			(2,566,736	)		4,574,729			6,633,889
Cash and cash equivalents at the beginning of the period			15,318,811			10,744,082			4,110,193
Cash and cash equivalents at the end of the period		$	12,752,075		$	15,318,811		$	10,744,082
Supplemental disclosure of cash flow information
Interest paid		$	9,432,696		$	4,358,103		$	2,130,839
Non-cash financing activities:
Dividends declared and payable		$	11,192,205		$	—		$	—
Value of members' capital issued in connection with dividend reinvestment plan			1,954,970			—			—
Accrual for offering costs			556,092			—			3,528,110
Accrual for deferred credit facility costs			45,663			192,099			1,950,029

(1)

New Mountain Finance Holdings, L.L.C. (the "Operating Company") generally acquires its investments in private transactions exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"). These investments are generally subject to certain limitations on resale, and may be deemed to be "restricted securities" under the Securities Act.



(2)

Investment is pledged as collateral for the Holdings Credit Facility, a revolving credit facility among the Operating Company as the Borrower and Collateral Administrator, Wells Fargo Securities, L.L.C. as the Administrative Agent, and Wells Fargo Bank, National Association, as the Collateral Custodian. See Note 7,Borrowing Facilities, for details.



(3)

Investment is pledged as collateral for the SLF Credit Facility, a revolving credit facility among New Mountain Finance SPV Funding, L.L.C. as the Borrower, the Operating Company as the Collateral Administrator, Wells Fargo Securities, L.L.C. as the Administrative Agent, and Wells Fargo Bank, National Association, as the Collateral Custodian. See Note 7,Borrowing Facilities, for details.



(4)

The Operating Company holds investments in two related entities of Stratus Technologies Bermuda Holdings, Ltd. ("Stratus Holdings"). The Operating Company directly holds ordinary and preferred equity in Stratus Holdings and has a credit investment in the joint issuers of Stratus Technologies Bermuda Ltd. ("Stratus Bermuda") and Stratus Technologies, Inc. ("Stratus U.S."), collectively, the "Stratus Notes". Stratus U.S. is a wholly-owned subsidiary of Stratus Bermuda, which in turn is a wholly-owned subsidiary of Stratus Holdings. Stratus Holdings is the parent guarantor of the credit investment of the Stratus Notes.



(5)

Investment is on non-accrual status.

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




Table of Contents


New Mountain Finance Holdings, L.L.C.

Consolidated Schedule of Investments (Continued)

December 31, 2013

(in thousands, except shares)

(6)

The Operating Company holds 1,014,451 warrants in UniTek Global Services, Inc., which represents a 4.46% equity ownership on a fully diluted basis.



(7)

Securities are registered under the Securities Act.



(8)

The Operating Company holds investments in two related entities of YP Holdings LLC. The Operating Company directly holds warrants to purchase a 4.96% membership interest of YP Equity Investors, LLC (which at closing represented an indirect 1.0% equity interest in YP Holdings LLC) and holds an investment in the Term Loan B loans issued by YP LLC, a subsidiary of YP Holdings LLC.



(9)

Par Value amounts represent the drawn or undrawn (as indicated in type of investment) portion of revolving credit facilities. Cost amounts represent the cash received at settlement date net the impact of paydowns and cash paid for drawn revolvers.



(10)

The Operating Company holds investments in Packaging Coordinators, Inc. and one related entity of Packaging Coordinators, Inc. The Operating Company has a credit investment in Packaging Coordinators, Inc. and holds ordinary equity in Packaging Coordinators Holdings, LLC, a wholly-owned subsidiary of Packaging Coordinators, Inc.



(11)

The Operating Company holds investments in ATI Acquisition Company and Ancora Acquisition LLC. The Operating Company has credit investments in ATI Acquisition Company and preferred equity and warrants to purchase units of common membership interests of Ancora Acquisition LLC. The Operating Company received its investments in Ancora Acquisition LLC as a result of its investments in ATI Acquisition Company.



(12)

The Operating Company holds an investment in CompassLearning, Inc. that is structured as a first lien last out term loan.



*

All or a portion of interest contains payments-in-kind ("PIK").



**

Indicates assets that the Operating Company deems to be "non-qualifying assets" under Section 55(a) of the Investment Company Act of 1940, as amended. Qualifying assets must represent at least 70.00% of the Operating Company's total assets at the time of acquisition of any additional non-qualifying assets.

   

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




Table of Contents


New Mountain Finance Holdings, L.L.C.

Consolidated Schedule of Investments (Continued)

December 31, 2013

		December 31, 2013
Investment Type		Percent of Total Investments at Fair Value
First lien			49.62	%
Second lien			42.03	%
Subordinated			2.41	%
Equity and other			5.94	%
​	​	​	​	​
Total investments			100.00	%
​	​	​	​	​
​	​	​	​	​




		December 31, 2013
Industry Type		Percent of Total Investments at Fair Value
Software			22.33	%
Education			21.13	%
Business Services			13.04	%
Distribution & Logistics			10.78	%
Federal Services			7.52	%
Healthcare Services			7.20	%
Energy			6.21	%
Media			4.12	%
Healthcare Products			3.74	%
Consumer Services			1.40	%
Industrial Services			1.28	%
Healthcare Information Technology			0.66	%
Information Technology			0.59	%
​	​	​	​	​
Total investments			100.00	%
​	​	​	​	​
​	​	​	​	​




		December 31, 2013
Interest Rate Type		Percent of Total Investments at Fair Value
Floating rates			85.08	%
Fixed rates			14.92	%
​	​	​	​	​
Total investments			100.00	%
​	​	​	​	​
​	​	​	​	​

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




Table of Contents


New Mountain Finance Holdings, L.L.C.



Consolidated Schedule of Investments

(Continued)

December 31, 2012


(in thousands, except shares)

Portfolio Company, Location and Industry(1)		Type of Investment		Interest Rate		Maturity Date			Principal Amount, Par Value or Shares			Cost			Fair Value			Percent of Members' Capital				Type of Investment		Interest Rate		Maturity Date			Principal Amount, Par Value or Shares			Cost			Fair Value			Percent of Members' Capital
Funded Debt Investments—Bermuda
Stratus Technologies Bermuda Holdings Ltd.(4)**
Stratus Technologies Bermuda Ltd. / Stratus Technologies, Inc.
Information Technology		First lien(2)(7)		12.00%			3/29/2015		$	6,664,000		$	6,396,040		$	6,630,680			1.16	%		First lien(2)(7)		12.00%			3/29/2015		$	6,664		$	6,396		$	6,631			1.16	%
​																					​						​	​		​	​		​	​		​	​		​	​
Total Funded Debt Investments—Bermuda									$	6,664,000		$	6,396,040		$	6,630,680			1.16	%									$	6,664		$	6,396		$	6,631			1.16	%
​																					​						​	​		​	​		​	​		​	​		​	​
Funded Debt Investments—Cayman Islands
Pinnacle Holdco S.à r.l. / Pinnacle (US) Acquisition Co Limited**
Software		First lien(3)		6.50% (Base Rate + 5.25%)			7/30/2019		$	2,992,500		$	2,970,860		$	2,999,233						First lien(3)		6.50% (Base Rate + 5.25%)			7/30/2019		$	2,992		$	2,971		$	2,999
		Second lien(2)		10.50% (Base Rate + 9.25%)			7/30/2020			30,000,000			29,420,055			30,487,500						Second lien(2)		10.50% (Base Rate + 9.25%)			7/30/2020			30,000			29,420			30,488
​																					​						​	​		​	​		​	​		​	​		​	​
										32,992,500			32,390,915			33,486,733			5.88	%										32,992			32,391			33,487			5.88	%
​																					​						​	​		​	​		​	​		​	​		​	​
Total Funded Debt Investments—Cayman Islands									$	32,992,500		$	32,390,915		$	33,486,733			5.88	%									$	32,992		$	32,391		$	33,487			5.88	%
​																					​						​	​		​	​		​	​		​	​		​	​
Funded Debt Investments—United Kingdom
Magic Newco, LLC**
Software		First lien(3)		7.25% (Base Rate + 6.00%)			12/12/2018		$	14,962,500		$	14,543,380		$	15,104,644			2.65	%		First lien(3)		7.25% (Base Rate + 6.00%)			12/12/2018		$	14,963		$	14,543		$	15,105			2.65	%
​																					​						​	​		​	​		​	​		​	​		​	​
Total Funded Debt Investments—United Kingdom									$	14,962,500		$	14,543,380		$	15,104,644			2.65	%									$	14,963		$	14,543		$	15,105			2.65	%
​																					​						​	​		​	​		​	​		​	​		​	​
Funded Debt Investments—United States
Edmentum, Inc.(fka Plato, Inc.)
Education		First lien(3)		7.50% (Base Rate + 6.00%)			5/17/2018		$	11,700,000		$	11,377,495		$	11,743,875						First lien(3)		7.50% (Base Rate + 6.00%)			5/17/2018		$	11,700		$	11,378		$	11,744
		Second lien(2)		11.25% (Base Rate + 9.75%)			5/17/2019			29,150,000			28,604,019			28,567,000						Second lien(2)		11.25% (Base Rate + 9.75%)			5/17/2019			29,150			28,604			28,567
​																					​						​	​		​	​		​	​		​	​		​	​
										40,850,000			39,981,514			40,310,875			7.07	%										40,850			39,982			40,311			7.07	%
​																					​						​	​		​	​		​	​		​	​		​	​
Novell, Inc. (fka Attachmate Corporation, NetIQ Corporation)
Software		First lien(3)		7.25% (Base Rate + 5.75%)			11/22/2017			7,700,000			7,559,911			7,785,247						First lien(3)		7.25% (Base Rate + 5.75%)			11/22/2017			7,700			7,560			7,785
		Second lien(2)		11.00% (Base Rate + 9.50%)			11/22/2018			24,000,000			23,326,421			23,560,008						Second lien(2)		11.00% (Base Rate + 9.50%)			11/22/2018			24,000			23,326			23,560
​																					​						​	​		​	​		​	​		​	​		​	​
										31,700,000			30,886,332			31,345,255			5.50	%										31,700			30,886			31,345			5.50	%
​																					​						​	​		​	​		​	​		​	​		​	​
Rocket Software, Inc.
Software		Second lien(2)		10.25% (Base Rate + 8.75%)			2/8/2019			30,875,000			30,710,863			30,932,891			5.43	%		Second lien(2)		10.25% (Base Rate + 8.75%)			2/8/2019			30,875			30,711			30,933			5.43	%
Pharmaceutical Research Associates, Inc.
Healthcare Services		Second lien(2)		10.50% (Base Rate + 9.25%)			6/10/2019			30,000,000			29,402,494			30,318,750			5.32	%		Second lien(2)		10.50% (Base Rate + 9.25%)			6/10/2019			30,000			29,402			30,319			5.32	%
Unitek Global Services, Inc.
UniTek Global Services, Inc.
Business Services		First lien(2)		9.00% (Base Rate + 7.50%)			4/16/2018			19,650,000			19,201,741			19,330,688						First lien(2)		9.00% (Base Rate + 7.50%)			4/16/2018			19,650			19,202			19,331
		First lien(2)		9.00% (Base Rate + 7.50%)			4/16/2018			5,970,000			5,797,909			5,872,988						First lien(2)		9.00% (Base Rate + 7.50%)			4/16/2018			5,970			5,798			5,873
		First lien(2)		9.00% (Base Rate + 7.50%)			4/16/2018			4,962,500			4,780,616			4,881,859						First lien(2)		9.00% (Base Rate + 7.50%)			4/16/2018			4,963			4,781			4,882
​																					​						​	​		​	​		​	​		​	​		​	​
										30,582,500			29,780,266			30,085,535			5.28	%										30,583			29,781			30,086			5.28	%
​																					​						​	​		​	​		​	​		​	​		​	​
KeyPoint Government Solutions, Inc.
Federal Services		First lien(3)		7.25% (Base Rate + 6.00%)			11/13/2017			20,000,000			19,607,744			19,900,000						First lien(3)		7.25% (Base Rate + 6.00%)			11/13/2017			20,000			19,608			19,900
		First lien(2)		7.25% (Base Rate + 6.00%)			11/13/2017			10,000,000			9,702,987			9,950,000						First lien(2)		7.25% (Base Rate + 6.00%)			11/13/2017			10,000			9,703			9,950
​																					​						​	​		​	​		​	​		​	​		​	​
										30,000,000			29,310,731			29,850,000			5.24	%										30,000			29,311			29,850			5.24	%
​																					​						​	​		​	​		​	​		​	​		​	​
Global Knowledge Training LLC
Education		First lien(3)		6.50% (Base Rate + 4.99%)			4/21/2017			4,776,379			4,717,845			4,704,733						First lien(3)		6.50% (Base Rate + 4.99%)			4/21/2017			4,776			4,718			4,705
		First lien(3)		7.25% (Base Rate + 4.00%)			4/21/2017			1,173,760			1,159,106			1,156,154						First lien(3)		7.25% (Base Rate + 4.00%)			4/21/2017			1,174			1,159			1,156
		Second lien(2)		11.50% (Base Rate + 9.75%)			10/21/2018			24,250,000			23,813,747			23,755,300						Second lien(2)		11.50% (Base Rate + 9.75%)			10/21/2018			24,250			23,814			23,755
​																					​						​	​		​	​		​	​		​	​		​	​
										30,200,139			29,690,698			29,616,187			5.20	%										30,200			29,691			29,616			5.20	%
​																					​						​	​		​	​		​	​		​	​		​	​
Managed Health Care Associates, Inc.
Healthcare Services		First lien(2)		3.47% (Base Rate + 3.25%)			8/1/2014			14,755,543			13,240,121			14,275,988						First lien(2)		3.47% (Base Rate + 3.25%)			8/1/2014			14,756			13,240			14,276
		Second lien(2)		6.72% (Base Rate + 6.50%)			2/1/2015			15,000,000			12,790,120			14,475,000						Second lien(2)		6.72% (Base Rate + 6.50%)			2/1/2015			15,000			12,790			14,475
​																					​						​	​		​	​		​	​		​	​		​	​
										29,755,543			26,030,241			28,750,988			5.05	%										29,756			26,030			28,751			5.05	%
​																					​						​	​		​	​		​	​		​	​		​	​
Transtar Holding Company
Distribution		Second lien(2)		9.75% (Base Rate + 8.50%)			10/9/2019			28,300,000			27,786,609			28,653,750			5.03	%
Distribution & Logistics(10)																						Second lien(2)		9.75% (Base Rate + 8.50%)			10/9/2019			28,300			27,787			28,654			5.03	%
Meritas Schools Holdings, LLC
Education		First lien(3)		7.50% (Base Rate + 6.00%)			7/29/2017			8,150,286			8,084,328			8,170,661						First lien(3)		7.50% (Base Rate + 6.00%)			7/29/2017			8,150			8,084			8,171
		Second lien(2)		11.50% (Base Rate + 10.00%)			1/29/2018			20,000,000			19,747,073			20,000,000						Second lien(2)		11.50% (Base Rate + 10.00%)			1/29/2018			20,000			19,747			20,000
​																					​						​	​		​	​		​	​		​	​		​	​
										28,150,286			27,831,401			28,170,661			4.94	%										28,150			27,831			28,171			4.94	%
​																					​						​	​		​	​		​	​		​	​		​	​
Kronos Incorporated
Software		Second lien(2)		9.75% (Base Rate + 8.50%)			4/30/2020			25,000,000			24,752,991			25,125,000			4.41	%		Second lien(2)		9.75% (Base Rate + 8.50%)			4/30/2020			25,000			24,753			25,125			4.41	%

   

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




Table of Contents


New Mountain Finance Holdings, L.L.C.

Consolidated Schedule of Investments (Continued)

December 31, 2012

(in thousands, except shares)

Portfolio Company, Location and Industry(1)		Type of Investment		Interest Rate		Maturity Date			Principal Amount, Par Value or Shares			Cost			Fair Value			Percent of Members' Capital				Type of Investment		Interest Rate		Maturity Date			Principal Amount, Par Value or Shares			Cost			Fair Value			Percent of Members' Capital
St. George's University Scholastic Services LLC
Education		First lien(2)		8.50% (Base Rate + 7.00%)			12/20/2017		$	25,000,000		$	24,501,319		$	24,500,000			4.30	%		First lien(2)		8.50% (Base Rate + 7.00%)			12/20/2017		$	25,000		$	24,501		$	24,500			4.30	%
SRA International, Inc.
Federal Services		First lien(3)		6.50% (Base Rate + 5.25%)			7/20/2018			20,436,329			19,740,789			19,542,239						First lien(3)		6.50% (Base Rate + 5.25%)			7/20/2018			20,436			19,741			19,542
		First lien(2)		6.50% (Base Rate + 5.25%)			7/20/2018			4,315,000			4,225,409			4,126,219						First lien(2)		6.50% (Base Rate + 5.25%)			7/20/2018			4,315			4,225			4,126
​																					​						​	​		​	​		​	​		​	​		​	​
										24,751,329			23,966,198			23,668,458			4.15	%										24,751			23,966			23,668			4.15	%
​																					​						​	​		​	​		​	​		​	​		​	​
Aderant North America, Inc.
Software		Second lien(2)		11.00% (Base Rate + 7.75%)			6/20/2019			22,500,000			22,162,978			23,062,500			4.05	%		Second lien(2)		11.00% (Base Rate + 7.75%)			6/20/2019			22,500			22,163			23,062			4.05	%
LM U.S. Member LLC (and LM U.S. Corp Acquisition Inc.)
Business Services		Second lien(2)		9.50% (Base Rate + 8.25%)			10/26/2020			20,000,000			19,703,785			20,150,000			3.54	%		Second lien(2)		9.50% (Base Rate + 8.25%)			10/26/2020			20,000			19,704			20,150			3.54	%
Learning Care Group (US), Inc.
Education		First lien(2)		12.00%			4/27/2016			17,368,421			17,173,863			16,695,606						First lien(2)		12.00%			4/27/2016			17,369			17,174			16,696
		Subordinated(2)		15.00% PIK*			6/30/2016			3,782,365			3,638,844			3,434,506						Subordinated(2)		15.00% PIK*			6/30/2016			3,782			3,639			3,434
​																					​						​	​		​	​		​	​		​	​		​	​
										21,150,786			20,812,707			20,130,112			3.53	%										21,151			20,813			20,130			3.53	%
​																					​						​	​		​	​		​	​		​	​		​	​
Six3 Systems, Inc.
Federal Services		First lien(2)		7.00% (Base Rate + 5.75%)			10/4/2019			20,000,000			19,805,458			20,025,000			3.51	%		First lien(2)		7.00% (Base Rate + 5.75%)			10/4/2019			20,000			19,805			20,025			3.51	%
First American Payment Systems, L.P.
Business Services		Second lien(2)		10.75% (Base Rate + 9.50%)			4/12/2019			20,000,000			19,608,588			19,900,000			3.49	%		Second lien(2)		10.75% (Base Rate + 9.50%)			4/12/2019			20,000			19,609			19,900			3.49	%
eResearchTechnology, Inc.
Healthcare Services		First lien(3)		8.00% (Base Rate + 6.50%)			5/2/2018			19,950,000			19,201,799			19,850,250			3.48	%		First lien(3)		8.00% (Base Rate + 6.50%)			5/2/2018			19,950			19,202			19,850			3.48	%
Insight Pharmaceuticals LLC
Healthcare Products		Second lien(2)		13.25% (Base Rate + 11.75%)			8/25/2017			19,310,345			18,659,022			19,503,448			3.42	%		Second lien(2)		13.25% (Base Rate + 11.75%)			8/25/2017			19,310			18,659			19,503			3.42	%
Transplace Texas, L.P.
Logistics		Second lien(2)		11.00% (Base Rate + 9.00%)			4/12/2017			20,000,000			19,585,791			19,500,000			3.42	%
Distribution & Logistics(10)																						Second lien(2)		11.00% (Base Rate + 9.00%)			4/12/2017			20,000			19,586			19,500			3.42	%
PODS, Inc.(6)
Consumer Services
PODS Funding Corp. II		First lien(3)		7.25% (Base Rate + 6.00%)			11/29/2016			14,007,369			13,668,092			13,972,351						First lien(3)		7.25% (Base Rate + 6.00%)			11/29/2016			14,007			13,668			13,972
Storapod Holding Company, Inc.		Subordinated(2)		21.00% PIK*			11/29/2017			5,296,065			5,156,066			5,112,580						Subordinated(2)		21.00% PIK*			11/29/2017			5,296			5,156			5,113
​																					​						​	​		​	​		​	​		​	​		​	​
										19,303,434			18,824,158			19,084,931			3.35	%										19,303			18,824			19,085			3.35	%
​																					​						​	​		​	​		​	​		​	​		​	​
Smile Brands Group Inc.
Healthcare Services		First lien(3)		7.00% (Base Rate + 5.25%)			12/21/2017			19,859,299			19,597,841			18,767,038			3.29	%		First lien(3)		7.00% (Base Rate + 5.25%)			12/21/2017			19,859			19,598			18,767			3.29	%
Ascensus, Inc.
Business Services		First lien(2)		8.00% (Base Rate + 6.75%)			12/21/2018			8,500,000			8,330,000			8,330,000						First lien(2)		8.00% (Base Rate + 6.75%)			12/21/2018			8,500			8,330			8,330
		First lien(3)		8.00% (Base Rate + 6.75%)			12/21/2018			8,500,000			8,330,122			8,330,000						First lien(3)		8.00% (Base Rate + 6.75%)			12/21/2018			8,500			8,330			8,330
​																					​						​	​		​	​		​	​		​	​		​	​
										17,000,000			16,660,122			16,660,000			2.92	%										17,000			16,660			16,660			2.92	%
​																					​						​	​		​	​		​	​		​	​		​	​
Sotera Defense Solutions, Inc. (Global Defense Technology & Systems, Inc.)
Federal Services		First lien(3)		7.50% (Base Rate + 6.00%)			4/21/2017			15,757,542			15,643,633			15,599,967			2.74	%		First lien(3)		7.50% (Base Rate + 6.00%)			4/21/2017			15,758			15,644			15,600			2.74	%
IG Investments Holdings, LLC
Business Services		Second lien(2)		10.25% (Base Rate + 9.00%)			10/31/2020			15,000,000			14,851,861			14,925,000			2.62	%		Second lien(2)		10.25% (Base Rate + 9.00%)			10/31/2020			15,000			14,852			14,925			2.62	%
OpenLink International, Inc.
Software		First lien(3)		7.75% (Base Rate + 6.25%)			10/30/2017			14,850,000			14,600,033			14,850,000			2.61	%		First lien(3)		7.75% (Base Rate + 6.25%)			10/30/2017			14,850			14,600			14,850			2.61	%
Landslide Holdings, Inc. (Crimson Acquisition Corp.)
Software		First lien(3)		7.00% (Base Rate + 5.75%)			6/19/2018			14,625,000			14,353,255			14,670,528			2.57	%		First lien(3)		7.00% (Base Rate + 5.75%)			6/19/2018			14,625			14,353			14,671			2.57	%
KPLT Holdings, Inc. (Centerplate, Inc., et al.)
Consumer Services		Subordinated(2)		11.75% (10.25% + 1.50% PIK)*			4/16/2019			14,637,082			14,351,316			14,344,340			2.52	%		Subordinated(2)		11.75% (10.25% + 1.50% PIK)*			4/16/2019			14,637			14,351			14,344			2.52	%
Sabre Inc.
Software		First lien(3)		7.25% (Base Rate + 6.00%)			12/29/2017			13,965,000			13,918,202			14,186,108			2.49	%		First lien(3)		7.25% (Base Rate + 6.00%)			12/29/2017			13,965			13,918			14,186			2.49	%
Brock Holdings III, Inc.
Industrial Services		Second lien(2)		10.00% (Base Rate + 8.25%)			3/16/2018			14,000,000			13,825,050			14,105,000			2.48	%		Second lien(2)		10.00% (Base Rate + 8.25%)			3/16/2018			14,000			13,825			14,105			2.48	%
Triple Point Technology, Inc.
Software		First lien(3)		6.25% (Base Rate + 5.00%)			10/27/2017			12,967,500			12,548,898			13,021,536			2.28	%		First lien(3)		6.25% (Base Rate + 5.00%)			10/27/2017			12,968			12,549			13,021			2.28	%
Lonestar Intermediate Super Holdings, LLC
Business Services		Subordinated(2)		11.00% (Base Rate + 9.50%)			9/2/2019			12,000,000			11,665,992			12,765,000			2.24	%		Subordinated(2)		11.00% (Base Rate + 9.50%)			9/2/2019			12,000			11,666			12,765			2.24	%
Aspen Dental Management, Inc
Healthcare Services		First lien(3)		7.00% (Base Rate + 5.50%)			10/6/2016			12,870,000			12,651,541			12,210,413			2.14	%		First lien(3)		7.00% (Base Rate + 5.50%)			10/6/2016			12,870			12,652			12,210			2.14	%

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




Table of Contents


New Mountain Finance Holdings, L.L.C.

Consolidated Schedule of Investments (Continued)

December 31, 2012

(in thousands, except shares)

Portfolio Company, Location and Industry(1)		Type of Investment		Interest Rate		Maturity Date		Principal Amount, Par Value or Shares			Cost			Fair Value			Percent of Members' Capital
Van Wagner Communications, LLC
Media		First lien(2)		8.25% (Base Rate + 7.00%)		8/3/2018		$	12,000		$	11,772		$	12,160			2.13	%
Supervalu Inc.**
Retail		First lien(2)		8.00% (Base Rate + 6.75%)		8/30/2018			11,940			11,597			12,146			2.13	%
Vision Solutions, Inc.
Software		Second lien(2)		9.50% (Base Rate + 8.00%)		7/23/2017			12,000			11,913			11,700			2.05	%
Merrill Communications LLC
Business Services		First lien(2)		10.75% (Base Rate + 7.50%)		3/10/2013			11,422			11,421			11,279			1.98	%
MailSouth, Inc.
Media		First lien(3)		6.75% (Base Rate + 5.00%)		12/14/2016			11,136			11,018			11,025			1.94	%
Immucor, Inc.
Healthcare Services		First lien(3)		5.75% (Base Rate + 4.50%)		8/19/2018			4,938			4,772			5,006
		Subordinated(2)(7)		11.13%		8/15/2019			5,000			4,943			5,650
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
									9,938			9,715			10,656			1.87	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Virtual Radiologic Corporation
Healthcare Information Technology		First lien(3)		7.75% (Base Rate + 4.50%)		12/22/2016			14,702			14,550			10,291			1.81	%
Permian Tank & Manufacturing, Inc.
Energy		First lien(3)		9.00% (Base Rate + 7.25%)		3/15/2017			10,072			9,852			10,072			1.77	%
Vertafore, Inc.
Software		Second lien(2)		9.75% (Base Rate + 8.25%)		10/29/2017			10,000			9,924			10,050			1.76	%
Merge Healthcare Inc.**
Healthcare Services		First lien(2)(7)		11.75%		5/1/2015			9,000			8,916			9,709			1.70	%
TransFirst Holdings, Inc.
Business Services		Second lien(2)		11.00% (Base Rate + 9.75%)		6/27/2018			10,000			9,700			9,700			1.70	%
Consona Holdings, Inc.
Software		First lien(3)		7.25% (Base Rate + 6.00%)		8/6/2018			8,479			8,398			8,511			1.49	%
Confie Seguros Holding II Co.
Consumer Services		Second lien(2)		10.25% (Base Rate + 9.00%)		5/8/2019			8,000			7,842			8,040			1.41	%
Physio-Control International, Inc.
Healthcare Products		First lien(2)		9.88%		1/15/2019			7,000			7,000			7,717			1.35	%
Surgery Center Holdings, Inc.
Healthcare Services		First lien(3)		6.50% (Base Rate + 5.00%)		2/6/2017			6,834			6,809			6,800			1.19	%
Research Pharmaceutical Services, Inc.
Healthcare Services		First lien(3)		6.75% (Base Rate + 5.25%)		2/18/2017			7,125			7,046			6,662			1.17	%
Alion Science and Technology Corporation
Federal Services		First lien(2)(7)		12.00% (10.00% + 2.00% PIK)*		11/1/2014			6,320			6,131			6,093			1.07	%
GCA Services Group, Inc.
Business Services		Second lien(2)		9.25% (Base Rate + 8.00%)		11/1/2020			5,000			4,951			4,900			0.86	%
Education Management LLC**
Education		First lien(3)		8.25% (Base Rate + 7.00%)		3/30/2018			5,058			4,921			4,232			0.74	%
Brickman Group Holdings, Inc.
Business Services		Subordinated(2)		9.13%		11/1/2018			3,650			3,342			3,842			0.68	%
Ozburn-Hessey Holding Company LLC
Distribution & Logistics(10)		Second lien(2)		11.50% (Base Rate + 9.50%)		10/10/2016			4,000			3,947			3,680			0.65	%
YP Holdings LLC(8)
YP Intermediate Holdings Corp. / YP Intermediate Holdings II LLC
Media		Second lien(2)		15.00% (12.00% + 3.00% PIK)*		5/18/2017			3,559			3,326			3,586			0.63	%
Mach Gen, LLC
Power Generation		Second lien(2)		7.82% PIK (Base Rate + 7.50%)*		2/22/2015			3,676			3,474			2,396			0.42	%
ATI Acquisition Company (fka Ability Acquisition, Inc.)
Education		First lien(2)		12.25% (Base Rate + 5.00% + 4.00% PIK)(5)*		12/30/2014			4,432			4,306			—
		First lien(2)		17.25% (Base Rate + 10.00% + 4.00% PIK)(5)*		6/30/2012 —Past Due			1,665			1,517			649
		First lien(2)		17.25% (Base Rate + 10.00% + 4.00% PIK)(5)*		6/30/2012 —Past Due			103			94			103
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
									6,200			5,917			752			0.13	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Airvana Network Solutions Inc.
Software		First lien(2)		10.00% (Base Rate + 8.00%)		3/25/2015			648			640			650			0.11	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total Funded Debt Investments—United States								$	942,670		$	921,787		$	925,287			162.35	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total Funded Debt Investments								$	997,289		$	975,117		$	980,510			172.04	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​

   

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




Table of Contents


New Mountain Finance Holdings, L.L.C.

Consolidated Schedule of Investments (Continued)

December 31, 2012

Portfolio Company, Location and Industry(1)		Type of Investment		Interest Rate		Maturity Date			Principal Amount, Par Value or Shares			Cost			Fair Value			Percent of Members' Capital
Van Wagner Communications, LLC
Media		First lien(2)		8.25% (Base Rate + 7.00%)			8/3/2018		$	12,000,000		$	11,772,402		$	12,159,996			2.13	%
Supervalu Inc.**
Retail		First lien(2)		8.00% (Base Rate + 6.75%)			8/30/2018			11,940,000			11,596,938			12,146,467			2.13	%
Vision Solutions, Inc.
Software		Second lien(2)		9.50% (Base Rate + 8.00%)			7/23/2017			12,000,000			11,912,951			11,700,000			2.05	%
Merrill Communications LLC
Business Services		First lien(2)		10.75% (Base Rate + 7.50%)			3/10/2013			11,421,788			11,421,042			11,279,016			1.98	%
Mailsouth, Inc.
Media		First lien(3)		6.75% (Base Rate + 5.00%)			12/14/2016			11,136,318			11,017,701			11,024,955			1.94	%
Immucor, Inc.
Healthcare Services		First lien(3)		5.75% (Base Rate + 4.50%)			8/19/2018			4,937,687			4,772,007			5,005,581
		Subordinated(2)(7)		11.13%			8/15/2019			5,000,000			4,943,092			5,650,000
										9,937,687			9,715,099			10,655,581			1.87	%
Virtual Radiologic Corporation
Healthcare Information Technology		First lien(3)		7.75% (Base Rate + 4.50%)			12/22/2016			14,702,456			14,550,421			10,291,719			1.81	%
Permian Tank & Manufacturing, Inc.
Energy		First lien(3)		9.00% (Base Rate + 7.25%)			3/15/2017			10,072,072			9,852,254			10,072,072			1.77	%
Vertafore, Inc.
Software		Second lien(2)		9.75% (Base Rate + 8.25%)			10/29/2017			10,000,000			9,923,849			10,050,000			1.76	%
Merge Healthcare Inc.**
Healthcare Services		First lien(2)(7)		11.75%			5/1/2015			9,000,000			8,915,385			9,708,750			1.70	%
TransFirst Holdings, Inc.
Business Services		Second lien(2)		11.00% (Base Rate + 9.75%)			6/27/2018			10,000,000			9,700,000			9,700,000			1.70	%
Consona Holdings, Inc.
Software		First lien(3)		7.25% (Base Rate + 6.00%)			8/6/2018			8,478,750			8,398,140			8,510,545			1.49	%
Confie Seguros Holding II Co.
Consumer Services		Second lien(2)		10.25% (Base Rate + 9.00%)			5/8/2019			8,000,000			7,842,169			8,040,000			1.41	%
Physio-Control International, Inc.
Healthcare Products		First lien(2)		9.88%			1/15/2019			7,000,000			7,000,000			7,717,500			1.35	%
Surgery Center Holdings, Inc.
Healthcare Services		First lien(3)		6.50% (Base Rate + 5.00%)			2/6/2017			6,833,750			6,809,372			6,799,581			1.19	%
Research Pharmaceutical Services, Inc.
Healthcare Services		First lien(3)		6.75% (Base Rate + 5.25%)			2/18/2017			7,125,000			7,046,359			6,661,875			1.17	%
Alion Science and Technology Corporation
Federal Services		First lien(2)(7)		12.00% (10.00% + 2.00% PIK)*			11/1/2014			6,319,766			6,131,223			6,093,311			1.07	%
GCA Services Group, Inc.
Business Services		Second lien(2)		9.25% (Base Rate + 8.00%)			11/1/2020			5,000,000			4,950,653			4,900,000			0.86	%
Education Management LLC**
Education		First lien(3)		8.25% (Base Rate + 7.00%)			3/30/2018			5,058,577			4,920,421			4,232,345			0.74	%
Brickman Group Holdings, Inc.
Business Services		Subordinated(2)		9.13%			11/1/2018			3,650,000			3,341,796			3,841,625			0.68	%
Ozburn-Hessey Holding Company LLC
Logistics		Second lien(2)		11.50% (Base Rate + 9.50%)			10/10/2016			4,000,000			3,946,984			3,680,000			0.65	%
YP Holdings LLC(8)
YP Intermediate Holdings Corp. / YP Intermediate Holdings II LLC
Media		Second lien(2)		15.00% (12.00% + 3.00% PIK)*			5/18/2017			3,559,100			3,326,057			3,586,089			0.63	%
Mach Gen, LLC
Power Generation		Second lien(2)		7.82% PIK (Base Rate + 7.50%)*			2/22/2015			3,675,587			3,474,314			2,395,743			0.42	%
ATI Acquisition Company (fka Ability Acquisition, Inc.)
Education		First lien(2)		12.25% (Base Rate + 5.00% +
				4.00% PIK)(5)*			12/30/2014			4,432,500			4,306,437			—
				17.25% (Base Rate + 10.00% +			6/30/2012—
		First lien(2)		4.00% PIK)(5)*			Past Due			1,665,103			1,516,666			649,390
				17.25% (Base Rate + 10.00% +			6/30/2012—
		First lien(2)		4.00% PIK)(5)*			Past Due			102,861			93,691			102,861
										6,200,464			5,916,794			752,251			0.13	%
Airvana Network Solutions Inc.
Software		First lien(2)		10.00% (Base Rate + 8.00%)			3/25/2015			647,619			640,332			649,643			0.11	%
Total Funded Debt Investments—United States									$	942,669,719		$	921,786,343		$	925,288,585			162.35	%
Total Funded Debt Investments									$	997,288,719		$	975,116,678		$	980,510,642			172.04	%

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




Table of Contents


New Mountain Finance Holdings, L.L.C.

Consolidated Schedule of Investments (Continued)

December 31, 2012(in thousands, except shares)

Portfolio Company, Location and Industry(1)		Type of Investment		Interest Rate			Maturity Date			Principal Amount, Par Value or Shares			Cost			Fair Value			Percent of Members' Capital				Type of Investment		Interest Rate		Maturity Date		Principal Amount, Par Value or Shares			Cost			Fair Value			Percent of Members' Capital
Equity—Bermuda
Stratus Technologies Bermuda Holdings Ltd.(4)**
Information Technology		Ordinary shares(2)			—			—			144,270		$	65,123		$	65,150						Ordinary shares(2)		—		—			144,270		$	65		$	65
		Preferred shares(2)			—			—			32,830			14,819			14,826						Preferred shares(2)		—		—			32,830			15			15
​																						​					​	​		​	​		​	​		​	​		​	​
														79,942			79,976			0.01	%												80			80			0.01	%
​																						​					​	​		​	​		​	​		​	​		​	​
Total Shares—Bermuda													$	79,942		$	79,976			0.01	%											$	80		$	80			0.01	%
​																						​					​	​		​	​		​	​		​	​		​	​
Equity—United States
Global Knowledge Training LLC
Education		Ordinary shares(2)			—			—			2		$	2,109		$	2,109						Ordinary shares(2)		—		—			2		$	2		$	2
		Preferred shares(2)			—			—			2,423			1,195,480			2,422,891						Preferred shares(2)		—		—			2,423			1,195			2,423
​																						​					​	​		​	​		​	​		​	​		​	​
														1,197,589			2,425,000			0.43	%												1,197			2,425			0.43	%
​																						​					​	​		​	​		​	​		​	​		​	​
Total Shares—United States													$	1,197,589		$	2,425,000			0.43	%											$	1,197		$	2,425			0.43	%
​																						​					​	​		​	​		​	​		​	​		​	​
Total Shares													$	1,277,531		$	2,504,976			0.44	%											$	1,277		$	2,505			0.44	%
​																						​					​	​		​	​		​	​		​	​		​	​
Warrants—United States
YP Holdings LLC(8)
YP Equity Investors LLC
Media		Warrants(2)			—			—			5		$	466,248		$	7,229,468			1.27	%		Warrants(2)		—		—			5		$	466		$	7,230			1.27	%
Alion Science and Technology Corporation
Federal Services		Warrants(2)			—			—			6,000			292,851			191,750			0.03	%		Warrants(2)		—		—			6,000			293			192			0.03	%
PODS, Inc.(6)
Storapod Holding Company, Inc.
Consumer Services		Warrants(2)			—			—			360,129			155,905			155,906			0.03	%		Warrants(2)		—		—			360,129			156			156			0.03	%
Learning Care Group (US), Inc.
Education		Warrants(2)			—			—			844			193,850			14,371			0.00	%		Warrants(2)		—		—			844			194			14			0.00	%
​																						​					​	​		​	​		​	​		​	​		​	​
Total Warrants—United States													$	1,108,854		$	7,591,495			1.33	%											$	1,109		$	7,592			1.33	%
​																						​					​	​		​	​		​	​		​	​		​	​
Total Funded Investments													$	977,503,063		$	990,607,113			173.81	%											$	977,503		$	990,607			173.81	%
​																						​					​	​		​	​		​	​		​	​		​	​
Unfunded Debt Investments—United States
Advantage Sales & Marketing Inc.
Business Services		First lien(2)(9)—Undrawn			—			12/17/2015		$	10,500,000		$	(1,260,000	)	$	(787,500	)		-0.14	%		First lien(2)(9)—Undrawn		—		12/17/2015		$	10,500		$	(1,260	)	$	(787	)		(0.14	)%
​																						​					​	​		​	​		​	​		​	​		​	​
Total Unfunded Debt Investments										$	10,500,000		$	(1,260,000	)	$	(787,500	)		-0.14	%								$	10,500		$	(1,260	)	$	(787	)		(0.14	)%
​																						​					​	​		​	​		​	​		​	​		​	​
Total Investments													$	976,243,063		$	989,819,613			173.67	%											$	976,243		$	989,820			173.67	%
​																						​					​	​		​	​		​	​		​	​		​	​
​																						​					​	​		​	​		​	​		​	​		​	​

---

(1)

New Mountain Finance Holdings, L.L.C. (the "Operating Company") generally acquires its investments in private transactions exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"). These investments are generally subject to certain limitations on resale, and may be deemed to be "restricted securities" under the Securities Act.



(2)

The Holdings Credit Facility is collateralized by the indicated investments.



(3)

The SLF Credit Facility is collateralized by the indicated investments.



(4)

The Operating Company holds investments in two related entities of Stratus Technologies Bermuda Holdings, Ltd. ("Stratus Holdings"). The Operating Company directly holds ordinary and preferred equity in Stratus Holdings and has a credit investment in the joint issuers of Stratus Technologies Bermuda Ltd. ("Stratus Bermuda") and Stratus Technologies, Inc. ("Stratus U.S."), collectively, the "Stratus Notes". Stratus U.S. is a wholly-owned subsidiary of Stratus Bermuda, which in turn is a wholly-owned subsidiary of Stratus Holdings. Stratus Holdings is the parent guarantor of the credit investment of the Stratus Notes.



(5)

Investment is on non-accrual status.



(6)

The Operating Company holds investments in two related entities of PODS, Inc. The Operating Company directly holds warrants in Storapod Holding Company, Inc. ("Storapod") and has a credit investment in Storapod through Storapod WCF II Limited ("Storapod WCF II"). Storapod WCF II is a special purpose entity used to enter into a Shari'ah- compliantShari'ah-compliant financing arrangement with Storapod. Additionally, the Operating Company has a credit investment in PODS Funding Corp. II ("PODS II"). PODS, Inc. is a wholly-owned subsidiary of PODS Holding, Inc., which in turn is a majority- ownedmajority-owned subsidiary of Storapod. PODS II is a special purpose entity used to enter into a Shari'ah-compliant financing arrangement with PODS, Inc. and its subsidiary, PODS Enterprises, Inc.



(7)

Securities are registered under the Securities Act.



(8)

The Operating Company holds investments in two related entities of YP Holdings LLC. The Operating Company directly holds warrants to purchase a 4.96% membership interest of YP Equity Investors, LLC (which at closing represented an indirect 1.0% equity interest in YP Holdings LLC) and holds an investment in the Term Loan B loans issued by YP Intermediate Holdings Corp. and YP Intermediate Holdings II LLC (together "YP Intermediate"), a subsidiary of YP Holdings LLC.



(9)

Par Value amounts represent the drawn or undrawn (as indicated in type of investment) portion of revolving credit facilities. Cost amounts represent the cash received at settlement date net the impact of paydowns and cash paid for drawn revolvers.



(10)

Industries were disclosed separately in previously issued financial statements.



*

All or a portion of interest contains payments-in-kind ("PIK").



**

Indicates assets that the Operating Company deems to be "non-qualifying assets" under Section 55(a) of the Investment Company Act of 1940, as amended. Qualifying assets must represent at least 70.00% of the Operating Company's total assets at the time of acquisition of any additional non-qualifying assets.

   

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




Table of Contents


New Mountain Finance Holdings, L.L.C.

Consolidated Schedule of Investments (Continued)

December 31, 2012

		December 31, 2012
Investment Type		Percent of Total Investments Investments at Fair Value
First lien			49.86	%
Second lien			44.56	%
Subordinated			4.56	%
Equity and other			1.02	%
​	​	​	​	​
Total investments			100.00	%
​	​	​	​	​
​	​	​	​	​

 


		December 31, 2012
Industry Type		Percent of Total Investments Investments at Fair Value
Software			24.92	%
Education			15.17	%
Healthcare Services			14.52	%
Business Services			14.49	%
Federal Services			9.64	%
Distribution & Logistics(1)			5.23	%
Consumer Services			4.21	%
Media			3.44	%
Distribution			2.89	%
Healthcare Products			2.75	%
Logistics			2.34	%
Industrial Services			1.42	%
Retail			1.23	%
Healthcare Information Technology			1.04	%
Energy			1.02	%
Information Technology			0.68	%
Power Generation			0.24	%
​	​	​	​	​
Total investments			100.00	%
​	​	​	​	​
​	​	​	​	​

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




Table of Contents


New Mountain Finance Holdings, L.L.C.

Consolidated Schedule of Investments

December 31, 2011


Portfolio Company, Location and Industry(1)		Type of Investment		Interest Rate		Maturity Date			Principal Amount, Par Value or Shares			Cost			Fair Value			Percent of Members' Capital
Funded Debt Investments—Bermuda
Stratus Technologies Bermuda Holdings Ltd.(4)**
Stratus Technologies Bermuda Ltd. / Stratus Technologies, Inc.
Information Technology		First lien(2)		12.00%			3/29/2015		$	6,827,000		$	6,490,139		$	6,212,570			1.48	%
Total Funded Debt Investments—Bermuda									$	6,827,000		$	6,490,139		$	6,212,570			1.48	%
Funded Debt Investments—United States
Novell, Inc. (fka Attachmate Corporation, NetIQ Corporation)
Software		First lien(3)		6.50% (Base Rate + 5.00%)			4/27/2017		$	13,825,000		$	13,703,238		$	13,583,062
		Second lien(2)		9.50% (Base Rate + 8.00%)			10/27/2017			20,000,000			19,669,018			19,200,000
										33,825,000			33,372,256			32,783,062			7.80	%
Decision Resources, LLC
Business Services		First lien(3)		7.00% (Base Rate + 5.50%)			12/28/2016			17,820,000			17,588,508			17,196,300
		Second lien(2)		9.50% (Base Rate + 8.00%)			5/7/2018			14,500,000			14,368,204			14,282,500
										32,320,000			31,956,712			31,478,800			7.48	%
Lawson Software, Inc. (fka SoftBrands, Inc.)
Software		First lien(3)		6.75% (Base Rate + 5.25%)			7/5/2017			18,703,125			18,001,977			18,305,684
		Subordinated(2)		11.50%			7/15/2018			13,500,000			12,329,105			13,162,500
										32,203,125			30,331,082			31,468,184			7.47	%
Meritas Schools Holdings, LLC
Education		First lien(3)		7.50% (Base Rate + 6.00%)			7/29/2017			9,500,000			9,409,890			9,357,500
		Second lien(2)		11.50% (Base Rate + 10.00%)			1/29/2018			20,000,000			19,712,425			19,650,000
										29,500,000			29,122,315			29,007,500			6.89	%
Global Knowledge Training LLC
Education		First lien(3)		6.50% (Base Rate + 5.00%)			4/21/2017			4,867,647			4,796,665			4,794,632
		Second lien(2)		11.50% (Base Rate + 9.75%)			10/21/2018			24,250,000			23,764,101			23,755,300
										29,117,647			28,560,766			28,549,932			6.79	%
Managed Health Care Associates, Inc.
Healthcare Services		First lien(2)		3.55% (Base Rate + 3.25%)			8/1/2014			15,467,673			12,941,252			14,462,274
		Second lien(2)		6.80% (Base Rate + 6.50%)			2/1/2015			15,000,000			11,950,542			13,950,000
										30,467,673			24,891,794			28,412,274			6.76	%
Insight Pharmaceuticals LLC
Healthcare Products		Second lien(2)		13.25% (Base Rate + 11.75%)			8/25/2017			25,000,000			24,037,614			24,875,000			5.92	%
Renaissance Learning, Inc.
Education		Second lien(2)		12.00% (Base Rate + 10.50%)			10/19/2018			20,000,000			19,016,871			20,100,000			4.78	%
Learning Care Group (US), Inc.
Education		First lien(2)		12.00%			4/27/2016			17,368,421			17,115,609			16,695,606
		Subordinated(2)		15.00% PIK*			6/30/2016			3,273,004			3,089,870			2,971,990
										20,641,425			20,205,479			19,667,596			4.68	%
Transplace Texas, L.P.
Logistics		Second lien(2)		11.00% (Base Rate + 9.00%)			4/12/2017			20,000,000			19,514,617			19,500,000			4.64	%
U.S. Healthworks Holding Company, Inc.
Healthcare Services		Second lien(2)		10.50% (Base Rate + 9.00%)			6/15/2017			20,000,000			19,719,547			19,500,000			4.64	%
Unitek Global Services, Inc.
Business Services		First lien(2)		9.00% (Base Rate + 7.50%)			4/15/2018			19,850,000			19,312,984			19,440,594			4.62	%
Ipreo Holdings LLC
Information Services		First lien(3)		8.00% (Base Rate + 6.50%)			8/5/2017			18,703,125			18,308,298			18,282,305			4.35	%
KeyPoint Government Solutions, Inc.
Federal Services		First lien(2)		10.00% (Base Rate + 8.00%)			12/31/2015			17,820,000			17,521,860			17,909,100			4.26	%
Sotera Defense Solutions, Inc. (Global Defense Technology & Systems, Inc.)
Federal Services		First lien(3)		7.00% (Base Rate + 5.50%)			4/21/2017			16,915,000			16,764,489			16,872,713			4.01	%
SRA International, Inc.
Federal Services		First lien(3)		6.50% (Base Rate + 5.25%)			7/20/2018			17,433,389			16,624,324			16,416,447			3.90	%
OpenLink International, Inc.
Software		First lien(2)		7.75% (Base Rate + 6.25%)			10/30/2017			15,000,000			14,706,514			15,056,250			3.58	%
Volume Services America, Inc. (Centerplate)
Consumer Services		First lien(2)		10.50% (Base Rate + 8.50%)			9/16/2016			14,850,000			14,512,417			14,924,250			3.55	%
SonicWALL, Inc.
Software		First lien(3)		8.27% (Base Rate + 6.19%)			1/23/2016			4,822,985			4,831,869			4,847,099
		Second lien(2)		12.00% (Base Rate + 10.00%)			1/23/2017			10,000,000			9,746,209			9,950,000
										14,822,985			14,578,078			14,797,099			3.52	%

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




Table of Contents


New Mountain Finance Holdings, L.L.C.

Consolidated Schedule of Investments (Continued)

December 31, 2011

Portfolio Company, Location and Industry(1)		Type of Investment		Interest Rate		Maturity Date			Principal Amount, Par Value or Shares			Cost			Fair Value			Percent of Members' Capital
PODS, Inc.(6)
Consumer Services
PODS Funding Corp. II		First lien(2)		8.50% (Base Rate + 7.00%)			11/29/2016		$	11,561,538		$	11,218,525		$	11,214,692
Storapod Holding Company, Inc.		Subordinated(2)		21.00% PIK*			11/29/2017			3,728,642			3,600,214			3,599,461
										15,290,180			14,818,739			14,814,153			3.52	%
Triple Point Technology, Inc.
Software		First lien(3)		8.00% (Base Rate + 6.50%)			10/27/2017			14,500,000			13,932,051			14,536,250			3.46	%
Virtual Radiologic Corporation
Healthcare Information Technology		First lien(3)		7.75% (Base Rate + 4.50%)			12/22/2016			14,889,987			14,704,271			14,108,263			3.36	%
Brock Holdings III, Inc.
Industrial Services		Second lien(2)		10.00% (Base Rate + 8.25%)			3/16/2018			15,000,000			14,746,132			13,818,750			3.29	%
LANDesk Group, Inc.
Software		First lien(3)		7.00% (Base Rate + 5.25%)			3/28/2016			14,062,500			13,828,336			13,798,828			3.28	%
Pacific Architects and Engineers Incorporated
Federal Services		First lien(3)		7.50% (Base Rate + 6.00%)			4/4/2017			14,100,000			13,848,322			13,677,000			3.25	%
Smile Brands Group Inc.
Healthcare Services		First lien(3)		7.00% (Base Rate + 5.25%)			12/21/2017			12,337,594			12,173,547			12,329,883			2.93	%
Mailsouth, Inc.
Media		First lien(3)		6.75% (Base Rate + 4.99%)			12/14/2016			11,910,000			11,756,172			11,731,350			2.79	%
Vision Solutions, Inc.
Software		Second lien(2)		9.50% (Base Rate + 8.00%)			7/23/2017			12,000,000			11,893,985			11,640,000			2.77	%
TravelCLICK, Inc. (fka TravelCLICK Acquisition Co.)
Information Services		First lien(3)		6.50% (Base Rate + 5.00%)			3/16/2016			11,401,313			11,208,577			11,344,306			2.70	%
Merrill Communications LLC
Business Services		First lien(2)		7.50% (Base Rate + 5.50%)			12/24/2012			11,421,788			10,284,637			11,002,985			2.62	%
Brickman Group Holdings, Inc.
Business Services		First lien(3)		7.25% (Base Rate + 5.50%)			10/14/2016			7,957,406			8,005,917			7,982,272
		Subordinated(2)		9.13%			11/1/2018			3,000,000			2,716,216			2,715,000
										10,957,406			10,722,133			10,697,272			2.54	%
Immucor, Inc.
Healthcare Services		First lien(3)		7.25% (Base Rate + 5.75%)			8/19/2018			4,987,500			4,795,791			5,022,826
		Subordinated(2)(7)		11.13%			8/15/2019			5,000,000			4,937,575			5,200,000
										9,987,500			9,733,366			10,222,826			2.43	%
CHG Companies, Inc.
Healthcare Services		Second lien(2)		11.25% (Base Rate + 9.50%)			4/7/2017			10,000,000			9,826,548			10,025,000			2.38	%
Vertafore, Inc.
Software		Second lien(2)		9.75% (Base Rate + 8.25%)			10/29/2017			10,000,000			9,912,104			9,725,000			2.31	%
Merge Healthcare Inc.**
Healthcare Services		First lien(2)(7)		11.75%			5/1/2015			9,000,000			8,879,303			9,585,000			2.28	%
Porex Corporation
Specialty Chemicals and Materials		First lien(3)		6.75% (Base Rate + 5.25%)			3/31/2015			9,573,968			9,449,821			9,430,359			2.24	%
Sunquest Information Systems, Inc. (Misys Hospital Systems, Inc.)
Healthcare Services		Second lien(2)		9.75% (Base Rate + 8.50%)			6/16/2017			9,000,000			8,840,688			8,910,000			2.12	%
Mach Gen, LLC
Power Generation		Second lien(2)		8.03% PIK (Base Rate + 7.50%)*			2/22/2015			12,063,894			9,966,951			8,609,943			2.05	%
Research Pharmaceutical Services, Inc.
Healthcare Services		First lien(3)		6.75% (Base Rate + 5.24%)			2/18/2017			7,453,125			7,354,306			7,192,266			1.71	%
Airvana Network Solutions Inc.
Software		First lien(2)		10.00% (Base Rate + 8.00%)			3/25/2015			7,009,524			6,895,616			7,044,571			1.68	%
Surgery Center Holdings, Inc.
Healthcare Services		First lien(3)		6.50% (Base Rate + 5.00%)			2/6/2017			6,947,500			6,916,695			6,478,544			1.54	%
Alion Science and Technology Corporation
Federal Services		First lien(2)(7)		10.00% + 2.00% PIK*			11/1/2014			6,195,238			5,613,308			5,555,066			1.32	%
Datatel, Inc.
Software		Second lien(2)		8.75% (Base Rate + 7.25%)			2/19/2018			5,000,000			4,977,238			5,150,000			1.22	%

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




Table of Contents


New Mountain Finance Holdings, L.L.C.

Consolidated Schedule of Investments (Continued)

December 31, 2011

Portfolio Company, Location and Industry(1)		Type of Investment		Interest Rate		Maturity Date			Principal Amount, Par Value or Shares			Cost			Fair Value			Percent of Members' Capital
Ozburn-Hessey Holding Company LLC
Logistics		Second lien(2)		11.50% (Base Rate + 9.50%)			10/8/2016		$	6,000,000		$	5,892,802		$	5,110,002			1.22	%
Asurion, LLC (fka Asurion Corporation)
Business Services		Second lien(2)		9.00% (Base Rate + 7.50%)			5/24/2019			5,000,000			4,976,820			4,950,000			1.18	%
Pharmaceutical Product Development, Inc. (Jaguar Holdings, LLC)
Healthcare Services		First lien(3)		6.25% (Base Rate + 5.00%)			12/5/2018			4,894,921			4,864,327			4,888,802			1.16	%
Fibertech Networks, LLC (fka Firefox Merger Sub, LLC)
Telecommunication		First lien(3)		6.75% (Base Rate + 5.00%)			11/30/2016			4,897,632			4,835,069			4,873,144			1.16	%
LVI Services Inc.
Industrial Services		First lien(2)		9.25% (Base Rate + 7.50%)			3/31/2014			5,120,334			4,474,056			3,725,043			0.89	%
ATI Acquisition Company (fka Ability Acquisition, Inc.)
Education		First lien(2)		12.25% (Base Rate + 5.00% + 4.00% PIK)(5)*			12/30/2014			4,477,810			4,351,747			783,617
		First lien(2)		17.25% (Base Rate + 10.00% + 4.00% PIK)*			6/30/2012			91,696			91,696			91,696
		First lien(2)		17.25% (Base Rate + 10.00% + 4.00% PIK)*			6/30/2012			1,484,370			1,484,370			1,484,370
										6,053,876			5,927,813			2,359,683			0.56	%
Total Funded Debt Investments—United States									$	720,537,649		$	696,311,750		$	696,375,395			165.60	%
Total Funded Debt Investments									$	727,364,649		$	702,801,889		$	702,587,965			167.08	%
Equity—Bermuda
Stratus Technologies Bermuda Holdings Ltd.(4)**
Information Technology		Ordinary shares(2)		—			—			144,270		$	65,123		$	29,881
		Preferred shares(2)		—			—			32,830			14,819			6,800
													79,942			36,681			0.01	%
Total Shares—Bermuda												$	79,942		$	36,681			0.01	%
Equity—United States
Global Knowledge Training LLC
Education		Ordinary shares(2)		—			—			2		$	2,109		$	2,109
		Preferred shares(2)		—			—			2,423			2,422,891			2,422,891
													2,425,000			2,425,000			0.58	%
Total Shares—United States												$	2,425,000		$	2,425,000			0.58	%
Total Shares												$	2,504,942		$	2,461,681			0.59	%
Warrants—United States
Alion Science and Technology Corporation
Federal Services		Warrants(2)		—			—			6,000		$	292,851		$	244,237			0.06	%
PODS, Inc.(6)
Storapod Holding Company, Inc.
Consumer Services		Warrants(2)		—			—			298,398			129,181			129,181			0.03	%
Learning Care Group (US), Inc.
Education		Warrants(2)		—			—			844			193,850			14,372			0.00	%
Total Warrants												$	615,882		$	387,790			0.09	%
Total Funded Investments												$	705,922,713		$	705,437,436			167.76	%

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




Table of Contents


New Mountain Finance Holdings, L.L.C.

Consolidated Schedule of Investments (Continued)

December 31, 2011

Portfolio Company, Location and Industry(1)		Type of Investment		Interest Rate		Maturity Date			Principal Amount, Par Value or Shares			Cost			Fair Value			Percent of Members' Capital
Unfunded Debt Investments—United States
Datatel, Inc.
Software		Subordinated—Bridge(2)(8)		—			12/13/2012		$	20,000,000		$	—		$	—			0.00	%
Physio-Control International, Inc.
Healthcare Products		First lien—Bridge(2)(8)		—			—			15,000,000			—			—			0.00	%
ATI Acquisition Company (fka Ability Acquisition, Inc.)
Education		First lien(2)(8)—Undrawn		—			1/1/2012			39,947			—			—
		First lien(2)(8)—Undrawn		—			1/1/2012			865			—			—
										40,812			—			—			0.00	%
PODS, Inc.(6)
Consumer Services
PODS Funding Corp. II		First lien(2)(8)—Undrawn		—			11/29/2016			3,438,462			(103,154	)		(103,154	)
Storapod Holding Company, Inc.		Subordinated(2)(8)—Undrawn		—			11/29/2017			771,358			—			—
										4,209,820			(103,154	)		(103,154	)		(0.03	)%
RGIS Services, LLC
Business Services		First lien(2)(9)—Undrawn		—			4/30/2013			5,000,000			(2,850,000	)		(293,850	)		(0.07	)%
Education Management LLC**
Education		First lien(2)(9)—Undrawn		—			6/1/2012			3,000,000			(1,215,000	)		(330,000	)		(0.08	)%
Kronos Incorporated
Software		First lien(2)(9)—Undrawn		—			6/11/2013			4,198,500			(629,775	)		(356,872	)		(0.08	)%
Advantage Sales & Marketing Inc.
Business Services		First lien(2)(9)—Undrawn		—			12/17/2015			10,500,000			(1,260,000	)		(840,000	)		(0.20	)%
Total Unfunded Debt Investments									$	61,949,132		$	(6,057,929	)	$	(1,923,876	)		(0.46	)%
Total Investments												$	699,864,784		$	703,513,560			167.30	%

---

(1)

New Mountain Finance Holdings, L.L.C. (the "Operating Company") generally acquires its investmentsIndustries were disclosed separately 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)

The Holdings Credit Facility is collateralized by the indicated investments.



(3)

The SLF Credit Facility is collateralized by the indicated investments.



(4)

The Operating Company holds investments in two related entities of Stratus Technologies Bermuda Holdings, Ltd. ("Stratus Holdings"). The Operating Company directly holds ordinary and preferred equity in Stratus Holdings and has a credit investment in the joint issuers of Stratus Technologies Bermuda Ltd. ("Stratus Bermuda") and Stratus Technologies, Inc. ("Stratus U.S."), collectively, the "Stratus Notes". Stratus U.S. is a wholly-owned subsidiary of Stratus Bermuda, which in turn is a wholly-owned subsidiary of Stratus Holdings. Stratus Holdings is the parent guarantor of the credit investment of the Stratus Notes.



(5)

Investment is on non-accrual status.



(6)

New Mountain Finance Holdings, L.L.C. (the "Operating Company") holds investments in two related entities of PODS, Inc. The Operating Company directly holds warrants in Storapod Holding Company, Inc. ("Storapod") and has a credit investment in Storapod through Storapod WCF II Limited ("Storapod WCF II"). Storapod WCF II is a special purpose entity used to enter into a Shari'ah- compliant financing arrangement with Storapod. Additionally, the Operating Company has a credit investment in PODS Funding Corp. II ("PODS II"). PODS, Inc. is a wholly-owned subsidiary of PODS Holding, Inc., which in turn is a majority- owned subsidiary of Storapod. PODS II is a special purpose entity used to enter into a Shari'ah-compliant financing arrangement with PODS, Inc. and its subsidiary, PODS Enterprises, Inc.



(7)

Securities are registered under the Securities Act.



(8)

Par Value amounts represent the drawn or undrawn (as indicated in type of investment) portion of the bridge facility, delayed draw or other future funding commitments.



(9)

Par Value amounts represent the drawn or undrawn (as indicated in type of investment) portion of revolving credit facilities. Cost amounts represent the cash received at settlement date net the impact of paydowns and cash paid for drawn revolvers.



*

All or a portion of interest contains payments-in-kind ("PIK").



**

Indicates assets that the Operating Company deems to be "non-qualifying assets" under Section 55(a) of the Investment Company Act of 1940, as amended. Qualifying assets must represent at least 70.00% of the Operating Company's total assets at the time of acquisition of any additional non-qualifying assets.previously issued financial statements.

   

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




Table of Contents


New Mountain Finance Holdings, L.L.C.Corporation

Consolidated ScheduleStatements of Investments (Continued)Assets and Liabilities

December 31, 2011(in thousands, except shares and per share data)

		December 31, 2011
Investment Type		Percent of Total Investments at Fair Value
First lien			58.32	%
Second lien			37.34	%
Subordinated			3.93	%
Equity and other			0.41	%
Total investments			100.00	%




		December 31, 2011
Industry Type		Percent of Total Investments at Fair Value
Software			22.12	%
Healthcare Services			16.71	%
Education			14.47	%
Business Services			10.86	%
Federal Services			10.05	%
Consumer Services			4.23	%
Information Services			4.21	%
Healthcare Products			3.54	%
Logistics			3.50	%
Industrial Services			2.49	%
Healthcare Information Technology			2.01	%
Media			1.67	%
Specialty Chemicals and Materials			1.34	%
Power Generation			1.22	%
Information Technology			0.89	%
Telecommunication			0.69	%
Total investments			100.00	%

		December 31, 2013			December 31, 2012
Assets
Investment in New Mountain Finance Holdings, L.L.C., at fair value (cost of $633,835 and $335,730, respectively)		$	650,107		$	341,926
Distribution receivable from New Mountain Finance Holdings, L.L.C.			—			3,405
​	​	​	​	​	​	​	​
Total assets		$	650,107		$	345,331
​	​	​	​	​	​	​	​
Liabilities
Dividends payable			—			3,405
​	​	​	​	​	​	​	​
Total liabilities			—			3,405
​	​	​	​	​	​	​	​
Net assets
Preferred stock, par value $0.01 per share, 2,000,000 shares authorized, none issued			—			—
Common stock, par value $0.01 per share 100,000,000 shares authorized, and 45,224,755 and 24,326,251 shares issued and outstanding, respectively			452			243
Paid in capital in excess of par			633,383			335,487
Accumulated undistributed net realized gains			5,056			952
Net unrealized appreciation			11,216			5,244
​	​	​	​	​	​	​	​
Total net assets		$	650,107		$	341,926
​	​	​	​	​	​	​	​
Total liabilities and net assets		$	650,107		$	345,331
​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​
Number of shares outstanding			45,224,755			24,326,251
Net asset value per share		$	14.38		$	14.06

   

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




Table of Contents


New Mountain Finance Corporation

Statements of Operations

(in thousands, except shares and per share data)

		Years ended December 31,						From May 19, 2011 (commencement of operations) to December 31, 2011
		2013			2012
Net investment income allocated from New Mountain Finance Holdings, L.L.C.
Interest income		$	84,925		$	36,439		$	13,437
Dividend income			3,567			455			—
Other income			2,384			617			232
Total expenses			(40,355	)		(17,719	)		(5,324	)
​	​	​	​	​	​	​	​	​	​	​
Net investment income allocated from New Mountain Finance Holdings, L.L.C.			50,521			19,792			8,345
Net realized and unrealized gain (loss) allocated from New Mountain Finance Holdings, L.L.C.
Net realized gains on investment			5,427			7,593			1,141
Net change in unrealized appreciation (depreciation) of investments			6,016			4,494			(5,376	)
​	​	​	​	​	​	​	​	​	​	​
Net realized and unrealized gain (loss) allocated from New Mountain Finance Holdings, L.L.C.			11,443			12,087			(4,235	)
​	​	​	​	​	​	​	​	​	​	​
Total net increase in net assets resulting from operations allocated from New Mountain Finance Holdings, L.L.C.			61,964			31,879			4,110
​	​	​	​	​	​	​	​	​	​	​
Net change in unrealized (depreciation) appreciation of investment in New Mountain Finance Holdings, L.L.C.			(44	)		(95	)		6,221
​	​	​	​	​	​	​	​	​	​	​
Net increase in net assets resulting from operations		$	61,920		$	31,784		$	10,331
​	​	​	​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​	​	​	​
Basic earnings per share		$	1.76		$	2.14		$	0.97
Weighted average shares of common stock outstanding—basic (See Note 12)			35,092,722			14,860,838			10,697,691
Diluted earnings per share		$	1.79		$	2.18		$	0.38
Weighted average shares of common stock outstanding—diluted (See Note 12)			44,021,920			34,011,738			30,919,629

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




Table of Contents


New Mountain Finance Corporation

Statement

Statements of Changes in Net Assets and Liabilities


(in thousands)

		December 31, 2012			December 31, 2011
Assets
Investment in New Mountain Finance Holdings, L.L.C., at fair value (cost of $335,729,511 and $144,355,856, respectively)		$	341,925,716		$	145,486,821
Distribution receivable from New Mountain Finance Holdings, L.L.C.			3,405,675			—
Total assets		$	345,331,391		$	145,486,821
Liabilities
Dividends payable			3,405,675			—
Total liabilities			3,405,675			—
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 24,326,251 and 10,697,691 shares issued and outstanding, respectively			243,263			106,977
Paid in capital in excess of par			335,486,248			144,248,879
Accumulated undistributed net realized gains			951,760			286,307
Net unrealized appreciation (depreciation)			5,244,445			844,658
Total net assets		$	341,925,716		$	145,486,821
Total liabilities and net assets		$	345,331,391		$	145,486,821
Number of shares outstanding			24,326,251			10,697,691
Net asset value per share		$	14.06		$	13.60

		Years ended December 31,						From May 19, 2011 (commencement of operations) to December 31, 2011
		2013			2012
Increase (decrease) in net assets resulting from operations:
Net investment income allocated from New Mountain Finance Holdings, L.L.C.		$	50,521		$	19,792		$	8,345
Net realized gains on investments allocated from New Mountain Finance Holdings, L.L.C.			5,427			7,593			1,141
Net change in unrealized appreciation (depreciation) of investments allocated from New Mountain Finance Holdings, L.L.C.			6,016			4,494			(5,376	)
Net change in unrealized (depreciation) appreciation of investment in New Mountain Finance Holdings, L.L.C.			(44	)		(95	)		6,221
​	​	​	​	​	​	​	​	​	​	​
Net increase in net assets resulting from operations			61,920			31,784			10,331
​	​	​	​	​	​	​	​	​	​	​
Capital transactions
Net proceeds from shares sold			100,040			133,428			129,865
Deferred offering costs allocated from New Mountain Finance Holdings, L.L.C.			(281	)		(323	)		(3,998	)
Value of shares issued for exchanged units			193,262			56,314			18,489
Dividends declared			(51,844	)		(26,719	)		(9,200	)
Reinvestment of dividends			5,084			1,955			—
​	​	​	​	​	​	​	​	​	​	​
Total net increase in net assets resulting from capital transactions			246,261			164,655			135,156
​	​	​	​	​	​	​	​	​	​	​
Net increase in net assets			308,181			196,439			145,487
Net assets at the beginning of the period			341,926			145,487			—
​	​	​	​	​	​	​	​	​	​	​
Net assets at the end of the period			650,107		$	341,926		$	145,487
​	​	​	​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​	​	​	​

   

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




Table of Contents


New Mountain Finance Corporation

Statements of Cash Flows

(in thousands)

		Years ended December 31,						From May 19, 2011 (commencement of operations) to December 31, 2011
		2013			2012
Cash flows from operating activities:
Net increase in net assets resulting from operations		$	61,920		$	31,784		$	10,331
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.			(50,521	)		(19,792	)		(8,345	)
Net realized and unrealized (gains) losses allocated from New Mountain Finance Holdings, L.L.C.			(11,443	)		(12,087	)		4,235
Net change in unrealized depreciation (appreciation) in New Mountain Finance Holdings, L.L.C.			44			95			(6,221	)
(Increase) decrease in operating assets:
Purchase of investment			(100,040	)		(133,428	)		(129,865	)
Distributions from New Mountain Finance Holdings, L.L.C.			50,165			23,314			9,200
​	​	​	​	​	​	​	​	​	​	​
Net cash flows used in by operating activities			(49,875	)		(110,114	)		(120,665	)
​	​	​	​	​	​	​	​	​	​	​
Cash flows from financing activities:
Net proceeds from shares sold			100,040			133,428			129,865
Dividends declared			(50,165	)		(23,314	)		(9,200	)
​	​	​	​	​	​	​	​	​	​	​
Net cash flows provided by financing activities			49,875			110,114			120,665
​	​	​	​	​	​	​	​	​	​	​
Net increase (decrease) in cash and cash equivalents			—			—			—
Cash and cash equivalents at the beginning of the period			—			—			—
​	​	​	​	​	​	​	​	​	​	​
Cash and cash equivalents at the end of the period		$	—		$	—		$	—
​	​	​	​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​	​	​	​
Non-cash operating activities:
Distribution receivable from New Mountain Finance Holdings, L.L.C.		$	—		$	3,405		$	—
Non-cash financing activities:
Dividends declared and payable		$	—		$	(3,405	)	$	—
New Mountain Guardian Partners, L.P. exchange of New Mountain Finance Holdings, L.L.C. units for shares			—			—			18,489
New Mountain Finance AIV Holdings Corporation exchange of New Mountain Finance Holdings, L.L.C. units for shares			193,262			56,314			—
Value of shares issued in connection with dividend reinvestment plan			5,084			1,955			—
Deferred offering costs allocated from New Mountain Finance Holdings, L.L.C.			(281	)		(323	)		(3,998	)

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




Table of Contents


New Mountain Finance AIV Holdings Corporation

Statement

Statements of Operations
Assets and Liabilities

(in thousands, except shares)

		December 31, 2013			December 31, 2012
Assets
Investment in New Mountain Finance Holdings, L.L.C., at fair value (cost of $61,993 and $244,015, respectively)		$	38,409		$	228,013
Distributions receivable from New Mountain Finance Holdings, L.L.C.			—			7,786
​	​	​	​	​	​	​	​
Total assets		$	38,409		$	235,799
​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​
Liabilities
Dividends payable			—			7,786
​	​	​	​	​	​	​	​
Total liabilities			—			7,786
​	​	​	​	​	​	​	​
Net assets
Common stock, par value $0.01 per share 100 shares issued and outstanding			—	(1)		—	(1)
Paid in capital in excess of par			61,993			244,015
Distributions in excess of net realized gains			(26,812	)		(6,676	)
Net unrealized appreciation (depreciation)			3,228			(9,326	)
​	​	​	​	​	​	​	​
Total net assets			38,409			228,013
​	​	​	​	​	​	​	​
Total liabilities and net assets		$	38,409		$	235,799
​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​

---

		Year ended December 31, 2012			From May 19, 2011 (commencement of operations) to December 31, 2011
Net investment income allocated from New Mountain Finance Holdings, L.L.C.
Interest income		$	36,439,454		$	13,436,693
Dividend income			454,635			—
Other income			616,465			231,919
Total expenses			(17,718,744	)		(5,323,309	)
Net investment income allocated from New Mountain Finance Holdings, L.L.C.			19,791,810			8,345,303
Net realized and unrealized gain (loss) allocated from New Mountain Finance Holdings, L.L.C.
Net realized gains on investments			7,592,407			1,141,018
Net change in unrealized appreciation (depreciation) of investments			4,495,125			(5,375,862	)
Net realized and unrealized gain (loss) allocated from New Mountain Finance Holdings, L.L.C.			12,087,532			(4,234,844	)
Total net increase in net assets resulting from operations allocated from New Mountain Finance Holdings, L.L.C.			31,879,342			4,110,459
Net change in unrealized (depreciation) appreciation of investment in New Mountain Finance Holdings, L.L.C.			(95,338	)		6,220,520
Net increase in net assets resulting from operations		$	31,784,004		$	10,330,979
Basic earnings per share		$	2.14		$	0.97
Weighted average shares of common stock outstanding—basic (See Note 12)			14,860,838			10,697,691
Diluted earnings per share		$	2.18		$	0.38
Weighted average shares of common stock outstanding—diluted (See Note 12)			34,011,738			30,919,629

(1)

As of December 31, 2013 and December 31, 2012, the par value of the total common stock was $1.

   

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




Table of Contents


New Mountain Finance AIV Holdings Corporation

Statements of Operations

(in thousands)

								From May 19, 2011 (commencement of operations) to December 31, 2011
		Years ended December 31,
		2013			2012
Net investment income allocated from New Mountain Finance Holdings, L.L.C.
Interest income		$	22,102		$	47,207		$	25,399
Dividend income			1,482			357			—
Other income			452			712			439
Total expenses			(10,881	)		(22,850	)		(10,063	)
​	​	​	​	​	​	​	​	​	​	​
Net investment income allocated from New Mountain Finance Holdings, L.L.C.			13,155			25,426			15,775
Net realized and unrealized gain (loss) allocated from New Mountain Finance Holdings, L.L.C.
Net realized gains on investments			1,826			11,259			2,158
Net change in unrealized appreciation (depreciation) of investments			1,978			5,433			(10,163	)
​	​	​	​	​	​	​	​	​	​	​
Net realized and unrealized gain (loss) allocated from New Mountain Finance Holdings, L.L.C.			3,804			16,692			(8,005	)
​	​	​	​	​	​	​	​	​	​	​
Total net increase in net assets resulting from operations allocated from New Mountain Finance Holdings, L.L.C.			16,959			42,118			7,770
​	​	​	​	​	​	​	​	​	​	​
Net realized (losses) gains on investment in New Mountain Finance Holdings, L.L.C.			(14,925	)		381			—
Net change in unrealized appreciation (depreciation) on investment in New Mountain Finance Holdings, L.L.C.			10,576			1,616			(6,212	)
​	​	​	​	​	​	​	​	​	​	​
Net increase in net assets resulting from operations		$	12,610		$	44,115		$	1,558
​	​	​	​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​	​	​	​

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




Table of Contents


New Mountain Finance AIV Holdings Corporation

Statement

Statements of Changes in Net Assets


(in thousands)

															From May 19, 2011 (commencement of operations) to December 31, 2011
									Years ended December 31,
		Year ended December 31, 2012			From May 19, 2011 (commencement of operations) to December 31, 2011				2013			2012
Increase (decrease) in net assets resulting from operations:
Net investment income allocated from New Mountain Finance Holdings, L.L.C.		$	19,791,810		$	8,345,303			$	13,155		$	25,426		$	15,775
Net realized gains on investments allocated from New Mountain Finance Holdings, L.L.C.			7,592,407			1,141,018				1,826			11,259			2,158
Net change in unrealized appreciation (depreciation) of investments allocated from New Mountain Finance Holdings, L.L.C.			4,495,125			(5,375,862	)			1,978			5,433			(10,163	)
Net change in unrealized (depreciation) appreciation of investment in New Mountain Finance Holdings, L.L.C.			(95,338	)		6,220,520
Net realized (losses) gains on investment in New Mountain Finance Holdings, L.L.C.										(14,925	)		381			—
Net change in unrealized appreciation (depreciation) on investment in New Mountain Finance Holdings, L.L.C.										10,576			1,616			(6,212	)
​								​		​	​		​	​		​	​
Net increase in net assets resulting from operations			31,784,004			10,330,979				12,610			44,115			1,558
​								​		​	​		​	​		​	​
Capital transactions
Net proceeds from shares sold			133,428,296			129,864,996
Distribution to New Mountain Guardian AIV, L.P.										(188,868	)		(58,216	)		—
Deferred offering costs allocated from New Mountain Finance Holdings, L.L.C.			(323,966	)		(3,998,597	)			(50	)		(241	)		(7,559	)
Value of shares issued for exchanged units			56,314,355			18,489,457
Contributions from exchanged shares										—			—			298,407
Dividends declared			(26,718,764	)		(9,200,014	)			(13,296	)		(32,660	)		(17,391	)
Reinvestment of dividends			1,954,970			—
Total net increase in net assets resulting from capital transactions			164,654,891			135,155,842
​								​		​	​		​	​		​	​
Total net (decrease) increase in net assets resulting from capital transactions										(202,214	)		(91,117	)		273,457
Net increase in net assets			196,438,895			145,486,821
​								​		​	​		​	​		​	​
Net (decrease) increase in net assets										(189,604	)		(47,002	)		275,015
Net assets at the beginning of the period			145,486,821			—				228,013			275,015			—
​								​		​	​		​	​		​	​
Net assets at the end of the period			341,925,716		$	145,486,821			$	38,409		$	228,013		$	275,015
​								​		​	​		​	​		​	​
​								​		​	​		​	​		​	​

   

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




Table of Contents


New Mountain Finance AIV Holdings Corporation

Statement

Statements of Cash Flows


(in thousands)

									Years ended December 31,						From May 19, 2011 (commencement of operations) to December 31, 2011
		Year ended December 31, 2012			From May 19, 2011 (commencement of operations) to December 31, 2011				2013			2012
Cash flows from operating activities:
Net increase in net assets resulting from operations		$	31,784,004		$	10,330,979			$	12,610		$	44,115		$	1,558
Adjustments to reconcile net (increase) decrease in net assets resulting from operations to net cash used in operating activities:
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.			(19,791,810	)		(8,345,303	)			(13,155	)		(25,426	)		(15,775	)
Net realized and unrealized (gains) losses allocated from New Mountain Finance Holdings, L.L.C.			(12,087,532	)		4,234,844				(3,804	)		(16,692	)		8,005
Net change in unrealized depreciation (appreciation) of investment in New Mountain Finance Holdings, L.L.C.			95,338			(6,220,520	)
Net realized losses (gains) on investment in New Mountain Finance Holdings, L.L.C.										14,925			(381	)		—
Net change in unrealized (appreciation) depreciation in New Mountain Finance Holdings, L.L.C.										(10,576	)		(1,616	)		6,212
(Increase) decrease in operating assets:
Purchase of investment			(133,428,296	)		(129,864,996	)
Distributions from New Mountain Finance Holdings, L.L.C.			23,313,089			9,200,014				21,082			24,874			17,391
Net cash flows (used in) provided by operating activities			(110,115,207	)		(120,664,982	)
​								​		​	​		​	​		​	​
Net cash flows provided by operating activities										21,082			24,874			17,391
​								​		​	​		​	​		​	​
Cash flows from financing activities:
Net proceeds from shares sold			133,428,296			129,864,996				188,868			58,216			—
Dividends paid			(23,313,089	)		(9,200,014	)
Distribution to New Mountain Guardian AIV, L.P.										(188,868	)		(58,216	)		—
Dividends declared										(21,082	)		(24,874	)		(17,391	)
Net cash flows provided by financing activities			110,115,207			120,664,982
​								​		​	​		​	​		​	​
Net cash flows used in financing activities										(21,082	)		(24,874	)		(17,391	)
​								​		​	​		​	​		​	​
Net increase (decrease) in cash and cash equivalents			—			—				—			—			—
Cash and cash equivalents at the beginning of the period			—			—				—			—			—
​								​		​	​		​	​		​	​
Cash and cash equivalents at the end of the period		$	—		$	—			$	—		$	—		$	—
​								​		​	​		​	​		​	​
​								​		​	​		​	​		​	​
Non-cash operating activities:
Distribution receivable from New Mountain Finance Holdings, L.L.C.		$	3,405,675		$	—			$	—		$	7,786		$	—
Non-cash financing activities:
Dividends declared and payable		$	(3,405,675	)	$	—			$	—		$	(7,786	)	$	—
New Mountain Guardian Partners, L.P. exchange of New Mountain Finance Holdings, L.L.C. units for shares			—			18,489,457
New Mountain Finance AIV Holdings Corporation exchange of New Mountain Finance Holdings, L.L.C. units for shares			56,314,355			—
Value of shares issued in connection with dividend reinvestment plan			1,954,970			—
New Mountain Guardian AIV, L.P. contribution of New Mountain Finance Holdings, L.L.C units for shares of New Mountain Finance AIV Holdings, L.L.C.										—			—			298,407
Deferred offering costs allocated from New Mountain Finance Holdings, L.L.C.			(323,966	)		(3,998,597	)			(50	)		(241	)		(7,559	)

   

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




Table of Contents


New Mountain Finance AIV Holdings Corporation

Statement of Assets and Liabilities


		December 31, 2012			December 31, 2011
Assets
Investment in New Mountain Finance Holdings, L.L.C., at fair value (cost of $244,014,729 and $290,847,952, respectively)		$	228,012,847		$	275,014,997
Distribution receivable from New Mountain Finance Holdings, L.L.C.			7,786,530			—
Total assets		$	235,799,377		$	275,014,997
Liabilities
Dividends payable			7,786,530			—
Total liabilities			7,786,530			—
Net assets
Common stock, par value $0.01 per share 100 shares issued and outstanding			1			1
Paid in capital in excess of par			244,014,728			292,383,201
Distributions in excess of net realized gains			(6,676,197	)		(994,034	)
Net unrealized depreciation			(9,325,685	)		(16,374,171	)
Total net assets		$	228,012,847		$	275,014,997
Total liabilities and net assets		$	235,799,377		$	275,014,997

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




Table of Contents


New Mountain Finance AIV Holdings Corporation

Statement of Operations


		Year ended December 31, 2012			From May 19, 2011 (commencement of operations) to December 31, 2011
Net investment income allocated from New Mountain Finance Holdings, L.L.C.
Interest income		$	47,206,457		$	25,399,498
Dividend income			357,165			—
Other income			711,835			438,399
Total expenses			(22,849,787	)		(10,062,692	)
Net investment income allocated from New Mountain Finance Holdings, L.L.C.			25,425,670			15,775,205
Net realized and unrealized gain (loss) allocated from New Mountain Finance Holdings, L.L.C.
Net realized gains on investments			11,258,832			2,156,878
Net change in unrealized appreciation (depreciation) of investments			5,432,649			(10,162,038	)
Net realized and unrealized gain (loss) allocated from New Mountain Finance Holdings, L.L.C.			16,691,481			(8,005,160	)
Total net increase in net assets resulting from operations allocated from New Mountain Finance Holdings, L.L.C.			42,117,151			7,770,045
Net realized gains on investment in New Mountain Finance Holdings, L.L.C.			381,614			—
Net change in unrealized appreciation (depreciation) on investment in New Mountain Finance Holdings, L.L.C.			1,615,837			(6,212,133	)
Net increase in net assets resulting from operations		$	44,114,602		$	1,557,912

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




Table of Contents


New Mountain Finance AIV Holdings Corporation

Statement of Changes in Net Assets


		Year ended December 31, 2012			From May 19, 2011 (commencement of operations) to December 31, 2011
Increase (decrease) in net assets resulting from operations:
Net investment income allocated from New Mountain Finance Holdings, L.L.C.		$	25,425,670		$	15,775,205
Net realized gains on investments allocated from New Mountain Finance Holdings, L.L.C.			11,258,832			2,156,878
Net change in unrealized appreciation (depreciation) of investments allocated from New Mountain Finance Holdings, L.L.C.			5,432,649			(10,162,038	)
Net realized gains on investment in New Mountain Finance Holdings, L.L.C.			381,614			—
Net change in unrealized appreciation (depreciation) on investment in New Mountain Finance Holdings, L.L.C.			1,615,837			(6,212,133	)
Net increase in net assets resulting from operations			44,114,602			1,557,912
Capital transactions
Distribution to New Mountain Guardian AIV, L.P.			(58,216,467	)		—
Deferred offering costs allocated from New Mountain Finance Holdings, L.L.C.			(240,771	)		(7,558,581	)
Contributions from exchanged shares			—			298,406,533
Dividends declared			(32,659,514	)		(17,390,867	)
Total net (decrease) increase in net assets resulting from capital transactions			(91,116,752	)		273,457,085
Net (decrease) increase in net assets			(47,002,150	)		275,014,997
Net assets at the beginning of the period			275,014,997			—
Net assets at the end of the period		$	228,012,847		$	275,014,997

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




Table of Contents


New Mountain Finance AIV Holdings Corporation

Statement of Cash Flows


		Year ended December 31, 2012			From May 19, 2011 (commencement of operations) to December 31, 2011
Cash flows from operating activities:
Net increase in net assets resulting from operations		$	44,114,602		$	1,557,912
Adjustments to reconcile net (increase) decrease in net assets resulting from operations to net cash used in operating activities:
Net investment income allocated from New Mountain Finance Holdings, L.L.C.			(25,425,670	)		(15,775,205	)
Net realized and unrealized (gains) losses allocated from New Mountain Finance Holdings, L.L.C.			(16,691,481	)		8,005,160
Net realized gains on investment in New Mountain Finance Holdings, L.L.C.			(381,614	)		—
Net change in unrealized (appreciation) depreciation on investment in New Mountain Finance Holdings, L.L.C.			(1,615,837	)		6,212,133
(Increase) decrease in operating assets:
Distributions from New Mountain Finance Holdings, L.L.C.			24,872,984			17,390,867
Net cash flows used in operating activities			24,872,984			17,390,867
Cash flows from financing activities:
Net proceeds from shares sold			58,216,467			—
Distribution to New Mountain Guardian AIV, L.P.			(58,216,467	)		—
Dividends paid			(24,872,984	)		(17,390,867	)
Net cash flows (used in) provided by financing activities			(24,872,984	)		(17,390,867	)
Net increase (decrease) in cash and cash equivalents			—			—
Cash and cash equivalents at the beginning of the period			—			—
Cash and cash equivalents at the end of the period		$	—		$	—
Non-cash operating activities:
Distribution receivable from New Mountain Finance Holdings, L.L.C.		$	7,786,530		$	—
Non-cash financing activities:
Dividends declared and payable		$	(7,786,530	)	$	—
New Mountain Guardian AIV, L.P. contribution of New Mountain Finance Holdings, L.L.C units for shares of New Mountain Finance AIV Holdings, L.L.C.			—			298,406,533
Deferred offering costs allocated from New Mountain Finance Holdings, L.L.C.			(240,771	)		(7,558,581	)

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




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation and the Financial Statements
of New Mountain Finance AIV Holdings Corporation



December 31, 2012
2013

(in thousands, except units/shares and per unit/share data)

        The information in these combined notes to the financial statements relates to each of the three separate registrants: New Mountain Finance Holdings, L.L.C., New Mountain Finance Corporation and New Mountain Finance AIV Holdings Corporation (collectively, "we", "us", "our" or the "Companies"). Information that relates to an individual registrant will be specifically referenced by the respective company. None of the Companies makes any representation as to the information related solely to the other registrants other than itself.

Note 1. Formation and Business Purpose

        New Mountain Finance Holdings, L.L.C. (the "Operating Company" or the "Master Fund") is a Delaware limited liability company. The Operating Company is externally managed and has elected to be treated as a business development company ("BDC") under the Investment Company Act of 1940, as amended (the "1940 Act"). As such, the Operating Company is obligated to comply with certain regulatory requirements. The Operating Company intends to be treated as a partnership for federal income tax purposes for so long as it has at least two members.

        The Operating Company is externally managed by New Mountain Finance Advisers BDC, L.L.C. (the "Investment Adviser"). New Mountain Finance Administration, L.L.C. (the "Administrator") provides the administrative services necessary for operations. The Investment Adviser and Administrator are wholly-owned subsidiaries of New Mountain Capital (defined as New Mountain Capital Group, L.L.C. and its affiliates). New Mountain Capital is a firm with a track record of investing in the middle market and with assets under management (which includes amounts committed, not all of which have been drawn down and invested to date) totaling approximately $9.0more than $12.0 billion as of December 31, 2012.2013, which includes total assets held by the Operating Company. New Mountain Capital focuses on investing in defensive growth companies across its private equity, public equity, and credit investment vehicles. The Operating Company, formerly known as New Mountain Guardian (Leveraged), L.L.C., was originally formed as a subsidiary of New Mountain Guardian AIV, L.P. ("Guardian AIV") by New Mountain Capital in October 2008. Guardian AIV was formed through an allocation of approximately $300.0 million of the $5.1 billion of commitments supporting New Mountain Partners III, L.P., a private equity fund managed by New Mountain Capital. In February 2009, New Mountain Capital formed a co-investment vehicle, New Mountain Guardian Partners, L.P., comprising $20.4 million of commitments. New Mountain Guardian (Leveraged), L.L.C. and New Mountain Guardian Partners, L.P., together with their respective direct and indirect wholly-owned subsidiaries, are defined as the "Predecessor Entities".

        New Mountain Finance Corporation ("NMFC") is a Delaware corporation that was originally incorporated on June 29, 2010. NMFC is a closed-end, non-diversified management investment company that has elected to be treated as a BDC under the 1940 Act. As such, NMFC is obligated to comply with certain regulatory requirements. NMFC has elected to be treated, and intends to comply with the requirements to continue to qualify annually, as a regulated investment company ("RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended, (the "Code").

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




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 20122013

(in thousands, except units/shares and per unit/share data)

Note 1. Formation and Business Purpose (Continued)

obligated to comply with certain regulatory requirements. AIV Holdings has elected to be treated, and intends to comply with the requirements to continue to qualify annually, as a RIC under the Code.

        On May 19, 2011, NMFC priced its initial public offering (the "IPO") of 7,272,727 shares of common stock at a public offering price of $13.75 per share. Concurrently with the closing of the IPO and at the public offering price of $13.75 per share, NMFC sold an additional 2,172,000 shares of its common stock to certain executives and employees of, and other individuals affiliated with, New Mountain Capital in a concurrent private placement (the "Concurrent Private Placement"). Additionally, 1,252,964 shares were issued to the limited partners of New Mountain Guardian Partners, L.P. at that time for their ownership interest in the Predecessor Entities. In connection with NMFC's IPO and through a series of transactions, the Operating Company owns all of the operations of the Predecessor Entities, including all of the assets and liabilities related to such operations.

        NMFC and AIV Holdings are holding companies with no direct operations of their own, and their sole asset is their ownership in the Operating Company. NMFC and AIV Holdings each entered into a joinder agreement with respect to the Limited Liability Company Agreement, as amended and restated, of the Operating Company, pursuant to which NMFC and AIV Holdings were admitted as members of the Operating Company. NMFC acquired from the Operating Company, with the gross proceeds of the IPO and the Concurrent Private Placement, common membership units ("units") of the Operating Company (the number of units are equal to the number of shares of NMFC's common stock sold in the IPO and the Concurrent Private Placement). Additionally, NMFC received units of the Operating Company equal to the number of shares of common stock of NMFC issued to the limited partners of New Mountain Guardian Partners, L.P. Guardian AIV was the parent of the Operating Company prior to the IPO and, as a result of the transactions completed in connection with the IPO, obtained units in the Operating Company. Guardian AIV contributed its units in the Operating Company to its newly formed subsidiary, AIV Holdings, in exchange for common stock of AIV Holdings. AIV Holdings has the right to exchange all or any portion of its units in the Operating Company for shares of NMFC's common stock on a one-for-one basis at anytime.any time.

        Since NMFC's IPO, and through December 31, 2012,2013, NMFC raised $133,428,296approximately $233,468 in net proceeds from additional offerings of common stock and issued shares of its common stock valued at $56,314,355 toapproximately $249,576 on behalf of AIV Holdings for exchanged units. NMFC acquired from the Operating Company units of the Operating Company equal to the number of shares of NMFC's common stock sold in the additional offerings. As of December 31, 2013, NMFC and AIV Holdings owned approximately 94.4% and 5.6%, respectively, of the units of the Operating Company.

        The current structure was designed to generally prevent NMFC and its stockholders 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 and its stockholders.Holdings. The result is that any distributions made to NMFC's stockholders that are attributable to such gains generally will not be treated as taxable dividends but rather as return of capital.




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 20122013

(in thousands, except units/shares and per unit/share data)

Note 1. Formation and Business Purpose (Continued)

        The diagram below depicts the Companies' organizational structure as of December 31, 2012.2013.



---

*

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



**

These common membership units are exchangeable into shares of NMFC common stock on a one-for-one basis.



***

New Mountain Finance SPV Funding, L.L.C. ("NMF SLF").




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 1. Formation and Business Purpose (Continued)

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




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation, and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 2012

Note 1. Formation and Business Purpose (Continued)

after capital expenditure and working capital needs, (iv) high returns on assets and (v) niche market dominance.

Note 2. Summary of Significant Accounting Policies

        Basis of accounting—The Companies' financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"). The Operating Company consolidates its wholly-owned subsidiary, New Mountain Finance SPV Funding, L.L.C. ("NMF SLF").SLF. NMFC and AIV Holdings do not consolidate the Operating Company. NMFC and AIV Holdings apply investment company master-feeder financial statement presentation, as described in Accounting Standards Codification 946,Financial Services—Investment Companies, ("ASC 946") to their interest in the Operating Company. NMFC and AIV Holdings observe that it is industry practice to follow the presentation prescribed for a master fund-feeder fund structure in ASC 946 in instances in which a master fund is owned by more than one feeder fund and that such presentation provides stockholders of NMFC and AIV Holdings with a clearer depiction of their investment in the Master Fund.master fund.

        The Companies' financial statements reflect all adjustments and reclassifications which, in the opinion of management, are necessary for the fair presentation of the results of operations and financial condition for all periods presented. All intercompany transactions have been eliminated. Revenues are recognized when earned and expenses when incurred. The financial results of the Operating Company's portfolio investments are not consolidated in the financial statements. Prior to the IPO, an affiliate of the Predecessor Entities paid a majority of the management and incentive fees. Historical operating expenses do not reflect the allocation of certain professional fees, administrative and other expenses that have been incurred following the completion of the IPO. Accordingly, the Operating Company's historical operating expenses are not comparable to its operating expenses after the completion of the IPO.

        The Companies' financial statements are prepared in accordance with GAAP and pursuant to the requirements for reporting on Form 10-K and ArticlesArticle 6 of Regulation S-X. In the opinion of management, all adjustments, consisting solely of normal recurring accruals considered necessary for the fair presentation of financial statements have been included.

        Investments—The Operating Company applies fair value accounting in accordance with GAAP. Fair value is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Investments are reflected on the Operating Company's Consolidated Statements of Assets, Liabilities and Members' Capital at fair value, with changes in unrealized gains and losses resulting from changes in fair value reflected in the Operating Company's Consolidated Statements of Operations as "Net change in unrealized appreciation (depreciation) of investments" and realizations on portfolio investments reflected in the Operating Company's Consolidated Statements of Operations as "Net realized gains (losses) on investments".

        The Operating Company values its assets on a quarterly basis, or more frequently if required under the 1940 Act. In all cases, the Operating Company's board of directors is ultimately and solely




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 20122013

(in thousands, except units/shares and per unit/share data)

Note 2. Summary of Significant Accounting Policies (Continued)

appreciation (depreciation) of investments" and realizations on portfolio investments reflected in the Operating Company's Consolidated Statements of Operations as "Net realized gains (losses) on investments".

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

(1)

Investments for which market quotations are readily available on an exchange are valued at such market quotations based on the closing price indicated from independent pricing services.



(2)

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



a.

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



b.

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



i.

Investments for which two or more quotes are received from a pricing service are valued using the mean of the mean of the bid and ask of the quotes obtained;obtained.



ii.

Investments for which one quote is received from a pricing service are validated internally. The investment professionals of the Investment Adviser analyze the market quotes obtained using an array of valuation methods (further described below) to validate the fair value. If the Investment Adviser is unable to sufficiently validate the quote internally and if the investment's par value or its fair value exceeds the materiality threshold, the investment is valued similarly to those assets with no readily available quotes (see (3) below).






Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 2. Summary of Significant Accounting Policies (Continued)

(3)

Investments for which quotations are not readily available through exchanges, pricing services, brokers, or dealers are valued through a multi-step valuation process:



a.

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



b.

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



c.

If an investment falls into (3) above for four consecutive quarters and if the investment's par value or its fair value exceeds the materiality threshold, then at least once each fiscal year, the valuation for each portfolio investment for which the Operating Company does




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation, and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 2012

Note 2. Summary of Significant Accounting Policies (Continued)

not have a readily available market quotation will be reviewed by an independent valuation firm engaged by the Companies' board of directors; and





d.

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

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

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

        NMFC and AIV Holdings are holding companies with no direct operations of their own, and their sole asset is their ownership in the Operating Company. NMFC's and AIV Holdings' investments in the Operating Company are carried at fair value and represent the respective pro-rata interest in the net assets of the Operating Company as of the applicable reporting date. NMFC and AIV Holdings value their ownership interest on a quarterly basis, or more frequently if required under the 1940 Act.

        See Note 3,Investments, for further discussion relating to investments.

        Cash and cash equivalents—Cash and cash equivalents include cash and short-term, highly liquid investments. The Companies define cash equivalents as securities that are readily convertible into known amounts of cash and so near maturity that there is insignificant risk of changes in value. Generally, these securities have original maturities of three months or less.




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 2. Summary of Significant Accounting Policies (Continued)

Revenue recognition

        The Operating Company's revenue recognition policies are as follows:

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

        Interest income:Interest income, including amortization of premium and discount using the effective interest method, is recorded on the accrual basis and periodically assessed for collectability. Interest income also includes interest earned from cash on hand. Upon the prepayment of a loan or debt security, any prepayment penalties are recorded as part of interest income. The Operating Company has loans in the portfolio that contain a payment-in-kind ("PIK") provision. PIK represents interest that is accrued and recorded as interest income at the contractual rates, added to the loan principal on the respective capitalization dates, and generally due at maturity.

        Non-accrual income:Loans are placed on non-accrual status when principal or interest payments are past due 30 days or more and when there is reasonable doubt that principal or interest will be collected. Accrued cash and un-capitalized PIK interest is generally reversed when a loan is placed on




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation, and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 2012

Note 2. Summary of Significant Accounting Policies (Continued)

non-accrual status. Previously capitalized PIK interest is not reversed when an investment is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management's judgment of the ultimate outcome. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in management's judgment, are likely to remain current.

        Dividend income:    Dividend income is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies.

        Other income:Other income represents delayed compensation, consent or amendment fees, revolver fees and other miscellaneous fees received. Delayed compensation is income earned from counterparties on trades that do not settle within a set number of business days after trade date. Other income may also include fees from bridge loans. The Operating Company may from time to time enter into bridge financing commitments, an obligation to provide interim financing to a counterparty until permanent credit can be obtained. These commitments are short-term in nature and may expire unfunded. A fee is received by the Operating Company for providing such commitments.

        NMFC's and AIV Holdings' revenue recognition policies are as follows:

        Revenue, expenses, and capital gains (losses):At each quarterly valuation date, the Operating Company's investment income, expenses, net realized gains (losses), and net increase (decrease) in unrealized appreciation (depreciation) are allocated to NMFC and AIV Holdings based on their pro-rata interest in the net assets of the Operating Company. This is recorded on NMFC's and AIV Holdings' Statements of Operations. Realized gains and losses are recorded upon sales of NMFC's and AIV Holdings' investments in the Operating Company. Net change in unrealized




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 2. Summary of Significant Accounting Policies (Continued)

appreciation (depreciation) of investment in New Mountain Finance Holdings, L.L.C. is the difference between the net asset value per share and the closing price per share for shares issued as part of the dividend reinvestment plan on the dividend payment date. This net change in unrealized appreciation (depreciation) of investment in New Mountain Finance Holdings, L.L.C. includes the unrealized appreciation (depreciation) from the IPO. NMFC used the proceeds from its IPO and Concurrent Private Placement to purchase units in the Operating Company at $13.75 per unit (its IPO price per share). At the IPO date, $13.75 per unit represented a discount to the actual net asset value per unit of the Operating Company. As a result, NMFC experienced immediate unrealized appreciation on its investment in the Operating Company.investment. Concurrently, AIV Holdings experienced immediate unrealized depreciation on its investment in the Operating Company equal to the difference between NMFC's IPO price of $13.75 per unit and the actual net asset value per unit.

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

        With respect to the expenses incident to any registration of shares of NMFC's common stock issued in exchange for AIV Holdings' units of the Operating Company, AIV Holdings is directly responsible for the expenses of any demand registration (including underwriters' discounts or commissions) and their pro-rata share of any "piggyback" registration expenses.




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation, and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 2012

Note 2. Summary of Significant Accounting Policies (Continued)

        Interest and other credit facility expenses—Interest and other credit facility fees are recorded on an accrual basis by the Operating Company. See Note 7,Borrowing Facilities, for details.

        Deferred credit facility costs—The deferred credit facility costs of the Operating Company consist of capitalized expenses related to the origination and amending of the Operating Company's existing credit facilities. The Operating Company amortizes these costs into expense using the straight-line method over the stated life of the related credit facility. See Note 7,Borrowing Facilities, for details.

        Income taxes—The Operating Company is treated as a partnership for federal income tax purposes. Accordingly, no provision forpurposes and as such is generally not subject to federal or state and local income taxes has been made in the accompanying financial statements, as theexcept with respect to state source income received from underlying investments. The partners are individually responsible for reporting income or loss based on their respective share of the revenues and expenses. The Operating Company files United States ("U.S.") federal, state, and local income tax returns.

        NMFC and AIV Holdings have elected to be treated, and intend to comply with the requirements to qualify annually, as RICs under subchapter M of the Code. As RICs, NMFC and AIV Holdings are not subject to federal income tax on the portion of taxable income and gains timely distributed to stockholders; therefore, no provision for income taxes has been recorded.

        To continue to qualify as RICs, NMFC and AIV Holdings are required to meet certain income and asset diversification tests in addition to distributing at least 90.0% of their respective investment




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 2. Summary of Significant Accounting Policies (Continued)

company taxable income, as defined by the Code. Since federal income tax regulations differ from GAAP, distributions in accordance with tax regulations may differ from net investment income and realized gains recognized for financial reporting purposes.

        Differences between taxable income and the results of operations for financial reporting purposes may be permanent or temporary in nature. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.

        For federal income tax purposes, distributions paid to stockholders of NMFC and AIV Holdings are reported as ordinary income, return of capital, long term capital gains or a combination thereof.

        NMFC and AIV Holdings will be subject to a 4.0% nondeductible federal excise tax on certain undistributed income unless NMFC and AIV Holdings distribute, in a timely manner as required by the Code, an amount at least equal to the sum of (1) 98.0% of their respective net ordinary income earned for the calendar year and (2) 98.2% of their respective capital gain net income for the one-year period ending October 31 in the calendar year.

        The Companies have adopted the Income Taxes topic of the Codification ("ASC 740"). ASC 740 provides guidance for income taxes, including how uncertain income tax positions should be recognized, measured, and disclosed in the financial statements. Based on their analyses, the Companies have determined that there were no material uncertain income tax positions through December 31, 2012.2013. The 2011, 2012 and 20122013 tax years remain subject to examination by the U.S. federal, state, and local tax authorities.

        Dividends—Distributions to common unit holders of the Operating Company and common stockholders of NMFC and AIV Holdings are recorded on the record date as set by the respective




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation, and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 2012

Note 2. Summary of Significant Accounting Policies (Continued)

board of directors. In order for NMFC and AIV Holdings to pay a dividend or other distribution to holders of their common stock, it must be accompanied by a prior distribution by the Operating Company to all of its unit holders. The Operating Company intends to make distributions to its unit holders that will be sufficient to enable NMFC and AIV Holdings to pay quarterly distributions to their stockholders and to obtain and maintain their status as RICs. NMFC and AIV Holdings intend to distribute approximately all of their portion of the Operating Company's adjusted net investment income (see Note 5,Agreements) on a quarterly basis and substantially all of their portion of the Operating Company's taxable income on an annual basis, except that NMFC may retain certain net capital gains for reinvestment.

        Under certain circumstances, the distributions that the Operating Company makes to its members may not be sufficient for AIV Holdings to satisfy the annual distribution requirement necessary for AIV Holdings to continue to qualify as a RIC. In that case, it is expected that Guardian AIV would consent to be treated as if it received distributions from AIV Holdings sufficient to satisfy the annual distribution requirement. Guardian AIV would be required to include the consent dividend in its taxable income as a dividend from AIV Holdings, which would result in phantom (i.e., non-cash) taxable income to Guardian AIV. AIV Holdings intends to make quarterly distributions to Guardian AIV, its sole stockholder, out of assets legally available for distribution each quarter.




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 2. Summary of Significant Accounting Policies (Continued)

        The Operating Company and NMFC are required to take certain actions in order to maintain, at all times, a one-to-one ratio between the number of units held by NMFC and the number of shares of NMFC's common stock outstanding. NMFC has adopted a dividend reinvestment plan that provides on behalf of its stockholders for reinvestment of any distributions declared, unless a stockholder elects to receive cash. Cash distributions reinvested in additional shares of NMFC's common stock will be automatically reinvested by NMFC into additional units of the Operating Company. In addition, AIV Holdings does not intend to reinvest any distributions received from the Operating Company in additional units of the Operating Company.

        NMFC applies the following in implementing the dividend reinvestment plan. If the price at which newly issued shares are to be credited to stockholders' accounts is greater than 110.0% of the last determined net asset value of the shares, NMFC will use only newly issued shares to implement its dividend reinvestment plan. Under such circumstances, the number of shares to be issued to a stockholder is determined by dividing the total dollar amount of the distribution payable to such stockholder by the market price per share of NMFC's common stock on the New York Stock Exchange ("NYSE") on the distribution payment date. Market price per share on that date will be the closing price for such shares on the NYSE or, if no sale is reported for such day, the average of their electronically reported bid and asked prices. If NMFC uses newly issued shares to implement the plan, NMFC will receive, on a one-for-one basis, additional units of the Operating Company in exchange for cash distributions that are reinvested in shares of NMFC's common stock under the dividend reinvestment plan.

        If the price at which newly issued shares are to be credited to stockholders' accounts is less than 110.0% of the last determined net asset value of the shares, NMFC will either issue new shares or instruct the plan administrator to purchase shares in the open market to satisfy the additional shares required. Shares purchased in open market transactions by the plan administrator will be allocated to a




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation, and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 2012

Note 2. Summary of Significant Accounting Policies (Continued)

stockholder based on the average purchase price, excluding any brokerage charges or other charges, of all shares of common stock purchased in the open market. The number of shares of NMFC's common stock to be outstanding after giving effect to payment of the distribution cannot be established until the value per share at which additional shares will be issued has been determined and elections of NMFC's stockholders have been tabulated.

        Foreign securities—The accounting records of the Operating Company are maintained in U.S. dollars. Investment securities denominated in foreign currencies are translated into U.S. dollars based on the rate of exchange of such currencies on the date of valuation. Purchases and sales of investment securities and income and expense items denominated in foreign currencies are translated into U.S. dollars based on the rate of exchange of such currencies on the respective dates of the transactions. The Operating Company does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with "Net change in unrealized appreciation (depreciation) of investments" and "Net realized gains (losses) on investments" in the Operating Company's Consolidated Statements of Operations.




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 2. Summary of Significant Accounting Policies (Continued)

        Investments denominated in foreign currencies may be negatively affected by movements in the rate of exchange between the U.S. dollar and such foreign currencies. This movement is beyond the control of the Operating Company and cannot be predicted.

        Use of estimates—The preparation of the Companies' financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the Companies' financial statements and the reported amounts of revenues and expenses during the reporting periods. Changes in the economic environment, financial markets, and other metrics used in determining these estimates could cause actual results to differ from the estimates used, and the differences could be material.




Table        Dividend income recorded related to distributions received from flow-through investments is an accounting estimate based on the most recent estimate of Contents


Combined Notesthe tax treatment of the distribution. During the quarter ended September 30, 2013, the Operating Company changed an accounting estimate related to the Consolidated Financial Statementsclassification of New Mountain Finance Holdings, L.L.C.,
dividend income for a distribution recorded in the Financial Statementsprior quarter from one of New Mountain Finance Corporation,the Operating Company's warrant investments. Based on tax projections received during the quarter ended September 30, 2013, the Operating Company reduced the warrant cost basis by $466 and corresponding dividend income previously recorded by $1,799, and recorded a realized gain of $1,333 to agree to the Financial Statements
tax treatment on the investment. This resulted in a reclass of New Mountain Finance AIV Holdings Corporation (Continued)

$360 from incentive fee to capital gains incentive fee. Based on updated tax projections received during the quarter ended December 31, 20122013, the Operating Company increased dividend income previously recorded by $224 and reduced the realized gain previously recorded by $224 to agree to the tax treatment on the investment. This resulted in a reclass of $45 from capital gains incentive fee to incentive fee.

Note 3. Investments

        At December 31, 20122013 the Operating Company's investments consisted of the following:

Investment Cost and Fair Value by Type

		Cost			Fair Value
First lien		$	496,931,128		$	493,502,112
Second lien			433,828,444			441,072,979
Subordinated			43,097,106			45,148,051
Equity and other			2,386,385			10,096,471
Total investments		$	976,243,063		$	989,819,613

Investment Cost and Fair Value by Industry

		Cost			Fair Value
Software		$	241,743,119		$	246,695,383
Education			155,046,293			150,151,802
Healthcare Services			139,370,131			143,723,226
Business Services			140,424,105			143,418,676
Federal Services			95,150,094			95,428,486
Consumer Services			41,173,548			41,625,177
Media			26,582,408			34,000,508
Distribution			27,786,609			28,653,750
Healthcare Products			25,659,022			27,220,948
Logistics			23,532,775			23,180,000
Industrial Services			13,825,050			14,105,000
Retail			11,596,938			12,146,467
Healthcare Information Technology			14,550,421			10,291,719
Energy			9,852,254			10,072,072
Information Technology			6,475,982			6,710,656
Power Generation			3,474,314			2,395,743
Total investments		$	976,243,063		$	989,819,613

		Cost			Fair Value
First lien		$	550,534		$	553,549
Second lien			460,078			468,945
Subordinated			25,152			26,863
Equity and other			58,316			66,294
​	​	​	​	​	​	​	​
Total investments		$	1,094,080		$	1,115,651
​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 20122013

(in thousands, except units/shares and per unit/share data)

Note 3. Investments (Continued)

Investment Cost and Fair Value by Industry

		Cost			Fair Value
Software		$	243,158		$	249,174
Education			225,214			235,787
Business Services			140,797			145,465
Distribution & Logistics			120,156			120,247
Federal Services			84,965			83,888
Healthcare Services			78,295			80,331
Energy			69,757			69,255
Media			42,808			45,932
Healthcare Products			40,285			41,772
Consumer Services			14,918			15,628
Industrial Services			13,858			14,263
Healthcare Information Technology			13,454			7,324
Information Technology			6,415			6,585
​	​	​	​	​	​	​	​
Total investments		$	1,094,080		$	1,115,651
​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​

        At December 31, 20112012 the Operating Company's investments consisted of the following:

Investment Cost and Fair Value by Type

		Cost			Fair Value				Cost			Fair Value
First lien		$	407,538,564		$	410,313,643			$	496,931		$	493,502
Second lien			262,532,416			262,701,495				433,829			441,073
Subordinated			26,672,980			27,648,951				43,097			45,148
Equity and other			3,120,824			2,849,471				2,386			10,097
​								​		​	​		​	​
Total investments		$	699,864,784		$	703,513,560			$	976,243		$	989,820
​								​		​	​		​	​
​								​		​	​		​	​




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 3. Investments (Continued)

Investment Cost and Fair Value by Industry

		Cost			Fair Value
Software		$	241,742		$	246,696
Education			155,047			150,151
Healthcare Services			139,370			143,724
Business Services			140,426			143,420
Federal Services			95,150			95,428
Distribution & Logistics(1)			51,320			51,834
Consumer Services			41,173			41,625
Media			26,582			34,001
Healthcare Products			25,659			27,220
Industrial Services			13,825			14,105
Retail			11,597			12,146
Healthcare Information Technology			14,550			10,291
Energy			9,852			10,072
Information Technology			6,476			6,711
Power Generation			3,474			2,396
​	​	​	​	​	​	​	​
Total investments		$	976,243		$	989,820
​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​

---

		Cost			Fair Value
Software		$	153,797,485		$	155,642,372
Healthcare Services			113,200,121			117,544,595
Education			104,237,094			101,794,083
Business Services			73,143,286			76,435,801
Federal Services			70,665,154			70,674,563
Consumer Services			29,357,183			29,764,430
Information Services			29,516,875			29,626,611
Healthcare Products			24,037,614			24,875,000
Logistics			25,407,419			24,610,002
Industrial Services			19,220,188			17,543,793
Healthcare Information Technology			14,704,271			14,108,263
Media			11,756,172			11,731,350
Specialty Chemicals and Materials			9,449,821			9,430,359
Power Generation			9,966,951			8,609,943
Information Technology			6,570,081			6,249,251
Telecommunication			4,835,069			4,873,144
Total investments		$	699,864,784		$	703,513,560

(1)

Industries were disclosed separately in previously issued financial statements.

        During the quarter ended December 31, 2013, the Operating Company sold its first lien position in ATI Acquisition Company, resulting in a realized loss of $4,306. Prior to the sale, this investment had a cost basis of $4,306, a zero fair value and total unearned interest income of $611 for the year ended. As of December 31, 2012,2013, the Operating Company's originaltwo super priority first lien positionpositions in ATI Acquisition Company remained on non-accrual status due to the inability of the portfolio company to service its interest paymentspayment for the quarteryear then ended and uncertainty about its ability to pay such amounts in the future. During the third quarter of 2013, the Operating Company received preferred shares and warrants in Ancora Acquisition LLC, in relation to the two super priority first lien positions in ATI Acquisition Company. As of December 31, 2013, the Operating Company's investment in ATI Acquisition Company and Ancora Acquisition LLC had an aggregate cost basis of $1,611, an aggregate fair value of $419 and total unearned interest income of $316 for the year then ended. As of December 31, 2012, thisthe Operating Company's original first lien debt investment hadposition in ATI Acquisition Company was put on non-accrual status, with a cost basis of $4,306,437,$4,306, a fair value of zero and total unearned interest income of $653,414$653 for the year then ended. Additionally, theThe Operating Company's two super priority first lien debt investments in ATI Acquisition Company had a combined cost basis of $1,610,357$1,611 and a combined fair value of $752,251$752 as of December 31, 2012. Unrealized gains include a fee that the Operating Company would receive upon maturity of the two super priority first lien debt investments. During the third quarter of 2012, the Operating Company placed the super priority first lien positions on non-accrual status as well, resulting in total unearned interest income of $310 for the year ended December 31, 2012. As of December 31, 2012, the Operating Company's total investment in ATI Acquisition Company had an aggregate cost basis of




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 20122013

(in thousands, except units/shares and per unit/share data)

Note 3. Investments (Continued)

interest income of $309,578 for the year ended December 31, 2012. As of December 31, 2012, the Operating Company's total investment in ATI Acquisition Company had an aggregate cost basis of $5,916,794$5,917 and an aggregate fair value of $752,251, putting the entire ATI Acquisition Company's positions on non-accrual status.

$752. As of December 31, 2011, the Operating Company's original first lien position in ATI Acquisition Company was put on non-accrual status due to the inability of the portfolio company to service its interest payment for the quarter then ended. As of2013 and December 31, 2011, this first lien debt investment had2012, unrealized gains (losses) include a cost basis of $4,351,747 and a fair value of $783,617 and total unearned interest income of $139,793 for the quarter and year then ended. Additionally,fee that the Operating Company haswould receive upon maturity of the two super priority first lien debt investmentsinvestments.

        As of December 31, 2013, the Operating Company had unfunded commitments on revolving credit facilities and bridge facilities of $15,500 and $0, respectively. The Operating Company did not have any unfunded commitments in ATI Acquisition Company withthe form of a combined cost basis and fair value of $1,576,066delayed draw or other future funding commitments as of December 31, 2011. Neither super priority first lien positions were2013. The unfunded commitments on non-accrual statusrevolving credit facilities are disclosed on the Operating Company's Consolidated Schedule of Investments as of December 31, 2011. As of December 31, 2011, the Operating Company's total investment in ATI Acquisition Company had an aggregate cost basis of $5,927,813 and an aggregate fair value of $2,359,683.2013.

        As of December 31, 2012, the Operating Company had unfunded commitments on revolving credit facilities and bridge facilities of $10,500,000$10,500 and $0, respectively. The Operating Company did not have any unfunded commitments in the form of a delayed draw or other future funding commitments as of December 31, 2012. AnyThe unfunded commitments on revolving credit facilities are disclosed on the Operating Company's Consolidated SchedulesSchedule of Investments as of December 31, 2012.

        As of December 31, 2011, the Operating Company had unfunded commitments on revolving credit facilities and bridge facilities of $22,698,500 and $35,000,000, respectively. Additionally, the Operating Company had unfunded commitments in the form of a delayed draw or other future funding commitments of $4,250,632 as of December 31, 2011. These unfunded commitments are disclosed on the Operating Company's Consolidated Schedules of Investments as of December 31, 2011.

        Investment Risk Factorrisk factors—First and second lien debt that the Operating Company invests in is entirely, or almost entirely, rated below investment grade or may be unrated. These loans are considered speculative because of the credit risk of the issuers. Such issuers are considered more likely than investment grade issuers to default on their payments of interest and principal and such defaults could reduce the net asset value and income distributions of the Operating Company. First and second lien debt may also lose significant market value before a default occurs. Furthermore, an active trading market may not exist for these first and second lien loans. This illiquidity may make it more difficult to value the debt.

        Subordinated debt is generally subject to similar risks as those associated with first and second lien debt, except that such debt is subordinated in payment and /or lower in lien priority. Subordinated debt is subject to the additional risk that the cash flow of the borrower and the property securing the debt, if any, may be insufficient to meet scheduled payments after giving effect to the senior secured and unsecured obligations of the borrower.




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation, and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 2012

Note 4. Fair Value

        Fair value is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Accounting Standards Codification 820,Fair Value Measurements and Disclosures ("ASC 820"), establishes a fair value hierarchy that prioritizes and ranks the inputs to valuation techniques used in measuring investments at fair value. The hierarchy classifies the inputs used in measuring fair value into three levels as follows:

Level I—Quoted prices (unadjusted) are available in active markets for identical investments and the Operating Company has the ability to access such quotes as of the reporting date. The type of investments which would generally be included in Level I include active exchange-traded equity securities and exchange-traded derivatives. As required by ASC 820, the Operating Company, to the extent that it holds such investments, does not adjust the quoted price for these investments,




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 4. Fair Value (Continued)

even in situations where the Operating Company holds a large position and a sale could reasonably impact the quoted price.

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

•

Quoted prices for similar assets or liabilities in active markets;



•

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



•

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



•

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

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

        The inputs used to measure fair value may fall into different levels. In all instances when the inputs fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level of input that is significant to the fair value measurement in its entirety. As such, a Level III fair value measurement may include inputs that are both observable (Levels I and II) and unobservable (Level III). Gains and losses for such assets categorized within the Level III table below may include changes in fair value that are attributable to both observable inputs (Levels II and III) and unobservable inputs (Level III).

        The inputs into the determination of fair value require significant judgment or estimation by management and consideration of factors specific to each investment. A review of the fair value hierarchy classifications is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in the transfer of certain investments within the fair value hierarchy from period to period. Reclassifications impacting the fair value hierarchy are reported as transfers in/out of the respective leveling categories as of the beginning of the quarter in which the reclassifications occur.




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 20122013

(in thousands, except units/shares and per unit/share data)

Note 4. Fair Value (Continued)

        The following table summarizes the levels in the fair value hierarchy that the Operating Company's portfolio investments fall into as of December 31, 2012:2013:

		Total			Level I			Level II			Level III				Total			Level I			Level II			Level III
First lien		$	493,502,112		$	—		$	450,617,077		$	42,885,035			$	553,549		$	—		$	525,138		$	28,411
Second lien			441,072,979			—			397,817,679			43,255,300				468,945			—			413,407			55,538
Subordinated			45,148,051			—			22,256,625			22,891,426				26,863			—			21,692			5,171
Equity and other			10,096,471			—			—			10,096,471				66,294			1,694			—			64,600
​														​		​	​		​	​		​	​		​	​
Total investments		$	989,819,613		$	—		$	870,691,381		$	119,128,232			$	1,115,651		$	1,694		$	960,237		$	153,720
​														​		​	​		​	​		​	​		​	​
​														​		​	​		​	​		​	​		​	​

        The following table summarizes the levels in the fair value hierarchy that the Operating Company's portfolio investments fall into as of December 31, 2011:2012:

		Total			Level I			Level II			Level III				Total			Level I			Level II			Level III
First lien		$	410,313,643		$	—		$	377,172,906		$	33,140,737			$	493,502		$	—		$	450,617		$	42,885
Second lien			262,701,495			—			214,296,195			48,405,300				441,073			—			397,818			43,255
Subordinated			27,648,951			—			21,077,500			6,571,451				45,148			—			22,257			22,891
Equity and other			2,849,471			—			—			2,849,471				10,097			—			—			10,097
​														​		​	​		​	​		​	​		​	​
Total investments		$	703,513,560		$	—		$	612,546,601		$	90,966,959			$	989,820		$	—		$	870,692		$	119,128
​														​		​	​		​	​		​	​		​	​
​														​		​	​		​	​		​	​		​	​

        The following table summarizes the changes in fair value of Level III portfolio investments for the year ended December 31, 2012, as well as the portion of appreciation (depreciation) included in




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 20122013

(in thousands, except units/shares and per unit/share data)

Note 4. Fair Value (Continued)

        The following table summarizes the changes in fair value of Level III portfolio investments for the year ended December 31, 2013, as well as the portion of appreciation (depreciation) included in income attributable to unrealized appreciation (depreciation) related to those assets and liabilities still held by the Operating Company at December 31, 2012:2013:

		Total			First Lien			Second Lien			Subordinated			Equity and other				Total			First Lien			Second Lien			Subordinated			Equity and other(3)
Fair value, December 31, 2011		$	90,966,959		$	33,140,737		$	48,405,300		$	6,571,451		$	2,849,471
Fair value, December 31, 2012																		$	119,128		$	42,885		$	43,255		$	22,891		$	10,097
Total gains or losses included in earnings:
Net realized gains (losses) on investments			4,949,671			4,927,055			22,616			—			—
Net change in unrealized (depreciation) appreciation			(184,889	)		(7,917,926	)		(173,235	)		(75,167	)		7,981,439
Net realized (losses) gains on investments																			(1,623	)		(3,986	)		380			380			1,603
Net change in unrealized appreciation (depreciation)																			5,251			4,319			843			506			(417	)
Purchases, including capitalized PIK and revolver fundings			75,648,054			49,205,569			10,020,619			16,395,142			26,724				120,147			28,874			31,060			2,620			57,593
Proceeds from sales and paydowns of investments			(36,555,370	)		(30,327,959	)		(5,000,000	)		—			(1,227,411	)			(85,910	)		(41,417	)		(20,000	)		(21,226	)		(3,267	)
Transfers into Level III(1)			20,347,220			19,880,972			—			—			466,248				6,574			6,574	(1)		—			—			—
Transfers out of Level III(1)			(36,043,413	)		(26,023,413	)		(10,020,000	)		—			—				(9,847	)		(8,838	)(1)		—			—			(1,009	)(2)
Fair value, December 31, 2012		$	119,128,232		$	42,885,035		$	43,255,300		$	22,891,426		$	10,096,471
​																	​		​	​		​	​		​	​		​	​		​	​
Fair value, December 31, 2013																		$	153,720		$	28,411		$	55,538		$	5,171		$	64,600
​																	​		​	​		​	​		​	​		​	​		​	​
​																	​		​	​		​	​		​	​		​	​		​	​
Unrealized appreciation (depreciation) for the period relating to those Level III assets that were still held by the Operating Company at the end of the period:		$	3,689,725		$	(4,215,928	)	$	(619	)	$	(75,167	)	$	7,981,439			$	821		$	(333	)	$	722		$	409		$	23
​																	​		​	​		​	​		​	​		​	​		​	​

---

(1)

As of December 31, 2012,2013, the portfolio investments were transferred into Level III from Level II and out of Level III into Level II at fair value as of the beginning of the quarter in which the reclassifications occurred.



        The following table summarizes

(2)
As of December 31, 2013, the changes in fair valueportfolio investments were transferred out of Level III portfolio investments forinto Level I at fair value as of the beginning of the quarter in which the reclassifications occurred.


(3)
During the year ended December 31, 2011,2013, the Operating Company received dividends of $5,049 from its equity and other investments, which were recorded as welldividend income. Estimates related to the tax characterization of these distributions were provided as the portion of appreciation (depreciation) included in
December 31, 2013.



Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 20122013

(in thousands, except units/shares and per unit/share data)

Note 4. Fair Value (Continued)

        The following table summarizes the changes in fair value of Level III portfolio investments for the year ended December 31, 2012, as well as the portion of appreciation (depreciation) included in income attributable to unrealized appreciation (depreciation) related to those assets and liabilities still held by the Operating Company at December 31, 2011:2012:

		Total			First Lien			Second Lien			Subordinated			Equity and other				Total			First Lien			Second Lien			Subordinated			Equity and other
Fair value, December 31, 2010		$	30,255,961		$	16,975,334		$	—		$	12,747,764		$	532,863
Fair value, December 31, 2011																		$	90,967		$	33,141		$	48,405		$	6,571		$	2,850
Total gains or losses included in earnings:
Net realized gains (losses) on investments			1,353,118			—			—			1,353,118			—				4,950			4,927			23			—			—
Net change in unrealized (depreciation) appreciation			(951,089	)		(910,688	)		125,000			94,341			(259,742	)			(185	)		(7,918	)		(173	)		(75	)		7,981
Purchases, including capitalized PIK and revolver fundings			105,375,018			31,503,140			67,255,300			4,040,228			2,576,350				75,647			49,205			10,020			16,395			27
Proceeds from sales and paydowns of investments			(12,199,593	)		(535,593	)		—			(11,664,000	)		—				(36,555	)		(30,328	)		(5,000	)		—			(1,227	)
Transfers into Level III(1)			5,833,544			808,544			5,025,000			—			—				20,347			19,881			—			—			466	(2)
Transfers out of Level III(1)			(38,700,000	)		(14,700,000	)		(24,000,000	)		—			—				(36,043	)		(26,023	)		(10,020	)		—			—
Fair value, December 31, 2011		$	90,966,959		$	33,140,737		$	48,405,300		$	6,571,451		$	2,849,471
​																	​		​	​		​	​		​	​		​	​		​	​
Fair value, December 31, 2012																		$	119,128		$	42,885		$	43,255		$	22,891		$	10,097
Unrealized (depreciation) appreciation for the period relating to those Level III assets that were still held by the Operating Company at the end of the period:		$	(1,144,620	)	$	(910,688	)	$	125,000		$	(99,190	)	$	(259,742	)
​																	​		​	​		​	​		​	​		​	​		​	​
​																	​		​	​		​	​		​	​		​	​		​	​
Unrealized appreciation (depreciation) for the period relating to those Level III assets that were still held by the Operating Company at the end of the period:																		$	3,689		$	(4,216	)	$	(1	)	$	(75	)	$	7,981
​																	​		​	​		​	​		​	​		​	​		​	​

---

(1)

As of December 31, 2011,2012, the portfolio investments were transferred into Level III from Level II and out of Level III into Level II at fair value as of the beginning of the quarter in which the reclassifications occurred.



(2)

This Level III transfer relates to the Operating Company's investment in warrants of YP Equity Investors LLC, which was valued with YP Holdings LLC's second lien debt as of June 30, 2012.

        Except as noted in the tables above, there were no other transfers in or out of Level I, II, or III during the years ended December 31, 20122013 and December 31, 2011.2012. Transfers into Level III occurred as quotations obtained through pricing services were not deemed representative of fair value as of the balance sheet date and such assets were internally valued. As quotations obtained through pricing services were substantiated through additional market sources, investments were transferred out of Level III. The Operating Company invests in revolving credit facilities. These investments are categorized as Level III investments as these assets are not actively traded and their fair values are often implied by the term loans of the respective portfolio companies.

        The Operating Company generally uses the following framework when determining the fair value of investments where there are little, if any, market activity or observable pricing inputs.




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 20122013

(in thousands, except units/shares and per unit/share data)

Note 4. Fair Value (Continued)

        The Operating Company generally uses the following framework when determining the fair value of investments where there are little, if any, market activity or observable pricing inputs.

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

        Market Based Approach:    The Operating Company typically estimates the total enterprise value of each portfolio company by utilizing market value cash flow (EBITDA) multiples of publicly traded comparable companies. The Operating Company considers numerous factors when selecting the appropriate companies whose trading multiples are used to value its portfolio companies. These factors include, but are not limited to, the type of organization, similarity to the business being valued, relevant risk factors, as well as size, profitability and growth expectations. The Operating Company generally applies an average of various relevant comparable company EBITDA multiples to the portfolio company's latest twelve month ("LTM") EBITDA or projected EBITDA to calculate portfolio company enterprise value. In applying the market based approach as of December 31, 2012,2013, the Operating Company used athe relevant EBITDA range of 4.00x to 12.90x for first lien debt investments, 4.50x to 8.00x for second lien debt investments and 5.50x and 8.50x for subordinated debt investmentsranges set forth in the table below to determine the enterprise value of seveninvestments in six of its portfolio companies. The Operating Company believes this was a reasonable range in light of current comparable company trading levels and the specific companies involved.

        Income Based Approach:    The Operating Company also typically uses a discounted cash flow analysis to estimate the fair value of the investment. Projected cash flows represent the relevant security's contractual interest, fee and principal payments plus the assumption of full principal recovery at the investment's expected maturity date. These cash flows are discounted at a rate established utilizing a yield calibration approach, which incorporates changes in the credit quality (as measured by relevant statistics) of the portfolio company, as compared to changes in the yield associated with comparable credit quality market indices, between the date of origination and the valuation date. In applying the income based approach as of December 31, 2012, the Operating Company used a discount range of 6.0% to 18.0% for first lien debt investments, 11.3% to 12.5% for second lien debt investments and 12.8% to 22.3% for subordinated debt investments to value seven of its portfolio companies.




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 20122013

(in thousands, except units/shares and per unit/share data)

Note 4. Fair Value (Continued)

applying the income based approach as of December 31, 2013, the Operating Company used the discount ranges set forth in the table below to value investments in eight of its portfolio companies.

									Range
Type		Fair Value			Approach		Unobservable Input		Low			High			Weighted Average
First lien		$	28,411		Market approach		EBITDA multiple			7.0	x		10.0	x		8.5	x
					Income approach		Discount rate			9.2	%		10.2	%		9.7	%
Second lien			55,538		Market approach		EBITDA multiple			5.0	x		7.5	x		6.2	x
					Income approach		Discount rate			10.1	%		11.7	%		11.1	%
Subordinated			5,171		Market approach		EBITDA multiple			7.0	x		9.0	x		8.0	x
					Income approach		Discount rate			13.0	%		15.0	%		14.0	%
Equity and other			64,600		Market approach		EBITDA multiple			1.3	x		7.5	x		4.7	x
					Income approach		Discount rate			8.0	%		20.0	%		13.6	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
		$	153,720		Black Scholes analysis		Expected life in years			2.0			4.0			2.6
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
							Volatility			21.0	%		36.6	%		27.9	%
							Discount rate			0.3	%		3.0	%		0.8	%

        Based on a comparison to similar BDC credit facilities, the terms and conditions of the Holdings Credit Facility and the SLF Credit Facility (as defined in Note 7,Borrowing Facilities) are representative of market. The carrying values of the Holdings Credit Facility and SLF Credit Facility approximate fair value as of December 31, 2012,2013, as both facilities are continually monitored and examined by both the borrower and the lender. ForBoth facilities were amended and restated during the year ended December 31, 2012 both facilities were amended and restated to lower the applicable interest rate spread by 0.25% and to increase the maximum amount of revolving borrowings available under the respective facilities. Additionally for the year ended December 31, 2013, the Holdings Credit Facility was amended and restated to further increase the maximum amount of revolving borrowings available. See Note 7,Borrowing Facilities, for details. The fair value of other financial assets and liabilities approximates their carrying value based on the short term nature of these items. The fair value disclosures discussed in this paragraph are considered Level III.

        Fair value risk factors—The Operating Company seeks investment opportunities that offer the possibility of attaining substantial capital appreciation. Certain events particular to each industry in which the Operating Company's portfolio companies conduct their operations, as well as general economic and political conditions, may have a significant negative impact on the operations and profitability of the Operating Company's investments and/or on the fair value of the Operating Company's investments. The Operating Company's investments are subject to the risk of non-payment of scheduled interest or principal, resulting in a reduction in income to the Operating Company and thus the income of NMFC and AIV Holdings, and their corresponding fair valuations. Also, there may be risk associated with the concentration of investments in one geographic region or in certain industries. These events are beyond the control of the Operating Company and cannot be predicted. Furthermore, the ability to liquidate investments and realize value is subject to uncertainties.




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 5. Agreements

        On May 19, 2011, NMFC entered into a joinder agreement with respect to the Limited Liability Company Agreement, as amended and restated, of the Operating Company pursuant to which NMFC was admitted as a member of the Operating Company and agreed to acquire from the Operating Company a number of units of the Operating Company equal to the number of shares of common stock outstanding of NMFC. Additionally on May 19, 2011, in connection with the contribution by Guardian AIV of its units to AIV Holdings, AIV Holdings entered into a joinder agreement with respect to the Limited Liability Company Agreement, as amended and restated, of the Operating Company pursuant to which AIV Holdings was also admitted as a member of the Operating Company.

        The Operating Company entered into an investment advisory and management agreement, as amended and restated (the "Investment Management Agreement") with the Investment Adviser. Under the Investment Management Agreement, the Investment Adviser manages the day-to-day operations of, and provides investment advisory services to, the Operating Company. For providing these services, the Investment Adviser receives a fee from the Operating Company, consisting of two components—a base management fee and an incentive fee.

        The base management fee is calculated at an annual rate of 1.75% of the Operating Company's gross assets less (i) the borrowings under the SLF Credit Facility (as defined in Note 7,Borrowing Facilities) and (ii) cash and cash equivalents. The base management fee is payable quarterly in arrears, and is calculated based on the average value of the Operating Company's gross assets, borrowings under the SLF Credit Facility, and cash and cash equivalents at the end of each of the two most




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation, and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 2012

Note 5. Agreements (Continued)

recently completed calendar quarters, and appropriately adjusted on a pro rata basis for any equity capital raises or repurchases during the current calendar quarter.

        The incentive fee consists of two parts. The first part is calculated and payable quarterly in arrears and equals 20.0% of the Operating Company's "Pre-Incentive Fee Adjusted Net Investment Income" for the immediately preceding quarter, subject to a "preferred return", or "hurdle", and a "catch-up" feature. "Pre-Incentive Fee Net Investment Income" means interest income, dividend income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees that the Operating Company receives from portfolio companies) accrued during the calendar quarter, minus the Operating Company's operating expenses for the quarter (including the base management fee, expenses payable under the Administration Agreement,an administration agreement, as amended and restated (the "Administration Agreement"), with the Administrator, and any interest expense and distributions paid on any issued and outstanding preferred membership units (of which there are none as of December 31, 2012)2013), but excluding the incentive fee). Pre-Incentive Fee Net Investment Income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with PIK interest and zero coupon securities), accrued income that the Operating Company has not yet received in cash. Pre-Incentive Fee Net Investment Income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation.

        Under GAAP, NMFC's IPO did not step-up the cost basis of the Operating Company's existing investments to fair market value at the IPO date. Since the total value of the Operating Company's investments at the time of the IPO was greater than the investments' cost basis, a larger amount of




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 5. Agreements (Continued)

amortization of purchase or original issue discount, as well as different amounts in realized gain and unrealized appreciation, may be recognized under GAAP in each period than if the step-up had occurred. This will remain until such predecessor investments are sold or mature in the future. The Operating Company tracks the transferred (or fair market) value of each of its investments as of the time of the IPO and, for purposes of the incentive fee calculation, adjusts Pre-Incentive Fee Net Investment Income to reflect the amortization of purchase or original issue discount on the Operating Company's investments as if each investment was purchased at the date of the IPO, or stepped up to fair market value. This is defined as "Pre-Incentive Fee Adjusted Net Investment Income". The Operating Company also uses the transferred (or fair market) value of each of its investments as of the time of the IPO to adjust capital gains ("Adjusted Realized Capital Gains") or losses ("Adjusted Realized Capital Losses") and unrealized capital appreciation ("Adjusted Unrealized Capital Appreciation") and unrealized capital depreciation ("Adjusted Unrealized Capital Depreciation").

        Pre-Incentive Fee Adjusted Net Investment Income, expressed as a rate of return on the value of the Operating Company's net assets at the end of the immediately preceding calendar quarter, will be compared to a "hurdle rate" of 2.0% per quarter (8.0% annualized), subject to a "catch-up" provision measured as of the end of each calendar quarter. The hurdle rate is appropriately pro-rated for any




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation, and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 2012

Note 5. Agreements (Continued)

partial periods. The calculation of the Operating Company's incentive fee with respect to the Pre-Incentive Fee Adjusted Net Investment Income for each quarter is as follows:

•

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



•

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



•

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

        The second part will be determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Management Agreement) and will equal 20.0% of the Operating Company's Adjusted Realized Capital Gains, if any, on a cumulative basis from inception through the end of each calendar year, computed net of all Adjusted Realized Capital Losses and Adjusted




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 5. Agreements (Continued)

Unrealized Capital Depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fee.

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




Table        The Operating Company has revised its presentation of Contents


Combined Notes toincentive fees on the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
Assets, Liabilities and Members' Capital and the FinancialConsolidated Statements of New Mountain Finance Corporation,Operations to disclose the two parts of the incentive fee incurred by the Operating Company for net investment income related incentive fees and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 2012

Note 5. Agreements (Continued)capital gains related incentive fees.

        The following table summarizes the management fees and incentive fees incurred by the Operating Company for the years ended December 31, 2012,2013, December 31, 20112012 and December 31, 2010.2011.

		Years ended December 31,										Years ended December 31,
		2012			2011(1)			2010				2013			2012			2011(1)
Management fee		$	11,109,053		$	4,938,004			70,999	(3)		$	14,905		$	11,109		$	4,938
Incentive fee, excluding accrued capital gains incentive fees			11,537,066			3,522,330			—	(3)			16,502			11,537			3,522
Accrued capital gains incentive fees(2)			4,406,844			—			—	(3)			3,229			4,407			—

---

(1)

For the period from May 19, 2011 (effective date of the Investment Management Agreement) to December 31, 2011.



(2)

The accruedAs of December 31, 2013, approximately $1,113 of capital gains incentive fees would be paid bywas owed under the Operating Company if the Operating Company ceased operations on December 31, 2012 and December 31, 2011, respectively, and liquidated its investments at the valuationsInvestment Management Agreement, as of the respective year ends.cumulative net Adjusted Realized Capital Gains exceeded cumulative Adjusted Unrealized Capital Depreciation. As of December 31, 2012 and December 31, 2011, no actual capital gains incentive fee was owed under the Investment Management Agreement, as cumulative net Adjusted Realized Capital Gains did not exceed cumulative Adjusted Unrealized Capital Depreciation.



(3)

The Investment Management Agreement was not in effect for the year ended As of December 31, 2010. As a result of the IPO on May 19,2013, December 31, 2012 and December 31, 2011, the Operating Company pays management fees and incentive fees under its Investment Management Agreement, which provides a different basis for the calculation of these fees as compared to amounts previously paid priorno payments have been made relating to the completion of the IPO. Prior to the IPO, an affiliate of the Predecessor Entities paid a majority of the management andcapital gains incentive fees.fee.

        The Operating Company's Consolidated Statements of Operations below are adjusted as if the step-up in cost basis to fair market value had occurred at the IPO date, May 19, 2011.




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 20122013

(in thousands, except units/shares and per unit/share data)

Note 5. Agreements (Continued)

        The following Statement of Operations for the year ended December 31, 2013 is adjusted to reflect this step-up to fair market value.

		Year ended December 31, 2013			Stepped-up Cost Basis Adjustments			Adjusted year ended December 31, 2013
Investment income
Interest income(1)		$	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 net 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 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 payment-in-kind interest from investments.



(2)

Includes expense waivers and reimbursements of $3,233.



(3)

For the year ended December 31, 2013, the Operating Company incurred total incentive fees of $19,731, of which $3,229 related to capital gains incentive fees on a hypothetical liquidation basis.



(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.




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 5. Agreements (Continued)

        The following Statement of Operations for the year ended December 31, 2012 is adjusted to reflect this step-up to fair market value.

		Year ended December 31, 2012			Adjustments			Adjusted year ended December 31, 2012				Year ended December 31, 2012			Stepped-up Cost Basis Adjustments			Adjusted year ended December 31, 2012
Investment income
Interest income		$	83,645,911		$	(3,476,058	)	$	80,169,853			$	83,646		$	(3,476	)	$	80,170
Dividend income			811,800			—			811,800				812			—			812
Other income			1,328,300			—			1,328,300				1,328			—			1,328
​											​		​	​		​	​		​	​
Total investment income			85,786,011			(3,476,058	)		82,309,953				85,786			(3,476	)		82,310
Total expenses pre-incentive fee			24,624,621			—			24,624,621
​											​		​	​		​	​		​	​
Total expenses pre-incentive fee(1)													24,625			—			24,625
​											​		​	​		​	​		​	​
Pre-Incentive Fee Net Investment Income			61,161,390			(3,476,058	)		57,685,332				61,161			(3,476	)		57,685
Incentive fee(1)			15,943,910			—			15,943,910
​											​		​	​		​	​		​	​
Incentive fee(2)													15,944			—			15,944
​											​		​	​		​	​		​	​
Post-Incentive Fee Net Investment Income			45,217,480			(3,476,058	)		41,741,422				45,217			(3,476	)		41,741
​											​		​	​		​	​		​	​
Net realized gains (losses) on investments			18,851,239			(6,957,948	)		11,893,291				18,851			(6,958	)		11,893
Net change in unrealized appreciation of investments			9,927,774			10,434,006			20,361,780				9,928			10,434			20,362
Net increase in capital resulting from operations		$	73,996,493					$	73,996,493
​											​		​	​		​	​		​	​
Net increase in members' capital resulting from operations												$	73,996					$	73,996
​											​		​	​		​	​		​	​
​											​		​	​		​	​		​	​

---

(1)

Includes expense waivers and reimbursements of $2,460.



(2)

For the year ended December 31, 2012, the Operating Company incurred total incentive fees of $15,943,910,$15,944, of which $4,406,844$4,407 related to capital gains incentive fees on a hypothetical liquidation basis.




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 20122013

(in thousands, except units/shares and per unit/share data)

Note 5. Agreements (Continued)

        The following Statement of Operations for the Operating Company for the period May 19, 2011 (effective date of the Investment Management Agreement) to December 31, 2011 is adjusted to reflect this step-up to fair market value.

		Period from May 19, 2011 to December 31, 2011			Adjustments			Adjusted Period from May 19, 2011 to December 31, 2011				Period from May 19, 2011 to December 31, 2011			Stepped-up Cost Basis Adjustments			Adjusted period from May 19, 2011 to December 31, 2011
Investment income
Interest income		$	38,836,191		$	(2,019,153	)	$	36,817,038			$	38,836		$	(2,019	)	$	36,817
Other income			670,318			—			670,318				670			—			670
​											​		​	​		​	​		​	​
Total investment income			39,506,509			(2,019,153	)		37,487,356				39,506			(2,019	)		37,487
Total expenses pre-incentive fee			11,863,671			—			11,863,671
​											​		​	​		​	​		​	​
Total expenses pre-incentive fee(1)													11,863			—			11,863
​											​		​	​		​	​		​	​
Pre-Incentive Fee Net Investment Income			27,642,838			(2,019,153	)		25,623,685				27,643			(2,019	)		25,624
Incentive fee(1)			3,522,330			—			3,522,330
​											​		​	​		​	​		​	​
Incentive fee(2)													3,522			—			3,522
​											​		​	​		​	​		​	​
Post-Incentive Fee Net Investment Income			24,120,508			(2,019,153	)		22,101,355				24,121			(2,019	)		22,102
Net realized gain (loss) on investments			3,297,896			(2,421,518	)		876,378
​											​		​	​		​	​		​	​
Net realized gains (losses) on investments													3,298			(2,422	)		876
Net change in unrealized (depreciation) appreciation of investments			(15,537,900	)		4,440,671			(11,097,229	)			(15,538	)		4,441			(11,097	)
Net increase in capital resulting from operations		$	11,880,504					$	11,880,504
​											​		​	​		​	​		​	​
Net increase in members' capital resulting from operations												$	11,881					$	11,881
​											​		​	​		​	​		​	​
​											​		​	​		​	​		​	​

---

(1)

Includes expense waivers and reimbursements of $2,186.



(2)

For the year ended December 31, 2011, the Operating Company had no incentive fees related to capital gains incentive fees on a hypothetical liquidation basis.

        The Statement of Operations for the Operating Company for the year ended December 31, 2010 did not require adjustments to reflect a step-up to fair market value as no adjustments were required prior to the IPO date, May 19, 2011.

        The Companies have entered into an Administration Agreement as amended and restated, with the Administrator under which the Administrator provides administrative services. The Administrator performs, or oversees the performance of, the Companies' financial records, prepares reports filed with the Securities and Exchange Commission, generally monitors the payment of the Companies' expenses, and watches the performance of administrative and professional services rendered by others. The Operating Company will reimburse the Administrator for the Companies' allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations to the Companies under the Administration Agreement, as amended and restated.Agreement. Pursuant to the Administration Agreement as amended and restated, and further restricted by the Operating Company, expenses payable to the Administrator by the Operating Company as well as other direct and indirect expenses (excluding interest, other credit facility expenses, trading expenses and management and incentive fees) have been capped at $3,500,000$3,500 for the time period from April 1, 2012 to March 31, 2013.2013 and capped at $4,250 for the time period from April 1, 2013 to March 31, 2014.




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 20122013

(in thousands, except units/shares and per unit/share data)

Note 5. Agreements (Continued)

        The Operating Company has revised its presentation of expenses and expense waivers and reimbursements for the years ended December 31, 2012 and December 31, 2011. Expenses were previously presented net of waivers and reimbursements, which had been included parenthetically. The revised presentation shows total gross expenses with a separate reduction for expense waivers and reimbursements.

        The Operating Company incurred $2,459,857 inthe following expenses in excess of the expense cap for the yearyears ended December 31, 2013, December 31, 2012 and December 31, 2011:

		Years ended December 31,
		2013			2012			2011
Professional fees		$	1,773		$	1,070		$	1,315
Administrative expenses			1,460			1,390			871
Other general and administrative expenses			—			—			—
​	​	​	​	​	​	​	​	​	​	​
Total expense waivers and reimbursements		$	3,233		$	2,460		$	2,186
​	​	​	​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​	​	​	​

        As of which $534,133December 31, 2013 and December 31, 2012, $459 and $534, respectively, of the expense waivers and reimbursements was receivable from an affiliate as of December 31, 2012. The Operating Company incurred $2,185,765 in expenses in excess of the expense cap for the year ended December 31, 2011, of which $369,017 was receivable from affiliate as of December 31, 2011.affiliate.

        The Companies, the Investment Adviser and the Administrator have also entered into a Trademark License Agreement, as amended, with New Mountain Capital, L.L.C., pursuant to which New Mountain Capital, L.L.C. has agreed to grant the Companies, the Investment Adviser and the Administrator, a non-exclusive, royalty-free license to use the "New Mountain" and the "New Mountain Finance" names. Under the Trademark License Agreement, as amended, subject to certain conditions, the Companies, the Investment Adviser and the Administrator will have a right to use the "New Mountain" and "New Mountain Finance" names, for so long as the Investment Adviser or one of its affiliates remains the investment adviser of the Operating Company. Other than with respect to this limited license, the Companies, the Investment Adviser and the Administrator will have no legal right to the "New Mountain" or the "New Mountain Finance" names.

        NMFC entered into a Registration Rights Agreement with AIV Holdings, Steven B. Klinsky (the Chairman of ourthe Companies' board of directors), an entity related to Steven B. Klinsky and the Investment Adviser. Subject to several exceptions, AIV Holdings and the Investment Adviser have the right to require NMFC to register for public resale under the Securities Act of 1933, as amended (the "Securities Act of 1933"), all registerable securities that are held by any of them and that they request to be registered. Registerable securities subject to the Registration Rights Agreement are shares of NMFC's common stock issued or issuable in exchange for units and any other shares of NMFC's common stock held by AIV Holdings, the Investment Adviser and any of their transferees. The rights under the Registration Rights Agreement can be conditionally exercised by AIV Holdings or the Investment Adviser, meaning that prior to the effectiveness of the registration statement related to the shares, AIV Holdings or the Investment Adviser can withdraw their request to have the shares registered. AIV Holdings and the Investment Adviser may each assign their rights to any person that acquires registerable securities subject to the Registration Rights Agreement and who agrees to be




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 5. Agreements (Continued)

bound by the terms of the Registration Rights Agreement. Steven B. Klinsky and a related entity will have the right to "piggyback", or include their own registerable securities in such a registration. During the year ended December 31, 2012, sharesShares held by AIV Holdings and Steven B. Klinsky were registered on a shelf registration statement on Form N-2.

        AIV Holdings and the Investment Adviser may require NMFC to use its reasonable best efforts to register under the Securities Act of 1933 all or any portion of these registerable securities upon a "demand request". The demand registration rights are subject to certain limitations.

        The Registration Rights Agreement includes limited blackout and suspension periods. In addition, AIV Holdings and the Investment Adviser may also require NMFC to file a shelf registration statement on Form N-2 for the resale of their registerable securities if NMFC is eligible to use Form N-2 at that time.

        Holders of registerable securities have "piggyback" registration rights, including AIV Holdings, which means that these holders may include their respective shares in any future registrations of NMFC's equity securities, whether or not that registration relates to a primary offering by NMFC or a




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation, and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 2012

Note 5. Agreements (Continued)

secondary offering by or on behalf of any of NMFC's stockholders. AIV Holdings, the Investment Adviser and Steven B. Klinsky (and a related entity) have priority over NMFC in any registration that is an underwritten offering.

        AIV Holdings, the Investment Adviser and Steven B. Klinsky (and a related entity) will be responsible for the expenses of any demand registration (including underwriters' discounts or commissions) and their pro-rata share of any "piggyback" registration. NMFC has agreed to indemnify AIV Holdings, the Investment Adviser and Steven B. Klinsky (and a related entity) with respect to liabilities resulting from untrue statements or omissions in any registration statement filed pursuant to the Registration Rights Agreement, other than untrue statements or omissions resulting from information furnished to NMFC by such parties. AIV Holdings, the Investment Adviser and Steven B. Klinsky (and a related entity) have also agreed to indemnify NMFC with respect to liabilities resulting from untrue statements or omissions furnished by them to NMFC relating to them in any registration statement.

Note 6. Related Parties

        The Companies have entered into a number of business relationships with affiliated or related parties. NMFC and AIV Holdings own all the outstanding units of the Operating Company. As of December 31, 2012,2013, NMFC and AIV Holdings own approximately 60.0%94.4% and 40.0%5.6%, respectively, of the units of the Operating Company.

        The Operating Company has entered into the Investment Management Agreement with the Investment Adviser, a wholly-owned subsidiary of New Mountain Capital. Therefore, New Mountain Capital is entitled to any profits earned by the Investment Adviser, which includes any fees payable to the Investment Adviser under the terms of the Investment Management Agreement, less expenses incurred by the Investment Adviser in performing its services under the Investment Management Agreement.

        The Companies have entered into an Administration Agreement, as amended and restated, with the Administrator, a wholly-owned subsidiary of New Mountain Capital. The Administrator arranges office space for the Companies and provides office equipment and administrative services necessary to conduct their respective day-to-day operations pursuant to the Administration Agreement, as amended and restated. The Operating Company reimburses the Administrator for the allocable portion of overhead and other expenses incurred by it in performing its obligations to the Companies under the Administration Agreement, as amended and restated, including rent, the fees and expenses associated with performing administrative, finance and compliance functions, and the compensation of the Companies' chief financial officer and chief compliance officer and their respective staffs. Pursuant to the Administration Agreement, as amended and restated, and further restricted by the Operating Company, expenses payable to the Administrator by the Operating Company as well as other direct and indirect expenses (excluding interest, other credit facility expenses, trading expenses and management and incentive fees) have been capped at $3,500,000 for the time period from April 1, 2012 to March 31, 2013.




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 20122013

(in thousands, except units/shares and per unit/share data)

Note 6. Related Parties (Continued)

        The Companies have entered into an Administration Agreement with the Administrator, a wholly-owned subsidiary of New Mountain Capital. The Administrator arranges office space for the Companies and provides office equipment and administrative services necessary to conduct their respective day-to-day operations pursuant to the Administration Agreement. The Operating Company reimburses the Administrator for the allocable portion of overhead and other expenses incurred by it in performing its obligations to the Companies under the Administration Agreement including rent, the fees and expenses associated with performing administrative, finance and compliance functions, and the compensation of the Companies' chief financial officer and chief compliance officer and their respective staffs. Pursuant to the Administration Agreement and further restricted by the Operating Company, expenses payable to the Administrator by the Operating Company as well as other direct and indirect expenses (excluding interest, other credit facility expenses, trading expenses and management and incentive fees) have been capped at $3,500 for the time period from April 1, 2012 to March 31, 2013 and capped at $4,250 for the time period from April 1, 2013 to March 31, 2014. The expense cap will expire on March 31, 2014. Thereafter, the Administrator may, in its own discretion, submit to the Operating Company for reimbursement some or all of the expenses that the Administrator has incurred on behalf of the Operating Company during any quarterly period. As a result, the amount of expenses for which the Operating Company will have to reimburse the Administrator may fluctuate in future quarterly periods and there can be no assurance given as to when, or if, the Administrator may determine to limit the expenses that the Administrator submits to the Operating Company for reimbursement in the future. However, it is expected that the Administrator will continue to support part of the expense burden of the Operating Company in the near future.

        The Companies, the Investment Adviser and the Administrator have entered into a royalty-free Trademark License Agreement, as amended, with New Mountain Capital, L.L.C., pursuant to which New Mountain Capital, L.L.C. has agreed to grant the Companies, the Investment Adviser and the Administrator, a non-exclusive, royalty-free license to use the name "New Mountain" and "New Mountain Finance".

        The Companies have adopted a formal code of ethics that governs the conduct of their respective officers and directors. These officers and directors also remain subject to the duties imposed by the 1940 Act, the Delaware General Corporation Law and the Delaware Limited Liability Company Act.

        The Investment Adviser and its affiliates may also manage other funds in the future that may have investment mandates that are similar, in whole and in part, with the Operating Company'sCompany' investment mandates. The Investment Adviser and its affiliates may determine that an investment is appropriate for the Operating Company and for one or more of those other funds. In such event, depending on the availability of such investment and other appropriate factors, the Investment Adviser or its affiliates may determine that the Operating Company should invest side-by-side with one or more other funds. Any such investments will be made only to the extent permitted by applicable law and interpretive positions of the Securities and Exchange Commission and its staff, and consistent with the Investment Adviser's allocation procedures.




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 6. Related Parties (Continued)

        Concurrently with the IPO, NMFC sold an additional 2,172,000 shares of its common stock to certain executives and employees of, and other individuals affiliated with, New Mountain Capital in the Concurrent Private Placement.

Note 7. Borrowing Facilities

        Holdings Credit Facility—The Loan and Security Agreement, as amended and restated, dated May 19, 2011 (the "Holdings Credit Facility") among the Operating Company as the Borrower and Collateral Administrator, Wells Fargo Securities, L.L.C. as the Administrative Agent, and Wells Fargo Bank, National Association, as the Collateral Custodian, is structured as a revolving credit facility and matures on October 27, 2016, as amended on May 8, 2012. The Operating Company became a party to the Holdings Credit Facility upon the IPO of NMFC. The Holdings Credit Facility amends and restates the credit facility of the Predecessor Entities (the "Predecessor Credit Facility").

        The maximum amount of revolving borrowings available under the Holdings Credit Facility is $210,000,000,$280,000, as amended on December 18, 2012.October 28, 2013. As of December 31, 2012,2013, the Operating Company was permitted to borrow up to 45.0% or 25.0% of the purchase price of pledged first lien or non-first lien debt securities, and up to 70.0% and 45.0% of the purchase price of specified first lien debt securities and specified non-first lien debt securities, respectively, subject to approval by Wells Fargo Bank, National Association. The credit facilityHoldings Credit Facility is collateralized by all of the investments of the Operating Company on an investment by investment basis. All fees associated with the origination or upsizing of the Holdings Credit Facility are capitalized on the Operating Company's Consolidated Statement of Assets, Liabilities, and Members' Capital and charged against income as other credit facility expenses over the life of the Holdings Credit Facility. The Holdings Credit Facility contains certain customary affirmative and negative covenants and events of default, including the occurrence of a change in control. In addition, the Holdings Credit Facility requires the Operating Company to maintain a minimum asset coverage ratio. However, the covenants are generally not tied to mark to market fluctuations in the prices of the Operating Company's investments, but rather to the performance of the underlying portfolio companies.

        The Holdings Credit Facility bears interest at a rate of the London Interbank Offered Rate ("LIBOR") plus 2.75% per annum, as amended on May 8, 2012, and charges a non-usage fee, based on the unused facility amount multiplied by the Non-Usage Fee Rate (as defined in the credit agreement).




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 20122013

(in thousands, except units/shares and per unit/share data)

Note 7. Borrowing Facilities (Continued)

maintain a minimum asset coverage ratio. However, the covenants are generally not tied to mark to market fluctuations in the prices of the Operating Company's investments, but rather to the performance of the underlying portfolio companies.

        The Holdings Credit Facility (as well as the Predecessor Credit Facility) bears interest at a rate of the London Interbank Offered Rate ("LIBOR") plus 2.75% per annum, as amended on May 8, 2012, and charges a non-usage fee, based on the unused facility amount multiplied by the Non-Usage Fee Rate (as defined in the credit agreement).

        The following table summarizes the interest expense and non-usage fees incurred by the Operating Company on the Holdings Credit Facility for the years ended December 31, 2012,2013, December 31, 20112012 and December 31, 2010.2011.

		Years ended December 31,										Years ended December 31,
		2012			2011			2010				2013			2012			2011
Interest expense		$	4,172,124		$	2,043,267		$	2,248,078			$	5,487		$	4,172		$	2,043
Non-usage fee		$	281,234		$	607,972		$	320,848			$	367		$	281		$	608
Weighted average interest rate			3.1	%		3.2	%		3.3	%			2.9	%		3.1	%		3.2	%
Average debt outstanding		$	133,599,578		$	61,560,781		$	68,343,217			$	184,124		$	133,600		$	61,561

        The outstanding balance of Holdings Credit Facility as of December 31, 2013, December 31, 2012 and December 31, 2011 was $221,849, $206,938 and December 31, 2010 was $206,938,049, $129,037,813$129,038, respectively, and $59,696,938, respectively. As of December 31, 2012, December 31, 2011 and December 31, 2010, the Operating Company iswas not aware of any instances of non-compliance related to the Holdings Credit Facility on such dates.

        SLF Credit Facility—The Operating Company's senior loan fund'sNMF SLF's Loan and Security Agreement, as amended and restated, dated October 27, 2010 (the "SLF Credit Facility") among NMF SLF as the Borrower, the Operating Company as the Collateral Administrator, Wells Fargo Securities, L.L.C. as the Administrative Agent, and Wells Fargo Bank, National Association, as the Collateral Custodian, is structured as a revolving credit facility and matures on October 27, 2016, as amended on May 8, 2012. The maximum amount of revolving borrowings available under the SLF Credit Facility is $215,000,000,$215,000, as amended on December 18, 2012. The loan is non-recourse to the Operating Company and secured by all assets owned by the borrower on an investment by investment basis. All fees associated with the origination or upsizing of the SLF Credit Facility are capitalized on the Consolidated Statement of Assets, Liabilities, and Members' Capital and charged against income as other credit facility expenses over the life of the SLF Credit Facility. The SLF Credit Facility contains certain customary affirmative and negative covenants and events of default, including the occurrence of a change in control. The covenants are generally not tied to mark to market fluctuations in the prices of our investments, but rather to the performance of the underlying portfolio companies.

        As of December 31, 2012, the SLF Credit Facility permitted borrowings of up to 70.0% of the purchase price of pledged debt securities subject to approval by Wells Fargo Bank, National Association. Due to a fifthan amendment to the SLF Credit Facility on October 27, 2011, NMF SLF is no longer restricted from the purchase or sale of loans with an affiliate. Therefore, specified first lien loans can be moved as collateral between the Holdings Credit Facility and the SLF Credit Facility.

        As of December 31, 2013, the SLF Credit Facility permits borrowings of up to 70.0% of the purchase price of pledged first lien debt securities and up to 25.0% of the purchase price of specified second lien loans, of which, up to 25.0% of the aggregate outstanding loan balance of all pledged debt securities in the SLF Credit Facility is allowed to be derived from second lien loans, subject to approval by Wells Fargo Bank, National Association, as amended on March 11, 2013.

        The SLF Credit Facility bears interest at a rate of LIBOR plus 2.00% per annum for first lien loans and 2.75% for second lien loans, respectively, as amended on March 11, 2013. A non-usage fee is paid, based on the unused facility amount multiplied by the Non-Usage Fee Rate (as defined in the credit agreement).




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 20122013

(in thousands, except units/shares and per unit/share data)

Note 7. Borrowing Facilities (Continued)

        The following table summarizes the interest expense and non-usage fees incurred by the Operating Company on the SLF Credit Facility bears interest at a rate of LIBOR plus 2.00% per annum, as amended on May 8, 2012. A non-usage fee is paid, based onfor the unused facility amount multiplied by the Non-Usage Fee Rate (as defined in the credit agreement).years ended December 31, 2013, December 31, 2012 and December 31, 2011.

		Years ended December 31,
								From October 7, 2010 (commencement of NMF SLF operations) to December 31, 2010				Years ended December 31,
		2012			2011							2013			2012			2011
Interest expense		$	4,274,293		$	3,368,867		$	127,325			$	4,891		$	4,274		$	3,369
Non-usage fee		$	21,451		$	94,500		$	66,301			$	3		$	22		$	94
Weighted average interest rate			2.3	%		2.5	%		2.5	%			2.3	%		2.3	%		2.5	%
Average debt outstanding		$	181,394,898		$	133,824,553		$	27,672,121			$	214,317		$	181,395		$	133,825

        The outstanding balance as of December 31, 2013, December 31, 2012 and December 31, 2011 was $214,668, $214,262 and December 31, 2010 was $214,262,314, $165,928,000$165,928, respectively, and $56,936,000, respectively. As of December 31, 2012, December 31, 2011 and December 31, 2010, NMF SLF iswas not aware of any instances of non-compliance related to the SLF Credit Facility on such dates.

        Leverage risk factors—The Operating Company utilizes and may utilize leverage to the maximum extent permitted by the law for investment and other general business purposes. The Operating Company's lenders will have fixed dollar claims on certain assets that are superior to the claims of the Operating Company's unit holders, and therefore NMFC's common stockholders, and the Operating Company would expect such lenders to seek recovery against these assets in the event of a default. The use of leverage also magnifies the potential for gain or loss on amounts invested. Leverage may magnify interest rate risk (particularly on the Operating Company's fixed-rate investments), which is the risk that the prices of portfolio investments will fall or rise if market interest rates for those types of securities rise or fall. As a result, leverage may cause greater changes in the Operating Company's net asset value. Similarly, leverage may cause a sharper decline in the Operating Company's income than if the Operating Company had not borrowed. Such a decline could negatively affect the Operating Company's ability to make dividend payments to its unit holders. Leverage is generally considered a speculative investment technique. The Operating Company's ability to service any debt incurred will depend largely on financial performance and will be subject to prevailing economic conditions and competitive pressures.

Note 8. Regulation

        NMFC and AIV Holdings have elected to be treated, and intend to comply with the requirements to continue to qualify annually, as RICs under Subchapter M of the Code. In order to continue to qualify as RICs, among other things, NMFC and AIV Holdings are required to timely distribute to their stockholders at least 90.0% of investment company taxable income, as defined by the Code, for each year. NMFC and AIV Holdings, among other things, intend to make and continue to make the requisite distributions to their stockholders, which will generally relieve NMFC and AIV Holdings from U.S. federal, state, and local income taxes (excluding excise taxes which may be imposed under the Code). However, under certain circumstances, the distributions that the Operating Company makes to its members may not be sufficient for AIV Holdings to satisfy the annual distribution requirement necessary for AIV Holdings to continue to qualify as a RIC. In that case, it is expected that Guardian




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 20122013

(in thousands, except units/shares and per unit/share data)

Note 8. Regulation (Continued)

AIV would consent to be treated as if it received distributions from AIV Holdings sufficient to satisfy the annual distribution requirement. Guardian AIV would be required to include the consent dividend in its taxable income as dividend from AIV Holdings, which would result in phantom (i.e., non-cash) taxable income to Guardian AIV.

        Additionally as BDCs, the Companies must not acquire any assets other than "qualifying assets" specified in the 1940 Act unless, at the time the acquisition is made, at least 70.0% of its total assets are qualifying assets (with certain limited exceptions).

Note 9. Commitments and Contingencies

        In the normal course of business, the Companies may enter into contracts that contain a variety of representations and warranties and which provide general indemnifications. The Operating Company may also enter into future funding commitments such as revolving credit facilities, bridge financing commitments, or delayed draw commitments. As of December 31, 2012,2013, the Operating Company had unfunded commitments on revolving credit facilities of $10,500,000,$15,500, and no outstanding bridge financing commitments or other future funding commitments. The unfunded commitments all of whichon revolving credit facilities are disclosed on the Operating Company's Consolidated Schedule of Investments. As of December 31, 2011,2012, the Operating Company had unfunded commitments on revolving credit facilities of $22,698,500,$10,500 and no outstanding bridge financing commitments of $35,000,000 andor other future funding commitments, of $4,250,632, all of which are disclosed on the Operating Company's Consolidated Schedule of Investments.

        The Operating Company also has revolving borrowings available under the Holdings Credit Facility and the SLF Credit Facility as of December 31, 2012 and December 31, 2011.2013. See Note 7,Borrowing Facilities, for details.

        The Operating Company may from time to time enter into financing commitment letters. As of December 31, 20122013 and December 31, 2011,2012, the Operating Company did not enter into any commitment letters to purchase debt investments, which could require funding in the future.

Note 10. Distributions

        Differences between taxable income and the results of operations for financial reporting purposes may be permanent or temporary in nature. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes. During the years ended December 31, 2013, December 31, 2012 and December 31, 2011, NMFC did not have any reclassifications of amounts for book purposes arising from permanent book/tax differences. During the years ended December 31, 2013, December 31, 2012 and December 31, 2011, AIV Holdings had reclassifications of amounts for book




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 20122013

(in thousands, except units/shares and per unit/share data)

Note 10. Distributions (Continued)

reclassifications of amounts for book purposes arising from permanent book/tax differences related to return of capital distributions and consent dividends, respectively.

		December 31, 2012						December 31, 2011							December 31, 2013						December 31, 2012						December 31, 2011
		NMFC			AIV Holdings			NMFC			AIV Holdings				NMFC			AIV Holdings			NMFC			AIV Holdings			NMFC			AIV Holdings
Undistributed net investment income		$	—		$	—		$	—		$	—			$	—		$	—		$	—		$	—		$	—		$	—
Distributions in excess of net realized gains			—			(9,707,151	)		—			(1,535,250	)			—			(21,821	)		—			(9,707	)		—			(1,536	)
Additional paid-in-capital			—			9,707,151			—			1,535,250				—			21,821			—			9,707			—			1,536

        For federal income tax purposes, distributions paid to stockholders of NMFC and AIV Holdings are reported as ordinary income, return of capital, long term capital gains or a combination thereof. The tax character of distributions paid by NMFC and AIV Holdings for the years ended December 31, 2013, December 31, 2012 and December 31, 2011 were estimated to be as follows:

		Years ended December 31,
		2012						2011
		NMFC			AIV Holdings			NMFC			AIV Holdings
Ordinary income(a)		$	26,217,758		$	40,692,087		$	8,944,135		$	14,694,056
Capital gains			501,006			2,056,192			255,879			2,696,811
Return of capital			—			48,127,702			—			—
Total		$	26,718,764		$	90,875,981		$	9,200,014		$	17,390,867

---

(a)

Ordinary income is reported on Form 1099-DIV as non-qualified.

		Years ended December 31,
								2012						2011
		2013
											AIV Holdings						AIV Holdings
		NMFC			AIV Holdings			NMFC						NMFC
Ordinary income(non-qualified)		$	44,778		$	19,972		$	26,218		$	40,692		$	8,944		$	14,694
Ordinary income (qualified)			2,742			716			—			—			—			—
Capital gains			4,324			—			501			2,056			256			2,697
Return of capital			—			181,476			—			48,128			—			—
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total		$	51,844		$	202,164		$	26,719		$	90,876		$	9,200		$	17,391




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 10. Distributions (Continued)

        As of December 31, 2013, the costs of investments for NMFC and AIV Holdings for tax purposes were $642,704 and $68,547, respectively. As of December 31, 2012, the costs of investments for NMFC and AIV Holdings for tax purposes were $343,248,443$343,248 and $245,659,380,$245,659, respectively. As of December 31, 2011, the costs of investments for2013, NMFC and AIV Holdings for tax purposes were $144,377,789had capital loss carryforwards of approximately zero and $275,360,096,$15,772, respectively.

        At December 31, 2013, December 31, 2012 and December 31, 2011, the components of distributable earnings on a tax basis differ from the amounts reflected per NMFC's and AIV Holdings' respective Statements of Assets and Liabilities by temporary book/tax differences primarily arising from differences between the tax and book basis of NMFC's and AIV Holdings' respective investment in the Operating Company and undistributed income.




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation, and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 2012

Note 10. Distributions (Continued)

        As of December 31, 2013, December 31, 2012 and December 31, 2011, the components of accumulated earnings / (deficit) on a tax basis were as follows:

															Years ended December 31,
		December 31, 2012						December 31, 2011							2013						2012						2011
		NMFC			AIV Holdings			NMFC			AIV Holdings				NMFC			AIV Holdings			NMFC			AIV Holdings			NMFC			AIV Holdings
Accumulated capital gains / (losses)		$	—		$	—		$	—		$	—			$	—		$	(15,772	)	$	—		$	—		$	—		$	—
Other temporary differences			7,942,568			(5,031,546	)		—			—				10,070			(4,982	)		7,942			(5,032	)		—			—
Undistributed ordinary income			528,124			—			65,789			1,778,113				3,856			—			528			—			66			1,778
Unrealized (appreciation) / depreciation			(2,274,487	)		(10,970,336	)		822,725			(886,315	)			2,346			(2,830	)		(2,274	)		(10,970	)		823			(886	)
​														​		​	​		​	​		​	​		​	​		​	​		​	​
Components of distributable earnings		$	6,196,205		$	(16,001,882	)	$	888,514		$	891,798			$	16,272		$	(23,584	)	$	6,196		$	(16,002	)	$	889		$	892

        NMFC and AIV Holdings are subject to a 4.0% nondeductible federal excise tax on certain undistributed income unless NMFC and AIV Holdings distribute, in a timely manner as required by the Code, an amount at least equal to the sum of (1) 98.0% of their respective net ordinary income earned for the calendar year and (2) 98.2% of their respective capital gain net income for the one-year period ending October 31 in the calendar year. For the yearsyear ended December 31, 2012, and December 31, 2011, both NMFC and AIV Holdings had no accrued estimated excise taxes. For the year ended December 31, 2013, NMFC and AIV Holdings accrued estimated excise taxes of $2.3 and zero, respectively.




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 20122013

(in thousands, except units/shares and per unit/share data)

Note 11. Stockholders' Equity

        The table below illustrates changes inthe effect of certain transactions on the capital accounts of NMFC:

		Common Stock																						Common Stock
								Paid in Capital in Excess of Par			Undistributed Net Investment Income			Accumulated Undistributed Net Realized Gains			Net Unrealized Appreciation (Depreciation)			Total Stockholders' Equity										Paid in Capital in Excess of Par			Undistributed Net Investment Income			Accumulated Undistributed Net Realized Gains			Net Unrealized Appreciation (Depreciation)			Total Stockholders' Equity
		Shares			Par Amount																			Shares			Par Amount
Balance at December 31, 2010			—		$	—		$	—		$	—		$	—		$	—		$	—				—		$	—		$	—		$	—		$	—		$	—		$	—
Issuances of common stock in the IPO(1)			7,272,727			72,727			99,927,269			—			—			—			99,999,996				7,272,727			73			99,927			—			—			—			100,000
Issuances of common stock in private placement(2)			2,172,000			21,720			29,843,280			—			—			—			29,865,000				2,172,000			22			29,843			—			—			—			29,865
Issuances of common stock to New Mountain Guardian Partners, L.P.(3)			1,252,964			12,530			18,476,927			—			—			—			18,489,457
Issuances of common stock to New Mountain Guardian(3)																									1,252,964			12			18,477			—			—			—			18,489
Deferred offering costs allocated from New Mountain Finance Holdings, L.L.C.			—			—			(3,998,597	)		—			—			—			(3,998,597	)			—			—			(3,998	)		—			—			—			(3,998	)
Dividends declared			—			—			—			(8,345,303	)		(854,711	)		—			(9,200,014	))			—			—			—			(8,345	)		(855	)		—			(9,200	)
Net increase in stockholders' equity resulting from operations			—			—			—			8,345,303			1,141,018			844,658			10,330,979				—			—			—			8,345			1,141			845			10,331
​																							​		​	​		​	​		​	​		​	​		​	​		​	​		​	​
Balance at December 31, 2011			10,697,691		$	106,977		$	144,248,879		$	—		$	286,307		$	844,658		$	145,486,821				10,697,691		$	107		$	144,249		$	—		$	286		$	845		$	145,487
Issuances of common stock			13,628,560			136,286			191,561,335			—			—			—			191,697,621				13,628,560			136			191,561			—			—			—			191,697
Deferred offering costs allocated from New Mountain Finance Holdings, L.L.C.			—			—			(323,966	)		—			—			—			(323,966	)			—			—			(323	)		—			—			—			(323	)
Dividends declared			—			—			—			(19,791,810	)		(6,926,954	)		—			(26,718,764	)			—			—			—			(19,792	)		(6,927	)		—			(26,719	)
Net increase in stockholders' equity resulting from operations			—			—			—			19,791,810			7,592,407			4,399,787			31,784,004				—			—			—			19,792			7,593			4,399			31,784
​																							​		​	​		​	​		​	​		​	​		​	​		​	​		​	​
Balance at December 31, 2012			24,326,251		$	243,263		$	335,486,248		$	—		$	951,760		$	5,244,445		$	341,925,716				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 stockholders' equity 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
​																							​		​	​		​	​		​	​		​	​		​	​		​	​		​	​
​																							​		​	​		​	​		​	​		​	​		​	​		​	​		​	​

---

(1)

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.



(2)

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.



(3)

On May 19, 2011, NMFC issued 1,252,964 sharesshare of common stock to New Mountain Guardian Partners, L.P. for their respective ownership interest in the Predecessor Entities.




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 20122013

(in thousands, except units/shares and per unit/share data)

Note 11. Stockholders' Equity (Continued)

        The table below changes inillustrates the effect of certain transactions on the capital accounts of AIV Holdings:

		Common Stock																						Common Stock
								Paid in Capital in Excess of Par			Undistributed Net Investment Income			Distributions in Excess of Net Realized Gains			Net Unrealized (Depreciation) Appreciation			Total Stockholder's Equity										Paid in Capital in Excess of Par			Undistributed Net Investment Income			Distributions In Excess of Net Realized Gains			Net Unrealized (Depreciation) Appreciation			Total Stockholder's Equity
		Shares			Par Amount																			Shares			Par Amount
Balance at December 31, 2010			—		$	—		$	—		$	—		$	—		$	—		$	—				—		$	—		$	—		$	—		$	—		$	—		$	—
Issuances of common stock to New Mountain Guardian AIV, L.P.(1)			100			1			298,406,532			—			—			—			298,406,533
Issuance of common stock to New Mountain Guardian AIV, L.P.(2)																									100			—	(1)		298,407			—			—			—			298,407
Deferred offering costs allocated from New Mountain Finance Holdings, L.L.C.			—			—			(7,558,581	)		—			—			—			(7,558,581	)			—			—			(7,559	)		—			—			—			(7,559	)
Dividends declared			—			—			—			(15,775,205	)		(1,615,662	)		—			(17,390,867	)			—			—			—			(15,775	)		(1,616	)		—			(17,391	)
Net increase in stockholder's equity resulting from operations			—			—			—			15,775,205			2,156,878			(16,374,171	)		1,557,912
Net increase (decrease) in stockholder's equity resulting from operations																									—			—			—			15,775			2,158			(16,375	)		1,558
Tax reclassifications related to consent dividends (See Note 10)			—			—			1,535,250			—			(1,535,250	)		—			—				—			—			1,536			—			(1,536	)		—			—
​																							​		​	​		​	​		​	​		​	​		​	​		​	​		​	​
Balance at December 31, 2011			100		$	1		$	292,383,201		$	—		$	(994,034	)	$	(16,374,171	)	$	275,014,997				100		$	—	(1)	$	292,384		$	—		$	(994	)	$	(16,375	)	$	275,015
Deferred offering costs allocated from New Mountain Finance Holdings, L.L.C.																									—			—			(241	)		—			—			—			(241	)
Dividends declared			—			—			—			(25,425,670	)		(7,233,844	)		—			(32,659,514	)			—			—			—			(25,426	)		(7,234	)		—			(32,660	)
Distribution to New Mountain Guardian AIV, L.P.			—			—			(57,834,853	)		—			(381,614	)		—			(58,216,467	)			—			—			(57,835	)		—			(381	)		—			(58,216	)
Deferred offering costs allocated from New Mountain Finance Holdings, L.L.C.			—			—			(240,771	)		—			—			—			(240,771	)
Net increase in stockholder's equity resulting from operations			—			—			—			25,425,670			11,640,446			7,048,486			44,114,602				—			—			—			25,426			11,640			7,049			44,115
Tax reclassifications related to return of capital distributions (See Note 10)			—			—			9,707,151			—			(9,707,151	)		—			—				—			—			9,707			—			(9,707	)		—			—
​																							​		​	​		​	​		​	​		​	​		​	​		​	​		​	​
Balance at December 31, 2012			100		$	1		$	244,014,728		$	—		$	(6,676,197	)	$	(9,325,685	)	$	228,012,847				100		$	—	(1)	$	244,015		$	—		$	(6,676	)	$	(9,326	)	$	228,013
Deferred offering costs allocated from New Mountain Finance Holdings, L.L.C.																									—			—			(50	)		—			—			—			(50	)
Dividends declared																									—			—			—			(13,155	)		(141	)		—			(13,296	)
Distribution to New Mountain Guardian AIV, L.P.																									—			—			(203,793	)		—			14,925			—			(188,868	)
Net increase (decrease) in stockholder's equity resulting from operations																									—			—			—			13,155			(13,099	)		12,554			12,610
Tax reclassifications related to return of capital distributions (See Note 10)																									—			—			21,821			—			(21,821	)		—			—
​																							​		​	​		​	​		​	​		​	​		​	​		​	​		​	​
Balance at December 31, 2013																									100		$	—	(1)	$	61,993		$	—		$	(26,812	)	$	3,228		$	38,409
​																							​		​	​		​	​		​	​		​	​		​	​		​	​		​	​
​																							​		​	​		​	​		​	​		​	​		​	​		​	​		​	​

---

(1)

As of December 31, 2013, December 31, 2012 and December 31, 2011, the par amount of the total common stock was $1.



(2)

On May 19, 2011, AIV Holdings issued 100 shares of common stock to New Mountain Guardian AIV, L.P. for their respective ownership interest in the Predecessor Entities.




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 20122013

(in thousands, except units/shares and per unit/share data)

Note 12. Earnings Per Share

        The following information sets forth the computation of basic and diluted net increase in NMFC's net assets per share resulting from operations for the year ended December 31, 2013, December 31, 2012 and the period from May 19, 2011 (commencement of operations) to December 31, 2011:

															May 19, 2011 (commencement of operations) to December 31, 2011
									Years ended December 31,
		Year ended December 31, 2012			May 19, 2011 (commencement of operations) to December 31, 2011				2013			2012
Numerator for basic earnings per share:		$	31,784,004		$	10,330,979			$	61,920		$	31,784		$	10,331
Denominator for basic weighted average share:			14,860,838			10,697,691				35,092,722			14,860,838			10,697,691
​								​		​	​		​	​		​	​
Basic earnings per share:		$	2.14		$	0.97			$	1.76		$	2.14		$	0.97
​								​		​	​		​	​		​	​
Numerator for diluted earnings per share(a):		$	73,996,493		$	11,880,504			$	78,924		$	73,996		$	11,881
Denominator for diluted weighted average share(b):			34,011,738			30,919,629				44,021,920			34,011,738			30,919,629
​								​		​	​		​	​		​	​
Diluted earnings per share:		$	2.18		$	0.38			$	1.79		$	2.18		$	0.38
​								​		​	​		​	​		​	​

---

(a)

Includes the full income at the Operating Company for the period. For the period May 19, 2011 (commencement of operations) to December 31, 2011, NMFC's unrealized appreciation in the Operating Company resulting from the IPO is netted against AIV Holdings' unrealized depreciation in the Operating Company resulting from the IPO.



(b)

Assumes all AIV Holdings exchanges its units in the Operating Company were exchanged for public shares of NMFC as ofduring the years ended December 31, 2013, December 31, 2012 and for the period from May 19, 2011 to December 31, 2011, respectively (see Note 1,Formation and Business Purpose).




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 20122013

(in thousands, except units/shares and per unit/share data)

Note 13. Financial Highlights

        The following information sets forth the financial highlights for the Operating Company for the respective years ended December 31st.

														Period from October 29, 2008 (commencement of operations) to December 31, 2008
		Year ended December 31,																Years ended December 31,
		2012			2011			2010			2009							2013			2012			2011			2010			2009
Total return based on net asset value(a)			16.61	%		10.09	%		26.54	%		76.38	%		NM				13.27	%		16.61	%		10.09	%		26.54	%		76.38	%
Average net assets for the period		$	474,560,874		$	361,030,642		$	245,951,174		$	195,467,257		$	7,249,648			$	630,156		$	474,561		$	361,031		$	245,951		$	195,467
Ratio to average net assets:
Net investment income			9.53	%		10.67	%		15.23	%		10.44	%		9.44	%(b)			10.10	%		9.53	%		10.67	%		15.23	%		10.44	%
Total expenses (gross)			9.07	%		5.59	%		1.59	%		0.72	%		—	%			8.64	%		9.07	%		5.59	%		1.59	%		0.72	%
Total expenses (net of reimbursable expenses)			8.55	%		4.99	%		1.59	%		0.72	%		—	%			8.13	%		8.55	%		4.99	%		1.59	%		0.72	%
Net assets, end of year		$	569,938,563		$	420,501,818		$	241,927,261		$	239,440,683		$	30,353,903			$	688,516		$	569,939		$	420,502		$	241,927		$	239,441
Average debt outstanding—Holdings Credit Facility		$	133,599,578		$	61,560,781		$	68,343,217		$	65,014,057			N/A			$	184,124		$	133,600		$	61,561		$	68,343		$	65,014
Average debt outstanding—SLF Credit Facility		$	181,394,898		$	133,824,553		$	27,672,121			N/A			N/A			$	214,317		$	181,395		$	133,825		$	27,672			N/A
Weighted average shares outstanding			34,011,738			30,919,629	(c)		N/A			N/A			N/A
Weighted average common membership units outstanding for the year																			44,021,920			34,011,738			30,919,629	(b)		N/A			N/A
Asset coverage ratio			235.31	%		242.56	%		307.43	%		407.98	%		N/A				257.73	%		235.31	%		242.56	%		307.43	%		407.98	%
Portfolio turnover			52.02	%		42.13	%		76.69	%		57.50	%		0.22	%			40.52	%		52.02	%		42.13	%		76.69	%		57.50	%

---

NM—Total return from commencement of operations through December 31, 2008 was deemed not meaningful due to the scaling of operations during this short time period.

N/A—Not applicable.

(a)

For the yearyears ended December 31, 2013 and December 31, 2012, total return is calculated assuming a purchase at net asset value on the opening of the first day of the year and a sale at net asset value on the last day of the respective year. Dividends and distributions, if any, are assumed for purposes of this calculation, to be reinvested at the net asset value on the last day of the respective quarter. For the year ended December 31, 2011, total return is calculated in two parts: (1) from the opening of the first day of the year to NMFC's IPO date, total return is calculated based on net income over weighted average net assets and (2) from NMFC's IPO date to December 31, 2011,the last day of the year, total return is calculated assuming a purchase at net asset value on NMFC's IPO date and a sale at net asset




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation, and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 2012

Note 13. Financial Highlights (Continued)

value on the last day of the period.year. Dividends and distributions, if any, are assumed for purposes of this calculation, to be reinvested at the net asset value on the last day of the respective quarter. For the years ended December 31, 2010 and December 31, 2009, total return is the ratio of net income compared to capital, adjusted for capital contributions and distributions.

(b)

Ratio to average net assets has been annualized.



(c)(b)

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




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 13. Financial Highlights (Continued)




									Years ended December 31,						May 19, 2011 (commencement of operations) to December 31, 2011
		Year ended December 31, 2012			May 19, 2011 (commencement of operations) to December 31, 2011				2013			2012
Per unit data for the Operating Company(a):
Net asset value, January 1, 2012 and May 19, 2011(b), respectively		$	13.60		$	14.08
Net asset value, January 1, 2013, January 1, 2012 and May 19, 2011(b), respectively									$	14.06		$	13.60		$	14.08
Net investment income			1.33			0.78				1.45			1.33			0.78
Net realized and unrealized gains (losses)			0.84			(0.40	)			0.35			0.84			(0.40	)
Dividends from net investment income			(1.71	)		(0.86	)			(1.48	)		(1.71	)		(0.86	)
​								​		​	​		​	​		​	​
Net increase (decrease) in net assets resulting from operations			0.46			(0.48	)			0.32			0.46			(0.48	)
Net asset value, December 31, 2012 and December 31, 2011, respectively		$	14.06		$	13.60
Net asset value, December 31, 2013, December 31, 2012 and December 31, 2011, respectively									$	14.38		$	14.06		$	13.60
​								​		​	​		​	​		​	​
​								​		​	​		​	​		​	​

---

(a)

Per unit data is based on weighted average common membership units outstanding.



(b)

Data presented from May 19, 2011 to December 31, 2011 as the fund became unitized on May 19, 2011, the IPO date.




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 20122013

(in thousands, except units/shares and per unit/share data)

Note 13. Financial Highlights (Continued)

        The following information sets forth the financial highlights for NMFC for the year ended December 31, 2013, December 31, 2012 and the period May 19, 2011 to December 31, 2011. The ratios to average net assets have been annualized for the period May 19, 2011 to December 31, 2011.

															May 19, 2011 (commencement of operations) to December 31, 2011
									Years ended December 31,
		Year ended December 31, 2012			May 19, 2011 (commencement of operations) to December 31, 2011				2013			2012
Per share data(a):
Net asset value, January 1, 2012 and May 19, 2011(b), respectively		$	13.60		$	13.50
Net asset value, January 1, 2013, January 1, 2012 and May 19, 2011(b), respectively									$	14.06		$	13.60		$	13.50
Net increase (decrease) in net assets resulting from operations allocated from New Mountain Finance Holdings, L.L.C.:
Net investment income			1.33			0.78				1.45			1.33			0.78
Net realized and unrealized gains (losses)			0.84			(0.40	)			0.35			0.84			(0.40	)
​								​		​	​		​	​		​	​
Total net increase			2.17			0.38				1.80			2.17			0.38
Net change in unrealized appreciation (depreciation) of investment in New Mountain Finance Holdings, L.L.C.			—			0.58				—			—			0.58
Dividends declared			(1.71	)		(0.86	)			(1.48	)		(1.71	)		(0.86	)
Net asset value, December 31, 2012 and December 31, 2011, respectively		$	14.06		$	13.60
​								​		​	​		​	​		​	​
Net asset value, December 31, 2013, December 31, 2012 and December 31, 2011, respectively									$	14.38		$	14.06		$	13.60
Per share market value, December 31, 2012 and December 31, 2011, respectively		$	14.90		$	13.41
​								​		​	​		​	​		​	​
​								​		​	​		​	​		​	​
Per share market value, December 31, 2013, December 31, 2012 and December 31, 2011, respectively									$	15.04		$	14.90		$	13.41
​								​		​	​		​	​		​	​
​								​		​	​		​	​		​	​
Total return based on market value(c)			24.84	%		4.16	%			11.62	%		24.84	%		4.16	%
Total return based on net asset value(d)			16.61	%		2.82	%			13.27	%		16.61	%		2.82	%
Shares outstanding at end of period			24,326,251			10,697,691				45,224,755			24,326,251			10,697,691
Average weighted shares outstanding for the period			14,860,838			10,697,691				35,092,722			14,860,838			10,697,691
Average net assets for the period		$	196,312,136		$	147,765,945			$	502,822		$	196,312		$	147,766
Ratio to average net assets(e):
Total expenses allocated from New Mountain Finance Holdings, L.L.C.			8.55	%		5.79	%			8.13	%		8.55	%		5.79	%
Net investment income allocated from New Mountain Finance Holdings, L.L.C.			9.53	%		9.08	%			10.10	%		9.53	%		9.08	%

---

(a)

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.



(b)

Data presented from May 19, 2011 forwardto December 31, 2011 as the fund became unitized on that date,May 19, 2011, the IPO date.



(c)

For the year ended December 31, 2012 and for the period May 19, 2011 to December 31, 2011, total return is calculated assuming a purchase of common stock at the opening of the first day of the year and assuming a purchase of common stock at IPO, respectively, and a sale on the closing of the last business day of the respective periods. Dividends and distributions, if any, are assumed




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 20122013

(in thousands, except units/shares and per unit/share data)

Note 13. Financial Highlights (Continued)

(c)

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





(d)

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.



(e)

AverageRatio to average net assets for the yearyears ended December 31, 2013 and December 31, 2012 is based on the summation of the results of operations items over the net assets for the period in which the respective line items were realized or earned.

        The following information sets forth the financial highlights for AIV Holdings for the year ended December 31, 2013, December 31, 2012 and the period May 19, 2011 to December 31, 2011. The ratios to average net assets have been annualized for the period May 19, 2011 to December 31, 2011.

									Years ended December 31,						May 19, 2011 (commencement of operations) to December 31, 2011
		Year ended December 31, 2012			May 19, 2011 (commencement of operations) to December 31, 2011				2013			2012
Total return based on net asset value(a)			18.04	%		(5.44	)%			7.69	%		18.04	%		(5.44	)%
Average net assets for the period		$	270,080,730		$	279,323,246			$	127,334		$	270,081		$	279,323
Ratio to average net assets(b):
Total expenses allocated from New Mountain Finance Holdings, L.L.C.			8.55	%		5.79	%			8.13	%		8.55	%		5.79	%
Net investment income allocated from New Mountain Finance Holdings, L.L.C.			9.53	%		9.08	%			10.10	%		9.53	%		9.08	%

---

(a)

For the yearyears ended December 31, 2013, December 31, 2012 and for the period May 19, 2011 to December 31, 2011, total return is calculated assuming a purchase at net asset value on the opening of the first day of the period and a sale at net asset value on the last business day of the period. Dividends and distributions, if any, are assumed for purposes of this calculation, to be reinvested at the net asset value on the last day of the respective quarter.



(b)

AverageRatio to average net assets for the yearyears ended December 31, 2013 and December 31, 2012 is based on the summation of the results of operations items over the net assets for the period in which the respective line items were realized or earned.




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 20122013

(in thousands, except units/shares and per unit/share data)

Note 14. Selected Quarterly Financial Data (unaudited)

        The below selected quarterly financial data is for the Operating Company.

(in thousands except for per unit data)

		Investment Income						Net Investment Income						Total Net Realized Gains and Net Changes in Unrealized Appreciation (Depreciation) of Investments						Net Increase (Decrease) in Capital Resulting from Operations							Investment Income						Net Investment Income						Total Net Realized Gains and Net Changes in Unrealized Appreciation (Depreciation) of Investments						Net Increase (Decrease) in Capital Resulting from Operations
Quarter Ended		Total			Per Unit			Total			Per Unit			Total			Per Unit			Total			Per Unit				Total			Per Unit			Total			Per Unit			Total			Per Unit			Total			Per Unit
December 31, 2013																											$	28,645		$	0.60		$	15,848		$	0.33		$	3,213		$	0.07		$	19,061		$	0.40
September 30, 2013																												25,793			0.57			12,659			0.29			7,819			0.17			20,478			0.46
June 30, 2013																												35,156			0.82			23,543			0.55			(8,719	)		(0.21	)		14,824			0.34
March 31, 2013																												25,318			0.62			11,627			0.28			12,934			0.32			24,561			0.60
December 31, 2012		$	24,713		$	0.65		$	13,522		$	0.36		$	3,478		$	0.09		$	17,000		$	0.45			$	24,713		$	0.65		$	13,522		$	0.36		$	3,478		$	0.09		$	17,000		$	0.45
September 30, 2012			21,752			0.60			10,136			0.28			12,109			0.34			22,245			0.62				21,752			0.60			10,136			0.28			12,109			0.34			22,245			0.62
June 30, 2012			20,299			0.66			11,646			0.38			(561	)		(0.02	)		11,085			0.36				20,299			0.66			11,646			0.38			(561	)		(0.02	)		11,085			0.36
March 31, 2012			19,022			0.62			9,913			0.32			13,754			0.45			23,667			0.77				19,022			0.62			9,913			0.32			13,754			0.45			23,667			0.77
December 31, 2011		$	17,127		$	0.55		$	9,540		$	0.31		$	8,317		$	0.27		$	17,857		$	0.58			$	17,127		$	0.55		$	9,540		$	0.31		$	8,317		$	0.27		$	17,857		$	0.58
September 30, 2011			15,069			0.49			10,002			0.32			(21,255	)		(0.68	)		(11,253	)		(0.36	)			15,069			0.49			10,002			0.32			(21,255	)		(0.68	)		(11,253	)		(0.36	)
June 30, 2011			13,116			0.42			9,554			0.31			(899	)		(0.03	)		8,655			0.28				13,116			0.42			9,554			0.31			(899	)		(0.03	)		8,655			0.28
March 31, 2011			11,212			N/A			9,429			N/A			6,990			N/A			16,419			N/A				11,212			N/A			9,429			N/A			6,990			N/A			16,419			N/A
December 31, 2010		$	9,820			N/A		$	8,335			N/A		$	7,978			N/A		$	16,313			N/A			$	9,820			N/A		$	8,335			N/A		$	7,978			N/A		$	16,313			N/A
September 30, 2010			13,881			N/A			13,145			N/A			5,560			N/A			18,705			N/A				13,881			N/A			13,145			N/A			5,560			N/A			18,705			N/A
June 30, 2010			8,597			N/A			7,777			N/A			(5,349	)		N/A			2,428			N/A				8,597			N/A			7,777			N/A			(5,349	)		N/A			2,428			N/A
March 31, 2010			9,077			N/A			8,208			N/A			18,138			N/A			26,346			N/A				9,077			N/A			8,208			N/A			18,138			N/A			26,346			N/A
December 31, 2009		$	7,617			N/A		$	6,617			N/A		$	1,617			N/A		$	8,234			N/A			$	7,617			N/A		$	6,617			N/A		$	1,617			N/A		$	8,234			N/A
September 30, 2009			6,148			N/A			6,030			N/A			33,709			N/A			39,739			N/A				6,148			N/A			6,030			N/A			33,709			N/A			39,739			N/A
June 30, 2009			5,092			N/A			4,877			N/A			42,562			N/A			47,439			N/A				5,092			N/A			4,877			N/A			42,562			N/A			47,439			N/A
March 31, 2009			2,910			N/A			2,883			N/A			27,385			N/A			30,268			N/A				2,910			N/A			2,883			N/A			27,385			N/A			30,268			N/A

---

N/A—Not applicable, as the Operating Company was not unitized until May 19, 2011.




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 20122013

(in thousands, except units/shares and per unit/share data)

Note 14. Selected Quarterly Financial Data (unaudited) (Continued)

        The below selected quarterly financial data is for NMFC.

(in thousands except for per share data)

		Net Investment Income allocated from the Operating Company						Total Net Realized and Unrealized Gains (Losses)						Net Increase (Decrease) in Net Assets Resulting from Operations							Net Investment Income allocated from the Operating Company						Total Net Realized and Unrealized Gains (Losses)						Net Increase (Decrease) in Net Assets Resulting from Operations
Quarter Ended		Total			Per Share			Total			Per Share			Total			Per Share				Total			Per Share			Total			Per Share			Total			Per Share
December 31, 2013																					$	14,826		$	0.33		$	3,119		$	0.07		$	17,945		$	0.40
September 30, 2013																						10,803			0.29			6,664			0.17			17,467			0.46
June 30, 2013																						17,674			0.55			(6,682	)		(0.21	)		10,992			0.34
March 31, 2013																						7,218			0.28			8,298			0.33			15,516			0.61
December 31, 2012		$	7,759		$	0.36		$	2,047		$	0.09		$	9,806		$	0.45			$	7,759		$	0.36		$	2,047		$	0.09		$	9,806		$	0.45
September 30, 2012			4,574			0.28			5,381			0.34			9,955			0.62				4,574			0.28			5,381			0.34			9,955			0.62
June 30, 2012			4,029			0.38			(194	)		(0.02	)		3,835			0.36				4,029			0.38			(194	)		(0.02	)		3,835			0.36
March 31, 2012			3,430			0.32			4,758			0.45			8,188			0.77				3,430			0.32			4,758			0.45			8,188			0.77
December 31, 2011		$	3,301		$	0.31		$	2,877		$	0.27		$	6,178		$	0.58			$	3,301		$	0.31		$	2,877		$	0.27		$	6,178		$	0.58
September 30, 2011			3,460			0.32			(7,353	)		(0.68	)		(3,893	)		(0.36	)			3,460			0.32			(7,353	)		(0.68	)		(3,893	)		(0.36	)
June 30, 2011			1,584			0.15			6,462			0.60			8,046			0.75				1,584			0.15			6,462			0.60			8,046			0.75
March 31, 2011			N/A			N/A			N/A			N/A			N/A			N/A				N/A			N/A			N/A			N/A			N/A			N/A

---

N/A—Not applicable, as NMFC did not commence operations until May 19, 2011.




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 2013

(in thousands, except units/shares and per unit/share data)

Note 14. Selected Quarterly Financial Data (unaudited) (Continued)

        The below selected quarterly financial data is for AIV Holdings.

(in thousands)

Quarter Ended		Net Investment Income allocated from the Operating Company			Total Net Realized and Unrealized Gains (Losses)			Net Increase (Decrease) in Net Assets Resulting from Operations				Net Investment Income allocated from the Operating Company			Total Net Realized and Unrealized Gains (Losses)			Net Increase (Decrease) in Net Assets Resulting from Operations
December 31, 2013												$	1,022		$	(1,614	)	$	(592	)
September 30, 2013													1,855			1,156			3,011
June 30, 2013													5,869			(3,078	)		2,791
March 31, 2013													4,409			2,991			7,400
December 31, 2012		$	5,764		$	1,431		$	7,195			$	5,764		$	1,431		$	7,195
September 30, 2012			5,562			8,630			14,192				5,562			8,630			14,192
June 30, 2012			7,617			(367	)		7,250				7,617			(367	)		7,250
March 31, 2012			6,483			8,995			15,478				6,483			8,995			15,478
December 31, 2011		$	6,240		$	5,439		$	11,679			$	6,240		$	5,439		$	11,679
September 30, 2011			6,542			(13,902	)		(7,360	)			6,542			(13,902	)		(7,360	)
June 30, 2011			2,994			(5,755	)		(2,761	)			2,994			(5,755	)		(2,761	)
March 31, 2011			N/A			N/A			N/A				N/A			N/A			N/A

---

N/A—Not applicable, as AIV Holdings did not commence operations until May 19, 2011.

Note 15. Recent Accounting Standards Updates

        In May 2011,June 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2011-04, 2013-08,Financial Services—Investment Companies (Topic 946)—Amendments to Achieve Common Fair Valuethe Scope, Measurement and Disclosure Requirements in U.S. GAAP and IFRSs ("ASU 2011-04"2013-08"), which provides clarification about howcontains new guidance on assessing whether an entity is an investment company, requiring non-controlling ownership interests in investment companies to measurebe measured at fair value and improves comparabilityrequiring certain additional disclosures. ASU 2013-08 is effective for interim and annual periods beginning after December 15, 2013. The adoption of fair value measurements presentedASU 2013-08 is not expected to have a material impact on the Companies' financial statements.

Note 16. Subsequent Events

        On January 27, 2014, NMFC announced that the U.S. Small Business Administration ("SBA") issued a "green light" letter inviting NMFC to continue its application process to obtain a license to form and disclosed inoperate a Small Business Investment Company ("SBIC") subsidiary. If approved, a SBIC license would provide NMFC with an incremental source of attractive long-term capital.

        Receipt of a green light letter from the SBA does not assure an applicant that the SBA will ultimately issue an SBIC license, and NMFC has received no assurance or indication from the SBA




Table of Contents


Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation and the Financial Statements
of New Mountain Finance AIV Holdings Corporation (Continued)

December 31, 20122013

Note 15. Recent Accounting Standards Updates (Continued)

accordance with GAAP(in thousands, except units/shares and International Financial Reporting Standards. The amendments included in ASU 2011-04 clarify the FASB's intent about the application of existing fair value measurement and disclosure requirements outlined in ASC 820, as well as include some instances of changes to particular principles or requirements. ASU 2011-04 clarifies that (i) the concept of the highest and best use valuation premise applies only to nonfinancial assets, (ii) instruments classified in stockholders' equity should be valued from the perspective of a market participant that holds that instrument as an asset, and (iii) quantitative information should be disclosed about unobservable inputs used in a fair value measurement that is categorized within Level III of the fair value hierarchy. ASU 2011-04 changes the guidance in (i) permitting an exception to ASC 820 by allowing an entity to measure the fair value of a group of financial assets and financial liabilities exposed to market and credit risks to be consistent with the entity's net risk exposures, instead of gross risk, (ii) applying premiums and discounts in a fair value measurement lacking a Level I inputs to be consistent with the ASC 820 requirements of fair value measurement but that applying premiums and discounts in a fair value measurement related to size as a characteristic of the holding rather than as a characteristic of the asset or liability is not permitted, and (iii) requiring additional disclosures about fair value measurements categorized within Level III of the fair value hierarchy, including the valuation processes used and the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs. ASU 2011-04 is effective for the interim and annual periods beginning after December 15, 2011. The adoption of ASU 2011-04 did not have a significant impact on the Companies' financial statements. Additional disclosure was added where applicable.per unit/share data)

Note 16. Subsequent Events (Continued)

that it will receive a SBIC license, or of the timeframe in which it would receive a license, should one ultimately be granted.

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

        On March 6, 2013,4, 2014, the Operating Company's board of directors, and subsequently NMFC's board of directors, declared a first quarter 20132014 distribution of $0.34 per unit/share payable on March 28, 201331, 2014 to holders of record as of March 15, 2013. Subsequently, AIV Holdings' board of directors declared a dividend payable on March 28, 2013 to holders of record as of March 15, 2013 in an amount equal to $0.34 per unit multiplied by the total number of units owned by AIV Holdings of the Operating Company as of the record date.17, 2014.




Table of Contents

        The terms "we", "us", "our" and the "Companies" refers to the collective: New Mountain Finance Holdings, L.L.C., New Mountain Finance Corporation and New Mountain Finance AIV Holdings Corporation.

Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure


        None.

Item 9A.    Controls and Procedures


(a) Evaluation of Disclosure Controls and Procedures

        As of December 31, 20122013 (the end of the period covered by this report), we, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Act of 1934, as amended). Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective and provided reasonable assurance that information required to be disclosed in our periodic Securities and Exchange Commission filings is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. However, in evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of such possible controls and procedures.

(b) Report of Management on Internal Control Over Financial Reporting

        Management is responsible for establishing and maintaining adequate internal control over financial reporting, and for performing an assessment of the effectiveness of internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Companies' internal control over financial reporting includes those policies and procedures that (i) pertain to assets of the Companies; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Companies are being made only in accordance with authorizations of management and directors of the Companies; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Companies' assets that could have a material effect on the financial statements.

        Management performed an assessment of the effectiveness of the Companies' internal control over financial reporting as of December 31, 20122013 based upon the criteria in the 1992 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on management's assessment, management determined that the Companies' internal control over financial reporting was effective as of December 31, 2012.2013.

(c) Attestation Report of the Registered Public Accounting Firm.

        Our independent registered public accounting firm, Deloitte & Touche LLP, has issued an attestation report on the Companies'New Mountain Finance Corporation's internal control over financial reporting, which is set forth on the following page.




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON
INTERNAL CONTROL OVER FINANCIAL REPORTING


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

        We have audited the internal control over financial reporting of New Mountain Finance Corporation (the "Company") as of December 31, 2012,2013, based on criteria established inInternal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

        We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

        A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

        Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

        In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012,2013, based on the criteria established inInternal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

        We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the statement of assets and liabilities, as of December 31, 2012,2013, and the related statements of operations, changes in net assets and cash flows and the financial highlights for the year then ended of the Company and our report dated March 6, 20135, 2014 expressed an unqualified opinion on those financial statements.

/s/ DELOITTE & TOUCHE LLP

New York, New York
March 6, 20135, 2014




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(d)Changes in Internal Controls Over Financial Reporting

        Management has not identified any change in the Companies' internal control over financial reporting that occurred during the quarter ended December 31, 20122013 that has materially affected, or is reasonably likely to materially affect, the Companies' internal control over financial reporting.

Item 9B.    Other Information


        None.




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PART III


        The terms "we", "us", "our" and the "Companies" refers to the collective: New Mountain Finance Holdings, L.L.C., New Mountain Finance Corporation and New Mountain Finance AIV Holdings Corporation.

        We will file a definitive Joint Proxy Statement for the Companies' 20132014 Annual Meeting of Stockholders with the Securities and Exchange Commission, pursuant to Regulation 14A, not later than 120 days after the end of our fiscal year. Accordingly, certain information required by Part III has been omitted under General Instruction G(3) to Form 10-K. Only those sections of our definitive Proxy Statement that specifically address the items set forth herein are incorporated by reference.

Item 10.    Directors, Executive Officers and Corporate Governance


        The information required by Item 10 is hereby incorporated by reference from the definitive Joint Proxy Statement relating to the Companies' 20132014 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of the Companies' fiscal year.

Item 11.    Executive Compensation


        The information required by Item 11 is hereby incorporated by reference from the definitive Joint Proxy Statement relating to the Companies' 20132014 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of the Companies' fiscal year.

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters


        The information required by Item 12 is hereby incorporated by reference from the definitive Joint Proxy Statement relating to the Companies' 20132014 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of the Companies' fiscal year.

Item 13.    Certain Relationships and Related Transactions, and Director Independence


        The information required by Item 13 is hereby incorporated by reference from the definitive Joint Proxy Statement relating to the Companies' 20132014 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of the Companies' fiscal year.

Item 14.    Principal Accountant Fees and Services


        The information required by Item 14 is hereby incorporated by reference from the definitive Joint Proxy Statement relating to the Companies' 20132014 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of the Companies' fiscal year.




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PART IV


Item 15.    Exhibits and Financial Statement Schedules


(a)   Documents Filed as Part of this Report

        The following financial statements are set forth in Item 8:

New Mountain Finance Holdings, L.L.C.
Consolidated Statements of Assets, Liabilities and Members' Capital as of December 31, 20122013 and December 31, 20112012			92102
Consolidated Statements of Operations for the years ended December 31, 2012,2013, December 31, 20112012 and December 31, 20102011			93103
Consolidated Statements of Changes in Members' Capital for the years ended December 31, 2012,2013, December 31, 20112012 and December 31, 20102011			94104
Consolidated Statements of Cash Flows for the years ended December 31, 2012,2013, December 31, 20112012 and December 31, 20102011		105
Consolidated Schedule of Investments as of December 31, 2013		95106
Consolidated Schedule of Investments as of December 31, 2012			96113
Consolidated Schedule of Investments as of December 31, 2011			101
New Mountain Finance Corporation
StatementStatements of Assets and Liabilities as of December 31, 20122013 and December 31, 20112012			106118
Statements of Operations for the yearyears ended December 31, 2013, December 31, 2012 and from May 19, 2011 (commencement of operations) to December 31, 2011			107119
StatementStatements of Changes in Net Assets for the yearyears ended December 31, 2013, December 31, 2012 and from May 19, 2011 (commencement of operations) to December 31, 2011			108120
StatementStatements of Cash Flows for the yearyears ended December 31, 2013, December 31, 2012 and from May 19, 2011 (commencement of operations) to December 31, 2011			109121
New Mountain Finance AIV Holdings Corporation
StatementStatements of Assets and Liabilities as of December 31, 20122013 and December 31, 20112012			110122
Statements of Operations for the yearyears ended December 31, 2013, December 31, 2012 and from May 19, 2011 (commencement of operations) to December 31, 2011			111123
StatementStatements of Changes in Net Assets for the yearyears ended December 31, 2013, December 31, 2012 and from May 19, 2011 (commencement of operations) to December 31, 2011			112124
StatementStatements of Cash Flows for the yearyears ended December 31, 2013, December 31, 2012 and from May 19, 2011 (commencement of operations) to December 31, 2011			113125
Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C., the Financial Statements of New Mountain Finance Corporation and the Financial Statements of New Mountain Finance AIV Holdings Corporation			114126




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(b)   Exhibits

        The following exhibits are filed as part of this report or hereby incorporated by reference to exhibits previously filed with the Securities and Exchange Commission:

Exhibit Number			Description
	2.1		Merger Agreement, dated May 19, 2011 by and between New Mountain Finance Holdings, L.L.C. and New Mountain Guardian Debt Funding, L.L.C.(5)
	2.2
	2.2		Merger Agreement, dated May 19, 2011 by and between New Mountain Guardian Partners Debt Funding, L.L.C. and New Mountain Guardian Partners (Leveraged), L.L.C.(5)
	2.3
	2.3		Merger Agreement, dated May 19, 2011 by and between New Mountain Finance Holdings, L.L.C. and New Mountain Guardian Partners (Leveraged), L.L.C.(5)
	3.1	(a)
	3.1(a	)	Certificate of Incorporation of New Mountain Guardian Corporation(3)
	3.1	(b)
	3.1(b	)	Certificate of Amendment to Certificate of Incorporation of New Mountain Guardian Corporation changing its name to New Mountain Finance Corporation(1)
	3.1	(c)
	3.1(c	)	Amended and Restated Certificate of Incorporation of New Mountain Finance Corporation(4)
	3.1	(d)
	3.1(d	)	Certificate of Formation of New Mountain Guardian (Leveraged), L.L.C.(1)
	3.1	(e)
	3.1(e	)	Certificate of Amendment to Certificate of Formation of New Mountain Guardian (Leveraged), L.L.C. changing its name to New Mountain Finance Holdings, L.L.C.(5)
	3.1	(f)
	3.1(f	)	Certificate of Incorporation of New Mountain Finance AIV Holdings Corporation(6)
	3.1	(g)
	3.1(g	)	Amended and Restated Certificate of Incorporation of New Mountain Finance AIV Holdings Corporation(9)
	3.1	(h)
	3.1(h	)	Certificate of Change of Registered Agent and/or Registered Office of New Mountain Finance Corporation(7)
	3.1	(i)
	3.1(i	)	Certificate of Change of Registered Agent and/or Registered Office of New Mountain Finance AIV Holdings Corporation(7)
	3.2	(a)
	3.2(a	)	Bylaws of New Mountain Finance Corporation(3)
	3.2	(b)
	3.2(b	)	Amended and Restated Bylaws of New Mountain Finance Corporation(4)
	3.3
	3.3		Bylaws of New Mountain Finance AIV Holdings Corporation(6)
	4.1
	4.1		Form of Stock Certificate of New Mountain Finance Corporation(1)
	4.2
	4.2		Form of Stock Certificate of New Mountain Finance AIV Holdings Corporation(2)
	10.1
	10.1		Amended and Restated Limited Liability Company Agreement of New Mountain Finance Holdings, L.L.C.(5)
	10.2
	10.2		First Joinder Agreement with Respect to the Amended and Restated Limited Liability Company Agreement of New Mountain Finance Holdings, L.L.C.(5)
	10.3
	10.3		Second Joinder Agreement with Respect to the Amended and Restated Limited Liability Company Agreement of New Mountain Finance Holdings, L.L.C.(5)
	10.4
	10.4		Amendment No. 1 to the Amended and Restated Limited Liability Company Agreement of New Mountain Finance Holdings, L.L.C.(8)




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Exhibit Number			Description
	10.5		Letter Agreement relating to entry into Amended and Restated Loan and Security Agreement by and among New Mountain Finance Holdings, L.L.C., as Borrower and Collateral Administrator, each of the lenders thereto, Wells Fargo Securities, LLC, as Administrative Agent and Wells Fargo Bank, National Association, as Collateral Custodian.(1)
	10.6
	10.6		Form of Variable Funding Note of New Mountain Finance Holdings, L.L.C., as the Borrower(1)
	10.7
	10.7		Form of Amended and Restated Account Control Agreement among New Mountain Finance Holdings, L.L.C., Wells Fargo Securities, LLC as the Administrative Agent and Wells Fargo Bank, National Association, as Securities Intermediary(1)
	10.8
	10.8		First Amendment to Amended and Restated Loan and Security Agreement between New Mountain Finance Holdings, L.L.C., as Borrower, Wells Fargo Securities, LLC, as Administrative Agent and Wells Fargo Bank, N.A., as Lender(8)
	10.9
	10.9		Second Amendment to Amended and Restated Loan and Security Agreement between New Mountain Finance Holdings, L.L.C., as Borrower, Wells Fargo Securities, LLC, as Administrative Agent and Wells Fargo Bank, N.A., as Lender(8)
	10.10
	10.10		Third Amendment to Amended and Restated Loan and Security Agreement between New Mountain Finance Holdings, L.L.C., as Borrower, Wells Fargo Securities LLC, As Administrative Agent and Wells Fargo Bank, N.A., as Lender(8)
	10.11		Sixth Amendment to Amended and Restated Loan and Security Agreement between New Mountain Finance Holdings, L.L.C., as Borrower, Wells Fargo Securities LLC, As Administrative Agent and Wells Fargo Bank, N.A., as Lender(11)
	10.11 10.12		Seventh Amendment to Amended and Restated Loan and Security Agreement between New Mountain Finance Holdings, L.L.C., as Borrower, Wells Fargo Securities LLC, As Administrative Agent and Wells Fargo Bank, N.A., as Lender(12)
	10.13		Eighth Amendment to Amended and Restated Loan and Security Agreement between New Mountain Finance Holdings, L.L.C., as Borrower, Wells Fargo Securities LLC, As Administrative Agent and Wells Fargo Bank, N.A., as Lender(13)
	10.14		Ninth Amendment to Amended and Restated Loan and Security Agreement between New Mountain Finance Holdings, L.L.C., as Borrower, Wells Fargo Securities LLC, As Administrative Agent and Wells Fargo Bank, N.A., as Lender(15)
	10.15		Tenth Amendment to Amended and Restated Loan and Security Agreement between New Mountain Finance Holdings, L.L.C., as Borrower, Wells Fargo Securities LLC, As Administrative Agent and Wells Fargo Bank, N.A., as Lender(16)
	10.16		Eleventh Amendment to Amended and Restated Loan and Security Agreement between New Mountain Finance Holdings, L.L.C., as Borrower, Wells Fargo Securities LLC, As Administrative Agent and Wells Fargo Bank, N.A., as Lender(17)
	10.17		Loan and Security Agreement by and among New Mountain Guardian (Leveraged), L.L.C., as Collateral Administrator, New Mountain Guardian SPV Funding, L.L.C., as Borrower, each of the lenders party thereto, Wells Fargo Securities, LLC, as Administrative Agent, and Wells Fargo Bank, N.A., as Collateral Custodian(1)




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Exhibit Number			Description
	10.1210.18		First Amendment to Loan and Security Agreement between New Mountain Guardian SPV Funding, L.L.C., as Borrower, Wells Fargo Securities, LLC, as Administrative Agent, and Wells Fargo Bank, N.A., as Lender(1)
	10.19
	10.13		Second Amendment to Loan and Security Agreement between New Mountain Guardian SPV Funding, L.L.C., as Borrower, Wells Fargo Securities, LLC, as Administrative Agent, and Wells Fargo Bank, N.A., as Lender(1)
	10.20
	10.14		Third Amendment to Loan and Security Agreement between New Mountain Guardian SPV Funding, L.L.C., as Borrower, Wells Fargo Securities, LLC, as Administrative Agent, and Wells Fargo Bank, N.A., as Lender(8)
	10.21
	10.15		Fourth Amendment to Loan and Security Agreement between New Mountain Finance SPV Funding, L.L.C., as Borrower, Wells Fargo Securities, LLC, as Administrative Agent, and Wells Fargo Bank, N.A., as Lender(8)
	10.22
	10.16		Fifth Amendment to Loan and Security Agreement between New Mountain SPV Funding, L.L.C., as Borrower, Wells Fargo Securities, LLC, as Administrative Agent, and Wells Fargo Bank, N.A., as Lender(8)
	10.23		Ninth Amendment to Loan and Security Agreement between New Mountain SPV Funding, L.L.C., as Borrower, Wells Fargo Securities, LLC, as Administrative Agent, and Wells Fargo Bank, N.A., as Lender(11)
	10.17 10.24		Tenth Amendment to Loan and Security Agreement between New Mountain SPV Funding, L.L.C., as Borrower, Wells Fargo Securities, LLC, as Administrative Agent, and Wells Fargo Bank, N.A., as Lender(12)
	10.25		Eleventh Amendment to Loan and Security Agreement between New Mountain SPV Funding, L.L.C., as Borrower, Wells Fargo Securities, LLC, as Administrative Agent, and Wells Fargo Bank, N.A., as Lender(13)
	10.26		Twelfth Amendment to Loan and Security Agreement between New Mountain SPV Funding, L.L.C., as Borrower, Wells Fargo Securities, LLC, as Administrative Agent, and Wells Fargo Bank, N.A., as Lender(14)
	10.27		Account Control Agreement by and between New Mountain Guardian SPV Funding, L.L.C., as Pledgor, Wells Fargo Securities, LLC, as Administrative Agent on behalf of the Secured Parties, and Wells Fargo Bank, N.A., as Securities Intermediary(1)
	10.28
	10.18		Variable Funding Note of New Mountain Guardian SPV Funding, L.L.C., as the Borrower(1)




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Exhibit Number			Description
	10.19 10.29		Form of Amended and Restated Investment Advisory and Management Agreement(10)
	10.30
	10.20		Form of Safekeeping Agreement among New Mountain Finance Holdings, L.L.C., Wells Fargo Securities, LLC as the Administrative Agent and Wells Fargo Bank, National Association, as Safekeeping Agent(1)
	10.31
	10.21		Form of Administration Agreement(1)
	10.22		Amended and Restated Administration Agreement(8)
	10.32
	10.22		Form of Trademark License Agreement(1)
	10.33
	10.23		Amendment No. 1 to Trademark License Agreement(8)
	10.24 10.34		Form of Registration Rights Agreement(1)




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Exhibit Number			Description
	10.2510.35		Form of Indemnification Agreement by and between New Mountain Finance Corporation and each director(1)
	10.36
	10.26		Form of Indemnification Agreement by and between New Mountain Finance Holdings, L.L.C. and each director(1)
	10.37
	10.27		Form of Letter Agreement relating to Lock-Up Period by and among New Mountain Finance Holdings, L.L.C. and New Mountain Finance Advisers BDC, L.L.C.(1)
	10.28		Dividend Reinvestment Plan(4)
	11.1
	10.29		Seventh Amendment to Amended and Restated Loan and Security Agreement between New Mountain Finance Holdings, L.L.C., as Borrower, Wells Fargo Securities, LLC, as Administrative Agent, and Wells Fargo Bank, National Association, as Collateral Custodian(11)
	10.30		Eighth Amendment to Amended and Restated Loan and Security Agreement between New Mountain Finance Holdings, L.L.C., as Borrower, Wells Fargo Securities, LLC, as Administrative Agent, and Wells Fargo Bank, National Association, as Collateral Custodian(12)
	10.31		Tenth Amendment to Amended and Restated Loan and Security Agreement between New Mountain Finance SPV Funding, L.L.C., as Borrower, Wells Fargo Securities, LLC, as Administrative Agent, and Wells Fargo Bank, National Association, as Lender(11)
	10.32		Eleventh Amendment to Amended and Restated Loan and Security Agreement between New Mountain Finance SPV Funding, L.L.C., as Borrower, Wells Fargo Securities, LLC, as Administrative Agent, and Wells Fargo Bank, National Association, as Lender(12)
	11.1		Computation of Per Share Earnings for New Mountain Finance Corporation (included in the combined notes to the financial statements contained in this report)
	12.1
	12.1		Computation of ratios for New Mountain Finance Holdings, L.L.C., New Mountain Finance Corporation and New Mountain Finance AIV Holdings Corporation (included in the combined notes to the financial statements contained in this report)
	14.1
	14.1		Code of Ethics(1)
	21.1
	21.1		Subsidiaries of Registrant and jurisdiction of incorporation/organizations:
			Consolidated Subsidiaries of Operating Company:
			New Mountain Finance SPV Funding, L.L.C.—Delaware




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Exhibit Number			Description
	31.1		NMF Ancora Holdings, Inc.—Delaware
	31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended
	31.2
	31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended
	32.1		Certification of Chief Executive Officer pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)
	32.2
	32.2		Certification of Chief Financial Officer pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)

---

(1)

Previously filed in connection with New Mountain Finance Holdings, L.L.C.'s registration statement on Form N-2 Pre-Effective Amendment No. 3 (File Nos. 333-168280 and 333-172503) filed on May 9, 2011.



(2)

Previously filed in connection with New Mountain Finance AIV Holdings Corporation's registration statement on Form 10 (File No. 000-54412), filed May 19, 2011.



(3)

Previously filed in connection with New Mountain Finance Corporation's registration statement on Form N-2 (File No. 333-168280) filed on July 22, 2010.



(4)

Previously filed in connection with New Mountain Finance Corporation's quarterly report on Form 10-Q filed on August 11, 2011.



(5)

Previously filed in connection with New Mountain Finance Holdings, L.L.C.'s quarterly report on Form 10-Q filed on August 11, 2011.



(6)

Previously filed in connection with New Mountain Finance AIV Holdings Corporation's quarterly report on Form 10-Q filed on August 23, 2011.



(7)

Previously filed in connection with New Mountain Finance Corporation and New Mountain Finance AIV Holdings Corporation report on Form 8-K filed on August 25, 2011.





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(8)

Previously filed in connection with New Mountain Finance Corporation's quarterly report on Form 10-Q filed on November 14, 2011.



(9)

Previously filed in connection with New Mountain Finance AIV Holdings Corporation's report on Form 8-K filed on February 29, 2012.



(10)

Previously filed as Annex A to New Mountain Finance Corporation's, New Mountain Finance Holdings, L.L.C.'s and New Mountain Finance AIV Holdings Corporation's joint definitive proxy statement on Schedule 14A filed on March 28, 2012.



(11)

Previously filed in connection with New Mountain Finance Corporation's quarterly report on Form 10-Q filed on May 8, 2012.



(12)

Previously filed in connection with New Mountain Finance Corporation's quarterly report on Form 10-Q filed on August 8, 2012.



(12)(13)

Previously filed in connection with New Mountain Finance Holdings, L.L.C.'s report on Form 8-K filed on December 21, 2012.



(14)

Previously filed in connection with New Mountain Finance Holdings, L.L.C.'s report on Form 8-K filed on March 13, 2013.



(15)

Previously filed in connection with New Mountain Finance Holdings, L.L.C.'s report on Form 8-K filed on April 1, 2013.



(16)

Previously filed in connection with New Mountain Finance Holdings, L.L.C.'s report on Form 8-K filed on June 26, 2013.



(17)

Previously filed in connection with New Mountain Finance Holdings, L.L.C.'s report on Form 8-K filed on October 29, 2013.

(c)   Financial Statement Schedules

        No financial statement schedules are filed herewith because (1) such schedules are not required or (2) the information has been presented in the aforementioned financial statements.




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SIGNATURES


        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrants have duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 6, 2013.5, 2014.

		NEW MOUNTAIN FINANCE HOLDINGS, L.L.C. NEW MOUNTAIN FINANCE CORPORATION NEW MOUNTAIN FINANCE AIV HOLDINGS CORPORATION
		By:		/s/ ROBERT A. HAMWEE Robert A. Hamwee Chief Executive Officer (Principal Executive Officer)

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrants and in the capacities and on the dates indicated.

		SIGNATURE		TITLE		DATE
By:		/s/ ROBERT A. HAMWEE Robert A. Hamwee		Chief Executive Officer (Principal Executive Officer)		March 6, 20135, 2014
By:		/s/ DAVID M. CORDOVA David M. Cordova		Chief Financial Officer and Treasurer		March 6, 20135, 2014
By:		/s/ STEVEN B. KLINSKY Steven B. Klinsky		Chairman of the Board, Director		March 6, 20135, 2014
By:		/s/ ADAM B. WEINSTEIN Adam B. Weinstein		Executive Vice President, Chief Administrative Officer and Director		March 6, 20135, 2014
By:		/s/ ALFRED F. HURLEY, JR. Alfred F. Hurley, Jr.		Director		March 6, 20135, 2014
By:		/s/ DAVID MALPASS David Malpass		Director		March 6, 20135, 2014




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		SIGNATURE		TITLE		DATE
By:
By:		/s/ DAVID OGENS David Ogens		Director		March 6, 20135, 2014
By:		/s/ KURT J. WOLFGRUBER Kurt J. Wolfgruber		Director		March 6, 20135, 2014