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FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2014 TABLE OF CONTENTS
TABLE OF CONTENTS
PART IV

Table of Contents



UNITED STATES


SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-K


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K


ý

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2015

For the fiscal year ended December 31, 2014

o

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934


Commission File Number
Exact name of registrant as specified in its charter,
addresses of principal executive offices, telephone numbers
and states or other jurisdictions of incorporation or organization
I.R.S. Employer
Identification Number
814-00832 
New Mountain Finance Corporation

787 Seventh Avenue, 48th Floor
New York, New York 10019
Telephone: (212) 720-0300
State of Incorporation: Delaware
 27-2978010


Securities registered pursuant to Section 12(b) of the Act:

Title of each className of each exchange on which registered
Common stock, $0.01 par value $0.01 per share The New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:


Title of each class
 None 


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o    No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o    No ý

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o    No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.ý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act:

Large accelerated filer ý
Accelerated filer o
Non-accelerated filer o
(Do not check if a
smaller reporting company)
Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý

The aggregate market value of common stock held by non-affiliates of New Mountain Finance Corporation on June 30, 2014,2015, based on the closing price on that date of $14.86,$14.49, on the New York Stock Exchange was $728.3$786.8 million. For the purposes of calculating this amount only, all directors and executive officers of the registrant have been treated as affiliates.

DescriptionShares as of March 2, 2015February 26, 2016
Common stock, $0.01 par value $0.01 per share 57,997,89063,880,437

Portions of the Registrants' Proxy Statement for its 20152016 Annual Meeting of Stockholders to be filed not later than 120 days after the end of the fiscal year covered by this Annual Report on this Form 10-K are incorporated by reference into Part III on this Form 10-K.


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FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2014
2015

TABLE OF CONTENTS



PAGE

PART I

 

Item 1.

Business
1
Item 1A.
Risk Factors
23
Item 1B.
Unresolved Staff Comments
47
Item 2.
Properties
47
Item 3.
Legal Proceedings
47
Item 4.
Mine Safety Disclosures
47
 
PART II

Business

1 

Item 1A.

Risk Factors

29

Item 1B.

Unresolved Staff Comments

61

Item 2.

Properties

61

Item 3.

Legal Proceedings

61

Item 4.

Mine Safety Disclosures

61

PART II

Item 5.

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

6248

Item 6.

Selected Financial Data

6652

Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations

7057

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

10386

Item 8.

Financial Statements and Supplementary Data

10587

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

152
Item 9A.
Controls and Procedures
152
Item 9B.
Other Information
154
 
170PART III
 

Item 9A.

Controls and Procedures

170

Item 9B.

Other Information

173

PART III

Item 10.

Directors, Executive Officers and Corporate Governance

174155

Item 11.

Executive Compensation

174155

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

174155

Item 13.

Certain Relationships and Related Transactions, and Director Independence

174155

Item 14.

Principal Accountant Fees and Services

155
 
174PART IV
 

PART IV

Item 15.

Exhibits and Financial Statement Schedules

175156


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PART I

Item 1.    Business

New Mountain Finance Corporation

New Mountain Finance Corporation ("NMFC", the "Company", "we", "us" or "our") is a Delaware corporation that was originally incorporated on June 29, 2010. NMFC isWe are a closed-end, non-diversified management investment company that has elected to be regulated as a business development company ("BDC") under the Investment Company Act of 1940, as amended (the "1940 Act"). As such, NMFC iswe are obligated to comply with certain regulatory requirements. NMFC hasWe have elected to be treated, and intendsintend to comply with the requirements to continue to qualify annually, as a regulated investment company ("RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended, (the "Code"). NMFC is also registered as an investment adviser under the Investment Advisers Act of 1940, as amended (the "Advisers Act").

On May 19, 2011, NMFCwe priced itsour 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, NMFCwe sold an additional 2,172,000 shares of itsour common stock to certain executives and employees of, and other individuals affiliated with, New Mountain Capital (defined as New Mountain Capital Group, L.L.C. and its affiliates) in a concurrent private placement (the "Concurrent Private Placement"). Additionally, 1,252,964 shares were issued to the partners of New Mountain Guardian Partners, L.P. at that time for their ownership interest in the Predecessor Entities (as defined below). In connection with NMFC'sour IPO and through a series of transactions, New Mountain Finance Holdings, L.L.C. ("NMF Holdings" or the "Predecessor Operating Company") acquired all of the operations of the Predecessor Entities, including all of the assets and liabilities related to such operations.

New Mountain Finance Holdings, L.L.C.

NMF Holdings is a Delaware limited liability company. Until May 8, 2014, NMF Holdings was externally managed and was regulated as a BDC under the 1940 Act. As such, NMF Holdings was obligated to comply with certain regulatory requirements. NMF Holdings was treated as a partnership for United States ("U.S.") federal income tax purposes for so long as it had at least two members. With the completion of the underwritten secondary offering on February 3, 2014, NMF Holdings' existence as a partnership for U.S. federal income tax purposes terminated and NMF Holdings became an entity that is disregarded as a separate entity from its owner for U.S. federal tax purposes. For additional information on the Company'sour organizational structure prior to May 8, 2014, see "—Restructuring".

Until May 8, 2014, NMF Holdings was externally managed by New Mountain Finance Advisers BDC, L.L.C. (the "Investment Adviser"). As of May 8, 2014, the Investment Adviser serves as the external investment adviser to NMFC. New Mountain Finance Administration, L.L.C. (the "Administrator") provides the administrative services necessary for operations. The Investment Adviser and Administrator are wholly-owned subsidiaries of New Mountain Capital. New Mountain Capital is a firm with a track record of investing in the middle market and with assets under management totaling more than $15.0 billion(1), which includes total assets held by the Company.us. New Mountain Capital focuses on investing in defensive growth companies across its private equity, public equity and credit investment vehicles. NMF Holdings, formerly known as New Mountain Guardian (Leveraged), L.L.C., was originally formed as a subsidiary of New Mountain Guardian AIV, L.P. ("Guardian AIV") by New Mountain Capital in October 2008. Guardian AIV was formed through an allocation of approximately

(1)
Includes amounts committed, not all of which have been drawn down and invested to date, as of December 31, 2014.

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$300.0 $300.0 million of the $5.1 billion of commitments supporting New Mountain Partners III, L.P., a private equity fund managed by New Mountain Capital. In February 2009, New Mountain Capital formed a co-investment vehicle, New Mountain Guardian Partners, L.P., comprising $20.4 million of commitments. New Mountain Guardian (Leveraged), L.L.C. and New Mountain Guardian Partners, L.P., together with their respective direct and indirect wholly-owned subsidiaries, are defined as the "Predecessor Entities".

Prior to December 18, 2014, New Mountain Finance SPV Funding, L.L.C. ("NMF SLF") was a Delaware limited liability company. NMF SLF was a wholly-owned subsidiary of NMF Holdings and thus aour wholly-owned indirect subsidiary of the Company.subsidiary. NMF SLF was bankruptcy-remote and non-recourse to NMFC.us. As part of an amendment to the Company'sour existing credit facilities with Wells Fargo Bank, National Association, NMF SLF merged with and into NMF Holdings on December 18, 2014. SeeItem 8.—Financial Statements and Supplementary Data—Note 7, Borrowings for additional information on the Company'sour credit facilities.

(1)Includes amounts committed, not all of which have been drawn down and invested to date, as of December 31, 2015.

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New Mountain Finance AIV Holdings Corporation

Until April 25, 2014, New Mountain Finance AIV Holdings Corporation ("AIV Holdings") was a Delaware corporation that was originally incorporated on March 11, 2011. AIV Holdings was dissolved on April 25, 2014. Guardian AIV, a Delaware limited partnership, was AIV Holdings' sole stockholder. AIV Holdings was a closed-end, non-diversified management investment company that was regulated as a BDC under the 1940 Act. As such, AIV Holdings was obligated to comply with certain regulatory requirements. AIV Holdings was treated, and complied with the requirements to qualify annually, as a RIC under the Code.

Structure

Prior to the Restructuring (as defined below) on May 8, 2014, NMFC and AIV Holdings were holding companies with no direct operations of their own, and their sole asset was their ownership in NMF Holdings. In connection with the IPO, NMFC and AIV Holdings each entered into a joinder agreement with respect to the Limited Liability Company Agreement, as amended and restated (the "Operating Agreement"), of NMF Holdings, pursuant to which NMFC and AIV Holdings were admitted as members of NMF Holdings. NMFC acquired from NMF Holdings, with the gross proceeds of the IPO and the Concurrent Private Placement, common membership units ("units") of NMF Holdings (the number of units were equal to the number of shares of NMFC's common stock sold in the IPO and the Concurrent Private Placement). Additionally, NMFC received units of NMF Holdings equal to the number of shares of common stock of NMFC issued to the partners of New Mountain Guardian Partners, L.P. Guardian AIV was the parent of NMF Holdings prior to the IPO and, as a result of the transactions completed in connection with the IPO, obtained units in NMF Holdings. Guardian AIV contributed its units in NMF Holdings to its newly formed subsidiary, AIV Holdings in exchange for common stock of AIV Holdings. AIV Holdings had the right to exchange all or any portion of its units in NMF Holdings for shares of NMFC's common stock on a one-for-one basis at any time.

The original 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. The result was that any distributions made to NMFC's stockholders that were attributable to such gains generally were not treated as taxable dividends but rather as return of capital.

Since NMFC'sour IPO, and through December 31, 2014, NMFC2015, we raised approximately $374.6$454.0 million in net proceeds from additional offerings of common stock and issued shares of its common stock valued at approximately $288.4 million on behalf of AIV Holdings for exchanged units. NMFC


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We acquired from NMF Holdings units of NMF Holdings equal to the number of shares of NMFC'sour common stock sold in additional offerings. With the completion of the final secondary offering on February 3, 2014, NMFCwe owned 100.0% of the units of NMF Holdings, which became aour wholly-owned subsidiary of NMFC.

subsidiary.

Restructuring

As a BDC, AIV Holdings had been subject to the 1940 Act, including certain provisions applicable only to BDCs. Accordingly, and after careful consideration of the 1940 Act requirements applicable to BDCs, the cost of 1940 Act compliance and a thorough assessment of AIV Holdings' business model, AIV Holdings' board of directors determined that continuation as a BDC was not in the best interests of AIV Holdings and Guardian AIV. Specifically, given that AIV Holdings was formed for the sole purpose of holding units of NMF Holdings and AIV Holdings had disposed of all of the units of NMF Holdings that it was holding as of February 3, 2014, the board of directors of AIV Holdings approved and declared advisable at an in-person meeting held on March 25, 2014 the withdrawal of AIV Holdings' election to be regulated as a BDC under the 1940 Act. In addition, the board of directors of AIV Holdings approved and declared advisable for AIV Holdings to terminate its registration under Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and to dissolve AIV Holdings under the laws of the State of Delaware.

Upon receipt of the necessary stockholder consent to authorize the board of directors of AIV Holdings to withdraw AIV Holdings' election to be regulated as a BDC, the withdrawal was filed and became effective upon receipt by the U.S. Securities and Exchange Commission ("SEC") of AIV Holdings' notification of withdrawal on Form N-54C on April 15, 2014. The board of directors of AIV Holdings believed that AIV Holdings met the requirements for filing the notification to withdraw its election to be regulated as a BDC, upon the receipt of the necessary stockholder consent. After the notification of withdrawal of AIV Holdings' BDC election was filed with the SEC, AIV Holdings was no longer subject to the regulatory provisions of the 1940 Act applicable to BDCs generally, including regulations related to insurance, custody, composition of its board of directors, affiliated transactions and any compensation arrangements.

In addition, on April 15, 2014, AIV Holdings filed a Form 15 with the SEC to terminate AIV Holdings' registration under Section 12(g) of the Exchange Act. After these SEC filings and any other federal or state regulatory or tax filings were made, AIV Holdings proceeded to dissolve under Delaware law by filing a certificate of dissolution in Delaware on April 25, 2014.


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Until May 8, 2014, as a BDC, NMF Holdings had been subject to the 1940 Act, including certain provisions applicable only to BDCs. Accordingly, and after careful consideration of the 1940 Act requirements applicable to BDCs, the cost of 1940 Act compliance and a thorough assessment of NMF Holdings' current business model, NMF Holdings' board of directors determined at an in-person meeting held on March 25, 2014 that continuation as a BDC was not in the best interests of NMF Holdings.

At the 2014 joint annual meeting of the stockholders of NMFC and the sole unit holder of NMF Holdings held on May 6, 2014, the stockholders of NMFC and the sole unit holder of NMF Holdings approved a proposal which authorized the board of directors of NMF Holdings to withdraw NMF Holdings' election to be regulated as a BDC. Additionally, the stockholders of NMFC approved a new investment advisory and management agreement between NMFC and the Investment Adviser. Upon receipt of the necessary stockholder/unit holder approval to authorize the board of directors of NMF Holdings to withdraw NMF Holdings' election to be regulated as a BDC, the withdrawal was filed and became effective upon receipt by the SEC of NMF Holdings' notification of withdrawal on Form N-54C on May 8, 2014.


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Effective May 8, 2014, NMF Holdings amended and restated its Operating Agreement such that the board of directors of NMF Holdings was dissolved and NMF Holdings remained a wholly-owned subsidiary of NMFC with the sole purpose of serving as a special purpose vehicle for NMF Holdings' credit facility, and NMFC assumed all other operating activities previously undertaken by NMF Holdings under the management of the Investment Adviser (collectively, the "Restructuring"). After the Restructuring, all wholly-owned direct and indirect subsidiaries of NMFC are consolidated with NMFC for both 1940 Act and financial statement reporting purposes, subject to any financial statement adjustments required in accordance with accounting principles generally accepted in the United States of America ("GAAP"). NMFC continues to remain a BDC regulated under the 1940 Act.

Also, on May 8, 2014, NMF Holdings filed Form 15 with the SEC to terminate NMF Holdings' registration under Section 12(g) of the Exchange Act. As a special purpose entity, NMF Holdings is bankruptcy-remote and non-recourse to NMFC. In addition, the assets held at NMF Holdings will continue to be used to secure NMF Holdings' credit facility.

Current Organization

During the year ended December 31, 2014, the Company2015, we established a wholly-owned subsidiary, NMF QID NGL Holdings, Inc. (“NMF QID”). Our wholly-owned subsidiaries, NMF Ancora Holdings Inc. ("NMF Ancora"), NMF QID and NMF YP Holdings Inc. ("NMF YP"), which are structured as Delaware entities that serve as tax blocker corporations which hold equity or equity-like investments in portfolio companies organized as limited liability companies (or other forms of pass-through entities). TaxWe consolidate our tax blocker corporations for accounting purposes. The tax blocker corporations are not consolidated for income tax purposes and may incur income tax expense as a result of their ownership of the portfolio companies. Additionally, the Company has aour wholly-owned subsidiary, New Mountain Finance Servicing, L.L.C. ("NMF Servicing") that serves as the administrative agent on certain investment transactions. New Mountain Finance SBIC, L.P. ("SBIC LP"), and its general partner, New Mountain Finance SBIC G.P., L.L.C. ("SBIC GP"), were organized in Delaware as a limited partnership and limited liability company, respectively. SBIC LP and SBIC GP are our consolidated wholly-owned direct and indirect subsidiaries of the Company.subsidiaries. SBIC LP received a license from the U.S. Small Business AssociationAdministration (the "SBA") to operate as a small business investment company ("SBIC") under Section 301(c) of the Small Business Investment Act of 1958, as amended (the "1958 Act").



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The diagram below depicts the Company'sour organizational structure as of December 31, 2014.2015.

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

**
NMFC is the sole limited partner of SBIC LP. NMFC, directly or indirectly through SBIC GP, wholly-owns SBIC LP. NMFC owns 100.0% of SBIC GP which owns 1.0% of SBIC LP. NMFC owns 99.0% of SBIC LP.

*Includes partners of New Mountain Guardian Partners, L.P.
**NMFC is the sole limited partner of SBIC LP. NMFC, directly or indirectly through SBIC GP, wholly-owns SBIC LP. NMFC owns 100.0% of SBIC GP which owns 1.0% of SBIC LP. NMFC owns 99.0% of SBIC LP.

New Mountain Finance Advisers BDC, L.L.C.

The Investment Adviser manages the Company'sour day-to-day operations and provides itus with investment advisory and management services. In particular, the Investment Adviser is responsible for identifying attractive investment opportunities, conducting research and due diligence on prospective investments, structuring the Company'sour investments and monitoring and servicing the Company'sour investments. The Investment Adviser is managed by a five member investment committee, which is responsible for approving purchases and sales of the Company'sour investments above $10.0 million in aggregate by issuer. For additional information on the investment committee, see "Investment Committee" section.

New Mountain Finance Administration, L.L.C.

The Administrator provides the administrative services necessary to conduct our day-to-day operations. The Administrator also performs, or oversees the performance of, our financial records, our reports to stockholders and reports filed with the SEC. The Administrator performs the calculation and publication of our net asset values, the payment of our expenses and oversees the performance of various third-party service providers and the preparation and filing of our tax returns. The Administrator may also provide, on the Company'sour behalf, managerial assistance to its portfolio companies.

Competition

        The Company competes

We compete for investments with a number of BDCs and investment funds (including private equity and hedge funds), as well as traditional financial services companies such as commercial


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banks and other sources of financing. Many of these entities have greater financial and managerial resources than we do. We believe the Company iswe are able to be competitive with these entities primarily on the basis of the experience and contacts of itsour management team, the Company'sour responsive and efficient investment analysis and decision-making processes, the investment terms we offer, the Company offers, the leveraged model that the Company employswe employ to perform itsour due diligence with the broader New Mountain Capital team and the Company'sour model of investing in companies and industries it knowswe know well.

We believe that some of the Company'sour competitors may make investments with interest rates and returns that are comparable to or lower than the rates and returns that the Company targets.we target. Therefore, the Company doeswe do not seek to compete solely on the interest rates and returns that it offerswe offer to potential portfolio companies. For additional information concerning the competitive risks we face, seeItem 1A.—Risk Factors.



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Investment ObjectivesObjective and Portfolio

        The Company's

Our investment objective is to generate current income and capital appreciation through the sourcing and origination of debt securities at all levels of the capital structure, including first and second lien debt, notes, bonds and mezzanine securities. In some cases, the Company'sour investments may also include equity interests such as preferred stock, common stock, warrants or options received in connection with the Company'sour debt investments or may include a direct investment in the equity of private companies.

        The Company makes

We make investments through both primary originations and open-market secondary purchases. The CompanyWe primarily targetstarget loans to, and investsinvest in, the U.S. middle market businesses, a market segment we believe continues to be underserved by other lenders. We define middle market businesses as those businesses with annual earnings before interest, taxes, depreciation, and amortization ("EBITDA"(“EBITDA”) between $20.0 million and $200.0 million. TheOur primary focus is in the debt of defensive growth companies, which are defined as generally exhibiting the following characteristics: (i) sustainable secular growth drivers, (ii) high barriers to competitive entry, (iii) high free cash flow after capital expenditure and working capital needs, (iv) high returns on assets and (v) niche market dominance. Similar to the Company,us, SBIC LP'sLP’s investment objective is to generate current income and capital appreciation under theour investment criteria used by the Company, however,criteria. However, SBIC LP'sLP’s investments must be in SBA eligible companies. The Company'sOur portfolio may be concentrated in a limited number of industries. As of December 31, 2014, the Company's2015, our top five industry concentrations were software, business services, education, distribution & logistics and federal services and healthcare services. The Company'sOur targeted investments typically have maturities of between five and ten years and generally range in size between $10.0 million and $50.0 million. This investment size may vary proportionately as the size of the Company'sour capital base changes. At December 31, 2014, the Company's2015, our portfolio consisted of 7175 portfolio companies and was invested 44.3% in first lien loans, 41.8% in second lien loans, 5.8% in subordinated debt and 8.1% in equity and other, as measured at fair value versus 71 portfolio companies invested 47.6% in first lien loans, 42.4% in second lien loans, 4.3% in subordinated debt and 5.7% in equity and other as measured at fair value versus the Predecessor Operating Company's portfolio which consisted of 59 portfolio companies invested 49.6% in first lien loans, 42.0% in second lien loans, 2.4% in subordinated debt and 6.0% in equity and other at December 31, 2013.

2014.

The fair value of the Company'sour investments was approximately $1,512.2 million in 75 portfolio companies at December 31, 2015 and approximately $1,424.7 million in 71 portfolio companies at December 31, 2014. At December 31, 2013, and December 31, 2012, the Company'sour only investment was itsour investment in the Predecessor Operating Company. The fair value of the Predecessor Operating Company's investments was approximately $1,115.7 million in 59 portfolio companies at December 31, 2013 and $989.8 million in 63 portfolio companies at December 31, 2012.

2013.

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The following table shows the Company'sour portfolio and investment activity for the yearyears ended December 31, 2015 and December 31, 2014 and the Predecessor Operating Company's portfolio and investment activity for the years ended December 31, 2013 and December 31, 2012:

 
 Years ended December 31, 
(in millions)
 2014(1) 2013 2012 

New investments in 43, 34 and 45 portfolio companies, respectively

 $720.9 $529.3 $673.2 

Debt repayments in existing portfolio companies

  267.5  395.4  299.2 

Sales of securities in 14, 12 and 22 portfolio companies, respectively

  117.0  31.2  124.7 

Change in unrealized appreciation on 20, 45 and 48 portfolio companies, respectively

  21.2  27.9  27.0 

Change in unrealized depreciation on 60, 29 and 30 portfolio companies, respectively

  (63.9) (19.9) (17.1)
(1)
For the year ended December 31, 2014, amounts represent the investment activity of the Predecessor Operating Company through and including May 7, 2014 and the investment activity of the Company from May 8, 2014 through December 31, 2014.
2013:
  Years Ended December 31,
(in millions) 2015 2014(1) 2013
New investments in 36, 43 and 34 portfolio companies, respectively $612.7
 $720.9
 $529.3
Debt repayments in existing portfolio companies 400.8
 267.5
 395.4
Sales of securities in 15, 14 and 12 portfolio companies, respectively 83.1
 117.0
 31.2
Change in unrealized appreciation on 23, 20 and 45 portfolio companies, respectively 44.7
 21.2
 27.9
Change in unrealized depreciation on 70, 60 and 29 portfolio companies, respectively (79.9) (63.9) (19.9)

(1)For the year ended December 31, 2014, amounts represent the investment activity of the Predecessor Operating Company through and including May 7, 2014 and our investment activity from May 8, 2014 through December 31, 2014.
At December 31, 2015 and December 31, 2014, the Company'sour weighted average Yield to Maturity at Cost was approximately 10.7%. At December 31, 2013, the Predecessor Operating Company's weighted average Yield to Maturity at Cost and weighted average Yield to Maturity was approximately 11.0% and 10.6%10.7%, respectively. The Yield to Maturity at Cost ("Yield to Maturity at Cost") calculation assumes that all investments, including secured collateralized agreements, not on non-accrual are purchased at the adjusted cost on the quarter end date and held until their respective maturities with no prepayments or losses and exited at par at maturity. Adjusted cost reflects the GAAP cost for post-IPO investments and a stepped up cost basis of pre-IPO investments (assuming a step-up to fair market value occurred on the IPO date). This calculation excludes the impact of existing leverage. Yield to Maturity at Cost uses the London Interbank Offered Rate ("LIBOR") curves at each quarter's end date. The actual yield to maturity may be higher or lower due to the future selection of the LIBOR contracts by the individual companies in the Company'sour portfolio or other factors. The Yield to Maturity calculation used in prior years for the Predecessor Operating Company assumed that all investments not on non-accrual were purchased at fair value on December 31, 2013 and held until their respective maturities with no prepayments or losses and exited at par at maturity.


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The following summarizes the Company'sour ten largest portfolio company investments and top ten industries in which the Company waswe were invested as of December 31, 2014,2015, calculated as a percentage of total assets as of December 31, 2014.

2015.

Portfolio CompanyPercent of Total Assets

Global Knowledge Training Crowley Holdings Preferred, LLC

3.43.2%

Ascend Learning, LLC

 UniTek Global Services, Inc.		2.93.0%

TIBCO Software Inc. 

2.9%

Tenawa Resource Holdings LLC

2.8%

Deltek, Inc. 

2.7%

Kronos Incorporated

 Deltek, Inc.		2.6%
 TIBCO Software Inc.2.5%

McGraw-Hill Global Education Holdings, LLC

 AssuredPartners, Inc.2.4%

Tolt Solutions, Inc. 

2.4%

Crowley Holdings Preferred, LLC

2.4%

Acrisure, LLC

 Kronos Incorporated2.3%
 Hill International, Inc.2.3%
 ProQuest LLC2.1%
 Navex Global, Inc.2.1%
Total25.2%

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Industry TypePercent of Total Assets

Software

19.023.1%

Business Services

17.223.0%

Education

16.610.4%

Federal Services

Distribution & Logistics		8.27.3%

HealthcareFederal Services

7.66.0%

Distribution & Logistics

Consumer Services		6.44.3%

Energy

5.54.1%

Media

Healthcare Services		4.03.9%

Consumer Services

Media		3.53.0%

BusinessHealthcare Products

2.3%
Total1.787.4%

Investment Criteria

The Investment Adviser has identified the following investment criteria and guidelines for use in evaluating prospective portfolio companies. However, not all of these criteria and guidelines were, or will be, met in connection with each of the Company'sour investments.

Defensive growth industries.  The Company seeksWe seek to invest in industries that can succeed in both robust and weak economic environments but which are also sufficiently large and growing to achieve high valuations providing enterprise value cushion for the Company'sour targeted debt securities.


•
High barriers to competitive entry.  The Company targetsWe target industries and companies that have well defined industries and well established, understandable barriers to competitive entry.


•
Recurring revenue.  Where possible, the Company focuseswe focus on companies that have a high degree of predictability in future revenue.


•
Flexible cost structure.  The Company seeksWe seek to invest in businesses that have limited fixed costs and therefore modest operating leverage.


•
Strong free cash flow and high return on assets.  The Company focusesWe focus on businesses with a demonstrated ability to produce meaningful free cash flow from operations. The CompanyWe typically targetstarget companies that are not asset intensive and that have minimal capital expenditure and minimal working capital growth needs.


•
Sustainable business and niche market dominance.  The Company seeksWe seek to invest in businesses that exert niche market dominance in their industry and that have a demonstrated history of sustaining market leadership over time.

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•
Established companies.  The Company seeksWe seek to invest in established companies with sound historical financial performance. The Company doesWe do not intend to invest in start-up companies or companies with speculative business plans.


•
Private equity sponsorship.  The CompanyWe generally seeksseek to invest in companies in conjunction with private equity sponsors who it knowswe know and truststrust and who have proven capabilities in building value.


•
Seasoned management team.  The CompanyWe generally requiresrequire that its portfolio companies have a seasoned management team with strong corporate governance. Oftentimes the Company haswe have a historical relationship with or direct knowledge of key managers from previous investment experience.

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Investment Selection and Process

The Investment Adviser believes it has developed a proven, consistent and replicable investment process to execute the Company'sour investment strategy. The Investment Adviser seeks to identify the most attractive investment sectors from the top down and then works to become the most advantaged investor in these sectors. The steps in the Investment Adviser's process include:

Identifying attractive investment sectors top down;

•
Creating competitive advantages in the selected industry sectors; and

•
Targeting companies with leading market share and attractive business models in its chosen sectors.

Investment Committee

The Investment Adviser's investment committee (the "Investment Committee") currently consists of Steven B. Klinsky, Robert A. Hamwee, Adam B. Weinstein Michael B. Ajouz and John R. Kline. The fifth and final member of the Investment Committee will consist of a New Mountain Capital Managing Director who will hold the position on the Investment Committee on an annual rotating basis. Beginning in August 2015, Matthew S. Holt was appointed to the Investment Committee for a one year term. In addition, theour executive officers and certain investment professionals of the Investment Adviser are invited to all Investment Committee meetings. The Investment Committee is responsible for approving allpurchases and sales of the Company's investment purchasesour investments above $10.0 million. The Investment Committee also approves all asset dispositions above $10.0 million.million in aggregate by issuer. Purchases and dispositions below $10.0 million may be approved by the Company's Chief Executive Officer.our chief executive officer. These approval thresholds are subject to change over time. We expect to benefit from the extensive and varied relevant experience of the investment professionals serving on the Investment Committee, which includes expertise in private equity, primary and secondary leveraged credit, private mezzanine finance and distressed debt.

The purpose of the Investment Committee is to evaluate and approve, as deemed appropriate, all investments by the Investment Adviser, subject to certain thresholds. The Investment Committee process is intended to bring the diverse experience and perspectives of the Investment Committee's members to the analysis and consideration of every investment. The Investment Committee also serves to provide investment consistency and adherence to the Investment Adviser's investment philosophies and policies. The Investment Committee also determines appropriate investment sizing.

sizing and suggests ongoing monitoring requirements.

In addition to reviewing investments, the Investment Committee meetings serve as a forum to discuss credit views and outlooks. Potential transactions and investment opportunities are also reviewed on a regular basis. Members of the Company'sour investment team are encouraged to share information and views on credits with the committeeInvestment Committee early in their analysis. This process improves the quality of the analysis and enablesassists the deal team members to work more efficiently.

Investment Structure

        The Company targets

We target debt investments that will yield meaningful current income and occasionally provide the opportunity for capital appreciation through equity securities. The Company'sOur debt investments are typically structured with the maximum seniority and collateral that the Companywe can reasonably obtain while seeking to achieve itsour total return target.

Debt Investments

The terms of the Company'sour debt investments are tailored to the facts and circumstances of the transaction and prospective portfolio company and structured to protect its rights and manage its risk while creating incentives for the portfolio company to achieve its business plan. A substantial source of return is the cash interest that the Company collectswe collect on itsour debt investments.

First Lien Loans and Bonds.  First lien loans and bonds generally have terms of four to seven years, provide for a variable or fixed interest rate, may contain prepayment penalties and are

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Second Lien Loans and Bonds.  Second lien loans and bonds generally have terms of five to eight years, provide for a variable or fixed interest rate, may contain prepayment penalties and are secured by a second priority security interest in all existing and future assets of the borrower. These second lien loans and bonds may include PIK interest.

•
Unsecured Senior, Subordinated and "Mezzanine" Loans and Bonds.  Any unsecured investments are generally expected to have terms of five to ten years and provide for a fixed interest rate. Unsecured investments may include PIK interest and may have an equity component, such as warrants to purchase common stock in the portfolio company.

In addition, from time to time the Companywe may also enter into revolving credit facilities, bridge financing commitments, delayed draw commitments or other commitments which can result in providing future financing to a portfolio company.

Equity Investments

When the Company makeswe make a debt investment, itwe may be granted equity in the portfolio company in the same class of security as the sponsor receives upon funding. In addition, the Companywe may from time to time make non-control, equity co-investments in conjunction with private equity sponsors. The CompanyWe generally seeksseek to structure itsour equity investments, such as direct equity co-investments, to provide itus with minority rights provisions and event-driven put rights. The CompanyWe also seeksseek to obtain limited registration rights in connection with these investments, which may include "piggyback"“piggyback” registration rights.

Portfolio Company Monitoring

        The Company monitors

We monitor the performance and financial trends of itsour portfolio companies on at least a quarterly basis. The Company attemptsWe attempt to identify any developments within the portfolio company, the industry or the macroeconomic environment that may alter any material element of itsour original investment strategy. The Company usesWe use several methods of evaluating and monitoring the performance of itsour investments, including but not limited to, the following:

review of monthly and/or quarterly financial statements and financial projections for portfolio companies provided by its management;

•
ongoing dialogue with and review of original diligence sources;

•
periodic contact with portfolio company management (and, if appropriate, the private equity sponsor) to discuss financial position, requirements and accomplishments; and

•
assessment of business development success, including product development, profitability and the portfolio company's overall adherence to its business plan.

        The Company uses

We use an investment rating system to characterize and monitor the credit profile and expected level of returns on each investment in the portfolio. The Company usesWe use 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;

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The following table shows the distribution of the Company'sour investments on the 1 to 4 investment rating scale at fair value as of December 31, 2014:

2015:
 (in millions)
As of December 31, 2015
Investment RatingPar Value(1) Percent Fair Value Percent
Investment Rating 1$189.7
 12.6% $247.6
 16.4%
Investment Rating 21,251.5
 83.0% 1,231.9
 81.5%
Investment Rating 365.3
 4.3% 32.3
 2.1%
Investment Rating 41.8
 0.1% 0.4
 —%
 $1,508.3
 100.0% $1,512.2
 100.0%

(1)Excludes shares and warrants.
 
 As of December 31, 2014 
(in millions)
Investment Rating
 Par Value(1) Percent Fair Value Percent 

Investment Rating 1

 $255.7  18.1%$277.4  19.5%

Investment Rating 2

  1,061.6  75.0% 1,089.7  76.5%

Investment Rating 3

  82.9  5.9% 48.3  3.4%

Investment Rating 4

  14.2  1.0% 9.3  0.6%
​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​

 $1,414.4  100.0%$1,424.7  100.0%
(1)
Excludes shares and warrants.

Exit Strategies/Refinancing

        The Company exits its

We exit our investments typically through one of four scenarios: (i) the sale of the portfolio company itself resulting in repayment of all outstanding debt, (ii) the recapitalization of the portfolio company in which the Company'sour loan is replaced with debt or equity from a third party or parties (in some cases, the Companywe may choose to participate in the newly issued loan(s)), (iii) the repayment of the initial or remaining principal amount of the Company'sour loan then outstanding at maturity or (iv) the sale of the debt investment by the Company.us. In some investments, there may be scheduled amortization of some portion of the Company'sour loan which would result in a partial exit of itsour investment prior to the maturity of the loan.

Valuation

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

        The Company values its

We value our assets on a quarterly basis, or more frequently if required under the 1940 Act. In all cases, the Company'sour board of directors is ultimately and solely responsible for determining the fair value of itsour 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 itsour portfolio investments require a fair value determination. Security transactions are accounted for on a trade date basis. The Company'sOur 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 investment professionals of the Investment Adviser look at the number of quotes readily available and perform 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).


(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.

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b.
For investments other than bonds, the 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;

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

d.
When deemed appropriate by the 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.

(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 our 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 professionals of the Investment Adviser do not have a readily available market quotation will be reviewed by an independent valuation firm engaged by our board of directors; and
d.When deemed appropriate by our 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 costs/netbacks received for any unfunded portion on the total balance committed. The fair value is also adjusted for the price appreciation or depreciation on the unfunded portion. As a result, the purchase of commitments not completely funded may result in a negative fair value until it is called and funded.

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


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Operating and Regulatory Environment

As with other companies regulated by the 1940 Act, a BDC must adhere to certain regulatory requirements. The 1940 Act contains prohibitions and restrictions relating to investments by a BDC in another investment company as well as transactions between BDCs and their affiliates, principal underwriters and affiliates of those affiliates or underwriters. A BDC must be organized in the U.S. for the purpose of investing in or lending to primarily private companies and making significant managerial assistance available to them. A BDC may use capital provided by public stockholders and from other sources to make long-term, private investments in businesses. A BDC provides stockholders the ability to retain the liquidity of a publicly traded stock while sharing in the possible benefits, if any, of investing in primarily privately owned companies.

        The Company has

We have a board of directors. A majority of the Company'sour board of directors must be persons who are not interested persons, as that term is defined in the 1940 Act. As a BDC, we are prohibited from protecting any director or officer against any liability to us or the Company'sour stockholders arising from willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person's office. Additionally, we are required to provide and maintain a bond issued by a reputable fidelity insurance company to protect the BDC.

As a BDC, the Company iswe are required to meet a coverage ratio of the value of total assets to total senior securities, which include all of itsour borrowings, excluding SBA-guaranteed debentures, and any preferred stock we may issue in the future, of at least 200.0% (i.e., the amount of debt may not exceed 50.0% of the value of the Company'sour total assets or the Companywe may borrow an amount equal to 100.0% of net assets). The Company monitors itsWe monitor our compliance with this coverage ratio on a regular basis.

        The Company

We may, to the extent permitted under the 1940 Act, issue additional equity or debt capital. The Company isWe will generally not be able to issue and sell itsour common stock at a price below net asset value per share. The CompanyWe may, however, sell itsour common stock, or warrants, options or rights to acquire itsour common stock, at a price below the then-current net asset value of itsour common stock if itsour board of directors determines that such sale is in theour best interests of the Company and the best interests of itsour stockholders, and itsour stockholders approve such sale. In addition, the Companywe may generally issue new shares of itsour common stock at a price below net asset value in rights offerings to existing stockholders, in payment of dividends and in certain other limited circumstances.

As a BDC, the Company iswe will not generally notbe permitted to invest in any portfolio company in which the Investment Adviser or any of its affiliates currently have an investment or to make any co-investments with the Investment Adviser or its affiliates without an exemptive order from the SEC.


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We may not change the nature of our business so as to cease to be, or withdraw our election as, a BDC unless authorized by vote of a majority of the outstanding voting securities, as required by the 1940 Act. A majority of the outstanding voting securities of a company is defined under the 1940 Act as the lesser of: (a) 67.0% or more of such company's voting securities present at a meeting if more than 50.0% of the outstanding voting securities of such company are present or represented by proxy, or (b) more than 50.0% of the outstanding voting securities of such company. We do not anticipate any substantial change in the nature of our business.

In addition, as a BDC, the Company iswe are not permitted to issue stock in consideration for services.


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Taxation as a Regulated Investment Company

        The Company has

We have elected to be treated, and intendsintend to comply with the requirements to continue to qualify annually, as a RIC under Subchapter M of the Code. As a RIC, the Companywe generally will not paybe subject to corporate-level U.S. federal income taxes on any net ordinary income or capital gains that itwe timely distributesdistribute (or are deemed to itsdistribute) to our stockholders as dividends. Rather, dividends distributed (or deemed distributed) by the Companyus generally will be taxable to itsour stockholders, and any net operating losses, foreign tax credits and other tax attributes of the Companyours generally will not pass through to itsour stockholders, subject to special rules for certain items such as net capital gains and qualified dividend income recognized by the Company.

us.

To qualify as a RIC, the Companywe must, among other things, meet certain source-of-income and asset diversification requirements. In addition, to qualify as a RIC, the Companywe must distribute to itsour stockholders, for each taxable year, at least 90.0% of itsour "investment company taxable income", which is generally itsour net ordinary income plus the excess of realized net short-term capital gains over realized net long-term capital losses (the "Annual Distribution Requirement").

        The Company

We will be subject to a 4.0% nondeductible federal excise tax on certain undistributed income unless it distributeswe distribute in a timely manner an amount at least equal to the sum of (1) 98.0% of its respectiveour net ordinary income for each calendar year, (2) 98.2% of its respectiveour capital gain net income for the one-year period ending October 31 in that calendar year and (3) any income recognized, but not distributed and on which we did not pay corporate-level U.S. federal income tax, in preceding years (the "Excise Tax Avoidance Requirement"). While the Company intendswe intend to make distributions to itsour stockholders in each taxable year that will be sufficient to avoid any federal excise tax on itsour earnings, there can be no assurance that the Companywe will be successful in entirely avoiding this tax.

In order to qualify as RICsa RIC for U.S. federal income tax purposes, the Companywe must, among other things:

continue to qualify as a BDC under the 1940 Act at all times during each taxable year;

•
derive in each taxable year at least 90.0% of its respectiveour gross income from dividends, interest, payments with respect to loans of certain securities, gains from the sale of stock or other securities or foreign currencies, net income from certain "qualified publicly traded partnerships", or other income derived with respect to the Company'sour business of investing in such stock or securities (the "90.0% Income Test"); and

•
diversify itsour holdings so that at the end of each quarter of the taxable year:

•
at least 50.0% of the value of the Company'sour assets consists of cash, cash equivalents, U.S. government securities, securities of other RICs, and other securities if such other securities of any one issuer do not represent more than 5.0% of the value of the Company'sour assets or more than 10.0% of the outstanding voting securities of the issuer; and

•
no more than 25.0% of the value of the Company'sour assets isare invested in the securities, other than U.S. government securities or securities of other RICs, ofof: (1) one issuer, of(2) two or more issuers that are controlled, as determined under applicable Code rules, by the Companyus and that are engaged in the same or similar or related trades, or (3) businesses or of certain "qualified publicly traded partnerships" (the "Diversification Tests").

A RIC is limited in its ability to deduct expenses in excess of its "investment company taxable income" (which is, generally, net ordinary income plus the excess of realized net short-term capital gains over realized net long-term capital losses). If the Company'sour expenses in a given year exceed itsour investment company taxable income, the Companywe would experience a net operating loss for that year. However, a RIC is not permitted to carry forward net operating losses to subsequent years and such net operating losses do not pass through to its stockholders. In addition, expenses can be used only to


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offset investment company taxable income, not net capital gain. A RIC may not use any net capital losses (that is, realized capital losses in excess of realized capital gains) to offset the RIC's investment company taxable income, but may carry forward such losses, and use them to offset capital gains, indefinitely. Due to these limits on the deductibility of expenses and net capital losses, the Companywe may for tax purposes have aggregate taxable income for several years that it iswe are required to distribute and that is taxable to itsour stockholders even if such income is greater than the aggregate net income the Companywe actually earned during those years.


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Failure to Qualify as a Regulated Investment Company

If the Company failswe fail to satisfy the 90.0% Income Test or the Diversification Tests for any taxable year or quarter of such taxable year, itwe may nevertheless continue to qualify as a RIC for such year if certain relief provisions of the Code apply (which may, among other things, require itus to pay certain corporate-level U.S. federal income taxes or to dispose of certain assets). If the Company failswe fail to qualify for treatment as a RIC and such relief provisions do not apply the Companyto us, we will be subject to U.S. federal income tax on all of itsour taxable income at regular corporate rates (and also will be subject to any applicable state and local taxes), regardless of whether the Company makeswe make any distributions to itsour stockholders. Distributions would not be required. However, if distributions were made, any such distributions would be taxable to itsour stockholders as ordinary dividend income and, subject to certain limitations under the Code, any such distributions wouldmay be eligible for the 20.0% maximum rate applicable to non-corporate taxpayers to the extent of the Company'sour current or accumulated earnings and profits. Subject to certain limitations under the Code, corporate distributees would be eligible for the dividends-received deduction. Distributions in excess of the Company'sour current and accumulated earnings and profits would be treated first as a return of capital to the extent of the stockholder's tax basis, and any remaining distributions would be treated as a capital gain.

Subject to a limited exception applicable to RICs that qualified as such under Subchapter M of the Code for at least one year prior to disqualification and that requalify as a RIC no later than the second year following the non-qualifying year, the Companywe could be subject to tax on any unrealized net built-in gains in the assets held by the Companyus during the period in which itwe failed to qualify as a RIC that are recognized during the ten-year period (or five-year period for taxable years beginning during 2013) after itsour requalification as a RIC, unless the Companywe made a special election to pay corporate-level U.S. federal income tax on such built-in gain at the time of the Company'sour requalification as a RIC. The CompanyWe may decide to be taxed as a regular corporation even if itwe would otherwise qualify as a RIC if the Company determineswe determine that treatment as a corporation for a particular year would be in itsour best interests.

SBA Regulation

On August 1, 2014, the Company'sour wholly-owned direct and indirect subsidiary, SBIC LP received a license from the SBA to operate as aan SBIC under Section 301(c) of the 1958 Act. SBIC LP has an investment strategy and philosophy substantially similar to the Companyours and makes similar types of investments in accordance with SBA regulations.

A license allows SBIC LP to incur leverage by issuing SBA-guaranteed debentures, subject to the issuance of a capital commitment and certain approvals by the SBA and customary procedures. SBA-guaranteed debentures carry long-term fixed rates that are generally lower than rates on comparable bank and other debt. Under the regulations applicable to SBICs, a standard debenture licensed SBIC is eligible for two tiers of leverage capped at $150.0 million, where each tier is equivalent to the SBIC's regulatory capital, which generally equates to the amount of equity capital in the SBIC. Debentures guaranteed by the SBA have a maturity of ten years, require semi-annual payments of interest and do not require any principal payments prior to maturity. As of December 31, 2014,2015, SBIC LP had $37.5$117.7 million of outstanding SBA-guaranteed debentures. SBIC LP is subject to


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regulation and oversight by the SBA, including requirements with respect to reporting financial information, such as the extent of capital impairment if applicable, on a regular basis and annual examinations conducted by the SBIC. The SBA, as a creditor, will have a superior claim to SBIC LP's assets over the Company'sour stockholders in the event SBIC LP is liquidated or the SBA exercises its remedies under the SBA-guaranteed debentures issued by SBIC LP upon an event of default.

On November 5, 2014, the Companywe received exemptive relief from the SEC to permit the Companyus to exclude the SBA-guaranteed debentures of SBIC LP from the Company'sour 200.0% asset coverage test under the 1940 Act. As such, the Company'sour ratio of total consolidated assets to outstanding indebtedness may be less than 200.0%. This provides the Companyus with increased investment flexibility but also increases the Company'sour risks related to leverage.

SBICs are designed to stimulate the flow of private investor capital to eligible small businesses as defined by the SBA. Under SBA regulations, SBICs may make loans to eligible small businesses, invest in the equity securities of such businesses and provide them with consulting and advisory services. Under present SBA regulations, eligible small businesses generally include businesses that (together with their affiliates) have a tangible net worth not exceeding $19.5 million for the most recent fiscal year and have average annual net income after U.S. federal income taxes not exceeding $6.5 million (average net income to be computed without benefit of any carryover loss) for the two most recent fiscal years. In addition, an SBIC must invest 25.0% of its investment capital to "smaller business", as defined by the SBA. The definition of a smaller business generally includes businesses that have a tangible net worth not exceeding $6.0 million for the most recent fiscal year and have average annual net income after U.S. federal income taxes not exceeding $2.0 million (average net income to be computed without benefit of any net carryover loss) for the two most recent fiscal years. SBA regulations also provide alternative size standard criteria to determine eligibility for designation as an eligible small business or smaller concern, which criteria depend on the primary industry in which the business is engaged and is based on such factors as the number of employees and gross revenue. However, once an SBIC has invested in an eligible small business, it may continue to make follow on investments in the company, regardless of the size of the company at the time of the follow on investment.


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The SBA prohibits an SBIC from providing funds to small businesses with certain characteristics, such as businesses with the majority of their employees located outside the U.S., or from investing in project finance, real estate, farmland, financial intermediaries or "passive" (i.e. non-operating) businesses. Without prior SBA approval, an SBIC may not invest an amount equal to more than approximately 30.0% of the SBIC's regulatory capital in any one company and its affiliates.

The SBA places certain limitations on the financing terms of investments by SBICs in portfolio companies (such as limiting the permissible interest rate on debt securities held by an SBIC in a portfolio company). An SBIC may exercise control over a small business for a period of up to seven years from the date on which the SBIC initially acquires its control position. This control period may be extended for an additional period of time with the SBA's prior written approval.

The SBA restricts the ability of an SBIC to lend money to any of its officers, directors and employees or to invest in associates thereof. The SBA also prohibits, without prior SBA approval, a "change of control" of an SBIC or transfers that would result in any person (or a group of persons acting in concert) owning 10.0% or more of a class of capital stock of a licensed SBIC. A "change of control" is any event which would result in the transfer of the power, direct or indirect, to direct the management and policies of aan SBIC, whether through ownership, contractual arrangements or otherwise.

The SBA regulations require, among other things, an annual periodic examination of a licensed SBIC by an SBA examiner to determine the SBIC's compliance with the relevant SBA regulations, and the performance of a financial audit by an independent auditor.


TableIn December 2015, the 2016 omnibus spending bill approved by the U.S. Congress and signed into law by the President increased the amount of Contents

SBA-guaranteed debentures that affiliated SBIC funds can have outstanding from $225.0 million to $350.0 million, subject to SBA approval.

Investment Management Agreement

        The Company is

We are a closed-end, non-diversified management investment company that has elected to be regulated as a BDC under the 1940 Act. The Company isWe are externally managed by theour Investment Adviser and pays thepay our Investment Adviser a fee for its services. The following summarizes theour arrangements between the Company andwith the Investment Adviser pursuant to an investment advisory and management agreement (the "Investment Management Agreement").

Management Services

The Investment Adviser is registered as an Investment Adviser under the Advisers Act. The Investment Adviser serves pursuant to the Investment Management Agreement in accordance with the 1940 Act. Subject to the overall supervision of the Company'sour board of directors, the Investment Adviser manages the Company'sour day-to-day operations and provides itus with investment advisory and management services. Under the terms of the Investment Management Agreement, the Investment Adviser:

determines the composition of the Company'sour portfolio, the nature and timing of the changes to its portfolio and the manner of implementing such changes;

•
determines the securities and other assets that the Companywe will purchase, retain or sell;

•
identifies, evaluates and negotiates the structure of the Company'sour investments that the Company makes;

•
we make;
executes, monitors and services the investments the Company makes;

•
that we make;
performs due diligence on prospective portfolio companies;

•
votes, exercises consents and exercises all other rights appertaining to such securities and other assets on behalf of the Company;our behalf; and

•
provides the Companyus with such other investment advisory, research and related services as the Companywe may, from time to time, reasonably require.

The Investment Adviser's services under the Investment Management Agreement are not exclusive, and the Investment Adviser (so long as its services to the Companyus are not impaired) and/or other entities affiliated with New Mountain Capital are permitted to furnish similar services to other entities.

Management Fees

Pursuant to the Investment Management Agreement, the Company haswe have agreed to pay the Investment Adviser a fee for investment advisory and management services consisting of two components—a base management fee and an incentive fee. The cost of both the base management fee payable to the Investment Adviser and any incentive fees paid in cash to the Investment Adviser are borne by the Companyus and, as a result, are indirectly borne by NMFC'sour common stockholders.


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Base Management Fees

        The

Pursuant to the Investment Management Agreement, the base management fee is calculated at an annual rate of 1.75% of the Company'sour gross assets, which equals our total assets on the Consolidated Statements of Assets and Liabilities, less (i) the borrowings under the Company's senior loan fund's Loan and Security Agreement with Wells Fargo Bank, National Association, dated October 27, 2010, as amended (the "SLF Credit Facility"), and (ii) cash and cash equivalents. The base management fee is payable quarterly in arrears, and is calculated based on the average value of the Company'sour gross assets, which equals our total assets, as determined in accordance with GAAP, less the borrowings under the SLF Credit Facility and cash and cash equivalents, at the end of each of the two most recently completed calendar quarters, and appropriately adjusted on a pro rata basis for any equity capital raises or repurchases during the current calendar quarter. The Company hasWe have not invested, and currently isdo not


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invested, invest, in derivatives. To the extent the Company investswe invest in derivatives in the future, the Companywe will use the actual value of the derivatives, as reported on itsour Consolidated Statements of Assets and Liabilities, for purposes of calculating itsour base management fee.

Since our IPO, the base management fee calculation has deducted the borrowings under the SLF Credit Facility. The SLF Credit Facility hashad historically consisted of primarily lower yielding assets at higher advance rates. As part of an amendment to the Company'sour existing credit facilities with Wells Fargo Bank, National Association, the SLF Credit Facility merged with the NMF Holdings' Loan and Security Agreement with Wells Fargo Bank, National Association, dated May 19, 2011, as amended and restated (the "Predecessor Holdings Credit Facility"), and into the Second Amended and Restated Loan and Security Agreement with Wells Fargo Bank, National Association (the "Holdings Credit Facility") on December 18, 2014. SeeItem 8.—Financial Statements and Supplementary Data—Note 7, Borrowings for additional information on the Company'sour credit facilities. Post credit facility merger and to be consistent with the methodology since our IPO, the Investment AdvisorAdviser will continue to waive management fees on the leverage associated with those assets that share the same underlying yield characteristics with investments leveraged under the legacy SLF Credit Facility.Facility, which approximated $304.9 million as of December 31, 2015. The Investment AdvisorAdviser cannot recoup management fees that the Investment AdvisorAdviser has previously waived. For the year ended December 31, 2014,2015, total management fees waived werewas approximately $0.7$5.2 million.

Incentive Fees

The incentive fee consists of two parts. The first part is calculated and payable quarterly in arrears and equals 20.0% of the Company'sour "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 Company receiveswe receive from portfolio companies) accrued during the calendar quarter, minus the Company'sour operating expenses for the quarter (including the base management fee, expenses payable under an administration agreement, as amended and restated (the "Administration Agreement"), with the Administrator, and any interest expense and distributions paid on any issued and outstanding preferred stock (of which there are none as of December 31, 2014)2015), but excluding the incentive fee). Pre-Incentive Fee Net Investment Income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with PIK interest and zero coupon securities), accrued income that the Company haswe have not yet received in cash. Pre-Incentive Fee Net Investment Income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation.

Under GAAP, NMFC'sour IPO did not step-up the cost basis of the Predecessor Operating Company's existing investments to fair market value at the IPO date. Since the total value of the Predecessor Operating Company's investments at the time of the IPO was greater than the investments' cost basis, a larger amount of amortization of purchase or original issue discount, as well as different amounts in realized gain and unrealized appreciation, may be recognized under GAAP in each period than if the step-up had occurred. This will remain until such predecessor investments are sold repaid or mature in the future. The Company tracksWe track the transferred (or fair market) value of each of itsour investments as of the time of the IPO and, for purposes of the incentive fee calculation, adjustsadjust Pre-Incentive Fee Net Investment Income to reflect the amortization of purchase or original issue discount on the Company'sour investments as if each investment was purchased at the date of theour IPO, or stepped up to fair market value. This is defined as "Pre-Incentive Fee Adjusted Net Investment Income". The CompanyWe also usesuse 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


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Realized Capital Losses") and unrealized capital appreciation ("Adjusted Unrealized Capital Appreciation") and unrealized capital depreciation ("Adjusted Unrealized Capital Depreciation").

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


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No incentive fee is payable to the Investment Adviser in any calendar quarter in which the Company'sour 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 Company'sour 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 Company'sour 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 Company'sour Pre-Incentive Fee Adjusted Net Investment Income as if a hurdle rate did not apply when the Company'sour Pre-Incentive Fee Adjusted Net Investment Income exceeds 2.5% in any calendar quarter.

•
20.0% of the amount of the Company'sour 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 Company'sour Adjusted Realized Capital Gains, if any, on a cumulative basis from inception through the end of each calendar year, computed net of all Adjusted Realized Capital Losses and Adjusted Unrealized Capital Depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fee.

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

Example 1: Income Related Portion of Incentive Fee for Each Calendar Quarter*:

Alternative 1

Assumptions

Investment income (including interest, dividends, fees, etc.) = 1.25%
Hurdle rate(1) = 2.00%
Management fee(2) = 0.44%
Other expenses (legal, accounting, safekeeping agent, transfer agent, etc.)(3) = 0.20%


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Pre-Incentive Fee Adjusted Net Investment Income does not exceed the hurdle rate, therefore there is no income related incentive fee.

Alternative 2

Assumptions

Investment income (including interest, dividends, fees, etc.) = 2.90%
Hurdle rate(1) = 2.00%
Management fee(2) = 0.44%
Other expenses (legal, accounting, safekeeping agent, transfer agent, etc.)(3) = 0.20%

Pre-Incentive Fee Adjusted Net Investment Income
(investment income – (management fee + other expenses)) = 2.26%

Incentive fee = 100.00% × Pre-Incentive Fee Adjusted Net Investment Income (subject to "catch-up")(4)

= 100.00% × (2.26% – 2.00%)
= 0.26%

Pre-Incentive Fee Adjusted Net Investment Income exceeds the hurdle rate, but does not fully satisfy the "catch-up" provision, therefore the income related portion of the incentive fee is 0.26%.


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Alternative 3

Assumptions

Investment income (including interest, dividends, fees, etc.) = 3.50%
Hurdle rate(1) = 2.00%
Management fee(2) = 0.44%
Other expenses (legal, accounting, safekeeping agent, transfer agent, etc.)(3) = 0.20%

Pre-Incentive Fee Adjusted Net Investment Income
(investment income – (management fee + other expenses)) = 2.86%

Incentive fee = 100.00% × Pre-Incentive Fee Adjusted Net Investment Income (subject to "catch-up")(4)

Incentive fee = 100.00% × "catch-up" + (20.00% × (Pre-Incentive Fee Adjusted Net Investment Income – 2.50%))

Catch-up = 2.50% – 2.00%
                = 0.50%

Incentive fee = (100.00% × 0.50%) + (20.00% × (2.86% – 2.50%))
                      = 0.50% + (20.00% × 0.36%)
                      = 0.50% + 0.07%
                      = 0.57%

Pre-Incentive Fee Adjusted Net Investment Income exceeds the hurdle rate, and fully satisfies the "catch-up" provision, therefore the income related portion of the incentive fee is 0.57%.

*
The hypothetical amount of pre-incentive fee net investment income shown is based on a percentage of total net assets and assumes, for the Company's investments held prior to the IPO,
*The hypothetical amount of pre-incentive fee net investment income shown is based on a percentage of total net assets and assumes, for our investments held prior to the IPO, interest income has been adjusted to reflect the amortization of purchase or original issue discount as if each investment was purchased at the date of the IPO, or stepped up to fair market value.
(1)Represents 8.00% annualized hurdle rate.
(2)Assumes 1.75% annualized base management fee.
(3)Excludes organizational and offering expenses.
(4)The "catch-up" provision is intended to provide the Investment Adviser with an incentive fee of 20.00% on all Pre-Incentive Fee Adjusted Net Investment Income as if a hurdle rate did not apply when our net investment income exceeds 2.50% in any calendar quarter.

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(1)
Represents 8.00% annualized hurdle rate.

(2)
Assumes 1.75% annualized base management fee.

(3)
Excludes organizational and offering expenses.

(4)
The "catch-up" provision is intended to provide the Investment Adviser with an incentive fee of 20.00% on all Pre-Incentive Fee Adjusted Net Investment Income as if a hurdle rate did not apply when the Company's net investment income exceeds 2.50% in any calendar quarter.

Example 2: Capital Gains Portion of Incentive Fee*:

The capital gains portion of the incentive fee would be:

Year 1: None

Year 2: Capital gains incentive fee of $6.0 million—($30.0 million realized capital gains on sale of Investment A multiplied by 20.0%)


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Year 3: None—$5.0 million (20.0% multiplied by ($30.0 million cumulative capital gains less $5.0 million cumulative capital depreciation)) less $6.0 million (previous capital gains fee paid in Year 2)

Year 4: Capital gains incentive fee of $0.2 million—$6.2 million ($31.0 million cumulative realized capital gains multiplied by 20.0%) less $6.0 million (capital gains incentive fee taken in Year 2)

Alternative 2

Assumptions

Year 1: $20.0 million investment made in Company A ("Investment A"), $30.0 million investment made in Company B ("Investment B") and $25.0 million investment made in Company C ("Investment C")

Year 2: Investment A sold for $50.0 million, FMV of Investment B determined to be $25.0 million and FMV of Investment C determined to be $25.0 million

Year 3: FMV of Investment B determined to be $27.0 million and Investment C sold for $30.0 million

Year 4: FMV of Investment B determined to be $35.0 million

Year 5: Investment B sold for $20.0 million


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The capital gains incentive fee, if any, would be:

*
The hypothetical amounts of returns shown are based on a percentage of the Company's total net assets and assume no leverage. There is no guarantee that positive returns will be realized and actual returns may vary from those shown in this example. The capital gains incentive fees are calculated on an "adjusted" basis for the Company's investments held prior to the IPO and assumes those investments have been adjusted to reflect the amortization of purchase or original issue discount as if each investment was purchased at the date of the IPO, or stepped up to fair market value.

(1)
As noted above, it is possible that the cumulative aggregate capital gains fee received by the Investment Adviser ($7.0 million) is effectively greater than $5.0 million (20.0% of cumulative aggregate realized capital gains less net realized capital losses or net unrealized depreciation ($25.0 million)).

*The hypothetical amounts of returns shown are based on a percentage of our total net assets and assume no leverage. There is no guarantee that positive returns will be realized and actual returns may vary from those shown in this example. The capital gains incentive fees are calculated on an "adjusted" basis for our investments held prior to the IPO and assumes those investments have been adjusted to reflect the amortization of purchase or original issue discount as if each investment was purchased at the date of the IPO, or stepped up to fair market value.
(1)As noted above, it is possible that the cumulative aggregate capital gains fee received by the Investment Adviser ($7.0 million) is effectively greater than $5.0 million (20.0% of cumulative aggregate realized capital gains less net realized capital losses or net unrealized depreciation ($25.0 million)).

Payment of Expenses

        The Company's

Our primary operating expenses are the payment of a base management fee and any incentive fees under the Investment Management Agreement and the allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations to the Companyus under the Administration Agreement. The Company bearsWe bear all other expenses of itsour operations and transactions, including (without limitation) fees and expenses relating to:

organizational and offering expenses;

•
the investigation and monitoring of the Company'sour investments;

•
the cost of calculating net asset value;

•
interest payable on debt, if any, to finance itsour investments;

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•

the cost of effecting sales and repurchases of shares of NMFC'sour common stock and other securities;

•
management and incentive fees payable pursuant to the Investment Management Agreement;

•
fees payable to third parties relating to, or associated with, making investments and valuing investments (including third-party valuation firms);

•
transfer agent and custodial fees;

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Board Consideration of the Investment Management Agreement
Our board of directors determined at an in-person meeting held on February 3, 2016, to re-approve our Investment Management Agreement with the Investment Adviser. In the consideration of the re-approval of the Investment Management Agreement, our board of directors focused on information they had received relating to, among other things:
the nature, quality and extent of the advisory and other services to be provided to us by the Investment Adviser;
comparative data with respect to advisory fees or similar expenses paid by other BDCs with similar investment objectives;
our projected operating expenses and expense ratio compared to BDCs with similar investment objectives;
any existing and potential sources of indirect income to the Investment Adviser or the Administrator from their relationships with us and the profitability of those relationships, including through the Investment Management Agreement and the Administration Agreement;
information about the services to be performed and the personnel performing such services under the Investment Management Agreement;
the organizational capability and financial condition of the Investment Adviser and its affiliates;
the Investment Adviser's practices regarding the selection and compensation of brokers that may execute our portfolio transactions and the brokers' provision of brokerage and research services to the Investment Adviser; and
the possibility of obtaining similar services from other third party service providers or through an internally managed structure.

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Based on the information reviewed and the discussions, our board of directors, including a majority of the non-interested directors, concluded that fees payable to the Investment Adviser pursuant to the Investment Management Agreement were reasonable in relation to the services to be provided. Our board of directors did not assign relative weights to the above factors or the other factors considered by them. In addition, our board of directors did not reach any specific conclusion on each factor considered, but conducted an overall analysis of these factors. Individual members of our board of directors may have given different weights to different factors.
Qualifying Assets

Under the 1940 Act, a BDC may not acquire any asset other than assets of the type listed in Section 55(a) of the 1940 Act, which are referred to as qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70.0% of the BDC's total assets. The principal categories of qualifying assets relevant to our business are any of the following:

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 SEC. 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 a BDC controls.
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 a BDC already owns 60.0% of the outstanding equity of the eligible portfolio company.
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.

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

As of December 31, 2014, 9.4%2015, 6.8% of the Company'sour total assets were not qualifyingnon-qualifying assets.


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Managerial Assistance to Portfolio Companies

BDCs generally must offer to make available to the issuer of theits securities significant managerial assistance, except in circumstances where either (i) the BDC controls such issuer of securities or (ii) the BDC purchases such securities in conjunction with one or more other persons acting together and one of the other persons in the group makes available such managerial assistance. Making available managerial assistance means, among other things, any arrangement whereby the BDC offers to provide, and, if accepted, does so provide, significant guidance and counsel concerning the management, operations or business objectives and policies of a portfolio company. The Administrator or its affiliate provides such managerial assistance on the Company'sour behalf to portfolio companies that request this assistance.

Temporary Investments

Pending investments in other types of qualifying assets, the Company'sour 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"“temporary investments”), so that 70.0% of the Company'sour assets are qualifying assets. Typically, the Companywe 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 Company,us, of a specified security and the simultaneous agreement by the seller to repurchase it at an agreed-upon future date and at a price that is greater than the purchase price by an amount that reflects an agreed-upon interest rate. There is no percentage restriction on the proportion of the Company'sour assets that may be invested in such repurchase agreements. However, if more than


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25.0% of the Company'sour total assets constitute repurchase agreements from a single counterparty, the Companywe would not meet the Diversification Tests in order to qualify as a RIC for U.S. federal income tax purposes. Thus, the Company doeswe do not intend to enter into repurchase agreements with a single counterparty in excess of this limit. The Investment Adviser will monitor the creditworthiness of the counterparties with which the Company enterswe enter into repurchase agreement transactions.

Senior Securities

        The Company isWe are permitted, under specified conditions, to issue multiple classes of debt if the Company'sour asset coverage, as defined in the 1940 Act, is at least equal to 200.0% immediately after each such issuance. In addition, while any senior securities remain outstanding (other than any indebtedness issued in consideration of a privately arranged loan, such as any indebtedness outstanding under the Holdings Credit Facility, or the Senior Secured Revolving Credit Agreement with Goldman Sachs Bank USA, and Morgan Stanley Bank, N.A., and Stifel Bank & Trust, dated June 4, 2014, as amended (together with the related guarantee and security agreement) (theagreement, the "NMFC Credit Facility"), or the convertible notes issued on June 3, 2014 under anour indenture between the Company andwith U.S. Bank National Association (the "Convertible Notes")), the Companywe must make provisions to prohibit any distribution to itsour stockholders or the repurchase of its equity securities unless the Company meetswe meet the applicable asset coverage ratios at the time of the distribution or repurchase. The CompanyWe may also borrow amounts up to 5.0% of the value of itsour total assets for temporary or emergency purposes without regard to itsour asset coverage. The CompanyWe will include theour assets and liabilities of NMFC and all of itsour wholly-owned direct and indirect subsidiaries for purposes of calculating the asset coverage ratio. The CompanyWe received exemptive relief from the SEC on November 5, 2014, allowing the Companyus to modify the asset coverage requirement to exclude SBA-guaranteed debentures from this calculation. For a discussion of the risks associated with leverage, seeItem 1A.—Risk Factors.

Code of Ethics

        The Company hasWe have adopted a code of ethics pursuant to Rule 17j-1 under the 1940 Act that establishes procedures for personal investments and restricts certain personal securities transactions. Personnel subject to the code may invest in securities for their personal investment accounts, including securities that may be purchased or held by the Companyus so long as such investments are made in accordance with the code'scode’s requirements. You may read and copy the code of ethics at the SEC'sSEC’s Public Reference Room located at 100 F Street, N.E., Washington, D.C.District of Columbia 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330, and copiesa copy of the code of ethics may be obtained, after paying a duplication fee, by electronic request at the following e-mail address: publicinfo@sec.gov. In addition, the code of ethics is available on the SEC'sSEC’s Internet site athttp://www.sec.gov.

Compliance Policies and Procedures

        The Company

We and the Investment Adviser have adopted and implemented written policies and procedures reasonably designed to prevent violation of the federal securities laws and the Company iswe are required to review these compliance policies and procedures annually for their adequacy and the effectiveness of their implementation. The Company'sOur chief compliance officer is responsible for administering these policies and procedures.


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Proxy Voting Policies and Procedures

        The Company has

We have delegated itsour proxy voting responsibility to the Investment Adviser. The proxy voting policies and procedures of the Investment Adviser are set forth below. The guidelines will be reviewed periodically by the Investment Adviser and the Company'sour non-interested directors, and, accordingly, are subject to change.


Introduction

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Introduction

As an investment adviser registered under the Advisers Act, the Investment Adviser has a fiduciary duty to act solely in the best interests of its clients. As part of this duty, it recognizes that it must vote the Company'sour securities in a timely manner free of conflicts of interest and in theour best interests of the Company.

interests.

The policies and procedures for voting proxies for the investment advisory clients of the Investment Adviser are intended to comply with Section 206 of, and Rule 206(4)-6 under, the Advisers Act.

Proxy policies

The Investment Adviser will vote proxies relating to the Company'sour securities in theour best interest of the Company.interest. It will review on a case-by-case basis each proposal submitted for a stockholder vote to determine its impact on the portfolio securities held by the Company.us. Although the Investment Adviser will generally vote against proposals that may have a negative impact on its clients'clients’ portfolio securities, it may vote for such a proposal if there exists compelling long-term reasons to do so.

The proxy voting decisions of the Investment Adviser are made by the senior officers who are responsible for monitoring each of its clients'clients’ investments. To ensure that its vote is not the product of a conflict of interest, it will require that: (a) anyone involved in the decision making process disclose to itsthe chief compliance officer any potential conflict that he or she is aware of and any contact that he or she has had with any interested party regarding a proxy vote; and (b) employees involved in the decision making process or vote administration are prohibited from revealing how the Investment Adviser intends to vote on a proposal in order to reduce any attempted influence from interested parties.

Proxy voting records

You may obtain, without charge, information regarding how the Companywe voted proxies with respect to the Company'sour portfolio securities by making a written request for proxy voting information to: Chief Compliance Officer, 787 Seventh Avenue, 48th Floor, New York, New York 10019.

Staffing
Staffing

        The Company doesWe do not have any employees. Day-to-day investment operations that are conducted by the Companyus are managed by the Investment Adviser. See "Investment“—Investment Management Agreement"Agreement”. The Company reimbursesWe reimburse the Administrator for the allocable portion of overhead and other expenses incurred by it in performing its obligations to the Companyus under the Administration Agreement, including the compensation of the Company'sour chief financial officer and chief compliance officer, and their respective staffs. For a more detailed discussion of the Administration Agreement, seeItem 8.—Financial Statements and Supplementary Data—Note 5, Agreements.

Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act of 2002 imposes a variety of regulatory requirements on publicly-held companies and their insiders. Many of these requirements affect the Company.us. For example:

pursuant to Rule 13a-14 of the Exchange Act, theour chief executive officer and chief financial officer of the Company are required to certify the accuracy of the financial statements contained in the Company'sour periodic reports;

•
pursuant to Item 307 of Regulation S-K, the Company'sour periodic reports are required to disclose its respectiveour conclusions about the effectiveness of itsour disclosure controls and procedures;

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The Sarbanes-Oxley Act of 2002 requires the Companyus to review itsour current policies and procedures to determine whether theywe comply with the Sarbanes-Oxley Act of 2002 and the regulations promulgated thereunder. The Company intendsWe intend to monitor itsour compliance with all regulations that are adopted under the Sarbanes-Oxley Act of 2002 and will take actions necessary to ensure that it iswe are in compliance therewith.

Available Information

We file with or submit to the SEC annual, quarterly and current periodic reports, proxy statements and other information as required by the 1940 Act. You may inspect and copy any materials we file with the SEC at the Public Reference Room of the SEC at 100 F Street, N.E., Washington, D.C. 20549 or by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet site that contains reports, proxy and information statements and other information filed electronically by us with the SEC athttp://www.sec.gov.

We make available free of charge on our website,http://www.newmountainfinance.com, our reports, proxies and information statements and other information as soon as reasonably practicable after we electronically file such materials with, or furnish to, the SEC. Information contained on our website or on the SEC's website about us is not incorporated into this annual report and should not be considered to be a part of this annual report.

Privacy Notice

Your privacy is very important to us. This Privacy Notice sets forth our policies with respect to non-public personal information about our stockholders and prospective and former stockholders. These policies apply to our stockholders of the Company and may be changed at any time, provided a notice of such change is given to you. This notice supersedes any other privacy notice you may have received from us.

We will safeguard, according to strict standards of security and confidentiality, all information we receive about you. The only information we collect from you is your name, address, number of shares you hold and your social security number. This information is used only so that we can send you annual reports and other information about us, and send you proxy statements or other information required by law.

We do not share this information with any non-affiliated third party except as described below.

Authorized Employees of theour Investment Adviser.  It is our policy that only authorized employees of our investment adviser who need to know your personal information will have access to it.


•
Service Providers.  We may disclose your personal information to companies that provide services on our behalf, such as recordkeeping, processing your trades, and mailing you information. These companies are required to protect your information and use it solely for the purpose for which they received it.

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We seek to carefully safeguard your private information and, to that end, restrict access to non-public personal information about you to those employees and other persons who need to know the information to enable us to provide services to you. We maintain physical, electronic and procedural safeguards to protect your non-public personal information.

If you have any questions regarding this policy or the treatment of your non-public personal information, please contact our Chief Compliance Officer at (212) 655-0024.

655-0083.


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Item 1A.    Risk Factors

You should carefully consider the significant risks described below, together with all of the other information included in this Form 10-K, including our consolidated financial statements and the related notes, before making an investment decision in the Company.us. The risks set forth below are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may materially affect our business, our structure, our financial condition, our investments and/or operating results. If any of the following events occur, our business, financial condition and results of operations could be materially and adversely affected. In such case, our net asset value and the trading price of NMFC'sour common stock could decline. There can be no assurance that we will achieve our investment objective and you may lose all or part of your investment.

RISKS RELATED TO OUR BUSINESS AND STRUCTURE

Uncertainty about the financial stability

Global capital markets could enter a period of the United States (U.S.)severe disruption and of several countriesinstability. These market conditions have historically and could again have a materially adverse effect on debt and equity capital markets in the European Union (EU)U.S., which could have, a materially negative impact on our business, financial condition and results of operations.
The U.S. and global capital markets have experienced periods of disruption characterized by the freezing of available credit, a lack of liquidity in the debt capital markets, significant losses in the principal value of investments, the re-pricing of credit risk in the broadly syndicated credit market, the failure of certain major financial institutions and general volatility in the financial markets. During these periods of disruption, general economic conditions deteriorated with material and adverse consequences for the broader financial and credit markets, and the availability of debt and equity capital for the market as a whole, and financial services firms in particular, was reduced significantly. These conditions may reoccur for a prolonged period of time or materially worsen in the future. In addition, signs of deteriorating sovereign debt conditions in Europe and concerns of economic slowdown in China create uncertainty that could lead to further disruptions and instability. We may in the future have difficulty accessing debt and equity capital, and a severe disruption in the global financial markets, deterioration in credit and financing conditions or uncertainty regarding U.S. Government spending and deficit levels, European sovereign debt, Chinese economic slowdown or other global economic conditions could have a material adverse effect on the Company'sour business, results of operations and financial condition, thus affecting the Company's financial condition and results of operations.
Further downgrades of the U.S. credit rating, impending automatic spending cuts or another government shutdown could negatively impact our liquidity, financial condition and earnings.

        Due to federal

Recent U.S. debt ceiling and budget deficit concerns S&P downgradedhave increased the possibility of additional credit-rating downgrades and economic slowdowns, or a recession in the U.S. Although U.S. lawmakers passed legislation to raise the federal government'sdebt ceiling on multiple occasions, ratings agencies have lowered or threatened to lower the long-term sovereign credit rating from AAAon the U.S. The impact of this or any further downgrades to AA+ for the first time in history on August 5, 2011. Further, Moody'sU.S. government's sovereign credit rating or its perceived creditworthiness could adversely affect the U.S. and Fitch have warned that they may downgradeglobal financial markets and economic conditions. Absent further quantitative easing by the federal government's credit rating. Further downgrades or warnings by S&P or other rating agencies, and the government's credit and deficit concerns in general,Federal Reserve, these developments could cause interest rates and borrowing costs to rise, which may negatively impact both the perception of credit risk associated with the Company's debt portfolio and the Company'sour ability to access the debt markets on favorable terms. In addition, disagreement over the federal budget has caused the U.S. federal government to shut down for periods of time. Continued adverse political and economic conditions could have a decreased credit rating could create broadermaterial adverse effect on our business, financial turmoilcondition and uncertainty, whichresults of operations.
Global economic, political and market conditions may weigh heavilyadversely affect our business, results of operations and financial condition, including our revenue growth and profitability.
The current worldwide financial market situation, as well as various social and political tensions in the U.S. and around the world, may contribute to increased market volatility, may have long-term effects on the Company'sU.S. and worldwide financial performancemarkets, and may cause economic uncertainties or deterioration in the value of NMFC's common stock.

        InU.S. and worldwide. Since 2010, a financial crisis emerged in Europe, triggered by high budget deficits and rising direct and contingent sovereign debt inseveral European Union ("EU") countries, including Greece, Ireland, Italy, Spain, and Portugal, have faced budget issues, some of which may have negative long-term effects for the economies of those countries and Spain, which created concernsother EU countries. There is continued concern about national-level support for the abilityEuro and the accompanying coordination of thesefiscal and wage policy among European Economic and Monetary Union member countries. In addition, the fiscal policy of foreign nations, to continue to service their sovereign debt obligations. Riskssuch as Russia and ongoing concerns resulting from the debt crisis in Europe couldChina, may have a detrimentalsevere impact on the global economic recovery, sovereignworldwide and non-sovereign debt in these countries and theU.S. financial condition of European financial institutions. Market and economic disruptions have affected, and may continue to affect, consumer confidence levels and spending, personal bankruptcy rates, levels of incurrence and default on consumer debt and home prices, among other factors.markets. We cannot assure youpredict the effects of these or similar events in the future on the U.S. economy and securities markets or on our investments. We monitor developments and seek to manage our investments in a manner consistent with achieving our investment objective, but there can be no assurance that the market disruptions in Europe, including the increased cost of funding for certain governments and financial institutions, will not spread, and we cannot assure you that future assistance packages will be available, or if available, sufficient to stabilize the affected countries and marketssuccessful in Europe or elsewhere. To the extent uncertainty regarding any economic recovery in Europe continues to negatively impact consumer confidence and consumer credit factors, the Company's business and results of operations could be significantly and adversely affected.

        In October 2014, the U.S. Federal Reserve announced that it has terminated its bond-buying program, or quantitative easing, which was designed to stimulate the economy and expand the Federal Reserve's holdings of long-term securities until key economic indicators, such as the unemployment rate, showed signs of improvement. It is unclear what effect, if any, the Federal Reserve's termination of quantitative easing will have on the value of the Company's investments. However, it is possible that without quantitative easing by the Federal Reserve, these developments, along with the European sovereign debt crisis, could cause interest rates and borrowing costs to rise, which may negatively impact the Company's ability to access the debt markets on favorable terms.

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The CompanyWe may suffer credit losses.

Investments in small and middle market businesses are highly speculative and involve a high degree of risk of credit loss. These risks are likely to increase during volatile economic periods, such as the U.S. and many other economies have recently been experiencing.

The Company does


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We do not expect to replicate the Predecessor Entities' historical performance or the historical performance of other entities managed or supported by New Mountain Capital.

        The Company does

We do not expect to replicate the Predecessor Entities' historical performance or the historical performance of New Mountain Capital's investments. The Company'sOur investment returns may be substantially lower than the returns achieved by the Predecessor Entities. Although the Predecessor Entities commenced operations during otherwise unfavorable economic conditions, this was a favorable environment in which the Predecessor Operating Company could conduct its business in light of its investment objectives and strategy. In addition, the Company'sour investment strategies may differ from those of New Mountain Capital or its affiliates. The Company,We, as a BDC and as a RIC, isare subject to certain regulatory restrictions that do not apply to New Mountain Capital or its affiliates.

        The Company is

We are generally not permitted to invest in any portfolio company in which New Mountain Capital or any of its affiliates currently have an investment or to make any co-investments with New Mountain Capital or its affiliates, except to the extent permitted by the 1940 Act. This may adversely affect the pace at which the Company makeswe make investments. Moreover, the Companywe may operate with a different leverage profile than the Predecessor Entities. Furthermore, none of the prior results from the Predecessor Entities were from public reporting companies, and all or a portion of these results were achieved in particularly favorable market conditions for the Predecessor Operating Company's investment strategy which may never be repeated. Finally, we can offer no assurance that the Company'sour investment team will be able to continue to implement itsour investment objective with the same degree of success as it has had in the past.

There is uncertainty as to the value of the Company'sour portfolio investments because most of itsour investments are, and may continue to be in private companies and recorded at fair value. In addition, the fair values of the Company'sour investments are determined by the Company'sour board of directors in accordance with the Company'sour valuation policy.

Some of the Company'sour investments are and may be in the form of securities or loans that are not publicly traded. The fair value of these investments may not be readily determinable. Under the 1940 Act, the Company iswe are required to carry itsour portfolio investments at market value or, if there is no readily available market value, at fair value as determined in good faith by itsour board of directors, including to reflect significant events affecting the value of itsour securities. The Company values itsWe value our investments for which it doeswe do not have readily available market quotations quarterly, or more frequently as circumstances require, at fair value as determined in good faith by itsour board of directors in accordance with itsour valuation policy, which is at all times consistent with GAAP. SeeItem 8.—Financial Statements and Supplementary Data—Note 2, Summary of Significant Accounting Policies orNote 4, Fair Value for additional information on around valuations.

        The Company's

Our board of directors utilizes the services of one or more independent third-party valuation firms to aid it in determining the fair value with respect to itsour material unquoted assets in accordance with itsour valuation policy. The inputs into the determination of fair value of these investments may require significant management judgment or estimation. Even if observable market data is available, such information may be the result of consensus pricing information or broker quotes, which include a disclaimer that the broker would not be held to such a price in an actual transaction. The non-binding nature of consensus pricing and/or quotes accompanied by disclaimers materially reduces the reliability of such information.


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The types of factors that the board of directors takes into account in determining the fair value of itsour investments generally include, as appropriate: available market data, including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, security covenants, call protection provisions, information rights, the nature and realizable value of any collateral, the portfolio company's ability to make payments, its earnings and discounted cash flows and the markets in which it does business, comparisons of financial ratios of peer companies that are public, comparable merger and acquisition transactions and the principal market and enterprise values. Since these valuations, and particularly valuations of private securities and private companies, are inherently uncertain, may fluctuate over short periods of time and may be based on estimates, the Company'sour determinations of fair value may differ materially from the values that would have been used if a ready market for these securities existed.

Due to this uncertainty, the Company'sour fair value determinations may cause itsour net asset value, on any given date, to be materially understated or overstated. In addition, investors purchasing NMFC'sour common stock based on an overstated net asset value would pay a higher price than the realizable value that the Company'sour investments might warrant.

        The Company

We may adjust quarterly the valuation of itsour portfolio to reflect itsour board of directors' determination of the fair value of each investment in itsour portfolio. Any changes in fair value are recorded in the Company'sour statement of operations as net change in unrealized appreciation or depreciation.

The Company's


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

        The Company depends

We depend on the investment judgment, skill and relationships of the investment professionals of the Investment Adviser, particularly Steven B. Klinsky and Robert A. Hamwee, as well as other key personnel to identify, evaluate, negotiate, structure, execute, monitor and service itsour investments. The Investment Adviser, as an affiliate of New Mountain Capital, is supported by New Mountain Capital's team, which as of December 31, 20142015 consisted of approximately 100 staff members of New Mountain Capital and its affiliates to fulfill its obligations to the Companyus under the Investment Management Agreement. The Investment Adviser may also depend upon New Mountain Capital to obtain access to investment opportunities originated by the professionals of New Mountain Capital and its affiliates. The Company'sOur future success depends to a significant extent on the continued service and coordination of the key investment personnel of the Investment Adviser. The departure of any of these individuals could have a material adverse effect on the Company'sour ability to achieve itsour investment objective.

The Investment Committee, which provides oversight over the Company'sour investment activities, is provided by the Investment Adviser. The Investment Committee currently consists of five members. The loss of any member of the Investment Committee or of other senior professionals of the Investment Adviser and its affiliates without suitable replacement could limit the Company'sour ability to achieve itsour investment objective and operate as we anticipate. This could have a material adverse effect on our financial condition, results of operation and cash flows. To achieve the Company'sour investment objective, the Investment Adviser may hire, train, supervise and manage new investment professionals to participate in its investment selection and monitoring process. If the Investment Adviser is unable to find investment professionals or do so in a timely manner, our business, financial condition and results of operations could be adversely affected.


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The Investment Adviser has limited experience managing a BDC or a RIC, which could adversely affect our business.

Other than the Company,us, the Investment Adviser has not previously managed a BDC or a RIC. The 1940 Act and the Code impose numerous constraints on the operations of BDCs and RICs that do not apply to the other investment vehicles previously managed by the investment professionals of the Investment Adviser. For example, under the 1940 Act, BDCs are required to invest at least 70.0% of their total assets primarily in securities of qualifying U.S. private or thinly traded companies, cash, cash equivalents, U.S. government securities and other high quality debt investments that mature in one year or less. Moreover, qualification for taxation as a RIC under subchapter M of the Code requires satisfaction of source-of-income, asset diversification and annual distribution requirements. The failure to comply with these provisions in a timely manner could prevent the Companyus from qualifying as a BDC or as a RIC and could force us to pay unexpected taxes and penalties, which would have a material adverse effect on our performance. The Investment Adviser's lack of experience in managing a portfolio of assets under the constraints applicable to BDCs and RICs may hinder its ability to take advantage of attractive investment opportunities and, as a result, achieve the Company'sour investment objective. If the Company failswe fail to maintain itsour status as a BDC or as a RIC, itsour operating flexibility could be significantly reduced.

The Company operates

We operate in a highly competitive market for investment opportunities and may not be able to compete effectively.

        The Company competes

We compete for investments with other BDCs and investment funds (including private equity and hedge funds), as well as traditional financial services companies such as commercial banks and other sources of funding. Many of itsour competitors are substantially larger and have considerably greater financial, technical and marketing resources than it does.we do. For example, some competitors may have a lower cost of capital and access to funding sources that are not available to the Company.us. In addition, some of the Company'sour competitors may have higher risk tolerances or different risk assessments than the Company has.us. Furthermore, many of the Company'sour competitors have greater experience operating under, or are not subject to, the regulatory restrictions that the 1940 Act imposes on the Companyus as a BDC or the source-of-income, asset diversification and distribution requirements that itwe must satisfy to maintain itsour RIC status. These characteristics could allow the Company'sour competitors to consider a wider variety of investments, establish more relationships and offer better pricing and more flexible structuring than the Company iswe are able to do. There are a number of new BDCs that have recently completed their IPO or that have filed registration statements with the SEC, which could create increased competition for investment opportunities.

        The Company

We may lose investment opportunities if it does not match its competitors'our pricing, terms and structure.structure do not match those of our competitors. With respect to the investments the Company makes, it doesthat we make, we do not seek to compete based primarily on the interest rates itwe may offer, and we believe that some of the Company'sour competitors may make loans with interest rates that may be lower than the rates it offers.we offer. In the secondary market for acquiring existing loans, we expect the Company to compete generally on the basis of pricing terms. If the Company matches itswe match our competitors' pricing, terms and structure, itwe may experience decreased net interest income, lower yields and increased risk of credit loss. If the Company iswe are forced to match itsour competitors' pricing, terms and structure, itwe may not be able to achieve acceptable returns on itsour investments or may bear substantial risk of capital loss. Part of the Company'sour competitive advantage stems from the fact that we believe the market for middle-market lending is underserved by traditional bank lenders and other financial sources. A significant increase in the number and/or the size of the Company'sour competitors in this target market could force itus to accept less attractive investment terms. The CompanyWe may also compete for investment opportunities with accounts managed by the Investment Adviser or its affiliates. Although the Investment Adviser allocates opportunities in accordance with its policies and procedures, allocations to

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such other accounts reduces the amount and frequency of opportunities available to the Companyus and may not be in theour best


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interests of the Company and, consequently, NMFC'sour stockholders. Moreover, the performance of investment opportunities is not known at the time of allocation. If the Company iswe are not able to compete effectively, itsour business, financial condition and results of operations may be adversely affected, thus affecting theour business, financial condition and results of operations. Because of this competition, there can be no assurance that the Companywe will be able to identify and take advantage of attractive investment opportunities that it identifieswe identify or that itwe will be able to fully invest itsour available capital.

Our business, results of operations and financial condition dependsdepend on the Company'sour ability to manage future growth effectively.

        The Company's

Our ability to achieve itsour investment objective and to grow depends on the Investment Adviser'sAdviser’s ability to identify, invest in and monitor companies that meet the Company'sour investment criteria. Accomplishing this result on a cost-effective basis is largely a function of the Investment Adviser'sAdviser’s structuring of the investment process, its ability to provide competent, attentive and efficient services to the Companyus and its ability to access financing on acceptable terms. The Investment Adviser has substantial responsibilities under the Investment Management Agreement and may also be called upon to provide managerial assistance to the Company'sour portfolio companies. These demands on the time of the Investment Adviser and its investment professionals may distract them or slow the Company'sour rate of investment. In order to grow, the Companywe and the Investment Adviser may need to retain, train, supervise and manage new investment professionals. However, these investment professionals may not be able to contribute effectively to the work of the Investment Adviser. If the Company iswe are unable to manage itsour future growth effectively, our business, results of operations and financial condition could be materially adversely affected.

The incentive fee may induce the Investment Adviser to make speculative investments.

The incentive fee payable to the Investment Adviser may create an incentive for the Investment Adviser to pursue investments that are risky or more speculative than would be the case in the absence of such compensation arrangement, which could result in higher investment losses, particularly during cyclical economic downturns. The incentive fee payable to the Investment Adviser is calculated based on a percentage of the Company'sour return on investment capital. This may encourage the Investment Adviser to use leverage to increase the return on the Company'sour investments. In addition, because the base management fee is payable based upon the Company'sour gross assets, which includes any borrowings for investment purposes, but excludes borrowings under the SLF Credit Facility and cash and cash equivalents for investment purposes, the Investment Adviser may be further encouraged to use leverage to make additional investments. Under certain circumstances, the use of leverage may increase the likelihood of default, which would impair the value of NMFC'sour common stock.

The incentive fee payable to the Investment Adviser also may create an incentive for the Investment Adviser to invest in instruments that have a deferred interest feature, even if such deferred payments would not provide the cash necessary to pay current distributions to NMFC'sour stockholders. Under these investments, the Companywe would accrue the interest over the life of the investment but would not receive the cash income from the investment until the end of the investment'sinvestment’s term, if at all. The Company'sOur net investment income used to calculate the income portion of the incentive fee, however, includes accrued interest. Thus, a portion of the incentive fee would be based on income that the Company haswe have not yet received in cash and may never receive in cash if the portfolio company is unable to satisfy such interest payment obligations. In addition, the "catch-up"“catch-up” portion of the incentive fee may encourage the Investment Adviser to accelerate or defer interest payable by portfolio companies from one calendar quarter to another, potentially resulting in fluctuations in timing and dividend amounts.


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The Company

We may be obligated to pay the Investment Adviser incentive compensation even if the Company incurswe incur a loss.

The Investment Adviser is entitled to incentive compensation for each fiscal quarter in an amount equal to a percentage of the excess of the Company'sour Pre-Incentive Fee Adjusted Net Investment Income for that quarter (before deducting incentive compensation) above a performance threshold for that quarter. Accordingly, since the performance threshold is based on a percentage of the Company'sour net asset value, decreases in the Company'sour net asset value makesmake it easier to achieve the performance threshold. The Company'sOur Pre-Incentive Fee Adjusted Net Investment Income for incentive compensation purposes excludes realized and unrealized capital losses or depreciation that it may incur in the fiscal quarter, even if such capital losses or depreciation result in a net loss on the Company'sour statement of operations for that quarter. Thus, the Companywe may be required to pay the Investment Adviser incentive compensation for a fiscal quarter even if there is a decline in the value of itsour portfolio or the Company incurswe incur a net loss for that quarter.


The Company borrowsincentive fee we pay to the Investment Adviser with respect to capital gains may be effectively greater than 20.0%.
As a result of the operation of the cumulative method of calculating the capital gains portion of the incentive fee we pay to the Investment Adviser, the cumulative aggregate capital gains fee received by the Investment Adviser could be effectively greater than 20.0%, depending on the timing and extent of subsequent net realized capital losses or net unrealized

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depreciation. We cannot predict whether, or to what extent, this payment calculation would affect your investment in our common stock.

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

        The Company borrows

We borrow money as part of itsour business plan. Borrowings, also known as leverage, magnify the potential for gain or loss on invested equity capital and may, consequently, increase the risk of investing in us. We expect the Company to continue to use leverage to finance itsour investments, through senior securities issued by banks and other lenders. Lenders of these senior securities have fixed dollar claims on the Company'sour assets that are superior to claims of NMFC'sour common stockholders. If the value of the Company'sour assets decreases, leveraging would cause itsour net asset value to decline more sharply than it otherwise would have had it not leveraged. Similarly, any decrease in the Company'sour income would cause itsour net income to decline more sharply than theyit would have had it not borrowed. Such a decline could adversely affect the Company'sour ability to make common stock dividend payments. In addition, because the Company'sour investments may be illiquid, the Companywe may be unable to dispose of them or to do so at a favorable price in the event it needswe need to do so if it iswe are unable to refinance any indebtedness upon maturity and, as a result, we may suffer losses. Leverage is generally considered a speculative investment technique.

        The Company's

Our ability to service any debt that it incurswe incur depends largely on itsour financial performance and is subject to prevailing economic conditions and competitive pressures. Moreover, as the Investment Adviser'sAdviser’s management fee is payable to the Investment Adviser based on gross assets, including those assets acquired through the use of leverage, the Investment Adviser may have a financial incentive to incur leverage which may not be consistent with the Company'sour interests and the interests of itsour common stockholders. In addition, holders of NMFC'sour common stock will, indirectly, bear the burden of any increase in the Company'sour expenses as a result of leverage, including any increase in the management fee payable to the Investment Adviser.

At December 31, 2014, the Company2015, we had $468.1$419.3 million, $50.0$90.0 million, $115.0 million and $37.5$117.7 million of indebtedness outstanding under the Holdings Credit Facility, the NMFC Credit Facility, the Convertible Notes and the SBA-guaranteed debentures, respectively. The Holdings Credit Facility had a weighted average interest rate of 2.9%2.6% for the year ended December 31, 2014 and2015, the NMFC Credit Facility had a weighted average interest rate of 2.7% for the year ended December 31, 2014.2015 and the SBA-guaranteed debentures had a weighted average interest rate of 2.4% for the year ended December 31, 2015. The interest rate on the Convertible Notes is 5.0% per year.

We may need to raise additional capital to grow the Company.

        The Company may need additional capital to fund new investments and grow. The Company may access the capital markets periodically to issue equity securities. In addition, the Company may also issue debt securities or borrow from financial institutions in order to obtain such additional capital. Unfavorable economic conditions could increase the Company's funding costs and limit its access to the

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capital markets or result in a decision by lenders not to extend credit to the Company. A reduction in the availability of new capital could limit the Company's ability to grow. In addition, the Company is required to distribute at least 90.0% of its net ordinary income and net short-term capital gains in excess of net long-term capital losses, if any, to its stockholders to maintain its RIC status. As a result, these earnings will not be available to fund new investments. If the Company is unable to access the capital markets or if the Company is unable to borrow from financial institutions, the Company may be unable to grow its business and execute its business strategy fully, and earnings, if any, could decrease, which could have an adverse effect on the value of the Company's securities.

If the Company iswe are unable to comply with the covenants or restrictions in itsour borrowings, our business could be materially adversely affected.

The Holdings Credit Facility includeincludes covenants that, subject to exceptions, restrict the Company'sour ability to pay distributions, create liens on assets, make investments, make acquisitions and engage in mergers or consolidations. The Holdings Credit Facility also includes a change of control provision that accelerates the indebtedness under the facility in the event of certain change of control events. Complying with these restrictions may prevent the Companyus from taking actions that we believe would help it tous grow itsour business or are otherwise consistent with itsour investment objective. These restrictions could also limit the Company'sour ability to plan for or react to market conditions or meet extraordinary capital needs or otherwise restrict corporate activities. In addition, the restrictions contained in the Holdings Credit Facility could limit the Company'sour ability to make distributions to itsour stockholders in certain circumstances, which could result in the Companyus failing to qualify as a RIC and thus becoming subject to corporate-level U.S. federal income tax (and any applicable state and local taxes).

The NMFC Credit Facility includes customary covenants, including certain financial covenants related to asset coverage and liquidity and other maintenance covenants, as well as customary events of default.

        The Company's

Our Convertible Notes are subject to certain covenants, including covenants requiring the Companyus to provide financial information to the holders of the Convertible Notes and the trustee if the Company ceaseswe cease to be subject to the reporting requirements of the Exchange Act. These covenants are subject to limitations and exceptions.

The breach of any of the covenants or restrictions, unless cured within the applicable grace period, would result in a default under the applicable credit facility that would permit the lenders thereunder to declare all amounts outstanding to be due and payable. In such an event, the Companywe may not have sufficient assets to repay such indebtedness. As a result, any default could have serious consequences to our financial condition. An event of default or an acceleration under the credit facilities could also cause a cross-default or cross-acceleration of another debt instrument or contractual obligation, which would adversely impact the Company'sour liquidity. The CompanyWe may not be granted waivers or amendments to the credit facilities if for any reason it iswe are unable to comply with it, and the Companywe may not be able to refinance the credit facilities on terms acceptable to it,us, or at all.

The Company


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We may enter into reverse repurchase agreements, which are another form of leverage.

        The Company

We may enter into reverse repurchase agreements as part of itsour management of itsour investment portfolio. Under a reverse repurchase agreement, the Companywe will effectively pledge itsour assets as collateral to secure a short-term loan. Generally, the other party to the agreement makes the loan in an amount equal to a percentage of the fair value of the pledged collateral. At the maturity of the reverse repurchase agreement, the payor will be required to repay the loan and correspondingly receive back its collateral. While used as collateral, the assets continue to pay principal and interest which are for the benefit of the Company.

        The Company'sour benefit.

Our use of reverse repurchase agreements, if any, involves many of the same risks involved in itsour use of leverage, as the proceeds from reverse repurchase agreements generally will be


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invested in additional securities. There is a risk that the market value of the securities acquired with the proceeds of a reverse repurchase agreement may decline below the price of the securities that it haswe have sold but remainsremain obligated to repurchase under the reverse repurchase agreement. In addition, there is a risk that the market value of the securities effectively pledged by the Companyus may decline. If a buyer of securities under a reverse repurchase agreement were to file for bankruptcy or experience insolvency, the Companywe may be adversely affected. Also, in entering into reverse repurchase agreements, the Companywe would bear the risk of loss to the extent that the proceeds of such agreements at settlement are more than the fair value of the underlying securities being pledged. In addition, due to the interest costs associated with reverse repurchase agreements transactions, the Company'sour net asset value would decline, and, in some cases, we may be worse off than if such instruments had not been used.


If the Company iswe are unable to obtain additional debt financing, or if itsour borrowing capacity is materially reduced, our business could be materially adversely affected.

        The Company

We may want to obtain additional debt financing, or need to do so upon maturity of itsour credit facilities, in order to obtain funds which may be made available for investments. The revolving period under the Holdings Credit Facility ends on December 18, 2017, and the Holdings Credit Facility matures on December 18, 2019. The NMFC Credit Facility and the Convertible Notes and the SBA-guaranteed debentures mature on June 4, 2019 and June 15, 2019, respectively. The SBA-guaranteed debentures have ten year maturities and will begin to mature on March 1, 2025, respectively.2025. If the Company iswe are unable to increase, renew or replace any such facilities and enter into new debt financing facilities or other debt financing on commercially reasonable terms, itsour liquidity may be reduced significantly. In addition, if the Company iswe are unable to repay amounts outstanding under any such facilities and isare declared in default or isare unable to renew or refinance these facilities, itwe may not be able to make new investments or operate our business in the normal course. These situations may arise due to circumstances that the Companywe may be unable to control, such as lack of access to the credit markets, a severe decline in the value of the U.S. dollar, a further economic downturn or an operational problem that affects us or third parties, or the Company, and could materially damage the Company'sour business operations, results of operations and financial condition.

We may need to raise additional capital to grow.
We may need additional capital to fund new investments and grow. We may access the capital markets periodically to issue equity securities. In addition, we may also issue debt securities or borrow from financial institutions in order to obtain such additional capital. Unfavorable economic conditions could increase our funding costs and limit our access to the capital markets or result in a decision by lenders not to extend credit to us. A reduction in the availability of new capital could limit our ability to grow. In addition, we are required to distribute at least 90.0% of our net ordinary income and net short-term capital gains in excess of net long-term capital losses, if any, to our stockholders to maintain our RIC status. As a result, these earnings will not be available to fund new investments. If we are unable to access the capital markets or if we are unable to borrow from financial institutions, we may be unable to grow our business and execute our business strategy fully, and our earnings, if any, could decrease, which could have an adverse effect on the value of our securities.
A renewed disruption in the capital markets and the credit markets could adversely affect our business.

As a BDC, the Companywe must maintain itsour ability to raise additional capital for investment purposes. If the Company iswe are unable to access the capital markets or credit markets, the Companywe may be forced to curtail itsour business operations and may be unable to pursue new investment opportunities. The capital markets and the credit markets have experienced extreme volatility in recent periods, and, as a result, there hashave been and will likely continue to be uncertainty in the financial markets in general. Disruptions in the capital markets in recent years increased the spread between the yields realized on risk-free and higher risk securities, resulting in illiquidity in parts of the capital markets. In addition, a prolonged period of market illiquidity may cause the Companyus to reduce the volume of loans it originatesthat we originate and/or fundsfund and adversely affect the value of our portfolio investments. Unfavorable economic conditions could also increase the Company'sour funding costs, limit itsour access to the capital markets or result in a decision by lenders not to extend credit to the Company.us. These events could limit the Company'sour investment originations, limit itsour ability to grow and negatively impact our operating results. Ongoing disruptive conditions in the financial industry and the impact of new legislation in

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response to those conditions could restrict the Company'sour business operations and, consequently, could adversely impact the Company'sour business, results of operations and financial condition.

If the fair value of the Company'sour assets declines substantially, itwe may fail to maintain the asset coverage ratios imposed upon itus by the 1940 Act and contained in its Holdingthe Holdings Credit Facility and NMFC Credit Facility. Any such failure would affect the Company'sour ability to issue senior securities, including borrowings, draw on itsborrow under the Holdings Credit Facility and NMFC Credit Facility and pay


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distributions, which could materially impair itsour business operations. The Company'sOur liquidity could be impaired further by the Company'sour inability to access the capital or credit markets. For example, we cannot be certain that the Companywe will be able to renew itsour credit facilities as they mature or to consummate new borrowing facilities to provide capital for normal operations, including new originations, or reapply for SBIC licenses. In recent years, reflecting concern about the stability of the financial markets, many lenders and institutional investors have reduced or ceased providing funding to borrowers. This market turmoil and tightening of credit have led to increased market volatility and widespread reduction of business activity generally in recent years. In addition, adverse economic conditions due to these disruptive conditions could materially impact the Company'sour ability to comply with the financial and other covenants in any existing or future credit facilities. If the Company iswe are unable to comply with these covenants, this could materially adversely affect the Company'sour business, results of operations and financial condition.

Changes in interest rates may affect the Company'sour cost of capital and net investment income.

To the extent the Company borrowswe borrow money to make investments, the Company'sour net investment income depends, in part, upon the difference between the rate at which it borrowswe borrow funds and the rate at which it investswe invest those funds. As a result, a significant change in market interest rates may have a material adverse effect on the Company'sour net investment income in the event it useswe use debt to finance itsour investments. In periods of rising interest rates, the Company'sour cost of funds would increase, which could reduce itsour net investment income. The CompanyWe may use interest rate risk management techniques in an effort to limit itsour exposure to interest rate fluctuations. These techniques may include various interest rate hedging activities to the extent permitted by the 1940 Act.

The incentive fee the Company pays to the Investment Adviser with respect to capital gains may be effectively greater than 20.0%.

        As a result of the operation of the cumulative method of calculating the capital gains portion of the incentive fee the Company pays to the Investment Adviser, the cumulative aggregate capital gains fee received by the Investment Adviser could be effectively greater than 20.0%, depending on the timing and extent of subsequent net realized capital losses or net unrealized depreciation. We cannot predict whether, or to what extent, this payment calculation would affect your investment in NMFC's common stock.

SBIC LP is licensed by the SBA and is subject to SBA regulations.

On August 1, 2014, the Company'sour wholly-owned direct and indirect subsidiary, SBIC LP, received its license to operate as an SBIC under the 1958 Act and is regulated by the SBA. The SBA places certain limitations on the financing terms of investments by SBICs in portfolio companies, regulates the types of financings, prohibits investing in small businesses with certain characteristics or in certain industries and requires capitalization thresholds that limit distributions to the Company.us. Compliance with SBIC requirements may cause SBIC LP to invest at less competitive rates in order to find investments that qualify under the SBA regulations.

The SBA regulations require, among other things, an annual periodic examination of a licensed SBIC by an SBA examiner to determine the SBIC's compliance with the relevant SBA regulations, and the performance of a financial audit by an independent auditor. If SBIC LP fails to comply with applicable regulations, the SBA could, depending on the severity of the violation, limit or prohibit SBIC LP's use of the debentures, declare outstanding debentures immediately due and payable, and/or limit SBIC LP from making new investments. In addition, the SBA could revoke or suspend SBIC LP's license for willful or repeated violation of, or willful or repeated failure to observe, any provision of the 1958 Act or any rule or regulation promulgated thereunder. These actions by the SBA would, in turn, negatively affect the Companyus because SBIC LP is aour wholly-owned direct and indirect subsidiary of the Company.

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SBA-guaranteed debentures are non-recourse to the Company,us, have a ten year maturity, and may be prepaid at any time without penalty. Pooling of issued SBA-guaranteed debentures occurs in March and September of each year. The interest rate of SBA-guaranteed debentures is fixed at the time of pooling at a market-driven spread over ten year U.S. Treasury Notes. The interest rate on debentures issued prior to the next pooling date is LIBOR plus 30 basis points. Leverage through SBA-guaranteed debentures is subject to required capitalization thresholds. Current SBA regulations limit the amount that any single SBIC may borrow to two tiers of leverage capped at $150.0 million, where each tier is equivalent to the SBIC's regulatory capital, which generally equates to the amount of equity capital in the SBIC.

In December 2015, the 2016 omnibus spending bill approved by the U.S. Congress and signed into law by the President increased the amount of SBA-guaranteed debentures that affiliated SBIC funds can have outstanding from $225.0 million to $350.0 million, subject to SBA approval.

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RISKS RELATED TO OUR OPERATIONS

Because the Company intendswe intend to distribute substantially all of itsour income to itsour stockholders to obtain and maintain itsour status as a RIC, the Companywe will continue to need additional capital to finance itsour growth. If additional funds are unavailable or not available on favorable terms, the Company'sour ability to grow may be impaired.

In order for the Companyus to qualify for the tax benefits available to RICs and to avoid payment of excise taxes, the Company intendswe intend to distribute to itsour stockholders substantially all of itsour annual taxable income. As a result of these requirements, the Companywe may need to raise capital from other sources to grow itsour business.

As a BDC, the Company iswe are required to meet a coverage ratio of total assets, less liabilities and indebtedness not represented by senior securities and excluding SBA-guaranteed debentures as permitted by exemptive relief obtained from the SEC, to total senior securities, which includes all of the Company'sour borrowings with the exception of SBA-guaranteed debentures, of at least 200.0%. This requirement limits the amount that the Companywe may borrow. Since the Company continueswe continue to need capital to grow itsour investment portfolio, these limitations may prevent the Companyus from incurring debt and require the Companyus to raise additional equity at a time when it may be disadvantageous to do so. While we expect the Companythat we will be able to borrow and to issue additional debt securities and expect that the Companywe will be able to issue additional equity securities, which would in turn increase the equity capital available to the Company,us, we cannot assure you that debt and equity financing will be available to the Companyus on favorable terms, or at all. In addition, as a BDC, the Companywe generally isare not permitted to issue equity securities priced below net asset value without stockholder approval. If additional funds are not available to the Company, the Companyus, we may be forced to curtail or cease new investment activities, and the Company'sour net asset value could decline.

SBIC LP may be unable to make distributions to the Companyus that will enable the Companyus to meet or maintain our RIC status.

In order for the Companyus to continue to qualify for tax benefits available to RICs and to minimize corporate-level U.S. federal income tax, the Companywe must distribute to itsour stockholders, for each taxable year, at least 90.0% of its "investmentour “investment company taxable income"income”, which is generally itsour net ordinary income plus the excess of realized net short-term capital gains over realized net long-term capital losses, including investment company taxable income from SBIC LP. The CompanyWe will be partially dependent on SBIC LP for cash distributions to enable the Companyus to meet the RIC distribution requirements. SBIC LP may be limited by SBA regulations governing SBICs from making certain distributions to the Companyus that may be necessary to maintain the Company'sour status as a RIC. The CompanyWe may have to request a waiver of the SBA'sSBA’s restrictions for SBIC LP to make certain distributions to maintain the Company'sour RIC status. The CompanyWe cannot assure you that the SBA will grant such waiver and if SBIC LP is unable to obtain a waiver, compliance with the SBA regulations may result in corporate-level U.S. federal income tax on the Company.

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Our ability to enter into transactions with our affiliates is restricted.

As a BDC, the Company iswe are prohibited under the 1940 Act from participating in certain transactions with its respectiveour affiliates without the prior approval of its respectiveour independent directors and, in some cases, the SEC. Any person that owns, directly or indirectly, 5.0% or more of the Company'sour outstanding voting securities is an affiliate of the Companyours for purposes of the 1940 Act. The Company isWe are generally prohibited from buying or selling any securities (other than its respectiveour securities) from or to an affiliate. The 1940 Act also prohibits certain "joint"“joint” transactions with an affiliate, which could include investments in the same portfolio company (whether at the same or different times), without prior approval of independent directors and, in some cases, the SEC. If a person acquires more than 25.0% of the Company'sour voting securities, the Company iswe are prohibited from buying or selling any security (other than its respectiveour securities) from or to such person or certain of that person'sperson’s affiliates, or entering into prohibited joint transactions with such persons, absent the prior approval of the SEC. Similar restrictions limit the Company'sour ability to transact business with its respectiveour officers or directors or itstheir affiliates. As a result of these restrictions, the Companywe may be prohibited from buying or selling any security from or to any portfolio company of a private equity fund managed by any affiliate of the Investment Adviser without the prior approval of the SEC, which may limit the scope of investment opportunities that would otherwise be available to the Company.

us.

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

        The Company's

Our executive officers and directors, as well as the current or future investment professionals of the Investment Adviser, serve or may serve as officers, directors or principals of entities that operate in the same or a related line of business as we do or of investment funds managed by the Company'sour affiliates. Accordingly, they may have obligations to investors in those entities, the fulfillment of which might not be in your interests as stockholders. Although we are currently New Mountain Capital'sCapital’s only vehicle focused primarily on investing in the investments that we target, in the future, the investment professionals of the Investment Adviser and/or New Mountain Capital employees that provide services pursuant to the Investment Management Agreement may manage other funds which may from time to time have overlapping investment objectives with our own and, accordingly, may invest in, whether principally or secondarily, asset classes similar to those targeted by us. If this occurs, the

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Investment Adviser may face conflicts of interest in allocating investment opportunities to the Companyus and such other funds. Although the investment professionals endeavor to allocate investment opportunities in a fair and equitable manner, it is possible that the Companywe may not be given the opportunity to participate in certain investments made by the Investment Adviser or persons affiliated with the Investment Adviser or that certain of these investment funds may be favored over the Company.us. When these investment professionals identify an investment, they may be forced to choose which investment fund should make the investment.

If the Investment Adviser forms other affiliates in the future, the Companywe may co-invest on a concurrent basis with such other affiliate, subject to compliance with applicable regulations and regulatory guidance or an exemptive order from the SEC and the Company'sour allocation procedures. In addition, the Company payswe pay management and incentive fees to the Investment Adviser and reimbursesreimburse the Investment Adviser for certain expenses it incurs. As a result, investors in the Company'sour common stock invest in the Companyus on a "gross"“gross” basis and receive distributions on a "net"“net” basis after the Company'sour expenses. Also, the incentive fee payable to the Investment Adviser may create an incentive for the Investment Adviser to pursue investments that are riskier or more speculative than would be the case in the absence of such compensation arrangements. Any potential conflict of interest arising as a result of the arrangements with the Investment Adviser could have a material adverse effect on our business, results of operations and financial condition.


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The Investment Committee, the Investment Adviser or its affiliates may, from time to time, possess material non-public information, limiting the Company'sour investment discretion.

The Investment Adviser'sAdviser’s investment professionals, Investment Committee or their respective affiliates may serve as directors of, or in a similar capacity with, companies in which we invest. In the event that material non-public information is obtained with respect to such companies, or we become subject to trading restrictions under the internal trading policies of those companies or as a result of applicable law or regulations, the Companywe could be prohibited for a period of time from purchasing or selling the securities of such companies, and this prohibition may have an adverse effect on the Companyus and your interests asour stockholders.

The valuation process for certain of the Company'sour portfolio holdings creates a conflict of interest.

Some of the Company'sour portfolio investments are made in the form of securities that are not publicly traded. As a result, the Company'sour board of directors determines the fair value of these securities in good faith. In connection with this determination, investment professionals from the Investment Adviser may provide the Company'sour board of directors with portfolio company valuations based upon the most recent portfolio company financial statements available and projected financial results of each portfolio company. In addition, Steven B. Klinsky, a member of the Company'sour board of directors, has an indirect pecuniary interest in the Investment Adviser. The participation of the Investment Adviser'sAdviser’s investment professionals in the Company'sour valuation process, and the indirect pecuniary interest in the Investment Adviser by a member of the Company'sour board of directors, could result in a conflict of interest as the Investment Adviser'sAdviser’s management fee is based, in part, on the Company'sour gross assets and incentive fees are based, in part, on unrealized gains and losses.

Conflicts of interest may exist related to other arrangements with the Investment Adviser or its affiliates.

        The Company has

We have entered into a royalty-free license agreement with New Mountain Capital under which New Mountain Capital has agreed to grant the Companyus a non-exclusive, royalty-free license to use the name "New Mountain"“New Mountain”. In addition, the Company reimburseswe reimburse the Administrator for the allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations to the Companyus under the Administration Agreement, such as, but not limited to, the allocable portion of the cost of the Company'sour chief financial officer and chief compliance officer and their respective staffs. This could create conflicts of interest that the Company'sour board of directors must monitor.

The Investment Management Agreement with the Investment Adviser and the Administration Agreement with the Administrator were not negotiated on an arm'sarm’s length basis.

The Investment Management Agreement and the Administration Agreement were negotiated between related parties. In addition, the Companywe may choose not to enforce, or to enforce less vigorously, itsour respective rights and remedies under these agreements because of itsour desire to maintain itsour ongoing relationship with the Investment Adviser, the Administrator and itstheir respective affiliates. Any such decision, however, could cause the Companyus to breach itsour fiduciary obligations to itsour stockholders.


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The Investment Adviser'sAdviser’s liability is limited under the Investment Management Agreement, and the Company haswe have agreed to indemnify the Investment Adviser against certain liabilities, which may lead the Investment Adviser to act in a riskier manner than it would when acting for its own account.

Under the Investment Management Agreement, the Investment Adviser does not assume any responsibility other than to render the services called for under that agreement, and it is not responsible for any action of the Company'sour board of directors in following or declining to follow the Investment Adviser'sAdviser’s advice or recommendations. Under the terms of the Investment Management Agreement, the Investment Adviser, its officers, members, personnel, any person controlling or


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controlled by the Investment Adviser are not liable for acts or omissions performed in accordance with and pursuant to the Investment Management Agreement, except those resulting from acts constituting gross negligence, willful misconduct, bad faith or reckless disregard of the Investment Adviser'sAdviser’s duties under the Investment Management Agreement. In addition, the Company haswe have agreed to indemnify the Investment Adviser and each of its officers, directors, members, managers and employees from and against any claims or liabilities, including reasonable legal fees and other expenses reasonably incurred, arising out of or in connection with our business and operations or any action taken or omitted pursuant to authority granted by the Investment Management Agreement, except where attributable to gross negligence, willful misconduct, bad faith or reckless disregard of such person'sperson’s duties under the Investment Management Agreement. These protections may lead the Investment Adviser to act in a riskier manner than it would when acting for its own account.

The Investment Adviser can resign upon 60 days'days’ notice, and a suitable replacement may not be found within that time, resulting in disruptions in the Company'sour operations that could adversely affect our business, results of operations and financial condition.

Under the Investment Management Agreement, the Investment Adviser has the right to resign at any time upon 60 days'days’ written notice, whether a replacement has been found or not. If the Investment Adviser resigns, the Companywe may not be able to find a new investment adviser or hire internal management with similar expertise and ability to provide the same or equivalent services on acceptable terms within 60 days, or at all. If a replacement is not able to be found on a timely basis, our business, results of operations and financial condition and the Company'sour ability to pay distributions are likely to be materially adversely affected and the market price of itsour common stock may decline. In addition, if the Company iswe are unable to identify and reach an agreement with a single institution or group of executives having the expertise possessed by the Investment Adviser and its affiliates, the coordination of its internal management and investment activities is likely to suffer. Even if the Company iswe are able to retain comparable management, whether internal or external, their integration into the Company'sour business and lack of familiarity with the Company'sour investment objective may result in additional costs and time delays that may materially adversely affect our business, results of operations and financial condition.

The Administrator can resign upon 60 days'days’ notice from its role as Administrator under the Administration Agreement, and a suitable replacement may not be found, resulting in disruptions that could adversely affect our business, results of operations and financial condition.

The Administrator has the right to resign under the Administration Agreement upon 60 days'days’ written notice, whether a replacement has been found or not. If the Administrator resigns, it may be difficult to find a new administrator or hire internal management with similar expertise and ability to provide the same or equivalent services on acceptable terms, or at all. If a replacement is not found quickly, our business, results of operations and financial condition, as well as the Company'sour ability to pay distributions, are likely to be adversely affected, and the market price of itsour common stock may decline. In addition, the coordination of the Company'sour internal management and administrative activities is likely to suffer if theywe are unable to identify and reach an agreement with a service provider or individuals with the expertise possessed by the Administrator. Even if a comparable service provider or individuals to perform such services are retained, whether internal or external, their integration into the Company'sour business and lack of familiarity with the Company'sour investment objective may result in additional costs and time delays that may materially adversely affect our business, results of operations and financial condition.


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If the Company failswe fail to maintain itsour status as a BDC, our business and operating flexibility could be significantly reduced.

        The Company qualifys

We qualify as a BDC under the 1940 Act. The 1940 Act imposes numerous constraints on the operations of BDCs. For example, BDCs are required to invest at least 70.0% of their total assets in specified types of securities, primarily in private companies or thinly-traded U.S. public companies, cash, cash equivalents, U.S. government securities and other high quality debt investments that mature in one year or less. Failure to comply with the requirements imposed on BDCs by the 1940 Act could cause the SEC to bring an enforcement action against the Companyus and/or expose the Companyus to claims of private litigants. In addition, upon approval of a majority of the Company'sour stockholders, the Companywe may elect to withdraw itstheir respective election as a BDC. If the Company decideswe decide to withdraw itsour election, or if the Companywe otherwise failsfail to qualify, or maintain itsour qualification, as a BDC, the Companywe may be subject to the substantially greater regulation under the 1940 Act as a closed-end investment company. Compliance with these regulations would significantly decrease our operating flexibility and could significantly increase our cost of doing business.


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If the Company doeswe do not invest a sufficient portion of itsour assets in qualifying assets, itwe could be precluded from investing in certain assets or could be required to dispose of certain assets, which could have a material adverse effect on our business, financial condition and results of operations.

As a BDC, the Company iswe are prohibited from acquiring any assets other than "qualifying assets"“qualifying assets” unless, at the time of and after giving effect to such acquisition, at least 70.0% of our total assets are qualifying assets. We may acquire in the future other investments that are not "qualifying assets"“qualifying assets” to the extent permitted by the 1940 Act. If the Company doeswe do not invest a sufficient portion of itsour assets in qualifying assets, itwe would be prohibited from investing in additional assets, which could have a material adverse effect on our business, financial condition and results of operations. Similarly, these rules could prevent the Companyus from making follow-on investments in existing portfolio companies (which could result in the dilution of itsour position) or could require the Companyus to dispose of investments at inopportune times in order to come into compliance with the 1940 Act. If the Company needswe need to dispose of these investments quickly, it may be difficult to dispose of such investments on favorable terms. For example, the Companywe may have difficulty in finding a buyer and, even if a buyer is found, it may have to sell the investments at a substantial loss.

The Company's

Our ability to invest in public companies may be limited in certain circumstances.

To maintain the Company'sour status as a BDC, the Company iswe are not permitted to acquire any assets other than "qualifying assets"“qualifying assets” specified in the 1940 Act unless, at the time the acquisition is made, at least 70.0% of itsour total assets are qualifying assets (with certain limited exceptions). Subject to certain exceptions for follow-on investments and distressed companies, an investment in an issuer that has outstanding securities listed on a national securities exchange may be treated as qualifying assets only if such issuer has a common equity market capitalization that is less than $250.0 million at the time of such investment.

Regulations governing the operations of BDCs will affect the Company'sour ability to raise additional equity capital as well as the Company'sour ability to issue senior securities or borrow for investment purposes, any or all of which could have a negative effect on our investment objectives and strategies.

        The Company's

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


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        The CompanyWe may issue debt securities, preferred stock, and itwe may borrow money from banks or other financial institutions, which we refer to collectively as "senior securities", up to the maximum amount permitted by the 1940 Act. The 1940 Act permits the Companyus to issue senior securities in amounts such that itsour asset coverage, as defined in the 1940 Act, equals at least 200.0% after each issuance of senior securities. As a result of our SEC exemptive relief, we are permitted to exclude our SBA-guaranteed debentures from the definition of senior securities in the 200.0% asset coverage ratio we are required to maintain under the 1940 Act. If the Company'sour asset coverage ratio is not at least 200.0%, itwe would be unable to issue senior securities, and if itwe had senior securities outstanding (other than any indebtedness issued in consideration of a privately arranged loan, such as any indebtedness outstanding under the Holdings Credit Facility and NMFC Credit Facility), itwe would be unable to make distributions to itsour stockholders. However, at December 31, 2014, the2015, our only senior securities outstanding were indebtedness under the Holdings Credit Facility, NMFC Credit Facility and Convertible Notes and therefore at December 31, 2014, the Company2015, we would not have been precluded from paying distributions. If the value of the Company'sour assets declines, the Companywe may be unable to satisfy this test. If that happens, the Companywe may be required to liquidate a portion of itsour investments and repay a portion of itsour indebtedness at a time when such sales may be disadvantageous.

The Holdings Credit Facility matures on December 18, 2019 and permits borrowings of $495.0 million as of December 31, 2014.2015. The Holdings Credit Facility had $468.1$419.3 million in debt outstanding as of December 31, 2014.2015. The NMFC Credit Facility matures on June 4, 2019 and permits borrowings of $80.0$95.0 million as of December 31, 2014.2015. The NMFC Credit Facility had $50.0$90.0 million in debt outstanding as of December 31, 2014.2015. The Convertible Notes mature on June 15, 2019. The Convertible Notes had $115.0 million in debt outstanding as of December 31, 2014.

2015. The SBA-guaranteed debentures have ten year maturities and will begin to mature on March 1, 2025. As of December 31, 2015, $117.7 million of SBA-guaranteed debentures were outstanding.

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

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interests will tend to be those that are riskier and more apt to generate losses. The 1940 Act also may impose restrictions on the structure of any securitization.

        The Company

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


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The Company's

Our business model in the future may depend to an extent upon our referral relationships with private equity sponsors, and the inability of the investment professionals of the Investment Adviser to maintain or develop these relationships, or the failure of these relationships to generate investment opportunities, could adversely affect itsour business strategy.

If the investment professionals of the Investment Adviser fail to maintain existing relationships or develop new relationships with other sponsors or sources of investment opportunities, the Companywe may not be able to grow itsour investment portfolio. In addition, individuals with whom the investment professionals of the Investment Adviser have relationships are not obligated to provide the Companyus with investment opportunities, and, therefore, there is no assurance that any relationships they currently or may in the future have will generate investment opportunities for the Company.

us.

We may experience fluctuations in our annual and quarterly results due to the nature of our business.

We could experience fluctuations in our annual and quarterly operating results due to a number of factors, some of which are beyond our control, including the ability or inability of the Companyus to make investments in companies that meet itsour investment criteria, the interest rate payable on the debt securities acquired and the default rate on such securities, the level of the Company'sour expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which the Company encounterswe encounter competition in the markets in which it operateswe operate and general economic conditions. As a result of these factors, results for any period should not be relied upon as being indicative of performance in future periods.

The Company's

Our board of directors may change itsour investment objective, operating policies and strategies without prior notice or stockholder approval, the effects of which may be adverse to your interestinterests as a stockholder.

        The Company'sstockholders.

Our board of directors has the authority, except as otherwise provided in the 1940 Act, to modify or waive certain of itsour operating policies and strategies without prior notice and without stockholder approval. As a result, the Company'sour board of directors may be able to change itsour investment policies and objectives without any input from itsour stockholders. However, absent stockholder approval, the Companywe may not change the nature of itsour business so as to cease to be, or withdraw itsour election as, a BDC. Under Delaware law, the Companywe also cannot be dissolved without prior stockholder approval. We cannot predict the effect any changes to the Company'sour current operating policies and strategies would have on our business, operating results and the market price of NMFC'sour common stock. Nevertheless, any such changes could adversely affect our business and impair the Company'sour ability to make distributions to itsour stockholders.

The Company

We will be subject to corporate-level U.S. federal income tax on all of its respectiveour income if it iswe are unable to maintain RIC status under Subchapter M of the Code, which would have a material adverse effect on itsour financial performance.

Although the Company intendswe intend to continue to qualify annually as a RIC under Subchapter M of the Code, no assurance can be given that the Companywe will be able to maintain itsour RIC status. To maintain RIC status and be relieved of U.S. federal income taxes on income and gains distributed to itsour stockholders, the Companywe must meet the annual distribution, source-of-income and asset diversification requirements described below.

The annual distribution requirement for a RIC will be satisfied if the Company distributeswe distribute (or are deemed to itsdistribute) to our stockholders on an annual basis at least 90.0% of itsour net ordinary income plus the excess of realized net short-term capital gains over realized net long termlong-term capital losses, if any. Because the Company useswe use debt financing, the Company iswe are subject to an asset coverage ratio requirement under the 1940 Act, and the Company iswe are subject to certain financial covenants contained in the

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we are unable to obtain cash from other sources, and thus isare unable to make sufficient distributions to itsour stockholders, the Companywe could fail to qualify for RIC tax treatment and thus become subject to certain corporate-level U.S. federal income tax (and any applicable state and local taxes).

•
The source-of-income requirement will be satisfied if at least 90.0% of the Company'sour allocable share of itsour gross income for each year is derived from dividends, interest payments with respect to loans of certain securities, gains from the sale of stock or other securities, net income from certain "qualified“qualified publicly traded partnerships"partnerships” or other income derived with respect to the Company'sour business of investing in such stock or securities.

•
The asset diversification requirement will be satisfied if the Company meetswe meet certain asset diversification requirements at the end of each quarter of itsour taxable year. To satisfy this requirement, at least 50.0% of the value of the Company'sour assets must consist of cash, cash equivalents, U.S. government securities, securities of other RICs, and other such securities if such other securities of any one issuer do not represent more than 5.0% of the value of the Company'sour assets or more than 10.0% of the outstanding voting securities of the issuer; and no more than 25.0% of the value of the Company'sour assets can be invested in the securities, other than U.S. government securities or securities of other RICs, of one issuer, of two or more issuers that are controlled, as determined under applicable Code rules, by the Companyit and that are engaged in the same or similar or related trades or businesses or of certain "qualified“qualified publicly traded partnerships"partnerships”. Failure to meet these requirements may result in the Companyus having to dispose of certain investments quickly in order to prevent the loss of the Company'sour RIC status. Because most of the Company'sour 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.

If the Company failswe fail to qualify for or maintain itsour RIC status for any reason, and it doeswe do not qualify for certain relief provisions under the Code, the Companywe would be subject to certain corporate-level U.S. federal income tax (and any applicable state and local taxes). In this event, the resulting taxes could substantially reduce the Company'sour net assets, the amount of income available for distribution and the amount of itsour distributions, which would have a material adverse effect on itsour financial performance.

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

stock.

Under the dividend reinvestment plan, if you own shares of our common stock of NMFC registered in your own name, you will have all cash distributions automatically reinvested in additional shares of our 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"“opted out” of the dividend reinvestment plan, you will be deemed to have received, and for U.S. federal income tax purposes will be taxed on, the amount reinvested in our common stock 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 U.S. federal income tax liability on the value of the common stock received.


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The Company

We may not be able to pay you distributions on itsour common stock, itsour distributions to you may not grow over time and a portion of itsour distributions to you may be a return of capital for U.S. federal income tax purposes.

        The Company intends

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

The Company

We may have difficulty paying itsour required distributions if the Company recognizeswe recognize taxable income before or without receiving cash representing such income.

For U.S. federal income tax purposes, the Company includeswe include in itsour taxable income itsour allocable share of certain amounts that the Company haswe have not yet received in cash, such as original issue discount or accruals on a contingent payment debt instrument, which may occur if the Company receiveswe receive warrants in connection with the origination of a loan or possibly in other circumstances or contracted payment-in-kind ("PIK"(“PIK”) interest, which generally represents contractual interest added to the loan balance and due at the end of the loan term. The Company'sOur allocable share of such original issue discount and PIK interest are included in itsour taxable income before the Company receives

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we receive any corresponding cash payments. The CompanyWe also may be required to include in itsour taxable income itsour allocable share of certain other amounts that the Companywe will not receive in cash.

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


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Changes in laws or regulations governing the Company'sour operations may adversely affect our business or cause the Companyus to alter itsour 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 Company'sOur portfolio companies are subject to U.S. federal, state and local laws and regulations. New legislation may be enacted or new interpretations, rulings or regulations could be adopted, any of which could materially adversely affect our business, including with respect to the types of investments the Company iswe are permitted to make, and your interestinterests as a stockholderstockholders potentially with retroactive effect. In addition, any changes to the laws and regulations governing the Company'sour operations relating to permitted investments may cause the Companyus to alter itsour investment strategy in order to avail itselfourselves of new or different opportunities. These changes could result in material changes to theour strategies andwhich may result in the Company'sour investment focus shifting from the areas of expertise of the Investment Adviser to other types of investments in which the Investment Adviser may have less expertise or little or no experience. Any such changes, if they occur, could have a material adverse effect on our business, results of operations and financial condition and, consequently, the value of your investment in us.

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

Over the last several years, there has been an increase in regulatory attention to the extension of credit outside of the traditional banking sector, raising the possibility that some portion of the non-bank financial sector will be subject to new regulation. While it cannot be known at this time whether these regulations will be implemented or what form they will take, increased regulation of non-bank credit extension could negatively impact the Company'sour operations, cash flows or financial condition, impose additional costs on the Company,us, intensify the regulatory supervision of the Companyus or otherwise adversely affect our business.
Our business and operation could be negatively affected if we become subject to any securities litigation or shareholder activism, which could cause us  to incur significant expense, hinder execution of investment strategy and impact our stock price. 
In the Company'spast, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company. Shareholder activism, which could take many forms or arise in a variety of situations, has been increasing in the BDC space recently. While we are currently not subject to any securities litigation or shareholder activism, due to the potential volatility of our stock price and for a variety of other reasons, we may in the future become the target of securities litigation or shareholder activism. Securities litigation and shareholder activism, including potential proxy contests, could result in substantial costs and divert management’s and our board of directors’ attention and resources from our business.

Additionally, such securities litigation and shareholder activism could give rise to perceived uncertainties as to our future, adversely affect our relationships with service providers and make it more difficult to attract and retain qualified personnel. Also, we may be required to incur significant legal fees and other expenses related to any securities litigation and activist shareholder matters. Further, our stock price could be subject to significant fluctuation or otherwise be adversely affected by the events, risks and uncertainties of any securities litigation and shareholder activism.


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The effect of global climate change may impact the operations of the Company'sour portfolio companies.

There may be evidence of global climate change. Climate change creates physical and financial risk and some of the Company'sour 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 Company'sour 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 Company'sour portfolio companies'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.


TableIn December 2015 the United Nations, of Contents

which the U.S. is a member, adopted a climate accord with the long-term goal of limiting global warming and the short-term goal of significantly reducing greenhouse gas emissions. As a result, our portfolio companies, particularly those operating in the energy sector, may be subject to new or strengthened regulations or legislation which could increase their operating costs and/or decrease their revenues.

Pending legislation may allow the Companyus to incur additional leverage.

As a BDC, under the 1940 Act the Companywe generally isare not permitted to incur indebtedness unless immediately after such borrowing the Company haswe have an asset coverage for total borrowings of at least 200.0% (i.e., the amount of debt may not exceed 50.0% of the value of the Company'sour total assets or the Companywe may borrow an amount equal to 100.0% of net assets). Legislation introduced in Congress, if passed,the U.S. House of Representatives would modify this section of the 1940 Act and increase the amount of debt that BDCs may incur by modifying the asset coverage percentage from 200.0% to 150.0%. As a result, the Companywe may be able to incur additional indebtedness in the future and therefore your risk of an investment in the Company's common stockus may increase.

The Company incurs

In addition, in December 2015, the 2016 omnibus spending bill approved by the U.S. Congress and signed into law by the President increased the amount of SBA-guaranteed debentures that affiliated SBIC funds can have outstanding from $225.0 million to $350.0 million, subject to SBA approval. This new legislation may allow us to issue additional SBIC debentures above the $225.0 million of SBA-guaranteed debentures previously permitted pending application for and receipt of additional SBIC licenses. If we incur this additional indebtedness in the future, your risk of an investment in our securities may increase.
We incur significant costs as a result of being a publicly traded company.

As a publicly traded company, the Company incurswe incur legal, accounting and other expenses, which are paid by the Company,us, including costs associated with the periodic reporting requirements applicable to a company whose securities are registered under the Exchange Act, as well as additional corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002, or the "Sarbanes-Oxley“Sarbanes-Oxley Act,"” and other rules implemented by the SEC.

Efforts to comply with Section 404 of the Sarbanes-Oxley Act involve significant expenditures, and non-compliance with Section 404 of the Sarbanes-Oxley Act may adversely affect the Companyus and the market price of itsour common stock.

        The Company is

We are subject to the Sarbanes-Oxley Act, and the related rules and regulations promulgated by the SEC. Under current SEC rules since itsour fiscal year endedending December 31, 2012, the Company'sour management has been required to report on itsour internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act, and rules and regulations of the SEC thereunder. The Company isWe are required to review on an annual basis itsour internal control over financial reporting, and on a quarterly and annual basis to evaluate and disclose changes in itsour internal control over financial reporting. As a result, the Company expectswe expect to continue to incur additional expenses, which may negatively impact the Company'sour financial performance and the Company'sour ability to make distributions to itsour stockholders. This process also may result in a diversion of management'smanagement’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 the Company iswe are not able to ensure that the process is effective or that itsour internal control over financial reporting is or will continue to be effective in a timely manner. In the event that the Company iswe are unable to maintain or achieve compliance with Section 404 of the Sarbanes-Oxley Act and related rules, the Companywe and, consequently, the market price of itsour common stock may be adversely affected.

The Company's

Our business is highly dependent on information systems and systems failures could significantly disrupt our business, which may, in turn, negatively affect the market price of the Company'sour common stock and itsour ability to pay dividends.

        The Company's

Our business is highly dependent on the communications and information systems of the Investment Adviser and its affiliates. Any failure or interruption of such systems could cause delays or other problems in the Company'sour activities. This, in turn, could have a material adverse effect on the Company'sour operating results and, consequently, negatively affect the market price of itsour common stock and itsour ability to pay dividends to itsour stockholders. In addition, because many of the Company'sour portfolio companies operate and rely on network infrastructure and enterprise applications and internal technology systems for development, marketing,

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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


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

The failure in cyber security systems, as well as the occurrence of events unanticipated in the Company'sour disaster recovery systems and management continuity planning could impair the Company'sour ability to conduct business effectively.

The occurrence of a disaster such as a cyber attack, a natural catastrophe, an industrial accident, a terrorist attack or war, events unanticipated in the Company'sour disaster recovery systems, or a support failure from external providers, could have an adverse effect on the Company'sour ability to conduct business and on the Company'sour results of operations and financial condition, particularly if those events affect the Company'sour computer-based data processing, transmission, storage, and retrieval systems or destroy data. If a significant number of the Company'sour managers were unavailable in the event of a disaster, the Company'sour ability to effectively conduct itsour business could be severely compromised.

We depend heavily upon computer systems to perform necessary business functions. Despite the Company'sour implementation of a variety of security measures, itsour computer systems could be subject to cyber attacks and unauthorized access, such as physical and electronic break-ins or unauthorized tampering. Like other companies, the Companywe may experience threats to itsour data and systems, including malware and computer virus attacks, unauthorized access, system failures and disruptions. If one or more of these events occurs, it could potentially jeopardize the confidential, proprietary and other information processed and stored in, and transmitted through, the Company'sour computer systems and networks, or otherwise cause interruptions or malfunctions in itsour operations, which could result in damage to the Company'sour reputation, financial losses, litigation, increased costs, regulatory penalties and/or customer dissatisfaction or loss.

RISKS RELATING TO THE COMPANY'SOUR INVESTMENTS

The Company's

Our investments in portfolio companies may be risky, and the Companywe could lose all or part of any of itsour investments.

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

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

•
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 Company'sour 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;

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

The Company's


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Our investment strategy, which is focused primarily on privately held companies, presents certain challenges, including the lack of available information about these companies.

        The Company invests

We invest primarily in privately held companies. There is generally little public information about these companies, and, as a result, the Companywe 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 Company iswe are unable to uncover all material information about these companies, itwe may not make a fully informed investment decision, and itwe may lose money on itsour investments. Also, privately held companies frequently have less diverse product lines and smaller market presence than larger competitors. They are, thus, generally more vulnerable to economic downturns and may experience substantial variations in operating results. These factors could adversely affect the Company'sour investment returns.

The Company's

Our investments in securities rated below investment grade are speculative in nature and are subject to additional risk factors such as increased possibility of default, illiquidity of the security and changes in value based on changes in interest rates.

The Company's investments that we invest in are typically rated below investment grade. Securities rated below investment grade are often referred to as "leveraged“leveraged loans," "high yield"” “high yield” or "junk"“junk” securities, and may be considered "high risk"“high risk” compared to debt instruments that are rated investment grade. High yield securities are regarded as having predominantly speculative characteristics with respect to the issuer'sissuer’s capacity to pay interest and repay principal in accordance with the terms of the obligations and involve major risk exposure to adverse conditions. In addition, high yield securities generally offer a higher current yield than that available from higher grade issues, but typically involve greater risk. These securities are especially sensitive to adverse changes in general economic conditions, to changes in the financial condition of their issuers and to price fluctuation in response to changes in interest rates. During periods of economic downturn or rising interest rates, issuers of below investment grade instruments may experience financial stress that could adversely affect their ability to make payments of principal and interest and increase the possibility of default.

The Company's

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

        The Company's

Our portfolio may be concentrated in a limited number of industries. For example, as of December 31, 2014, the Company's2015, our investments in the software, the business services and the education industries represented approximately 20.2%24.5%, 18.3%24.4% and 17.7%11.0%, respectively, of the fair value of the Company'sour portfolio. A downturn in any particular industry in which the Company iswe are invested could significantly impact the portfolio companies operating in that industry, and accordingly, the aggregate returns that the Company realizeswe realize from itsour investment in such portfolio companies.


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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 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. Likewise, 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. If an industry in which the Company haswe have significant investments suffers from adverse business or economic conditions, as these industries have to varying degrees, a material portion of itsour investment portfolio could be affected adversely, which, in turn, could adversely affect the Company'sour financial position and results of operations.

Continuation of the current decline in oil and natural gas prices for a prolonged period of time could have a material adverse effect on the Company.

        Approximately 5.9%effect.

As of the Company'sDecember 31, 2015, approximately 4.3% of our portfolio at fair value is invested in energy-related businesses. A decline in oil and natural gas prices would adversely affect the credit quality of these investments. A decrease in credit quality would, in turn, negatively affect the fair value of these investments, which would consequently negatively affect the Company'sour financial position and results of operations. Should the current decline in oil and natural gas prices persist, it is likely that the Company'sour energy-related portfolio companies' abilities to satisfy our financial or operating covenants imposed by the Company or other lenderslenders' will be adversely affected, thereby negatively impacting the Company'sour financial condition and their ability to satisfy their debt service and other obligations to the Company.

us.


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If the Company makeswe make unsecured investments, those investments might not generate sufficient cash flow to service itstheir debt obligations to the Company.

        The Companyus.

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

If the Company investswe invest in the securities and obligations of distressed and bankrupt issuers, itwe might not receive interest or other payments.

From time to time, the Companywe may invest in other types of investments which are not itsour primary focus, including investments in the securities and obligations of distressed and bankrupt issuers, including debt obligations that are in covenant or payment default. Such investments generally are considered speculative. The repayment of defaulted obligations is subject to significant uncertainties. Defaulted obligations might be repaid only after lengthy workout or bankruptcy proceedings, during which the issuer of those obligations might not make any interest or other payments.

Defaults by our portfolio companies may harm our operating results.
A portfolio company’s failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially, termination of its loans and foreclosure on its secured assets, which could trigger cross-defaults under other agreements and jeopardize a portfolio company’s ability to meet its obligations under the debt or equity securities that we hold.
We may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms, which may include the waiver of certain financial covenants, with a defaulting portfolio company. In addition, lenders in certain cases can be subject to lender liability claims for actions taken by them when they become too involved in the borrower’s business or exercise control over a borrower. It is possible that we could become subject to a lender’s liability claim, including as a result of actions taken if we render significant managerial assistance to the borrower. Furthermore, if one of our portfolio companies were to file for bankruptcy protection, even though we may have structured our investment as senior secured debt, depending on the facts and circumstances, including the extent to which we provided managerial assistance to that portfolio company, a bankruptcy court might re-characterize our debt holding and subordinate all or a portion of our claim to claims of other creditors.
The lack of liquidity in the Company'sour investments may adversely affect our business.

        The Company invests,

We invest, and will continue to invest, in companies whose securities are not publicly traded and whose securities will be subject to legal and other restrictions on resale or will otherwise be


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less liquid than publicly traded securities. The illiquidity of these investments may make it difficult for the Companyus to sell these investments when desired. In addition, if the Company iswe are required or otherwise chooseschoose to liquidate all or a portion of itsour portfolio quickly, itwe may realize significantly less than the value at which itwe had previously recorded these investments. The Company'sOur 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 Company'sour investments are illiquid, the Companywe may be unable to dispose of them in which case the Companywe could fail to qualify as a RIC and/or a BDC, or the Companywe may be unable to do so at a favorable price, and, as a result, the Companywe may suffer losses.

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

As a BDC, the Company iswe are required to carry itsour investments at market value or, if no market value is ascertainable, at fair value as determined in good faith by itsour board of directors. As part of the valuation process, the Companywe may take into account the following types of factors, if relevant, in determining the fair value of itsour 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;

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•

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 Companywe will use the pricing indicated by the external event to corroborate itsour valuation. The CompanyWe will record decreases in the market values or fair values of itsour investments as unrealized depreciation. Declines in prices and liquidity in the corporate debt markets may result in significant net unrealized depreciation in itsour portfolio. The effect of all of these factors on the Company'sour portfolio may reduce the Company'sour net asset value by increasing net unrealized depreciation in the Company'sour portfolio. Depending on market conditions, the Companywe could incur substantial realized losses and may suffer additional unrealized losses in future periods, which could have a material adverse effect on itsour business, financial condition, results of operations and cash flows.

If the Company iswe are unable to make follow-on investments in itsour portfolio companies, the value of the Company'sour investment portfolio could be adversely affected.

Following an initial investment in a portfolio company, the Companywe may make additional investments in that portfolio company as "follow-on"“follow-on” investments, in order to (i) increase or maintain in whole or in part itsour 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 itsour investment. The CompanyWe may elect not to make follow-on investments or may otherwise lack sufficient funds to make these investments. The Company hasWe have the discretion to make follow-on investments, subject to the availability of capital resources. If the Company failswe fail to make follow-on investments, the continued viability of a portfolio company and itsour investment may, in some circumstances, be jeopardized and we could miss an opportunity for the Companyus to increase itsour participation in a successful operation. Even if the Company haswe have sufficient capital to make a desired


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follow-on investment, itwe may elect not to make a follow-on investment because itwe may not want to increase itsour concentration of risk, either because it preferswe prefer other opportunities or because it iswe are subject to BDC requirements that would prevent such follow-on investments or such follow-on investments would adversely impact itsour ability to maintain itsour RIC status.

The Company's

Our portfolio companies may incur debt that ranks equally with, or senior to, itsour investments in such companies.

        The Company invests

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

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

Most of the Company'sour investments will involve private securities. In connection with the disposition of an investment in private securities, the Companywe may be required to make representations about the business and financial affairs of the portfolio company typical of those made in connection with the sale of a business. The CompanyWe 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 Company'sour return of certain distributions previously made to it.

us.

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

Even though the Companywe may have structured certain of itsour investments as senior loans, if one of itsour portfolio companies were to go bankrupt, depending on the facts and circumstances, including the extent to which the Companywe actually provided managerial assistance to that portfolio company, a bankruptcy court might re-characterize itsour debt investment and subordinate all or a portion of the Company'sour claim to that of other creditors. The CompanyWe may also be subject to lender liability claims for actions taken by itus with

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respect to a borrower'sborrower’s business or instances where it exerciseswe exercise control over the borrower. It is possible that the Companywe could become subject to a lender'slender’s liability claim, including as a result of actions taken in rendering significant managerial assistance.

Second priority liens on collateral securing loans that the Company makeswe make to itsour 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 Company.

us.

Certain loans to portfolio companies will be secured on a second priority basis by the same collateral securing senior secured debt of such companies. The first priority liens on the collateral will secure the portfolio company'scompany’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


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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 Company.us. In addition, the value of the collateral in the event of liquidation will depend on market and economic conditions, the availability of buyers and other factors. There can be no assurance that the proceeds, if any, from the sale or sales of all of the collateral would be sufficient to satisfy the loan obligations secured by the second 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 Company,we, to the extent not repaid from the proceeds of the sale of the collateral, will only have an unsecured claim against the portfolio company'scompany’s remaining assets, if any.

The rights the Companywe may have with respect to the collateral securing the loans it makeswe make to itsour 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 CompanyWe may not have the ability to control or direct these actions, even if itsour rights are adversely affected.

The Company

We generally doesdo not control itsour portfolio companies.

        The Company does

Although we have taken and may in the future take controlling equity positions in our portfolio companies from time to time, we generally do not and does not expect to, control most of itsour portfolio companies, even though the Companywe may have board representation or board observation rights, and itsour debt agreements may contain certain restrictive covenants that limit the business and operations of itsour portfolio companies. As a result, the Company iswe are subject to the risk that a portfolio company may make business decisions with which the Company disagreeswe disagree and the management of such company may take risks or otherwise act in ways that do not serve the Company'sour interests as debt investors. Due to the lack of liquidity of the investments that the Companywe typically holdshold in itsour portfolio companies, itwe may not be able to dispose of itsour investments in the event that the Company disagreeswe disagree with the actions of a portfolio company as readily as itwe would otherwise like to or at favorable prices which could decrease the value of itsour investments.

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

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


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A number of the Company'sour portfolio companies provide services to the U.S. government. Changes in the U.S. government'sgovernment’s priorities and spending, or significant delays or reductions in appropriations of the U.S. government'sgovernment’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 Company'sour portfolio companies derive a substantial portion of their revenue from the U.S. government. Levels of the U.S. government'sgovernment’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.” Sequestration

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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 Company'sour portfolio companies that provide services to the U.S. government.

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

        A portfolio company's failure to satisfy financial or operating covenants imposed by the 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 jeopardize a portfolio company's ability to meet its obligations under the debt or equity securities that the Company holds.

        The 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 control over a borrower. It is possible that the 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 Company's portfolio companies were to file for bankruptcy protection, even though the Company may have structured its investment as senior secured debt, depending on the facts and circumstances, including the extent to which the 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 Company's claim to claims of other creditors.

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

        The Company is

We are subject to the risk that the investments it makeswe make in itsour portfolio companies may be repaid prior to maturity. When this occurs, subject to maintenance of the Company'sour RIC status, the Companywe will generally reinvest these proceeds in temporary investments, pending itsour future investment in new portfolio companies. These temporary investments will typically have substantially lower yields than the debt being prepaid and the Companywe 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 Company'sour results of operations could be materially adversely affected if one or more of itsour portfolio companies elect to prepay amounts owed to the Company.us. Additionally, prepayments could negatively impact the Company'sour return on equity, which could result in a decline in the market price of itsour common stock.


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The CompanyWe may not realize gains from itsour equity investments.

When the Company investswe invest in portfolio companies, itwe may acquire warrants or other equity securities of portfolio companies as well. The CompanyWe may also invest in equity securities directly. To the extent the Company holdswe hold equity investments, itwe will attempt to dispose of them and realize gains upon itsour disposition of them. However, the equity interests the Company receiveswe receive may not appreciate in value and, in fact, may decline in value. As a result, the Companywe may not be able to realize gains from itsour equity interests, and any gains that it doeswe do realize on the disposition of any equity interests may not be sufficient to offset any other losses it experiences. The Companywe experience. We also may be unable to realize any value if a portfolio company does not have a liquidity event, such as a sale of the business, recapitalization or public offering, which would allow the Companyus to sell the underlying equity interests.

The

Our performance of the Company's portfolio companies may differ from itsour historical performance as itsour current investment strategy includes significantly more primary originations in addition to secondary market purchases.

Historically, the Company'sour investment strategy consisted primarily of secondary market purchases in debt securities. The CompanyWe adjusted itsthat investment strategy to also include significantly more primary originations. While loans the Company originatesthat we originate and loans it purchaseswe purchase in the secondary market face many of the same risks associated with the financing of leveraged companies, the Companywe may be exposed to different risks depending on specific business considerations for secondary market purchases or origination of loans. Primary originations require substantially more time and resources for sourcing, diligencing and monitoring investments, which may consume a significant portion of the Company'sour 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 Companyus 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 the Company has historically experienced from secondary market purchases of debt securities.

The Company

We may be subject to additional risks if it investswe invest in foreign securities and/or engagesengage in hedging transactions.

The 1940 Act generally requires that 70.0% of the Company'sour investments be in issuers each of whom is organized under the laws of, and has its principal place of business in, any state of the U.S., the District of Columbia, Puerto Rico, the Virgin Islands or any other possession of the U.S. The Company'sOur investment strategy does not presently contemplate significant investments in securities of non-U.S. companies. However, the Companywe may desire to make such investments in the future, to the extent that such transactions and investments are permitted under the 1940 Act. The Company expectsWe expect that these investments would focus on the same types of investments that it makeswe make in U.S. middle market companies and accordingly would be complementary to itsour overall strategy and enhance the diversity of itsour holdings. Investing in foreign companies could expose the Companyus to additional risks not typically associated with investing in U.S. companies. These risks include changes in exchange control regulations, political and social instability, expropriation, imposition of foreign taxes, less liquid markets and less available information than is generally the case in the U.S., higher transaction costs, less government supervision of exchanges, brokers and issuers, less developed bankruptcy laws, difficulty in enforcing contractual obligations, lack of uniform accounting and auditing standards and greater price volatility. Investments denominated in foreign currencies would be subject to the risk that the value of a particular currency will change in relation to one or more other currencies. Among the factors that may affect currency values are trade balances, the level of short-term interest rates, differences in relative values of similar assets in different currencies, long-term opportunities for



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investment and capital appreciation and political developments. The CompanyWe may employ hedging techniques to minimize these risks, but itwe can offer no assurance that itwe will, in fact, hedge currency risk, or that if it does,we do, such strategies will be effective.

Engaging in hedging transactions would also, indirectly, entail additional risks to the Company'sour stockholders. Although it is not currently anticipated that the Companywe would engage in hedging transactions as a principal investment strategy, if the Companywe determined to engage in hedging transactions, itwe generally would seek to hedge against fluctuations of the relative values of itsour portfolio positions from changes in market interest rates or currency exchange rates. Hedging against a decline in the values of the Company'sour 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 Companywe would not be able to enter into a hedging transaction at an acceptable price. If the Company chooseswe choose to engage in hedging transactions, there can be no assurances that the Companywe will achieve the intended benefits of such transactions and, depending on the degree of exposure such transactions could create, such transactions may expose the Companyus to risk of loss.

While the Companywe 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 itwe 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 Companywe might not seek to establish a perfect correlation between the hedging instruments and the portfolio holdings being hedged. Any imperfect correlation could prevent the Companyus from achieving the intended hedge and expose the Companyus 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 Company'sour portfolio of LIBOR-indexed, floating-rate debt securities.

Concerns have been publicized that some of the member banks surveyed by the British Bankers'Bankers’ Association ("BBA"(“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 Company'sour 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,


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which could have an adverse impact on the market for LIBOR-based securities or the value of the Company'sour portfolio of LIBOR-indexed, floating-rate debt securities.

RISKS RELATING TO THE COMPANY'SOUR SECURITIES

The market price of the Company'sour common stock may fluctuate significantly.

The market price and liquidity of the market for shares of the Company'sour common stock may be significantly affected by numerous factors, some of which are beyond our control and may not be directly related to the Company'sour 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 itsour common stock;

•
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;

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•

the inability to raise equity capital;

•
the Company's
our inability to borrow money or deploy or invest itsour 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 Company;

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

•
the Company's
our loss of status as or ability to operate as a BDC;

•
the Company's
our failure to qualify as a RIC, loss of RIC status or ability to operate as a RIC;

•
actual or anticipated changes in the Company'sour earnings or fluctuations in itsour operating results;

•
changes in the value of the Company'sour 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, the Company iswe are required to continue to meet certain listing standards in order for itsour common stock to remain listed on the New York Stock Exchange ("NYSE"). If the Companywe were to be delisted by the NYSE, the liquidity of itsour common stock would be materially impaired.

Investing in the Company'sour common stock may involve an above average degree of risk.

The investments the Companywe 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 the Company'sour common stock may not be suitable for investors with lower risk tolerance.


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Sales of substantial amounts of the Company'sour common stock in the public market may have an adverse effect on the market price of itsour common stock.

Sales of substantial amounts of the Company'sour common stock could materially adversely affect the prevailing market prices for itsour common stock. If substantial amounts of the Company'sour common stock were sold, this could impair itsour ability to raise additional capital through the sale of securities should the Companywe desire to do so.

Our stockholders may experience dilution upon the repurchase of common stock.
On February 3, 2016, our board of directors authorized a stock repurchase plan permitting us to repurchase up to $50.0 million of our common stock. We may repurchase shares of our common stock in the open market, including block purchases, at prices that may be above or below the net asset value as reported in the most recently published financial statements. We expect that the share repurchase program will be in effect until December 31, 2016, or until the approved dollar amount has been used to repurchase shares.  If we were to repurchase shares at a price above net asset value, such repurchases would result in an immediate dilution to existing common stockholders due to a reduction in our earnings and assets due to the repurchase that is greater than the reduction in total shares outstanding.
Certain provisions of the Company'sour certificate of incorporation and bylaws, as well as aspects of the Delaware General Corporation Law could deter takeover attempts and have an adverse impact on the price of the Company'sour common stock.

        The Company's

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

provide for a classified board of directors, which may delay the ability of itsour stockholders to change the membership of a majority of itsour board of directors;

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

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•

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 itsour directors may be removed only for cause;

•
require supermajority voting to effect certain amendments to itsour 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 the Company'sour common stock the opportunity to realize a premium over the market price for itsour common stock. The Holdings Credit Facility and NMFC Credit Facility also include covenants that, among other things, restrict itsour ability to dispose of assets, incur additional indebtedness, make restricted payments, create liens on assets, make investments, make acquisitions and engage in mergers or consolidations. The Holdings Credit Facility and NMFC Credit Facility also include change of control provisions that accelerate the indebtedness under these facilities in the event of certain change of control events.

Shares of the Company'sour 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 Company iswe are a part, itsour common stock has at times traded below itsour net asset value per share since the Company'sour IPO on May 19, 2011. The Company'sOur shares could once again trade at a discount to net asset value. The possibility that itsour 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 Company'sour net asset value will decrease. The CompanyWe cannot predict whether shares of itsour common stock will trade above, at or below itsour net asset


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value. If itsour common stock trades below itsour net asset value, the Companywe will generally not be able to issue additional shares of itsour common stock at its market price without first obtaining the approval for such issuance from itsour stockholders and itsour independent directors. If additional funds are not available to the Company, the Companyus, we could be forced to curtail or cease the Company'sour new lending and investment activities, and the Company'sour net asset value could decrease and the Company'sour level of distributions could be impacted.

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

        The Company

We cannot assure you that the Companywe 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 Company'sour future dividends are dependent upon the investment income it receiveswe receive on the Company'sour portfolio investments. To the extent such investment income declines, the Company'sour ability to pay future dividends may be harmed.

If the Company issueswe issue preferred stock, the net asset value and market value of itsour 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 the Company'sour 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 Company'sour 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 Company'sour 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 Company'sour investments would be borne entirely by the holders of common stock. Therefore, if the market value of the Company'sour 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 Company'sour 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 Company'sour 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 the Companywe 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 the Company'sour common stock and preferred stock, both by the 1940 Act and by requirements imposed by rating agencies, if any, or the terms of the Company'sour credit facilities, if any, might impair the Company'sour ability to maintain itsour qualification as a


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RIC for U.S. federal income tax purposes. While we would intend to redeem the Company'sour preferred stock to the extent necessary to enable the Companyus to distribute itsour 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 operations. 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

        The Company, the Company's

We, and our consolidated subsidiaries, the Investment Adviser and the Administrator are not currently subject to any material pending legal proceedings threatened against us as of December 31, 2014.2015. 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

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

Price Range of Common Stock and Distributions

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

 
  
 Closing Sales
Price(3)		 Premium or
Discount of
High Closing
Sales to
NAV(4)		 Premium or
Discount of
Low Closing
Sales to
NAV(4)		  
 
 
 NAV Per
Share(2)		 Declared
Dividends
Per Share(5)		 
Fiscal Year Ended
 High Low 

December 31, 2014

                   

Fourth Quarter

 $13.83 $15.09 $14.14  9.11% 2.24%$0.34 

Third Quarter

 $14.33 $15.39 $14.48  7.40% 1.05%$0.46(7)

Second Quarter

 $14.65 $14.89 $13.91  1.64% (5.05)%$0.34 

First Quarter

 $14.53 $15.19 $14.46  4.54% (0.48)%$0.34 

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(8)

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  7.97% (2.20)%$0.48(9)

Third Quarter

 $14.10 $15.50 $14.18  9.93% 0.57%$0.34 

Second Quarter

 $13.83 $14.29 $13.28  3.33% (3.98)%$0.57(10)

First Quarter

 $14.05 $13.75 $13.14  (2.14)% (6.48)%$0.32 

December 31, 2011(1)

                   

Fourth Quarter

 $13.60 $13.41 $12.27  (1.40)% (9.78)%$0.30 

Third Quarter

 $13.32 $13.37 $10.77  0.38% (19.14)%$0.29 

Second Quarter(6)

 $14.25 $13.55 $12.35  (4.91)% (13.33)%$0.27 
(1)
The Company 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 closing sales price divided by the quarter end NAV.

(5)
Represents the dividend declared 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 paid on September 3, 2014years ended December 31, 2015 and a third quarter dividend of $0.34 per share paid on September 30,December 31, 2014.

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(8)
Includes a special dividend of $0.12 per share paid on August 30, 2013 and a third quarter dividend of $0.34 per share paid on September 30, 2013.

(9)
Includes a fourth quarter dividend of $0.34 per share paid on December 28, 2012 and a special dividend of $0.14 per share paid on January 31, 2013.

(10)
Includes a special dividend of $0.23 per share paid on May 31, 2012 and a second quarter dividend of $0.34 per share paid on June 29, 2012.
 
NAV Per
Share(1)
 
Closing Sales
Price(2)
 
Premium or
Discount of
High Closing
Sales to
NAV(3)
 
Premium or
Discount of
Low Closing
Sales to
NAV(3)
 
Declared
Dividends
Per Share(4)
 
Fiscal Year Ended High Low    
December 31, 2015 
  
  
  
  
  
 
Fourth Quarter$13.08
 $14.17
 $12.15
 8.33% (7.11)% $0.34
 
Third Quarter$13.73
 $14.94
 $13.34
 8.81% (2.84)% $0.34
 
Second Quarter$13.90
 $15.14
 $14.49
 8.92% 4.24 % $0.34
 
First Quarter$13.89
 $15.06
 $14.30
 8.42% 2.95 % $0.34
 
December 31, 2014            
Fourth Quarter$13.83
 $15.09
 $14.14
 9.11% 2.24 % $0.34
 
Third Quarter$14.33
 $15.39
 $14.48
 7.40% 1.05 % $0.46
(5)
Second Quarter$14.65
 $14.89
 $13.91
 1.64% (5.05)% $0.34
 
First Quarter$14.53
 $15.19
 $14.46
 4.54% (0.48)% $0.34
 

(1)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.
(2)Closing sales price is determined as the high or low closing sales price noted within the respective quarter, not adjusted for dividends.
(3)Calculated as of the respective high or low closing sales price divided by the quarter end NAV.
(4)Represents the dividend declared or paid for the specified quarter.
(5)Includes a special dividend of $0.12 per share paid on September 3, 2014 and a third quarter dividend of $0.34 per share paid on September 30, 2014.
On February 27, 2015,26, 2016, the last reported sales price of NMFC'sour common stock was $14.89$12.40 per share. As of February 27, 2015, the Company26, 2016, we had approximately 27 stockholders of record and one beneficial owner whose shares are held in the names of brokers, dealers, funds, trusts and clearing agencies.

Dividends

        The Company intends

We intend to pay quarterly distributions to itsour stockholders andin amounts sufficient to maintain itsour status as a regulated investment company ("RIC"). The Company intendsWe intend to distribute approximately itsour entire Adjusted Net Investment Income (defined as net investment income adjusted to reflect income as if the cost basis of investments held at the IPO date had stepped-up to fair market value as of the IPO date) on a quarterly basis and substantially all of itsour taxable income on an annual basis, except that the Companywe may retain certain net capital gains for reinvestment.

        The Company maintains

We maintain an "opt out" dividend reinvestment plan for its common stockholders. As a result, the Company'son behalf of our stockholders, pursuant to which each of our stockholders' cash dividendsdistributions will be automatically reinvested in additional shares of our common stock, unless the stockholder elects to receive cash. Cash dividends reinvested in additional shares

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Table of the Company's common stock will be automatically reinvested by the Company into additional shares of the Company's common stock.

        The Company appliesContents



We apply the following in implementing the dividend reinvestment plan. If the price at which newly issued shares are to be credited to stockholders' accounts is equal to or greater than 110.0% of the last determined NAV of the shares, the Companywe will use only newly issued shares to implement itsthe dividend reinvestment plan. Under such circumstances, the number of shares to be issued to a stockholder is determined by dividing the total dollar amount of the distribution payable to such stockholder by the market price per share of the Company'sour 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 askedask prices.

If the price at which newly issued shares are to be credited to stockholders' accounts is less than 110.0% of the last determined NAV of the shares, the Companywe will either issue new shares or instruct the plan administrator to purchase shares in the open market to satisfy the additional shares required. Shares purchased in open market transactions by the plan administrator will be allocated to a stockholder based on the average purchase price, excluding any brokerage charges or other charges, of all shares of common stock purchased in the open market. The number of shares of the Company'sour 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 itsour stockholders have been tabulated. 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 Company's cash distributions, including dividends and returns of capital, if any, per share that have been declared by the Company'sour board of directors sincefor the Company's IPO:

years ended December 31, 2015 and December 31, 2014:
Date Declared Record Date Payment Date Per Share Amount 
November 3, 2015 December 16, 2015 December 30, 2015 $0.34
 
August 4, 2015 September 16, 2015 September 30, 2015 0.34
 
May 5, 2015 June 16, 2015 June 30, 2015 0.34
 
February 23, 2015 March 17, 2015 March 31, 2015 0.34
 
      $1.36
 
        
November 4, 2014 December 16, 2014 December 30, 2014 $0.34
 
August 5, 2014 September 16, 2014 September 30, 2014 0.34
 
July 30, 2014 August 20, 2014 September 3, 2014 0.12
(1)
May 6, 2014 June 16, 2014 June 30, 2014 0.34
 
March 4, 2014 March 17, 2014 March 31, 2014 0.34
 
      $1.48
 

(1)Special dividend related to estimated realized capital gains attributable to New Mountain Finance Holdings, L.L.C.'s ("NMF Holdings" or the "Predecessor Operating Company") warrant investments in Learning Care Group (US), Inc.
Date Declared
 Record Date Payment Date Amount 

November 4, 2014

 December 16, 2014 December 30, 2014 $0.34 

August 5, 2014

 September 16, 2014 September 30, 2014  0.34 

July 30, 2014

 August 20, 2014 September 3, 2014  0.12(1)

May 6, 2014

 June 16, 2014 June 30, 2014  0.34 

March 4, 2014

 March 17, 2014 March 31, 2014  0.34 
​​​​​​​ ​​

     $1.48 

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(2)

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
(3)

November 6, 2012

 December 14, 2012 December 28, 2012  0.34 

August 8, 2012

 September 14, 2012 September 28, 2012  0.34 

May 8, 2012

 June 15, 2012 June 29, 2012  0.34 

May 8, 2012

 May 21, 2012 May 31, 2012  0.23(4)

March 7, 2012

 March 15, 2012 March 30, 2012  0.32 
​​​​​​​​ ​

     $1.71 

November 8, 2011

 

December 15, 2011

 

December 30, 2011

 
$
0.30		 

August 10, 2011

 September 15, 2011 September 30, 2011  0.29 

August 10, 2011

 August 22, 2011 August 31, 2011  0.27 
​​​​​​​ ​​

     $0.86 
​​​​​​​ ​​

Total

     $5.53 
​​​​​​​ ​​
​​​​​​​​​
​​​​​​​ ​ ​
(1)
Special dividend related to realized capital gains attributable to the Company's warrant investments in Learning Care Group (US), Inc.

(2)
Special dividend related to a distribution received attributable to New Mountain Finance Holdings, L.L.C.'s ("NMF Holdings" or the "Predecessor Operating Company") investment in YP Equity Investors LLC.

(3)
Special dividend intended to minimize to the greatest extent possible the Company's U.S. federal income or excise tax liability.

(4)
Special dividend related to estimated realized capital gains attributable to the Predecessor Operating Company's investments in Lawson Software, Inc. and Infor Lux Bond Company.

Tax characteristics of all dividends paid by the Company wereus are reported to stockholders on Form 1099 after the end of the calendar year. FutureOur future quarterly dividends, if any, for the Company will be determined by theour board of directors.


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Unregistered Sales of Equity Securities

We did not engage in unregistered sales of securities during the year ended December 31, 2014.

2015.


49
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Issuer Purchases of Equity Securities

        For

During the yearquarter ended December 31, 2014, the Company did not purchase any2015, as a part of itsour dividend reinvestment plan for our common stockholders, our transfer agent purchased 94,000 shares of our common stock for $1.2 million in the open market.

market in order to satisfy the reinvestment portion of our dividends. The following chart outlines purchases of our common stock during the quarter ended December 31, 2015.

Period Total Number of Shares Purchased Weighted Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
October 2015 —
 $—
 —
 $—
November 2015 —
 —
 —
 —
December 2015 94,000
 13.02
 —
 —
Total 94,000
 $13.02
 —
 $—


50
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Stock Performance Graph

This graph compares the return on the Company'sour 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 the Company'sour common stock, for the period May 19, 2011 (commencement of operations) to December 31, 2014.2015. The graph assumes that, on May 19, 2011, a person invested $100 in each of the Company'sour common stock, the S&P 500 TR and the Russell 2000 TR. The 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 Form 10-K shall not be deemed to be "soliciting material" or to be filed with the United States 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.



51

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Item 6.    Selected Financial Data

The selected financial data should be read in conjunction with the respective consolidated financial statements and related consolidated 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, 2014, December 31, 2013, December 31, 2012, December 31, 2011, December 31, 2010 and December 31, 2009, has been derived from the Company's consolidated financial statements that were audited by Deloitte & Touche LLP ("Deloitte"), an independent registered public accounting firm.

        The below selected financial and other data is for NMFC.

 
  
  
  
 Period from
May 19, 2011
(commencement
of operations)
to December 31,
2011		 
 
 Years ended December 31, 
New Mountain Finance Corporation
 2014 2013 2012 

Statement of Operations Data:

             

Investment income

 $91,923 $— $— $— 

Investment income allocated from NMF Holdings

  43,678  90,876 $37,511 $13,669 

Net expenses

  34,727  —  —  — 

Net expenses allocated from NMF Holdings

  20,808  40,355  17,719  5,324 

Net investment income

  80,066  50,521  19,792  8,345 

Net realized gains on investments

  357  —  —  — 

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

  9,508  11,443  12,087  (4,235)

Net change in unrealized (depreciation) appreciation of investments

  (43,863) —  —  — 

Provision for taxes

  (493) —  —  — 

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

  —  (44) (95) 6,221 

Net increase in net assets resulting from operations

  45,575  61,920  31,784  10,331 

Per share data:

             

Net asset value

 $13.83 $14.38 $14.06 $13.60 

Net increase in net assets resulting from operations (basic)

  0.88  1.76  2.14  0.97 

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

  0.86  1.76  2.14  0.38 

Dividends declared(2)

  1.48  1.48  1.71  0.86 

Balance sheet data:

             

Total assets

 $1,514,920 $650,107 $345,331 $145,487 

Holdings Credit Facility

  468,108  N/A  N/A  N/A 

Convertible Notes

  115,000  N/A  N/A  N/A 

NMFC Credit Facility

  50,000  N/A  N/A  N/A 

SBA-guaranteed debentures

  37,500  N/A  N/A  N/A 

Total net assets

  802,170  650,107  341,926  145,487 

Other data:

             

Total return at market value(3)

  9.66% 11.62% 24.84% 4.16%

Total return at net asset value(4)

  6.56% 13.27% 16.61% 2.82%

Number of portfolio companies at period end

  71  N/A  N/A  N/A 

Total new investments for the period(5)

 $720,871  N/A  N/A  N/A 

Investment sales and repayments for the period(5)

 $384,568  N/A  N/A  N/A 

Weighted average Yield to Maturity at Cost on debt portfolio at period end (unaudited)(6)

  10.70% N/A  N/A  N/A 

Weighted average shares outstanding for the period (basic)

  51,846,164  35,092,722  14,860,838  10,697,691 

Portfolio turnover(5)

  29.51% N/A  N/A  N/A 
(1)
In applying the if-converted method, conversion is not assumed for purposes of computing diluted earnings per share if the effect would be anti-dilutive. For the year ended December 31, 2014, there was no anti-dilution. For the years ended December 31, 2013 and December 31, 2012, due to reflecting earnings for the full year of operations of the Predecessor Operating Company assuming 100.0% NMFC ownership of Predecessor Operating Company and assuming all of New Mountain Finance AIV Holdings Corporation's ("AIV Holdings") units in the Predecessor Operating Company were

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(2)
Dividends declared in the year ended December 31, 2014 include a $0.12 per share special dividend related to realized capital gains attributable to the Company's warrant investments in Learning Care Group (US), Inc. Dividends declared in the year ended December 31, 2013 include a $0.12 per share special dividend related to a distribution received attributable to the Predecessor 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 Predecessor 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 U.S. federal income or excise tax liability.

(3)
For the years ended2015, December 31, 2014, December 31, 2013, December 31, 2012 and for the period May 19, 2011 to December 31, 2011, total return is calculated assuming a purchase of common stock at the opening of the first day of the year and assuming a purchase of common stock at initial purchase offering ("IPO"), respectively, and a sale on the closing of the last day of the respective period ends. Dividends and distributions, if any, are assumed for purposes of this calculation, to be reinvested at prices obtained under the Company's dividend reinvestment plan.

(4)
Total return is calculated assuming a purchase at net asset value on the opening of the first day of the period and a sale at net asset value on the last day of the period. Dividends and distributions, if any, are assumed for purposes of this calculation, to be reinvested at the net asset value on the last day of the respective quarter.

(5)
For the year ended December 31, 2014, amounts include the investment activity ofhas been derived from the Predecessor Operating Company and the Company.

(6)
The weighted average Yield to Maturity at Cost calculation assumesour financial statements and related notes thereto that all investments, including secured collateralized agreements, not on non-accrual are purchased at the adjusted cost on the respective period ends and held until their respective maturities with no prepayments or losses and exited at par at maturity. Adjusted cost reflects the cost for post-IPO investments in accordance withwere audited by Deloitte & Touche LLP, an independent registered public accounting principles generally accepted in the United States of America ("GAAP") and a stepped up cost basis of pre-IPO investments (assuming a step-up to fair market value occurred on the IPO date).
firm.

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The below selected financial and other data is for NMFC.
(in thousands except shares and per share data)
         
Period from
May 19, 2011
(commencement
of operations)
to December 31,
2011
 Years Ended December 31, 
New Mountain Finance Corporation2015 2014 2013 2012 
Statement of Operations Data:   
  
  
  
Investment income$153,855
 $91,923
 $—
 $—
 $—
Investment income allocated from NMF Holdings—
 43,678
 90,876
 37,511
 13,669
Net expenses71,360
 34,727
 —
 —
 —
Net expenses allocated from NMF Holdings—
 20,808
 40,355
 17,719
 5,324
Net investment income82,495
 80,066
 50,521
 19,792
 8,345
Net realized (losses) gains on investments(12,789) 357
 —
 —
 —
Net realized and unrealized gains (losses) allocated from NMF Holdings—
 9,508
 11,443
 12,087
 (4,235)
Net change in unrealized (depreciation) appreciation of investments(35,272) (43,863) —
 —
 —
Net change in unrealized (depreciation) appreciation of securities purchased under collateralized agreements to resell(296) —
 —
 —
 —
Net change in unrealized (depreciation) appreciation of investment in NMF Holdings—
 —
 (44) (95) 6,221
Provision for taxes(1,183) (493) —
 —
 —
Net increase in net assets resulting from operations32,955
 45,575
 61,920
 31,784
 10,331
Per share data:   
  
  
  
Net asset value$13.08
 $13.83
 $14.38
 $14.06
 $13.60
Net increase in net assets resulting from operations (basic)0.55
 0.88
 1.76
 2.14
 0.97
Net increase in net assets resulting from operations (diluted)(1)0.55
 0.86
 1.76
 2.14
 0.38
Dividends declared(2)1.36
 1.48
 1.48
 1.71
 0.86
Balance sheet data:   
  
  
  
Total assets$1,602,138
 $1,514,920
 $650,107
 $345,331
 $145,487
Holdings Credit Facility419,313
 468,108
 N/A
 N/A
 N/A
SBA-guaranteed debentures117,745
 37,500
 N/A
 N/A
 N/A
Convertible Notes115,000
 115,000
 N/A
 N/A
 N/A
NMFC Credit Facility90,000
 50,000
 N/A
 N/A
 N/A
Total net assets836,908
 802,170
 650,107
 341,926
 145,487
Other data:   
  
  
  
Total return based on market value(3)(4.00)% 9.66% 11.62% 24.84% 4.16%
Total return based on net asset value(4)4.32 % 6.56% 13.27% 16.61% 2.82%
Number of portfolio companies at period end75
 71
 N/A
 N/A
 N/A
Total new investments for the period(5)$612,737
 $720,871
 N/A
 N/A
 N/A
Investment sales and repayments for the period(5)$483,936
 $384,568
 N/A
 N/A
 N/A
Weighted average Yield to Maturity at Cost on debt portfolio at period end (unaudited)(6)10.7 % 10.7% N/A
 N/A
 N/A
Weighted average shares outstanding for the period (basic)59,715,290
 51,846,164
 35,092,722
 14,860,838
 10,697,691
Weighted average shares outstanding for the period (diluted)66,968,089
 56,157,835
 35,092,722
 14,860,838
 10,697,691
Portfolio turnover(5)33.93 % 29.51% N/A
 N/A
 N/A

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(1)In applying the if-converted method, conversion is not assumed for purposes of computing diluted earnings per share if the effect would be anti-dilutive. For the year ended December 31, 2015, there was anti-dilution. For the year ended December 31, 2014, there was no anti-dilution. For the years ended December 31, 2013 and December 31, 2012, due to reflecting earnings for the full year of operations of the Predecessor Operating Company assuming 100.0% NMFC ownership of Predecessor Operating Company and assuming all of New Mountain Finance AIV Holdings Corporation's ("AIV Holdings") units in the Predecessor Operating Company were exchanged for public shares of NMFC during the years then ended, the earnings per share would be $1.79 and $2.18, respectively.
(2)Dividends declared in the year ended December 31, 2014 include a $0.12 per share special dividend related to realized capital gains attributable to NMF Holdings' warrant investments in Learning Care Group (US), Inc. Dividends declared in the year ended December 31, 2013 include a $0.12 per share special dividend related to a distribution received attributable to NMF Holdings' investment in YP Equity Investors LLC. Dividends declared in the year ended December 31, 2012 include a $0.23 per share special dividend related to estimated realized capital gains attributable to NMF Holdings' investments in Lawson Software, Inc. and Infor Lux Bond Company and a $0.14 per share special dividend intended to minimize to the greatest extent possible NMFC's U.S. federal income or excise tax liability.
(3)For the years ended December 31, 2015, December 31, 2014, December 31, 2013, December 31, 2012 and for the period May 19, 2011 to December 31, 2011, total return is calculated assuming a purchase of common stock at the opening of the first day of the period and assuming a purchase of common stock at our initial purchase offering ("IPO"), respectively, and a sale on the closing of the last day of the respective period ends. Dividends and distributions, if any, are assumed for purposes of this calculation, to be reinvested at prices obtained under our dividend reinvestment plan.
(4)Total return is calculated assuming a purchase at net asset value on the opening of the first day of the period and a sale at net asset value on the last day of the period. Dividends and distributions, if any, are assumed for purposes of this calculation, to be reinvested at the net asset value on the last day of the respective quarter.
(5)For the year ended December 31, 2014, amounts include our investment activity and the investment activity of the Predecessor Operating Company.
(6)The weighted average Yield to Maturity at Cost calculation assumes that all investments, including secured collateralized agreements, not on non-accrual are purchased at the adjusted cost on the respective period ends and held until their respective maturities with no prepayments or losses and exited at par at maturity. Adjusted cost reflects the cost for post-IPO investments in accordance with accounting principles generally accepted in the United States of America ("GAAP") and a stepped up cost basis of pre-IPO investments (assuming a step-up to fair market value occurred on the IPO date).

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As of May 8, 2014, NMFC assumed all operating activities previously undertaken by NMF Holdings. The following table sets forth selected financial and other data for NMF Holdings when it was the Predecessor Operating Company.

(in thousands except units and per unit data)

 Years Ended December 31,
New Mountain Finance Holdings, L.L.C.2013 2012 2011 
Statement of Operations Data: 
  
  
 
Total investment income$114,912
 $85,786
 $56,523
 
Net expenses51,235
 40,569
 17,998
 
Net investment income63,677
 45,217
 38,525
 
Net realized and unrealized gains (losses)15,247
 28,779
 (6,848) 
Net increase in net assets resulting from operations78,924
 73,996
 31,677
 
Per unit data: 
  
  
 
Net asset value$14.38
 $14.06
 $13.60
 
Net increase in net assets resulting from operations (basic and diluted)1.79
 2.18
 1.02
 
Dividends declared(1)1.48
 1.71
 0.86
 
Balance sheet data: 
  
  
 
Total assets$1,147,841
 $1,025,564
 $730,579
 
Holdings Credit Facility221,849
 206,938
 129,038
 
SLF Credit Facility214,668
 214,262
 165,928
 
Total net assets688,516
 569,939
 420,502
 
Other data: 
  
  
 
Total return at net asset value(2)13.27% 16.61% 10.09% 
Number of portfolio companies at period end59
 63
 55
 
Total new investments for the period$529,307
 $673,218
 $493,331
 
Investment sales and repayments for the period$426,561
 $423,874
 $231,962
 
Weighted average Yield to Maturity at Cost on debt portfolio at period end (unaudited)(3)11.0% 10.3% 10.3% 
Weighted average Yield to Maturity on debt portfolio at period end (unaudited)(4)10.6% 10.1% 10.7% 
Weighted average Adjusted Yield to Maturity on debt portfolio at period end (unaudited)—
(5)—
(5)13.1% 
Weighted average common membership units outstanding for the period44,021,920
 34,011,738
 30,919,629
(6)
Portfolio turnover40.52% 52.02% 42.13% 

(1)Dividends declared in the year ended December 31, 2013 include a $0.12 per unit special dividend related to a distribution received attributable to NMF Holdings' investment in YP Equity Investors LLC. Dividends declared in the year ended December 31, 2012 include a $0.23 per unit special dividend related to estimated realized capital gains attributable to NMF Holdings' investments in Lawson Software,��Inc. and Infor Lux Bond Company and a $0.14 per unit special dividend intended to minimize to the greatest extent possible NMFC's U.S. federal income or excise tax liability. Actual cash payments on the dividends declared to AIV Holdings only, for the quarters ended March 31, 2012, June 30, 2012, December 31, 2012 and March 31, 2013, were made on April 4, 2012, July 9, 2012, January 7, 2013 and April 5, 2013 respectively.
(2)For the years ended December 31, 2013 and December 31, 2012, total return is calculated assuming a purchase at net asset value on the opening of the first day of the year and a sale at net asset value on the last day of the respective period ends. Dividends and distributions, if any, are assumed for purposes of this calculation, to be reinvested at the net asset value on the last day of the respective quarter. For the year ended December 31, 2011, total return is calculated in two parts: (1) from the opening of the first day of the year to NMFC's IPO date, total return is calculated 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.

 
 Years ended December 31, 
New Mountain Finance Holdings, L.L.C.
 2013 2012 2011 2010 2009 

Statement of Operations Data:

                

Total investment income

 $114,912 $85,786 $56,523 $41,375 $21,767 

Net expenses

  51,235  40,569  17,998  3,911  1,359 

Net investment income

  63,677  45,217  38,525  37,464  20,408 

Net realized and unrealized gains (losses)

  15,247  28,779  (6,848) 26,328  105,272 

Net increase (decrease) in net assets resulting from operations

  78,924  73,996  31,677  63,792  125,680 

Per unit data:

                

Net asset value

 $14.38 $14.06 $13.60  N/A  N/A 

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

  1.79  2.18  1.02  N/A  N/A 

Dividends declared(1)

  1.48  1.71  0.86  N/A  N/A 

Balance sheet data:

                

Total assets

 $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

  214,668  214,262  165,928  56,936  — 

Total net assets

  688,516  569,939  420,502  241,927  239,441 

Other data:

                

Total return at net asset value(2)

  13.27% 16.61% 10.09% 26.54% 76.38%

Number of portfolio companies at period end

  59  63  55  43  24 

Total new investments for the period

 $529,307 $673,218 $493,331 $332,708 $268,382 

Investment sales and repayments for the period

 $426,561 $423,874 $231,962 $258,202 $125,430 

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

  11.0% 10.3% 10.3% —  — 

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

  10.6% 10.1% 10.7% —(5) —(5)

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

  —(6) —(6) 13.1% 12.5% 12.7%

Weighted average common membership units outstanding for the period

  44,021,920  34,011,738  30,919,629(7) N/A  N/A 

Portfolio turnover

  40.52% 52.02% 42.13% 76.69% 57.50%
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(1)
Dividends declared in the year ended December 31, 2013 include a $0.12 per unit special dividend related to a distribution received attributable to NMF Holdings' investment in YP Equity Investors LLC. Dividends declared in the year ended December 31, 2012 include a $0.23 per unit special dividend related to estimated realized capital gains attributable to NMF Holdings' investments in Lawson Software, Inc. and Infor Lux Bond Company and a $0.14 per unit special dividend intended to minimize to the greatest extent possible NMFC's U.S. federal income or excise tax liability. Actual cash

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

(2)
For the years ended December 31, 2013 and December 31, 2012, total return is calculated assuming a purchase at net asset value on the opening of the first day of the year and a sale at net asset value on the last day of the respective period ends. Dividends and distributions, if any, are assumed for purposes of this calculation, to be reinvested at the net asset value on the last day of the respective quarter. For the year ended December 31, 2011, total return is calculated in two parts: (1) from the opening of the first day of the year to NMFC's IPO date, total return is calculated 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 weighted average Yield to Maturity at Cost calculation assumes that all investments not on non-accrual are purchased at the adjusted cost on the respective period ends and held until their respective maturities with no prepayments or losses and exited at par at maturity. Adjusted cost reflects the GAAP cost for post-IPO investments and a stepped up cost basis of pre-IPO investments (assuming a step-up to fair market value occurred on the IPO date). The weighted average Yield to Maturity at Cost was not calculated prior to NMFC's IPO.

(4)
The weighted average Yield to Maturity calculation assumes that all investments not on non-accrual are purchased at fair value on the respective period ends and held until their respective maturities with no prepayments or losses and exited at par at maturity. The weighted average Yield to Maturity was not calculated subsequent to December 31, 2013.

(5)
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 NMF Holdings 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, NMF Holdings began using the weighted average Yield to Maturity concept instead of the "Adjusted Yield to Maturity" concept for yield calculation purposes.

(6)
"Adjusted Yield to Maturity" assumes that the investments in NMF Holdings' portfolio are purchased at fair value on the respective period ends and held until their respective maturities with no prepayments or losses and exited at par at maturity. This calculation excludes the impact of existing leverage, except for the non-recourse debt of NMF SLF. NMF SLF is treated as a fully levered asset of NMF Holdings, with NMF SLF's net asset value being included for yield calculation purposes.

(7)
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.


(3)The weighted average Yield to Maturity at Cost calculation assumes that all investments not on non-accrual are purchased at the adjusted cost on the respective period ends and held until their respective maturities with no prepayments or losses and exited at par at maturity. Adjusted cost reflects the GAAP cost for post-IPO investments and a stepped up cost basis of pre-IPO investments (assuming a step-up to fair market value occurred on the IPO date). The weighted average Yield to Maturity at Cost was not calculated prior to NMFC's IPO.
(4)The weighted average Yield to Maturity calculation assumes that all investments not on non-accrual are purchased at fair value on the respective period ends and held until their respective maturities with no prepayments or losses and exited at par at maturity. The weighted average Yield to Maturity was not calculated subsequent to December 31, 2013.
(5)"Adjusted Yield to Maturity" assumes that the investments in NMF Holdings' portfolio are purchased at fair value on the respective period ends and held until their respective maturities with no prepayments or losses and exited at par at maturity. This calculation excludes the impact of existing leverage, except for the non-recourse debt of NMF SLF. NMF SLF is treated as a fully levered asset of NMF Holdings, with NMF SLF's net asset value being included for yield calculation purposes.
(6)Weighted average common membership units outstanding presented from May 19, 2011 to December 31, 2011, as the fund became unitized on May 19, 2011, the IPO date.

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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 New Mountain Finance Corporation, including its wholly-owned direct and indirect subsidiaries (collectively, "we", "us", "our", "NMFC" or the "Company").

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 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 consolidated financial statements and notes thereto appearing elsewhere in this report. Some of the statements in this report (including in the following discussion) constitute forward-looking statements, which relate to future events or theour future performance or our financial condition of the Company.condition. 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 Company invests;

•
we invest;
the ability of the Company'sour portfolio companies to achieve their objectives;

•
the Company's
our ability to make investments consistent with itsour investment objectives, including with respect to the size, nature and terms of itsour 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 United States Securities and Exchange Commission ("SEC"), including annual reports on Form 10-K, registration statements on Form N-2, quarterly reports on Form 10-Q and current reports on Form 8-K.

Overview

        NMFC is

New Mountain Finance Corporation
We are a Delaware corporation that was originally incorporated on June 29, 2010. NMFC isWe are a closed-end, non-diversified management investment company that has elected to be regulated as a BDC


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business development company ("BDC") under the Investment Company Act of 1940, as amended (the "1940 Act"). As such, NMFC iswe are obligated to comply with certain regulatory requirements. NMFC hasWe have elected to be treated, and intendsintend to comply with the requirements to continue to qualify annually, as a regulated investment company ("RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended, (the "Code"). NMFC is also registered as an investment adviser under the Investment Advisers Act of 1940, as amended (the "Advisers Act").


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On May 19, 2011, NMFCwe priced itsour 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, NMFCwe sold an additional 2,172,000 shares of itsour common stock to certain executives and employees of, and other individuals affiliated with, New Mountain Capital (defined as New Mountain Capital Group, L.L.C. and its affiliates) in a concurrent private placement (the "Concurrent Private Placement"). Additionally, 1,252,964 shares were issued to the partners of New Mountain Guardian Partners, L.P. at that time for their ownership interest in the Predecessor Entities (as defined below). In connection with NMFC'sour IPO and through a series of transactions, New Mountain Finance Holdings, L.L.C. ("NMF Holdings" or the "Predecessor Operating Company") acquired all of the operations of the Predecessor Entities, including all of the assets and liabilities related to such operations.

New Mountain Finance Holdings, L.L.C.
NMF Holdings is a Delaware limited liability company. Until May 8, 2014, NMF Holdings was externally managed and was regulated as a BDC under the 1940 Act. As such, NMF Holdings was obligated to comply with certain regulatory requirements. NMF Holdings was treated as a partnership for United States ("U.S.") federal income tax purposes for so long as it had at least two members. With the completion of the underwritten secondary offering on February 3, 2014, NMF Holdings' existence as a partnership for U.S. federal income tax purposes terminated and NMF Holdings became an entity that is disregarded as a separate entity from its owner for U.S. federal tax purposes. For additional information on our organizational structure prior to May 8, 2014, see "—Restructuring".

Until May 8, 2014, NMF Holdings was externally managed by the Investment Adviser. As of May 8, 2014, the Investment Adviser serves as the external investment adviser to NMFC.us. New Mountain Finance Administration, L.L.C. (the "Administrator") provides the administrative services necessary for operations. The Investment Adviser and Administrator are wholly-owned subsidiaries of New Mountain Capital. New Mountain Capital is a firm with a track record of investing in the middle market and with assets under management totaling more than $15.0 billion(1), which includes total assets held by the Company.us. New Mountain Capital focuses on investing in defensive growth companies across its private equity, public equity and credit investment vehicles. NMF Holdings, formerly known as New Mountain Guardian (Leveraged), L.L.C., was originally formed as a subsidiary of New Mountain Guardian AIV, L.P. ("Guardian AIV") by New Mountain Capital in October 2008. Guardian AIV was formed through an allocation of approximately $300.0 million of the $5.1 billion of commitments supporting New Mountain Partners III, L.P., a private equity fund managed by New Mountain Capital. In February 2009, New Mountain Capital formed a co-investment vehicle, New Mountain Guardian Partners, L.P., comprising $20.4 million of commitments. New Mountain Guardian (Leveraged), L.L.C. and New Mountain Guardian Partners, L.P., together with their respective direct and indirect wholly-owned subsidiaries, are defined as the "Predecessor Entities".

Prior to December 18, 2014, New Mountain Finance SPV Funding, L.L.C. ("NMF SLF") was a Delaware limited liability company. NMF SLF was a wholly-owned subsidiary of NMF Holdings and thus aour wholly-owned indirect subsidiary of the Company.subsidiary. NMF SLF was bankruptcy-remote and non-recourse to NMFC.us. As part of an amendment to the Company's exisitingour existing credit facilities with Wells Fargo Bank, National Association, NMF SLF merged with and into NMF Holdings on

(1)
Includes amounts committed, not all of which have been drawn down and invested to date, as of December 31, 2014.

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December 18, 2014. SeeItem 8.—Financial Statements and Supplementary Data—Note 7, Borrowings for additional information on the Company'sour credit facilities.

New Mountain Finance AIV Holdings Corporation
Until April 25, 2014, New Mountain Finance AIV Holdings Corporation ("AIV Holdings") was a Delaware corporation that was originally incorporated on March 11, 2011. AIV Holdings was dissolved on April 25, 2014. Guardian AIV, a Delaware limited partnership, was AIV Holdings' sole stockholder. AIV Holdings was a closed-end, non-diversified management investment company that was regulated as a BDC under the 1940 Act. As such, AIV Holdings was obligated to comply with certain regulatory requirements. AIV Holdings was treated, and complied with the requirements to qualify annually, as a RIC under the Code.

(1)Includes amounts committed, not all of which have been drawn down and invested to date, as of December 31, 2015.



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Structure
Prior to the Restructuring (as defined below) on May 8, 2014, NMFC and AIV Holdings were holding companies with no direct operations of their own, and their sole asset was their ownership in NMF Holdings. In connection with the IPO, NMFC and AIV Holdings each entered into a joinder agreement with respect to the Limited Liability Company Agreement, as amended and restated (the "Operating Agreement"), of NMF Holdings, pursuant to which NMFC and AIV Holdings were admitted as members of NMF Holdings. NMFC acquired from NMF Holdings, with the gross proceeds of the IPO and the Concurrent Private Placement, common membership units ("units") of NMF Holdings (the number of units were equal to the number of shares of NMFC's common stock sold in the IPO and the Concurrent Private Placement). Additionally, NMFC received units of NMF Holdings equal to the number of shares of common stock of NMFC issued to the partners of New Mountain Guardian Partners, L.P. Guardian AIV was the parent of NMF Holdings prior to the IPO and, as a result of the transactions completed in connection with the IPO, obtained units in NMF Holdings. Guardian AIV contributed its units in NMF Holdings to its newly formed subsidiary, AIV Holdings in exchange for common stock of AIV Holdings. AIV Holdings had the right to exchange all or any portion of its units in NMF Holdings for shares of NMFC's common stock on a one-for-one basis at any time.

The original 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. The result was that any distributions made to NMFC's stockholders that were attributable to such gains generally were not treated as taxable dividends but rather as return of capital.

Since NMFC'sour IPO, and through December 31, 2014, NMFC2015, we raised approximately $374.6$454.0 million in net proceeds from additional offerings of common stock and issued shares of its common stock valued at approximately $288.4 million on behalf of AIV Holdings for exchanged units. NMFCWe acquired from NMF Holdings units of NMF Holdings equal to the number of shares of NMFC'sour common stock sold in additional offerings. With the completion of the final secondary offering on February 3, 2014, NMFCwe owned 100.0% of the units of NMF Holdings, which became aour wholly-owned subsidiary of NMFC.

subsidiary.

Restructuring

As a BDC, AIV Holdings had been subject to the 1940 Act, including certain provisions applicable only to BDCs. Accordingly, and after careful consideration of the 1940 Act requirements applicable to BDCs, the cost of 1940 Act compliance and a thorough assessment of AIV Holdings' business model, AIV Holdings' board of directors had determined that continuation as a BDC was not in the best interests of AIV Holdings and Guardian AIV at the present time.AIV. Specifically, given that AIV Holdings was formed for the sole purpose of holding units of NMF Holdings and AIV Holdings had disposed of all of the units of NMF Holdings that it was holding as of February 3, 2014, the board of directors of AIV Holdings approved and declared advisable at an in-person meeting held on March 25, 2014 the withdrawal of AIV Holdings' election to be regulated as a BDC under the 1940 Act. In addition, the


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board of directors of AIV Holdings approved and declared advisable for AIV Holdings to terminate its registration under Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and to dissolve AIV Holdings under the laws of the State of Delaware.

Upon receipt of the necessary stockholder consent to authorize the board of directors of AIV Holdings to withdraw AIV Holdings' election to be regulated as a BDC, the withdrawal was filed and became effective upon receipt by the U.S. SEC of AIV Holdings' notification of withdrawal on Form N-54C on April 15, 2014. The board of directors of AIV Holdings believed that AIV Holdings met the requirements for filing the notification to withdraw its election to be regulated as a BDC, upon the receipt of the necessary stockholder consent. After the notification of withdrawal of AIV Holdings' BDC election was filed with the SEC, AIV Holdings was no longer subject to the regulatory provisions of the 1940 Act applicable to BDCs generally, including regulations related to insurance, custody, composition of its board of directors, affiliated transactions and any compensation arrangements.

In addition, on April 15, 2014, AIV Holdings filed a Form 15 with the SEC to terminate AIV Holdings' registration under Section 12(g) of the Exchange Act. After these SEC filings and any other federal or state regulatory or tax filings were made, AIV Holdings proceeded to dissolve under Delaware law by filing a certificate of dissolution in Delaware on April 25, 2014.

Until May 8, 2014, as a BDC, NMF Holdings had been subject to the 1940 Act, including certain provisions applicable only to BDCs. Accordingly, and after careful consideration of the 1940 Act requirements applicable to BDCs, the cost of 1940 Act compliance and a thorough assessment of NMF Holdings' current business model, NMF Holdings' board of directors determined at an in-person meeting held on March 25, 2014 that continuation as a BDC was not in the best interests of NMF Holdings at the present time.

Holdings.

At the 2014 joint annual meeting of the stockholders of NMFC and the sole unit holder of NMF Holdings held on May 6, 2014, the stockholders of NMFC and the sole unit holder of NMF Holdings approved a proposal which authorized the board of directors of NMF Holdings to withdraw NMF Holdings' election to be regulated as a BDC. Additionally, the

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stockholders of NMFC approved a new investment advisory and management agreement between NMFC and the Investment Adviser. Upon receipt of the necessary stockholder/unit holder approval to authorize the board of directors of NMF Holdings to withdraw NMF Holdings' election to be regulated as a BDC, the withdrawal was filed and became effective upon receipt by the SEC of NMF Holdings' notification of withdrawal on Form N-54C on May 8, 2014.

Effective May 8, 2014, NMF Holdings amended and restated its Operating Agreement such that the board of directors of NMF Holdings was dissolved and NMF Holdings remained a wholly-owned subsidiary of NMFC with the sole purpose of serving as a special purpose vehicle for NMF Holdings' credit facility, and NMFC assumed all other operating activities previously undertaken by NMF Holdings under the management of the Investment Adviser (collectively, the "Restructuring"). After the Restructuring, all wholly-owned direct and indirect subsidiaries of NMFC are consolidated with NMFC for both 1940 Act and financial statement reporting purposes, subject to any financial statement adjustments required in accordance with accounting principles generally accepted in the United States of America ("GAAP"). NMFC continues to remain a BDC regulated under the 1940 Act.

Also, on May 8, 2014, NMF Holdings filed Form 15 with the SEC to terminate NMF Holdings' registration under Section 12(g) of the Exchange Act. As a special purpose entity, NMF Holdings is bankruptcy-remote and non-recourse to NMFC. In addition, the assets held at NMF Holdings will continue to be used to secure NMF Holdings' credit facility.


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Current Organization

During the year ended December 31, 2014, the Company2015, we established a wholly-owned subsidiary, NMF QID NGL Holdings, Inc. (“NMF QID”). Our wholly-owned subsidiaries, NMF Ancora Holdings Inc. ("(“NMF Ancora"Ancora”), NMF QID and NMF YP Holdings Inc. ("(“NMF YP"YP”), which are structured as Delaware entities that serve as tax blocker corporations which hold equity or equity-like investments in portfolio companies organized as limited liability companies (or other forms of pass-through entities). TaxWe consolidate our tax blocker corporations for accounting purposes. The tax blocker corporations are not consolidated for income tax purposes and may incur income tax expense as a result of their ownership of the portfolio companies. Additionally, the Company has aour wholly-owned subsidiary, New Mountain Finance Servicing, L.L.C. ("(“NMF Servicing"Servicing”) that serves as the administrative agent on certain investment transactions. New Mountain Finance SBIC, L.P. ("(“SBIC LP"LP”), and its general partner, New Mountain Finance SBIC G.P., L.L.C. ("(“SBIC GP"GP”), were organized in Delaware as a limited partnership and limited liability company, respectively. SBIC LP and SBIC GP are our consolidated wholly-owned direct and indirect subsidiaries of the Company.subsidiaries. SBIC LP received a license from the U.S. Small Business Administration (the "SBA"“SBA”) to operate as a small business investment company ("SBIC"(“SBIC”) under Section 301(c) of the Small Business Investment Act of 1958, as amended (the "1958 Act"“1958 Act”).

The diagram below depicts the Company'sour organizational structure as of December 31, 2014.2015.

*
*Includes partners of New Mountain Guardian Partners, L.P.
**NMFC is the sole limited partner of SBIC LP. NMFC, directly or indirectly through SBIC GP, wholly-owns SBIC LP. NMFC owns 100.0% of SBIC GP which owns 1.0% of SBIC LP. NMFC owns 99.0% of SBIC LP.

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**
NMFC is the sole limited partner of SBIC LP. NMFC, directly or indirectly through SBIC GP, wholly-owns SBIC LP. NMFC owns 100.0% of SBIC GP which owns 1.0% of SBIC LP. NMFC owns 99.0% of SBIC LP.

        The Company's

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


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the our investment criteria used by the Company, however,criteria. However, SBIC LP's investments must be in SBA eligible companies. Our portfolio may be concentrated in a limited number of industries. As of December 31, 2014,2015, our top five industry concentrations were software, business services, education, distribution & logistics and federal services and healthcare services.

As of December 31, 2014, the Company's2015, our net asset value was $802.2$836.9 million and itsour portfolio had a fair value of approximately $1,424.7$1,512.2 million in 7175 portfolio companies, with a weighted average Yield to Maturity at Cost of approximately 10.7%. This Yield to Maturity at Cost ("Yield to Maturity at Cost") calculation assumes that all investments, including secured collateralized agreements, not on non-accrual are purchased at the adjusted cost on the quarter end date and held until their respective maturities with no prepayments or losses and exited at par at maturity. Adjusted cost reflects the GAAP cost for post-IPO investments and a stepped up cost basis of pre-IPO investments (assuming a step-up to fair market value occurred on the IPO date). This calculation excludes the impact of existing leverage. Yield to Maturity at Cost uses the London Interbank Offered Rate ("LIBOR") curves at each quarter's end date. The actual yield to maturity may be higher or lower due to the future selection of the LIBOR contracts by the individual companies in the Company'sour portfolio or other factors.

Recent Developments

On December 31, 2014 and continuing subsequentFebruary 4, 2016, our board of directors authorized a program for the purpose of repurchasing up to $50.0 million worth of our common stock. Under the year then ended, the Company's portfolio investment in Edmentum, Inc. disclosed its projected substantial financial deterioration. The Company reflects this informationrepurchase program, we may, but are not obligated to, repurchase our outstanding common stock in the valuationopen market from time to time provided that we comply with our code of this portfolio investment asethics and the guidelines specified in Rule 10b-18 of the Exchange Act, including certain price, market volume and timing constraints. In addition, any repurchases will be conducted in accordance with the 1940 Act. Unless amended or extended by our board of directors, we expect the repurchase program to be in place until the earlier of December 31, 2014. All interest due2016 or until $50.0 million of our outstanding shares of common stock have been repurchased.
Our board of directors authorized the repurchase program because it believes the sustained market volatility and uncertainty may cause our common stock to be undervalued from time to time. The timing and number of shares to be repurchased will depend on a number of factors, including market conditions. There are no assurances that we will engage in repurchases, but if market conditions warrant, we now have the Company through the year ended December 31, 2014 has been paid. As more information becomes available, the Company may experience a further mark downability to take advantage of the fair value of this investment. This investment maysituations where our management believes share repurchases would be placed on non-accrual status in the future. The investment represents 1.1% of the total portfolio at fair value as of December 31, 2014.

        In January 2015, UniTek emerged from "Pre-Packaged" Chapter 11 Bankruptcyadvantageous to us and completed its restructuring.

to our shareholders.

On February 23, 2015, the Company's22, 2016, our board of directors declared a first quarter 20152016 distribution of $0.34 per share payable on March 31, 20152016 to holders of record as of March 17, 2015.

2016.

Critical Accounting Policies

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

Basis of Accounting

        The Company consolidates itsWe consolidate our wholly-owned direct and indirect subsidiaries: NMF Holdings, NMF Servicing, SBIC LP, SBIC GP, NMF Ancora, NMF QID and NMF YP. Previously, the Companywe consolidated itsour wholly-owned indirect subsidiary NMF SLF until it merged with and into NMF Holdings on December 18, 2014. SeeItem 8.—Financial Statements and Supplementary Data—Note 7, Borrowings for additional information on the Company'sour credit facilities. The Company isWe are an investment company following accounting and reporting guidance as described in Accounting Standards Codification Topic 946,Financial Services—Investment Companies, ("ASC 946"). Prior to the Restructuring, the Predecessor Operating Company consolidated its wholly-owned subsidiary, NMF SLF. NMFC and AIV Holdings did not consolidate the Predecessor Operating Company. Prior to the Restructuring, NMFC and AIV Holdings applied investment company master-feeder financial statement presentation, as described in ASC 946 to their interest in the Predecessor Operating Company. NMFC and AIV


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Holdings observed that it is also industry practice to follow the presentation prescribed for a master fund-feeder fund structure in ASC 946 in instances in which a master fund is owned by more than one feeder fund and that such presentation provided stockholders of NMFC and AIV Holdings with a clearer depiction of their investment in the master fund.


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Valuation and Leveling of Portfolio Investments

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

        The Company values its

We value our assets on a quarterly basis, or more frequently if required under the 1940 Act. In all cases, the Company'sour board of directors is ultimately and solely responsible for determining the fair value of itsour 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 itsour portfolio investments require a fair value determination. Security transactions are accounted for on a trade date basis. The Company'sOur 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, we look 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;
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 our 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 we do not have a readily available market quotation will be reviewed by an independent valuation firm engaged by our board of directors; and
d.When deemed appropriate by our 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.

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

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


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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 Company haswe have the ability to access such quotes as of the reporting date. The type of investments which would generally be included in Level I include active exchange-traded equity securities and exchange-traded derivatives. As required by Accounting Standards Codification Topic 820,Fair Value Measurements and Disclosures ("ASC 820"), the Company,we, to the extent that it holdswe hold such investments, doesdo not adjust the quoted price for these investments, even in situations where the Company holdswe hold a large position and a sale could reasonably impact the quoted price.

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

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

inputs.

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

The following table summarizes the levels in the fair value hierarchy that the Company'sour portfolio investments fall into as of December 31, 2014:

2015:

(in thousands)
 Total Level I Level II Level III Total Level I Level II Level III

First lien

 $677,901 $— $508,721 $169,180 $670,023
 $—
 $329,133
 $340,890

Second lien

 604,158 — 469,752 134,406 631,985
 —
 449,227
 182,758

Subordinated

 61,987 — 26,517 35,470 87,005
 —
 33,546
 53,459

Equity and other

 80,625 — — 80,625 123,211
 316
 15
 122,880
​​ ​ ​​ ​ ​​ ​ ​​ ​ ​

Total investments

 $1,424,671 $— $1,004,990 $419,681 $1,512,224
 $316
 $811,921
 $699,987
​​ ​ ​​ ​ ​​ ​ ​​ ​ ​
​​​​​​​​​
​​ ​ ​​ ​​​ ​ ​​ ​ ​

        The Company

We generally usesuse the following framework when determining the fair value of investments where there are little, if any, market activity or observable pricing inputs. The CompanyWe typically determinesdetermine the fair value of itsour performing debt investments utilizing an income approach. Additional consideration is given using a market based approach, as well as reviewing the overall underlying portfolio company's performance and associated financial risks. The following outlines additional details on the approaches considered:

Company Performance, Financial Review, and Analysis:    Prior to investment, as part of itsour due diligence process, the Company evaluateswe evaluate the overall performance and financial stability of the portfolio company. Post investment, the Company analyzeswe analyze each portfolio company's current operating performance and relevant financial trends versus prior year and budgeted results, including, but not limited to, factors affecting its revenue and earnings before interest, taxes, depreciation, and amortization ("EBITDA") growth, margin trends, liquidity position, covenant compliance and changes to its capital structure. The CompanyWe also attemptsattempt 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 itsour original

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investment thesis. This analysis is specific to each portfolio company. The Company leveragesWe leverage the knowledge gained from itsour original due diligence process, augmented by this subsequent monitoring, to continually refine itsour outlook for each of itsour portfolio companies and ultimately form the valuation of itsour investment in each portfolio company. When an external event such as a purchase transaction, public offering or subsequent sale occurs, the Companywe will consider the pricing indicated by the external event to corroborate the private valuation.

For debt investments, we may employ the Market Based Approach (as described below) to assess the total enterprise value of the portfolio company, in order to evaluate the enterprise value coverage of our debt investment. For equity investments or in cases where the Market Based Approach implies a lack of enterprise value coverage for the debt investment, we may additionally employ a discounted cash flow analysis based on the free cash flows of the portfolio company to assess the total enterprise value.
After enterprise value coverage is demonstrated for our debt investments through the method(s) above, the Income Based Approach (as described below) may be employed to estimate the fair value of the investment.
Market Based Approach:    The CompanyWe may estimate the total enterprise value of each portfolio company by utilizing market value cash flow (EBITDA) multiples of publicly traded comparable companies. The Company considerscompanies and comparable transactions. We consider numerous factors when selecting the appropriate companies whose trading multiples are used to value itsour 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 CompanyWe may apply an average of various relevant comparable company EBITDA multiples to the portfolio company's latest twelve month ("LTM") EBITDA or projected EBITDA to calculate the enterprise value of the portfolio company enterprise value.company. Significant increases or decreases in the EBITDA multiple will result in an increase or decrease in enterprise value, resultingwhich may result in an increase or decrease in the fair value estimate of the investment. In applying the market based approach as of December 31, 2014, the Company2015, we used the relevant EBITDA multiple ranges set forth in the table below to determine the enterprise value of investments in twelve of itsour portfolio companies.


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The Company believes We believe this was a reasonable range in light of current comparable company trading levels and the specific portfolio companies involved.

Income Based Approach:    The CompanyWe also may use a discounted cash flow analysis to estimate the fair value of the investment. Projected cash flows represent the relevant security's contractual interest, fee and principal payments plus the assumption of full principal recovery at the investment's expected maturity date. These cash flows are discounted at a rate established utilizing a yield calibration approach, which incorporates changes in the credit quality (as measured by relevant statistics) of the portfolio company, as compared to changes in the yield associated with comparable credit quality market indices, between the date of origination and the valuation date. Significant increases or decreases in the discount rate would result in a decrease or increase in the fair value measurement. In applying the income based approach as of December 31, 2014, the Company2015, we used the discount ranges set forth in the table below to value investments in seventeen of itsour portfolio companies.


 
  
  
  
 Range 
(in thousands)
Type
 Fair Value Approach Unobservable Input Low High Weighted
Average		 

First lien

 $169,180 Market approach EBITDA multiple  6.5x  12.0x  8.6x 

    Income approach Discount rate  8.2% 16.5% 12.0%

Second lien

  134,406 Market approach EBITDA multiple  5.5x  15.5x  10.6x 

    Income approach Discount rate  11.0% 16.0% 12.7%

    Other N/A(1)  N/A(1) N/A(1) N/A(1)

Subordinated

  35,470 Market approach EBITDA multiple  8.0x  12.0x  10.0x 

    Income approach Discount rate  10.7% 17.7% 14.7%

Equity and other

  80,625 Market approach EBITDA multiple  7.0x  12.0x  8.1x 

    Income approach Discount rate  8.0% 15.0% 12.9%

    Other N/A(1)  N/A(1) N/A(1) N/A(1)

    Black Scholes analysis Expected life in years  11.3  11.3  11.3 

      Volatility  31.6% 31.6% 31.6%

      Discount rate  2.3% 2.3% 2.3%
​​​ ​ ​​​​​​​​​​​​​​

 $419,681              
​​​ ​ ​​​​​​​​​​​​​​
​​​​​​​​​​​​​​​​​​
​​​ ​ ​​​​​​​​​​​​​​
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(1)
Fair value was determined based on transaction pricing or recent acquisition or sale as

The unobservable inputs used in the best measure of fair value with no material changes in operationsmeasurement of the related portfolio company since the transaction date.our Level III investments as of December 31, 2015 were as follows:
(in thousands)      Range 
TypeFair Value Approach Unobservable Input Low High Weighted
Average		 
First lien$292,507
 Market & income approach EBITDA multiple 4.5x
 15.5x
 10.0x
 
  
   Discount rate 7.3% 13.9% 11.0% 
 30,719
 Market quote Broker quote N/A
 N/A
 N/A
 
 17,664
 Other N/A(1) N/A
(1)N/A
(1)N/A
(1)
Second lien88,977
 Market & income approach EBITDA multiple 6.5x
 16.0x
 12.3x
 
  
   Discount rate 10.0% 14.2% 12.7% 
 41,544
 Market quote Broker quote N/A
 N/A
 N/A
 
 52,237
 Other N/A(1) N/A
(1)N/A
(1)N/A
(1)
Subordinated38,459
 Market & income approach EBITDA multiple 4.5x
 9.0x
 7.6x
 
  
   Discount rate 10.0% 19.4% 17.7% 
 15,000
 Other N/A(1) N/A
(1)N/A
(1)N/A
(1)
Equity and other121,453
 Market & income approach EBITDA multiple 2.5x
 12.0x
 6.3x
 
  
   Discount rate 8.0% 21.3% 14.6% 
 1,427
 Black Scholes analysis Expected life in years 9.8
 10.3
 10.0
 
  
   Volatility 27.0% 30.3% 28.9% 
  
   Discount rate 2.1% 2.1% 2.1% 
 $699,987
      
  
  
 

(1)Fair value was determined based on transaction pricing or recent acquisition or sale as the best measure of fair value with no material changes in operations of the related portfolio company since the transaction date.
NMFC Senior Loan Program I, LLC

        On June 10, 2014,

NMFC Senior Loan Program I, LLC ("SLP I") was formed as a Delaware limited liability company.company on May 27, 2014 and commenced operations on June 10, 2014. SLP I is a portfolio company held by the Company.us. SLP I is structured as a private investment fund, in which all of the investors are qualified purchasers, as such term is defined under the 1940 Act. Transfer of interests in SLP I is subject to restrictions, and as a result, such interests are not readily marketable. SLP I operates under a limited liability company agreement (the "Agreement") and will continue in existence until June 10, 2019, subject to earlier termination pursuant to certain terms of the Agreement. The term may be extended for up to one year pursuant to certain terms of the Agreement. SLP I has a three year re-investment period.

SLP I invests in senior secured loans issued by companies within our core industry verticals. These investments are typically broadly syndicated first lien loans.

SLP I is capitalized with $93.0 million of capital commitments, $275.0 million of debt from a revolving credit facility and is managed by the Company. The Company'sus. Our capital commitment is $23.0 million, representing less than 25.0% ownership, with third party investors representing the remaining capital commitment. As of December 31, 2015, SLP I had total investments with an aggregate fair value of approximately $349.7 million, debt outstanding of $267.6 million and capital that had been called and funded of $93.0 million. As of December 31, 2014, SLP I had total investments with an


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aggregate fair value of approximately $369.2 million, debt outstanding of $266.9 million and capital that had been called and funded of $93.0 million. The Company'sOur investment in SLP I is disclosed on theour Consolidated Schedules of Investments as of December 31, 2014 Consolidated Schedule of Investments.

        The Company,2015 and December 31, 2014.

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

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income. As of December 31, 2015 and December 31, 2014, approximately $0.9 million and $0.8 million, respectively, of dividend income related to SLP I was included in interest and dividend receivable.

        SLP I invests in senior secured loans issued by companies within We did not earn management fees or dividend income for the Company's core industry verticals. These investments are typically broadly syndicated first lien loans.

year ended December 31, 2013.

Collateralized agreements or repurchase financings

        The Company follows

We follow the guidance in Accounting Standards Codification Topic 860, Transfers and Servicing—Secured Borrowing and Collateral, (``("ASC 860") when accounting for transactions involving the purchases of securities under collateralized agreements to resell (resale agreements). These transactions are treated as collateralized financing transactions and are recorded at their contracted resale or repurchase amounts, as specified in the respective agreements. Interest on collateralized agreements is accrued and recognized over the life of the transaction and included in interest income. As of December 31, 2015 and December 31, 2014, the Companywe held one collateralized agreement to resell with a cost basis of $30.0 million and $30.0 million, respectively, and a carrying value of $29.7 million and $30.0 million, respectively, collateralized by a securitysecond lien bond in Northstar GOM Holdings Group LLC with a fair value of $29.7 million and $30.0 million, respectively, and guaranteed by a private hedge fund with approximately $716.6 million and $769.4 million, respectively, of assets under management. Pursuant to the counterparty. The counterparty hasterms of the optioncollateralized agreement, the private hedge fund is obligated to repurchase the collateral from the Companyus at the par value of the collateralized agreement within a year.once called upon by us or if the private hedge fund's total assets under management fall below the agreed upon thresholds. The collateralized agreement earnsearned interest at a weighted average rate of 15.0% per annum as of December 31, 2014. The Predecessor Operating Company did not have any collateralized agreements as of the year ended2015 and December 31, 2013.

2014.

Revenue Recognition

        The Company's

Our revenue recognition policies are as follows:

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

Interest and dividend income:    Interest income, including amortization of premium and discount using the effective interest method, is recorded on the accrual basis and periodically assessed for collectability. Interest income also includes interest earned from cash on hand. Upon the prepayment of a loan or debt security, any prepayment penalties are recorded as part of interest income. The Company hasWe have loans and certain preferred equity investments in the portfolio that contain a payment-in-kind ("PIK"(“PIK”) interest or dividend provision. PIK represents interest that isand dividends are accrued and recorded as interest income at the contractual rates, if deemed collectible,collectible. The PIK interest and dividends are added to the loan principal or share balances on the respective capitalization dates and generally due at maturity.maturity or when redeemed by the issuer.

Dividend income on common equity is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies. Dividend income on preferred securities is recorded as dividend income on an accrual basis to the extent that such amounts are deemed collectible.
Non-accrual income:   LoansInvestments 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 isor dividends are reversed when a loanan investment is placed on non-accrual status. Previously capitalized PIK interest isor dividends are not reversed when an investment is placed on non-accrual status. Interest or dividend payments received on non-accrual loansinvestments may be recognized as income or applied to principal depending upon management'smanagement’s judgment of the ultimate outcome. Non-accrual


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loans investments are restored to accrual status when past due principal and interest is paid and, in management'smanagement’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, structuring fees, upfront fees, management fees from a non-controlled/affiliated investment and other miscellaneous fees received and are typically non-recurring in nature. Delayed compensation is income earned from counterparties on trades that do not settle within a set number of business days after trade date. Other income may also include fees from bridge loans. The CompanyWe may from time to time enter into bridge financing commitments, an obligation to provide interim financing to a counterparty until permanent credit can be obtained. These commitments are short-term in nature and may expire unfunded. A fee is received by the Company for providing such commitments. Structuring fees and upfront fees are recognized as income when earned, usually when paid at the closing of the investment and are non-refundable.


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Prior to the Restructuring, NMFC'sour revenue recognition policies were as follows:

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

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

Monitoring of Portfolio Investments

        The Company monitors

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

        The Company uses

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

Investment Rating 1—Investment is performing materially above expectations;

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The following table shows the distribution of our investments on the 1 to 4 investment rating scale at fair value as of December 31, 2015:
(in millions) As of December 31, 2015
Investment Rating Par Value(1) Percent Fair Value Percent
Investment Rating 1 $189.7
 12.6% $247.6
 16.4%
Investment Rating 2 1,251.5
 83.0% 1,231.9
 81.5%
Investment Rating 3 65.3
 4.3% 32.3
 2.1%
Investment Rating 4 1.8
 0.1% 0.4
 —
  $1,508.3
 100.0% $1,512.2
 100.0%

(1)Excludes shares and warrants.
As of December 31, 2014,2015, all investments in the Company'sour portfolio had an Investment Rating of 1 or 2 with the exception of five portfolio company names; four portfolio companies with an Investment Rating of 3 and twoone portfolio companiescompany with an Investment Rating of 4. As

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During the first quarter of 2015, we placed a portion of the Company's investmentour second lien position in one portfolio company had an Investment Rating of 3 and a portion had an Investment Rating of 4.

        As of December 31, 2014, the 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, 2014, the Company's two super priority first lien positions in ATI Acquisition Company remainedEdmentum, Inc. (“Edmentum”) on non-accrual status due to the inability of the portfolio company to service its interest payments for the year then ended and uncertainty about its ability to pay such amounts in the future. During the third quarter of 2013, the Company received preferred shares and warrants in Ancora Acquisition LLC, in relation to the two super priority first lien positions in ATI Acquisition Company.ongoing restructuring. As of DecemberMarch 31, 2014, the Company's2015, our investment in ATI Acquisition Company and Ancora Acquisition LLCEdmentum had an aggregate cost basis of $1.6$30.8 million, an aggregate fair value of $0.4$15.6 million and total unearned interest income of $0.3$0.4 million for the yearthree months then ended. Unrealized gains (losses) includeIn June 2015, Edmentum completed a fee that the Company would receive upon maturityrestructuring which resulted in a material modification of the two super priorityoriginal terms and an extinguishment of our original investment in Edmentum. Prior to the extinguishment in June 2015, our original investment in Edmentum had an aggregate cost of $31.6 million, an aggregate fair value of $16.4 million and total unearned interest income of $0.8 million for the six months ended June 30, 2015. The extinguishment resulted in a realized loss of $15.2 million.  Post restructuring, our investments in Edmentum have been restored to full accrual status.  As of December 31, 2015, our investments in Edmentum have an aggregate cost basis of $20.9 million and an aggregate fair value of $22.8 million.

During the first quarter of 2015, our first lien debt investments.

position in Education Management LLC (“EDMC”) was non-income producing as a result of the portfolio company undergoing a restructuring. As of December 31, 2014, our investment in EDMC had an aggregate cost basis of $3.0 million, an aggregate fair value of $1.4 million and no unearned interest income for the three months then ended.  In January 2015, EDMC completed a restructuring which resulted in a material modification of the original terms and an extinguishment of our original investment in EDMC. Prior to the extinguishment in January 2015, our original investment in EDMC had an aggregate cost of $3.0 million, an aggregate fair value of $1.4 million and no unearned interest income for the period then ended. The extinguishment resulted in a realized loss of $1.6 million.  Post restructuring, our investments in EDMC are income producing.  As of December 31, 2015, our investments in EDMC have an aggregate cost basis of $1.4 million and an aggregate fair value of $0.5 million.

During the third quarter of 2014, the Companywe placed a portion of itsour first lien position in UniTek Global Services, Inc. ("UniTek") on non-accrual status in anticipation of a voluntary petition for a "Pre-Packaged" Chapter 11 Bankruptcy in the U.S. Bankruptcy Court for the District of Delaware which was filed on November 3, 2014. As of December 31, 2014, the portion of theour investment in UniTek first lien position placed on non-accrual status representedhad an aggregate cost basis of $12.1$47.4 million, an aggregate fair value of $8.8$35.2 million and total unearned interest income of $1.0 million for the year then ended.

In January 2015, UniTek emerged from “Pre-Packaged” Chapter 11 Bankruptcy and completed its restructuring.  The restructuring resulted in a material modification of the original terms and an extinguishment of our original investments in UniTek. Prior to the extinguishment in January 2015, our original investments in UniTek had an aggregate cost of $52.9 million, an aggregate fair value of $40.1 million and total unearned interest income of $0.1 million for the period then ended. The extinguishment resulted in a realized loss of $12.8 million.  Post restructuring, our investments in UniTek have been restored to full accrual status.  As of December 31, 2015, our investments in UniTek have an aggregate cost basis of $41.3 million and an aggregate fair value of $47.4 million.

As of December 31, 2015, our 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, 2015, our two super priority first lien positions in ATI Acquisition Company and its related preferred shares and warrants in Ancora Acquisition LLC remained on non-accrual status due to the inability of the portfolio company to service its interest payments for the year then ended and uncertainty about its ability to pay such amounts in the future. As of December 31, 2015, our investment had an aggregate cost basis of $1.6 million, an aggregate fair value of $0.4 million and total unearned interest income of $0.1 million for the year then ended. As of December 31, 2014, our total investment in ATI Acquisition Company and Ancora Acquisition LLC had an aggregate cost basis of $1.6 million, an aggregate fair value of $0.4 million and total unearned interest income of $0.3 million for the year then ended. As of December 31, 2015 and December 31, 2014, unrealized gains (losses) include a fee that we would recognize upon realization of the two super priority first lien debt investments.
Portfolio and Investment Activity

The fair value of the Company'sour investments was approximately $1,512.2 million in 75 portfolio companies at December 31, 2015 and approximately $1,424.7 million in 71 portfolio companies at December 31, 2014. At December 31, 2013 and December 31, 2012, the Company'sour only investment was itsour investment in the Predecessor Operating Company. The fair value of the Predecessor Operating Company's investments was approximately $1,115.7 million in 59 portfolio companies at December 31, 2013 and $989.8 million in 63 portfolio companies at December 31, 2012.

2013.

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The following table shows the Company'sour portfolio and investment activity for the yearyears ended December 31, 2015 and December 31, 2014 and the Predecessor Operating Company's portfolio and investment activity for the years ended December 31, 2013 and December 31, 2012:

 
 Years ended December 31, 
(in millions)
 2014(1) 2013 2012 

New investments in 43, 34 and 45 portfolio companies, respectively

 $720.9 $529.3 $673.2 

Debt repayments in existing portfolio companies

  267.5  395.4  299.2 

Sales of securities in 14, 12 and 22 portfolio companies, respectively

  117.0  31.2  124.7 

Change in unrealized appreciation on 20, 45 and 48 portfolio companies, respectively

  21.2  27.9  27.0 

Change in unrealized depreciation on 60, 29 and 30 portfolio companies, respectively

  (63.9) (19.9) (17.1)
(1)
For the year ended December 31, 2014, amounts represent the investment activity of the Predecessor Operating Company through and including May 7, 2014 and the investment activity of the Company from May 8, 2014 through December 31, 2014.
2013:
 Years Ended December 31,
(in millions)2015 2014(1) 2013
New investments in 36, 43 and 34 portfolio companies, respectively$612.7
 $720.9
 $529.3
Debt repayments in existing portfolio companies400.8
 267.5
 395.4
Sales of securities in 15, 14 and 12 portfolio companies, respectively83.1
 117.0
 31.2
Change in unrealized appreciation on 23, 20 and 45 portfolio companies, respectively44.7
 21.2
 27.9
Change in unrealized depreciation on 70, 60 and 29 portfolio companies, respectively(79.9) (63.9) (19.9)

(1)For the year ended December 31, 2014, amounts represent the investment activity of the Predecessor Operating Company through and including May 7, 2014 and our investment activity from May 8, 2014 through December 31, 2014.
At December 31, 2015 and December 31, 2014, the Company'sour weighted average Yield to Maturity at Cost was approximately 10.7%. At December 31, 2013, the Predecessor Operating Company's weighted average Yield to Maturity at Cost and weighted average Yield to Maturity was approximately 11.0% and 10.6%10.7%, respectively. The Yield to Maturity calculation used in prior years for the Predecessor Operating Company assumed that all investments not on non-accrual were purchased at fair value on December 31, 2013 and held until their respective maturities with no prepayments or losses and exited at par at maturity.

Recent Accounting Standards Updates

        In June 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2013-08,Financial Services—Investment Companies Topic 946—Amendments to the Scope, Measurement and Disclosure Requirements ("ASU 2013-08"), which contains new guidance on assessing whether an entity is an investment company, requiring non-controlling ownership interests in investment companies to be measured at fair value and requiring certain additional disclosures. ASU 2013-08 is effective for interim and annual periods beginning after December 15, 2013. The Company is an investment company that is applying the specialized guidance in Topic 946 as of January 1, 2014.

        In May 2014, the FASB issued Accounting Standards Update No. 2014-09,Revenue from Contracts with Customers Topic 606—Summary and Amendments that Create Revenue from Contracts with Customers and Other Assets and Deferred Costs ('ASU 2014-09"). ASU 2014-09 establishes a comprehensive and converged standard on revenue recognition to enable financial statement users to better understand and consistently analyze an entity's revenue across industries, transactions and geographies. The core principle of the new guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The new guidance also specifies the accounting for certain costs to obtain or fulfill a contract with a customer. The new guidance requires improved disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue that is recognized. Qualitative and quantitative information is


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required to be disclosed about: (1) contracts with customers, (2) significant judgments and changes in judgments, and (3) assets recognized from costs to obtain or fulfill a contract. The new guidance will apply to all entities. The guidance is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2016. Early application is not permitted. The Company is in the process of evaluating the impact that this guidance will have on its consolidated financial statements and disclosures.

In June 2014, the FASB issued Accounting Standards Update No. 2014-11,Transfers and Servicing Topic 860—Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures ("(“ASU 2014-11"2014-11”). ASU 2014-11 changes the accounting for repurchase- and resale-to-maturity agreements by requiring that such agreements be recognized as financing arrangements, and requires that a transfer of a financial asset and a repurchase agreement entered into contemporaneously be accounted for separately. ASU 2014-11 requires additional disclosures about certain transferred financial assets accounted for as sales and certain securities financing transactions. The accounting changes and additional disclosures about certain transferred financial assets accounted for as sales are effective for the first interim and annual reporting periods beginning after December 15, 2014. The additional disclosures for securities financing transactions are required for annual reporting periods beginning after December 15, 2014 and for interim reporting periods beginning after March 15, 2015. The Company is in the processadoption of evaluating theASU 2014-11 did not have a material impact that this guidance will have on itsour consolidated financial statements and disclosures.

In August 2014, the FASB issued Accounting Standards Update No. 2014-15,Presentation of Financial Statements—Going Concern Subtopic 205-40—Disclosure of Uncertainties about an Entity'sEntity’s Ability to Continue as a Going Concern ("(“ASU 2014-15"2014-15”). ASU 2014-15 will explicitly require management to assess an entity'sentity’s ability to continue as a going concern, and to provide related footnote disclosure in certain circumstances. The new standard will be effective for all entities in the first annual period ending after December 15, 2016. Earlier adoption is permitted. The adoption of ASU 2014-15 is not expected to have a material impact on the Company'sour consolidated financial statements and disclosures.

In February 2015, the FASB issued Accounting Standards Update No. 2015-02, Consolidation Topic 810—Amendments to the Consolidation Analysis (“ASU 2015-02”), which modifies the consolidation analysis in determining if limited partnerships or similar type entities fall under the variable interest model or voting interest model, particularly those that have fee arrangements and related party relationships. ASU 2015-02 will be effective for all public entities for interim and annual reporting periods beginning after December 15, 2015. Earlier adoption is permitted. We are in the process of evaluating the impact that this guidance will have on our consolidated financial statements and disclosures.
In April 2015, the FASB issued Accounting Standards Update No. 2015-03, Interest—Imputation of Interest Subtopic 835-30—Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”), which changes the presentation of debt issuance costs in financial statements. Under ASU 2015-03, an entity presents such costs on the statement of assets and liabilities as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs is reported as interest expense.  The new standard will be effective for all public entities for interim and annual reporting periods beginning after December 15, 2015. Earlier adoption is permitted. We are in the process of evaluating the impact that this guidance will have on our consolidated financial statements and disclosures.
In May 2015, the FASB issued Accounting Standards Update No. 2015-07, Fair Value Measurement Topic 820—Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent) (“ASU 2015-07”), which amends the presentation of investments measured at net asset value, as a practical expedient for fair value, from the fair

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value hierarchy. Under ASU 2015-07, an entity would remove investments measured using the practical expedient from the fair value hierarchy. ASU 2015-07 will be effective for annual and interim reporting periods after December 15, 2015. We are in the process of evaluating the impact that this guidance will have on our consolidated financial statements and disclosures.
Results of Operations

Under GAAP, NMFC'sour IPO did not step-up the cost basis of the Predecessor Operating Company's existing investments to fair market value at the IPO date. Since the total value of the Predecessor Operating Company's investments at the time of the IPO was greater than the investments' cost basis, a larger amount of amortization of purchase or original issue discount, and different amounts in realized gain and unrealized appreciation, may be recognized under GAAP in each period than if the step-up had occurred. This will remain until such predecessor investments are sold, repaid or mature in the future. The Company tracksWe track the transferred (or fair market) value of each of the Predecessor Operating Company's investments as of the time of the IPO and, for purposes of the incentive fee calculation, adjusts income as if each investment was purchased at the date of the IPO (or stepped up to fair market value). The respective "Adjusted Net Investment Income" (defined as net investment income adjusted to reflect income as if the cost basis of investments held at the IPO date had stepped-up to fair market value as of the IPO date) is used in calculating both the incentive fee and dividend payments. SeeItem 8.—Financial Statements and Supplementary Data—Note 5, Agreements for additional details.


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The following table for the Companyyear ended December 31, 2015 is adjusted to reflect the step-up to fair market value and the allocation of the incentive fees related to hypothetical capital gains out of the adjusted post-incentive fee net investment income.

(in thousands)Year Ended
December 31, 2015		 
Stepped-up
Cost Basis
Adjustments
 
Incentive Fee
Adjustments(1)
 Adjusted Year Ended
December 31, 2015
Investment income 
  
  
  
Interest income$140,074
 $(131) $—
 $139,943
Dividend income5,771
 —
 —
 5,771
Other income8,010
 —
 —
 8,010
Total investment income(2)153,855
 (131) —
 153,724
Total expenses pre-incentive fee(3)              50,769
 —
 —
 50,769
Pre-Incentive Fee Net Investment Income103,086
 (131) —
 102,955
Incentive fee20,591
 —
 —
 20,591
Post-Incentive Fee Net Investment Income82,495
 (131) —
 82,364
Net realized losses on investments(4)(12,789) (78) —
 (12,867)
Net change in unrealized (depreciation) appreciation of investments(4)(35,272) 209
 —
 (35,063)
Net change in unrealized (depreciation) appreciation of securities purchased under collateralized agreements to resell(296) —
 —
 (296)
Provision for taxes(1,183) —
 —
 (1,183)
Capital gains incentive fees—
 —
 —
 —
Net increase in net assets resulting from operations$32,955
     $32,955

(1)For the year ended December 31, 2015, we incurred total incentive fees of $20.6 million, of which none was related to the capital gains incentive fee accrual on a hypothetical liquidation basis.
(2)Includes income from non-controlled/non-affiliated investments, non-controlled/affiliated investments and controlled investments.
(3)Includes expense waivers and reimbursements of $0.7 million and management fee waivers of $5.2 million.
(4)Includes net realized gains and losses on investments and net change in unrealized (depreciation) appreciation of investments from non-controlled/non-affiliated investments, non-controlled/affiliated investments and controlled investments.
For the year ended December 31, 2015, we had a $0.1 million adjustment to interest income for amortization, a decrease of $0.1 million to net realized losses and an increase of $0.2 million to net change in unrealized depreciation to adjust for the stepped-up cost basis of the transferred investments as discussed above. For the year ended December 31, 2015, total

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adjusted investment income of $153.7 million consisted of approximately $130.0 million in cash interest from investments, approximately $3.9 million in PIK interest from investments, approximately $3.6 million in prepayment fees, net amortization of purchase premiums and discounts of approximately $2.4 million, approximately $3.2 million in cash dividends from investments, $2.6 million in PIK dividends from investments and approximately $8.0 million in other income. Our Adjusted Net Investment Income was $82.4 million for the year ended December 31, 2015.
In accordance with GAAP, for the year ended December 31, 2015, we did not have an accrual for hypothetical capital gains incentive fee based upon the cumulative net Adjusted Realized Capital Gains and Adjusted Realized Capital Losses and the cumulative net Adjusted Unrealized Capital Appreciation and Adjusted Unrealized Capital Depreciation on investments held at the end of the period. Actual amounts paid to the Investment Adviser are consistent with the Investment Management Agreement and are based only on actual Adjusted Realized Capital Gains computed net of all Adjusted Realized Capital Losses and Adjusted Unrealized Capital Depreciation on a cumulative basis from inception through the end of each calendar year as if the entire portfolio was sold at fair value. As of December 31, 2015, no actual capital gains incentive fee was owed under the Investment Management Agreement, as cumulative net Adjusted Realized Gains did not exceed cumulative Adjusted Unrealized Depreciation.
The following table for the year ended December 31, 2014 is adjusted to reflect the step-up to fair market value and the allocation of the incentive fees related to hypothetical capital gains out of the adjusted post-incentive fee net investment income.

(in thousands)Year Ended
December 31, 2014		 
Stepped-up
Cost Basis
Adjustments
 
Incentive Fee
Adjustments(1)
 Adjusted Year Ended
December 31, 2014
Investment income 
  
  
  
Interest income$85,123
 $(193) $—
 $84,930
Dividend income2,309
 —
 —
 2,309
Other income4,491
 —
 —
 4,491
Investment income allocated from NMF Holdings 
  
    
Interest income40,515
 —
 —
 40,515
Dividend income2,368
 —
 —
 2,368
Other income795
 —
 —
 795
Total investment income(2)135,601
 (193) —
 135,408
Total expenses pre-incentive fee(3)              43,766
 —
 —
 43,766
Pre-Incentive Fee Net Investment Income91,835
 (193) —
 91,642
Incentive fee11,769
 —
 6,549
 18,318
Post-Incentive Fee Net Investment Income80,066
 (193) (6,549) 73,324
Net realized gains (losses) on investments357
 (456) —
 (99)
Net realized gains on investments allocated from NMF Holdings8,568
 —
 —
 8,568
Net change in unrealized (depreciation) appreciation of investments(4)(43,863) 649
 —
 (43,214)
Net change in unrealized appreciation (depreciation) of investments allocated from NMF Holdings940
 —
 —
 940
Provision for taxes(493) —
 —
 (493)
Capital gains incentive fees—
 —
 6,549
 6,549
Net increase in net assets resulting from operations$45,575
     $45,575

(1)For the year ended December 31, 2014, we incurred total incentive fees of $11.8 million, of which $(6.5) million related to the reduction of the capital gains incentive fee accrual on a hypothetical liquidation basis.
(2)Includes income from non-controlled/non-affiliated investments and non-controlled/affiliated investments.
(3)Includes expense waivers and reimbursements of $1.1 million and management fee waivers of $0.7 million.
(4)Includes net change in unrealized (depreciation) appreciation of investments from non-controlled/non-affiliated investments and non-controlled/affiliated investments.

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

Investment income

             

Interest income

 $85,123 $(193)$— $84,930 

Dividend income

  2,309  —  —  2,309 

Other income

  4,491  —  —  4,491 

Investment income allocated from NMF Holdings

             

Interest income

  40,515  —  —  40,515 

Dividend income

  2,368  —  —  2,368 

Other income

  795  —  —  795 
​​​ ​​​ ​ ​​ ​ ​​ ​ ​

Total investment income(2)

  135,601  (193) —  135,408 
​​​​ ​​ ​ ​​ ​​​ ​ ​

Total expenses pre-incentive fee(3)              

  43,766  —  —  43,766 
​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​

Pre-Incentive Fee Net Investment Income

  91,835  (193) —  91,642 
​​​ ​ ​​ ​ ​​ ​ ​​​ ​

Incentive fee

  11,769  —  6,549  18,318 
​​​ ​​​ ​ ​​ ​ ​​ ​ ​

Post-Incentive Fee Net Investment Income

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

Net realized gains (losses) on investments

  357  (456) —  (99)

Net realized gains on investments allocated from NMF Holdings

  8,568  —  —  8,568 

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

  (43,863) 649  —  (43,214)

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

  940  —  —  940 

Provision for taxes

  (493) —  —  (493)

Capital gains incentive fees

  —  —  6,549  6,549 
​​​ ​ ​​​​​​​​ ​ ​

Net increase in net assets resulting from operations

 $45,575       $45,575 
​​​ ​ ​​​​​​​​ ​ ​
​​​​​​​​​​​​​​
​​​ ​ ​​​​​​​​ ​ ​
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(1)


For the year ended December 31, 2014, the Company incurred total incentive fees of $11.8 million, of which $(6.5) million related to the reduction of the capital gains incentive fee accrual on a hypothetical liquidation basis.

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

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

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

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        For the year ended December 31, 2014, the Companywe had a $0.2 million adjustment to interest income for amortization, a decrease of $0.5 million to net realized gains and an increase of $0.7 million to net change in unrealized depreciation to adjust for the stepped-up cost basis of the transferred investments as discussed above. For the year ended December 31, 2014, total adjusted investment income of $135.4 million consisted of approximately $114.5 million in cash interest from investments, approximately $4.6 million in PIK interest from investments, approximately $3.9 million in prepayment fees, net amortization of purchase premiums and discounts and origination fees of approximately $2.5 million, approximately $4.6 million in dividend income and approximately $5.3 million in other income. The Company'sOur Adjusted Net Investment Income was $73.3 million for the year ended December 31, 2014.

In accordance with GAAP, for the year ended December 31, 2014, the Companywe decreased itsour hypothetical capital gains incentive fee accrual by $6.5 million based upon the cumulative net Adjusted Realized Capital Gains and Adjusted Realized Capital Losses and the cumulative net Adjusted Unrealized Capital Appreciation and Adjusted Unrealized Capital Depreciation on investments held at the end of each period. Actual amounts paid to the Investment Adviser are consistent with the Investment Management Agreement and are based only on actual Adjusted Realized Capital Gains computed net of all Adjusted Realized Capital Losses and Adjusted Unrealized Capital Depreciation on a cumulative basis from inception through the end of each calendar year as if the entire portfolio was sold at fair value. As of December 31, 2014, no actual capital gains incentive fee was owed under the Investment Management Agreement, by the Company, as cumulative net Adjusted Realized Gains did not exceed cumulative Adjusted Unrealized Depreciation.

At December 31, 2013, the Company'sour only investment was itsour investment in the Predecessor Operating Company. The following table for the Predecessor Operating Company for the year ended December 31, 2013 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, 2013		 
Stepped-up
Cost Basis
Adjustments
 
Incentive Fee
Adjustments(1)
 Adjusted
Year Ended
December 31, 2013
Investment income 
  
  
  
Interest income$107,027
 $(896) $—
 $106,131
Dividend income5,049
 —
 —
 5,049
Other income2,836
 —
 —
 2,836
Total investment income114,912
 (896) —
 114,016
Total expenses pre-incentive fee(2)          31,504
 —
 —
 31,504
Pre-Incentive Fee Net Investment Income83,408
 (896) —
 82,512
Incentive fee19,731
 —
 (3,229) 16,502
Post-Incentive Fee Net Investment Income63,677
 (896) 3,229
 66,010
Net realized gains (losses) on investments7,253
 (3,158) —
 4,095
Net change in unrealized appreciation (depreciation) of investments7,994
 4,054
 —
 12,048
Capital gains incentive fees—
 —
 (3,229) (3,229)
Net increase in members' capital resulting from operations          
$78,924
  
  
 $78,924

(1)For the year ended December 31, 2013, the Predecessor Operating Company incurred total incentive fees of $19.7 million, of which $3.2 million related to capital gains incentive fees on a hypothetical liquidation basis.
(2)Includes expense waivers and reimbursements of $3.2 million.
(in thousands)
 Year Ended
December 31,
2013		 Stepped-up
Cost Basis
Adjustments		 Incentive Fee
Adjustments(1)		 Adjusted
Year Ended
December 31,
2013		 

Investment income

             

Interest income

 $107,027 $(896)$— $106,131 

Dividend income

  5,049  —  —  5,049 

Other income

  2,836  —  —  2,836 
​​​ ​ ​​ ​ ​​​ ​​ ​ ​

Total investment income

  114,912  (896) —  114,016 
​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​

Total expenses pre-incentive fee(2)          

  31,504  —  —  31,504 
​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​

Pre-Incentive Fee Net Investment Income

  83,408  (896) —  82,512 
​​​ ​ ​​ ​ ​​ ​ ​​​ ​

Incentive fee

  19,731  —  (3,229) 16,502 
​​​ ​​​ ​ ​​ ​ ​​ ​ ​

Post-Incentive Fee Net Investment Income

  63,677  (896) 3,229  66,010 
​​​ ​ ​​ ​ ​​​ ​​ ​ ​

Net realized gains (losses) on investments

  7,253  (3,158) —  4,095 

Net change in unrealized appreciation (depreciation) of investments

  7,994  4,054  —  12,048 

Capital gains incentive fees

  —  —  (3,229) (3,229)
​​​ ​ ​​​​​​​​ ​ ​

Net increase in members' capital resulting from operations          

 $78,924       $78,924 
​​​ ​ ​​​​​​​​ ​ ​
​​​​​​​​​​​​​​
​​​ ​ ​​​​​​​​ ​ ​
(1)
For the year ended December 31, 2013, the Predecessor Operating Company incurred total incentive fees of $19.7 million, of which $3.2 million related to capital gains incentive fees on a hypothetical liquidation basis.

(2)
Includes expense waivers and reimbursements of $3.2 million.

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For the year ended December 31, 2013, the Predecessor Operating Company had a $0.9 million adjustment to interest income for amortization, a decrease of $3.2 million to net realized gains and an increase of $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, 2013, total adjusted investment income of $114.0 million consisted of approximately $94.5 million in cash interest from investments, approximately $3.4 million in PIK interest from investments, approximately $5.8 million in prepayment fees, net amortization of purchase premiums and discounts and origination fees of approximately $2.5 million, approximately $5.0 million in dividend income and approximately $2.8 million in other income. The Predecessor Operating Company's Adjusted Net Investment Income was $66.0 million for the year ended December 31, 2013.


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In accordance with GAAP, for the year ended December 31, 2013, the Predecessor Operating Company accrued $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, 2013, approximately $1.1 million of capital gains incentive fees was owed under the Investment Management Agreement by the Predecessor Operating Company, as cumulative net Adjusted Realized Gains exceeded cumulative Adjusted Unrealized Depreciation and was paid during the year ended December 31, 2014.

        At December 31, 2012, the Company's only investment was its investment in the Predecessor Operating Company. The following table for the Predecessor 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


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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 (depreciation) 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 Predecessor 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 Predecessor 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 Predecessor Operating Company's Adjusted Net Investment Income was $46.1 million for the year ended December 31, 2012.


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Our Results of Operations for the Company for the YearYears Ended December 31, 2015 and December 31, 2014 and the Predecessor Operating Company for the YearsYear Ended December 31, 2013 and

Revenue
 Years Ended December 31,
(in thousands)2015 2014 2013
Interest income$140,074
 $85,123
 $107,027
Interest income allocated from the Predecessor Operating Company—
 40,515
 —
Total interest income140,074
 125,638
 107,027
Dividend income5,771
 2,309
 5,049
Dividend income allocated from the Predecessor Operating Company—
 2,368
 —
Total dividend income5,771
 4,677
 5,049
Other income8,010
 4,491
 2,836
Other income allocated from the Predecessor Operating Company—
 795
 —
Total other income8,010
 5,286
 2,836
Total investment income$153,855
 $135,601
 $114,912
Our total investment income increased by approximately $18.3 million for the year ended December 31, 2012

Revenue

2015 as compared to total investment income for the year ended December 31, 2014. The 13% increase in total investment income primarily results from an increase in interest income of approximately $14.4 million from the year ended December 31, 2014 to the year ended December 31, 2015, which is attributable to larger invested balances, driven by the proceeds from the September 2015 primary offering of our common stock, our use of leverage from our revolving credit facilities, SBA-guaranteed debentures and the deployment of the June 2014 proceeds from the issuance of $115.0 million of convertible notes to originate new investments, and prepayment fees received associated with the early repayments or partial repayments of nine different portfolio companies held as of December 31, 2014. The increase in dividend income of approximately $1.1 million during the year ended December 31, 2015 as compared to the year ended December 31, 2014 was primarily attributable to distributions from our investment in SLP I and PIK dividends income from an equity position. The increase in other income, which represents fees that are generally non-recurring in nature, of approximately $2.7 million during the year ended December 31, 2015 as compared to the year ended December 31, 2014 was primarily attributable to structuring, upfront, amendment and consent fees received from 22 different portfolio companies, commitment fees received from three bridge facilities and management fees from a non-controlled/affiliated portfolio company.
 
 Years ended December 31, 
(in thousands)
 2014 2013 2012 

Interest income

 $85,123 $107,027 $83,646 

Interest income allocated from the Predecessor Operating Company

  40,515  —  — 
​​​ ​ ​​​ ​​ ​ ​

Total interest income

  125,638  107,027  83,646 

Dividend income

  
2,309		  
5,049		  
812		 

Dividend income allocated from the Predecessor Operating Company

  2,368  —  — 
​​​​ ​​ ​ ​​​ ​

Total dividend income

  4,677  5,049  812 

Other income

  
4,491		  
2,836		  
1,328		 

Other income allocated from the Predecessor Operating Company

  795  —  — 
​​​ ​ ​​ ​ ​​ ​ ​

Total other income

  5,286  2,836  1,328 
​​​ ​ ​​​ ​​ ​ ​

Total investment income

 $135,601 $114,912 $85,786 
​​​ ​ ​​ ​ ​​​ ​
​​​​​​​​​​​
​​​ ​​​ ​ ​​ ​ ​

        The Company'sOur total investment income increased by approximately $20.7 million for the year ended December 31, 2014 as compared to the Predecessor Operating Company's total investment income for the year ended December 31, 2013. The 18.0%18% increase in total investment income primarily results from an increase in interest income of approximately $18.6 million from the year ended December 31, 2013 to the year ended December 31, 2014, which is attributable to larger invested balances, driven by the proceeds from the October 2013, April 2014 and October 2014 primary offerings of the Company'sour common stock and the June 2014 offering of the Company'sour convertible notes, the Company'sour use of leverage from itsour revolving credit facilities to originate new investments, and prepayment fees received associated with the early repayments or partial repayments of ten different portfolio companies held by the Predecessor Operating Company as of December 31, 2013. The increase in other income of approximately $2.5 million during the year ended December 31, 2014 as compared to the year ended December 31, 2013, which represents fees that are generally non-recurring in nature, was primarily attributable to structuring, amendment and consent fees received from twenty20 different portfolio companies and management fees from a non-controlled affiliated portfolio company. The decrease in dividend income during the year ended December 31, 2014 as compared to the year ended


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December 31, 2013 was primarily attributable to a large distribution from one of the Predecessor Operating Company's warrant investments in the prior year.

        The Predecessor

Operating Company'sExpenses
 Years Ended December 31,
(in thousands)2015 2014 2013
Management fee$25,858
 $13,593
 $14,905
Management fee allocated from Predecessor Operating Company—
 5,983
 —
Less: management fee waiver(5,219) (686) —
Total management fee20,639
 18,890
 14,905
Incentive fee20,591
 12,070
 16,502
Incentive fee allocated from Predecessor Operating Company—
 6,248
 —
Total incentive fee20,591
 18,318
 16,502
Capital gains incentive fee(1)—
 (8,573) 3,229
Capital gains incentive fee allocated from Predecessor Operating Company(1)—
 2,024
 —
Total capital gains incentive fee(1)—
 (6,549) 3,229
Interest and other financing expenses23,374
 13,269
 12,470
Interest and other financing expenses allocated from Predecessor Operating Company—
 4,764
 —
Total interest and other financing expenses23,374
 18,033
 12,470
Professional fees3,214
 2,390
 2,349
Professional fees allocated from Predecessor Operating Company—
 1,238
 —
Total professional fees3,214
 3,628
 2,349
Administrative fees2,450
 1,470
 3,429
Administrative expenses allocated from Predecessor Operating Company—
 761
 —
Total administrative expenses2,450
 2,231
 3,429
Other general and administrative expenses1,665
 1,138
 1,584
Other general and administrative expenses allocated from Predecessor Operating Company—
 555
 —
Total other general and administrative expenses1,665
 1,693
 1,584
Total expenses71,933
 56,244
 54,468
Less: expenses waived and reimbursed(733) (1,145) (3,233)
Net expenses before income taxes71,200
 55,099
 51,235
Income tax expense160
 436
 —
Net expenses after income taxes$71,360
 $55,535
 $51,235

(1)Capital gains incentive fee accrual assumes a hypothetical liquidation basis.
Our total investment incomenet operating expenses increased by $29.1approximately $15.8 million for the year ended December 31, 20132015 as compared to the year ended December 31, 2012. The 34.0% increase in investment income results from the increase in interest2014. Our management fee increased by approximately $1.7 million, net of a management fee waiver, and other incomeincentive fees increased by approximately $2.3 million for the year ended December 31, 2013, which2015 as compared to the year ended December 31, 2014. The increase in management fee and incentive fee from the year ended December 31, 2014 to the year ended December 31, 2015 was primarily attributable to larger invested balances, driven by the proceeds from the 2012 and 2013September 2015 primary offeringsoffering of NMFC'sour common stock, the Predecessor Operating Company'sour use of leverage for itsfrom our revolving credit facilities, SBA-guaranteed debentures and the deployment of the June 2014 Proceeds from the issuance of $115.0 million of convertible notes to originate new investments and prepayment fees received associated with the early repayments or partial repayments of twenty different portfolio companies held by the Predecessor Operating Company as of December 31, 2012. Additionally, the Predecessor Operating Company's other income, which represents fees that are non-recurring in nature, increased due to commitment fees received from three bridge facilities and


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consent, amendment and forbearance fees received associated with ten different portfolio companies held by the Predecessor Operating Company as of December 31, 2012. The increase in dividend incomeinvestments. No capital gains incentive fee was accrued for the year ended December 31, 2013 was attributable2015.

Interest and other financing expenses increased by approximately $5.3 million during the year ended December 31, 2015, primarily due to distributions received from two portfolio companies, which was recordedour issuance of $115.0 million of convertible notes, the closing of the NMFC Credit Facility (as defined below) during the second quarter of 2014 and the drawing on SBA-guaranteed debentures beginning in the fourth quarter of

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2014. Our total professional fees, total administrative expenses and total other general and administrative expenses marginally decreased by approximately $0.2 million for the year ended December 31, 2015 as dividend income.

Operating Expenses

 
 Years ended December 31, 
(in thousands)
 2014 2013 2012 

Management fee

 $13,593 $14,905 $11,109 

Management fee allocated from Predecessor Operating Company

  5,983  —  — 

Less: management fee waiver

  (686) —  — 
​​​ ​ ​​ ​ ​​ ​ ​

Total Management fee

  18,890  14,905  11,109 

Incentive fee

  
12,070		  
16,502		  
11,537		 

Incentive fee allocated from Predecessor Operating Company

  6,248  —  — 
​​​ ​ ​​ ​ ​​ ​ ​

Total Incentive fee

  18,318  16,502  11,537 

Capital gains incentive fee(1)

  
(8,573
)		 
3,229		  
4,407		 

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

  2,024  —  — 
​​​ ​ ​​​ ​​ ​ ​

Total Capital gains incentive fee(1)

  (6,549) 3,229  4,407 

Interest and other financing expenses

  
13,269		  
12,470		  
10,085		 

Interest and other financing expenses allocated from Predecessor Operating Company

  4,764  —  — 
​​​ ​ ​​ ​ ​​​ ​

Total Interest and other financing expenses

  18,033  12,470  10,085 

Professional fees

  
2,390		  
2,349		  
2,091		 

Professional fees allocated from Predecessor Operating Company

  1,238  —  — 
​​​ ​ ​​ ​ ​​ ​ ​

Total Professional fees

  3,628  2,349  2,091 

Administrative fees

  
1,470		  
3,429		  
2,426		 

Administrative expenses allocated from Predecessor Operating Company

  761  —  — 
​​​ ​ ​​ ​​​ ​ ​

Total Administrative expenses

  2,231  3,429  2,426 

Other general and administrative expenses

  
1,138		  
1,584		  
1,374		 

Other general and administrative expenses allocated from Predecessor Operating Company

  555  —  — 
​​​ ​​​ ​ ​​ ​​

Total other general and administrative expenses

  1,693  1,584  1,374 
​​​ ​ ​​ ​ ​​ ​ ​

Total expenses

  56,244  54,468  43,029 
​​​ ​ ​​​ ​​ ​ ​

Less: expenses waived and reimbursed

  (1,145) (3,233) (2,460)
​​​ ​ ​​ ​ ​​​ ​

Net expenses before income taxes

  55,099  51,235  40,569 

Income tax expense

  436  —  — 
​​​ ​ ​​ ​ ​​ ​ ​

Net expenses after income taxes

 $55,535 $51,235 $40,569 
​​​ ​ ​​ ​​​ ​ ​
​​​​​​​​​​​
​​​ ​ ​�� ​ ​​​ ​
compared to the year ended December 31, 2014. Our expenses waived and reimbursed decreased by approximately $0.4 million for the year ended December 31, 2015 as compared to the year ended December 31, 2014 due to the expiration of the expense cap on March 31, 2014.
(1)
Capital gains incentive fee accrual assumes a hypothetical liquidation basis.

        The Company'sOur total net operating expenses increased by approximately $4.3 million for the year ended December 31, 2014 as compared to the Predecessor Operating Company's year ended December 31, 2013. The Company'sOur management fee increased by approximately $4.0 million, net of a management fee waiver, and incentive fees increased by approximately $1.8 million for the year ended December 31, 2014 as compared to the Predecessor Operating Company's year ended December 31,


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2013. The increase in management fee and incentive fee from the Predecessor Operating Company's year ended December 31, 2013 to the Company'sour year ended December 31, 2014 was attributable to larger invested balances, driven by the proceeds from the October 2013, April 2014 and October 2014 primary offerings of NMFC'sour common stock, the June 2014 offering of NMFC'sour convertible notes and the Company'sour use of leverage from itsour revolving credit facilities to originate new investments. The Company'sOur capital gains incentive fee accrual decreased by approximately $9.8 million for the year ended December 31, 2014 as compared to the Predecessor Operating Company's year ended December 31, 2013, which was attributable to lower net Adjusted Realized Capital Gains (Losses) and net Adjusted Unrealized Capital Depreciation of investments during the period due to lower marks on the broader portfolio. As of December 31, 2014, no actual capital gains incentive fee was owed under the Investment Management Agreement, by the Company, as cumulative net Adjusted Realized Gains did not exceed cumulative Adjusted Unrealized Depreciation.

Interest and other financing expenses increased by approximately $5.6 million during the year ended December 31, 2014, primarily due to the increase of average debt outstanding from $184.1 million to $244.6 million for the Holdings Credit Facility (as defined below) for the year ended December 31, 2013 compared to December 31, 2014. In addition, during the year ended December 31, 2014, the Companywe issued $115.0 million of convertible notes, closed the NMFC Credit Facility (as defined below) and began to draw on SBA-guaranteed debentures. The Company'sOur total professional fees, total administrative expenses and total other general and administrative expenses marginally increased by approximately $0.2 million for the year ended December 31, 2014 as compared to the Predecessor Operating Company's year ended December 31, 2013. During the year ended December 31, 2014, the Companywe incurred $10.9 thousand in other expenses that were not subject to the expense cap pursuant to the administration agreement, as amended and restated (the "Administration Agreement"), with the Administrator, and further restricted by the Company.us. For the year ended December 31, 2014, approximately $1.4 million of indirect administrative expenses were included in administrative expenses, of which $0.8 million were waived by the Administrator. The Company'sOur expenses waived and reimbursed decreased by approximately $2.1 million for the year ended December 31, 2014 as compared to the Predecessor Operating Company's year ended December 31, 2013 due to the expiration of the expense cap on March 31, 2014 and the decrease of waived indirect administrative expenses by the Administrator during the year ended December 31, 2014.

        The Predecessor Operating Company's total

Net Realized Gains (Losses) and Net Change in Unrealized Appreciation (Depreciation)
 Years Ended December 31,
(in thousands)2015 2014 2013
Net realized (losses) gains on investments$(12,789) $357
 $7,253
Net realized gains on investments allocated from Predecessor Operating Company—
 8,568
 —
Total realized (losses) gains on investments(12,789) 8,925
 7,253
Net change in unrealized (depreciation) appreciation of investments(35,272) (43,863) 7,994
Net change in unrealized appreciation (depreciation) of investments allocated from Predecessor Operating Company—
 940
 —
Total change in unrealized (depreciation) appreciation of investments(35,272) (42,923) 7,994
Net change in unrealized (depreciation) appreciation of securities purchased under collateralized agreements to resell
(296) —
 —
Provision for taxes(1,183) (493) —
Total net realized gains and net change in unrealized (depreciation) appreciation of investments$(49,540) $(34,491) $15,247
Our net operating expenses increased byrealized and unrealized losses resulted in a net loss of approximately $10.7$49.5 million for the year ended December 31, 2013 as2015 compared to the year ended December 31, 2012.net realized gain and unrealized losses resulting in a net loss of approximately $34.5 million for the same period in 2014. We look at net realized and unrealized gains or losses together as movement in unrealized appreciation or depreciation can be the result of realizations. The Predecessor Operating Company's management fees increased by approximately $3.8 million and incentive fees increased by approximately $5.0 millionnet loss 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, 20132015 was attributable to larger invested balances,primarily driven by the proceeds fromoverall decrease in the 2012 and 2013 primary offeringsmarket prices of NMFC's common stock, the Predecessor 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 Predecessor Operating Company's warrant investments. The Predecessor Operating Company's capital gains incentive fees decreased approximately $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) ofour investments during the period. Asperiod and $29.7 million of realized losses on investments resulting from the modification of terms on three portfolio companies that were accounted for as extinguishments.

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These losses were partially offset by sales or repayments of investments with fair values in excess of December 31, 2013, approximately $1.1 million2014 valuations, resulting in net realized gains being greater than the reversal of capital gains incentive fees was owed under the Investment Management Agreement by the Predecessor Operating Company, as cumulative net Adjusted Realized Gains exceeded cumulative Adjusted Unrealized Depreciation andunrealized gains for those investments which included the sale of two portfolio companies resulting in realized gains of approximately $14.2 million. The provision for income taxes was paid during the year endedprimarily attributable to three equity investments that are held as of December 31, 2014.


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        Interest and other credit facility expenses increased by approximately $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 Predecessor Operating Company incurred approximately $0.1 million in other expenses that were not subject to the expense cap pursuant to the Administration Agreement with the Administrator and further restricted by the Predecessor Operating Company.

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

our corporate subsidiaries.
 
 Years ended December 31, 
(in thousands)
 2014 2013 2012 

Net realized gains on investments

 $357 $7,253 $18,851 

Net realized gains on investments allocated from Predecessor Operating Company

  8,568  —  — 
​​​ ​ ​​ ​​​ ​ ​

Total realized gains on investments

  8,925  7,253  18,851 

Net change in unrealized (depreciation) appreciation of investments

  
(43,863
)		 
7,994		  
9,928		 

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

  940  —  — 
​​​​ ​​ ​ ​​ ​​

Total change in unrealized (depreciation) appreciation of investments

  (42,923) 7,994  9,928 

Provision for taxes

  
(493
)		 
—		  
—		 
​​​ ​ ​​ ​ ​​ ​ ​

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

 $(34,491)$15,247 $28,779 
​​​ ​ ​​ ​​​ ​ ​
​​​​​​​​​​​
​​​​ ​​ ​ ​​ ​ ​

The Company's net realized and unrealized losses resulted in a net loss of approximately $34.5 million for the year ended December 31, 2014 compared to the Predecessor Operating Company's net realized and unrealized gains resulting in a net gain of approximately $15.2 million for the same period in 2013. We look at net realized and unrealized gains or losses together as movement in unrealized appreciation or depreciation can be the result of realizations. The net loss for the year ended December 31, 2014 was primarily driven by the overall decrease in the market prices of the Company'sour investments during the period and the partial write-down related to two portfolio companies. These losses were partially offset by a $5.6 million gain from the sale of the Company'sNMF Holdings' warrant investments in one portfolio company and sales or repayments of investments with fair values in excess of December 31, 2013 valuations resulting in net realized gains being greater than the reversal of the cumulative net unrealized gains for those investments. The provision for income taxes was attributable to one warrant investment that is held as of December 31, 2014 in one of the Company'sour corporate subsidiaries.

The net gain for the year ended December 31, 2013 was primarily driven by sales or repayment of investments with fair values in excess of December 31, 2012 valuations, resulting in net realized gains being greater than the reversal of the cumulative net unrealized gains for those investments. Additionally, during the year ended December 31, 2013, a distribution from a warrant investment resulted in a realized gain of approximately $1.1 million, the modification of terms on one debt investment that was accounted for as an extinguishment resulted in a realized gain of $1.7 million and the sale of the first lien position in ATI Acquisition Company resulted in a realized loss of $4.3 million.

        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 Predecessor Operating Company's portfolio, directly impacting the prices of the Predecessor Operating Company's portfolio. The appreciation of the Predecessor Operating Company's portfolio and the sale or repayment of investments with fair values


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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.

Liquidity and Capital Resources

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

Since NMFC'sour IPO, and through December 31, 2014, NMFC2015, we raised approximately $374.6$454.0 million in net proceeds from additional offerings of common stock and issued shares of common stock valued at approximately $288.4 million on behalf of AIV Holdings for exchanged units. NMFCWe acquired from the Predecessor Operating Company units of the Predecessor Operating Company equal to the number of shares of NMFC'sour common stock sold in the additional offerings.

On February 3, 2014, NMFCSeptember 25, 2015, we completed an underwritten secondarya public offering of 2,325,0005,750,000 shares of its common stock on behalf(including 750,000 shares of a selling stockholder, AIV Holdings,common stock that were issued pursuant to the full exercise of the option granted to the underwriters to purchase additional shares) at a public offering price of $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 Predecessor 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 Predecessor Operating Company and NMFC owns 100.0% of the outstanding units of the Predecessor Operating Company, which is now a wholly-owned subsidiary of NMFC.

        On April 15, 2014, NMFC completed a public offering of 3,500,000 shares of its common stock at a public offering price of $14.30$14.14 per share, which resulted in net proceeds of $51.0 million, or $14.57 per share. NMFC's Investment Adviser agreed to pay$79.4 million. Steven B. Klinsky, the underwriting discounts and commissionsChairman of our board of directors, purchased 500,000 shares in connection with this offering and an additional supplemental payment to the underwriters of $0.9 million, or $0.27 per share, which reflects the difference betweenat the public offering price and the proceeds per share received by NMFC. In connection with the public offering, the underwriters purchased an additional 525,000 shares of NMFC's common stock with the exercise of the overallotment option to purchase up to an additional 525,000 shares of NMFC's common stock, resulting in additional net proceeds of $7.6 million. NMFC's Investment Adviser agreed to pay the underwriting discounts and commissions in connection with this exercise of the overallotment option and an additional supplemental payment to the underwriters of $0.1 million, or $0.27 per share, which reflects the difference between the public offering price and the proceeds per share received by NMFC in this exercise of the overallotment option.

        On October 28, 2014, the Company completed a public offering of 5,000,000 shares of its common stock at a public offering price of $14.53 per share, which resulted in net proceeds of $71.8 million. In connection with the public offering, the underwriters purchased an additional 750,000 shares of the Company's common stock with the exercise of the overallotment option to purchase up to an additional 750,000 shares of the Company's common stock, which resulted in additional net proceeds of $10.8 million.

        The Company'sprice.

Our liquidity is generated and generally available through advances from the revolving credit facilities, from cash flows from operations, and, we expect, through periodic follow-on equity offerings. In addition, we may from time to time enter into additional debt facilities, increase the size of existing facilities or issue additional debt securities, including unsecured debt and/or debt securities convertible into common stock. Any such incurrence or issuance would be subject to prevailing market conditions, our liquidity requirements, contractual and regulatory restrictions and other factors. In


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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, 2015 and December 31, 2014, the Companywe had cash and cash equivalents of approximately $30.1 million and $23.4 million, respectively, and at December 31, 2013, and December 31, 2012, the Predecessor Operating Company had cash and cash equivalents of approximately $15.0 million and $12.8 million, respectively. Cashmillion. Our cash used in operating activities for the Company during the yearyears ended December 31, 2015 and December 31, 2014, was approximately $(63.3) million and $(289.6) million, which includes the activity allocated from NMF Holdings,respectively, and cash used in operating activities for the Predecessor Operating Company for the yearsyear ended December 31, 2013 and December 31, 2012 was approximately $(40.4) million and $(212.6) million, respectively.million. Refer to the Predecessor Operating Company's Consolidated Statements of Cash Flows for the period January 1, 2014 to May 7, 2014 included in an exhibit attached hereto. We expect that all current liquidity needs by the Company will be met with cash flows from operations and other activities.

Borrowings
Borrowings

Holdings Credit Facility—On December 18, 2014 the Companywe entered into the Second Amended and Restated Loan and Security Agreement (the "Holdings Credit Facility"), among the Company,us, as the Collateral Manager, NMF Holdings as the Borrower, Wells Fargo Securities, LLC as the Administrative Agent and Wells Fargo Bank, National Association, as the Lender and Collateral Custodian, which is structured as a revolving credit facility and matures on December 18, 2019.


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Immediately prior to amending the Holdings Credit Facility, NMF SPVSLF merged with and into NMF Holdings. The Holdings Credit Facility effectively amended and restated the Predecessor Holdings Credit Facility (as defined below), merged with the SLF Credit Facility (as defined below), and combined the amount of borrowings previously available.

The maximum amount of revolving borrowings available under the Holdings Credit Facility is $495.0 million, which is the aggregate of the $280.0 million previously available under the Predecessor Holdings Credit Facility (as defined below) and the $215.0 million previously available under the SLF Credit Facility (as defined below). Under the Holdings Credit Facility, NMF Holdings is still permitted to borrow up to 25.0%, 45.0% or 70.0% of the purchase price of pledged assets, subject to approval by the Wells Fargo Securities, LLC. The Holdings Credit Facility is non-recourse to the Companyus and is collateralized by all of the investments of NMF Holdings on an investment by investment basis. All fees associated with the origination or upsizing of the Holdings Credit Facility are capitalized on the Company'sour Consolidated Statement of Assets and Liabilities and charged against income as other financing expenses over the life of the Holdings Credit Facility. The Holdings Credit Facility contains certain customary affirmative and negative covenants and events of default. In addition, the Holdings Credit Facility requires the Companyus to maintain a minimum asset coverage ratio. The covenants are generally not tied to mark to market fluctuations in the prices of NMF Holdings investments, but rather to the performance of the underlying portfolio companies.

The Holdings Credit Facility bears interest at a rate of the LIBOR plus 2.00% per annum for Broadly Syndicated Loans (as defined in the Loan and Security Agreement) and LIBOR plus 2.75% per annum for all other investments. The Holdings Credit Facility also charges a non-usage fee, based on the unused facility amount multiplied by the Non-Usage Fee Rate (as defined in the Loan and Security Agreement).

Prior to December 18, 2014, the Loan and Security Agreement, as amended and restated, dated May 19, 2011 (the "Predecessor Holdings Credit Facility") among NMF Holdings as the Borrower and Collateral Administrator, Wells Fargo Securities, LLC as the Administrative Agent, and Wells Fargo Bank, National Association, as the Collateral Custodian, was structured as a revolving credit facility and would mature on October 27, 2016.


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The maximum amount of revolving borrowings available under the Predecessor Holdings Credit Facility was $280.0 million. Until December 18, 2014, NMF Holdings was permitted to borrow up to 45.0% or 25.0% of the purchase price of pledged first lien or non-first lien debt securities, and up to 70.0% and 45.0% of the purchase price of specified first lien debt securities and specified non-first lien debt securities, respectively, subject to approval by Wells Fargo Bank, National Association. The Predecessor Holdings Credit Facility was amended and restated on May 6, 2014 and as a result, it was non-recourse to the Companyus and was collateralized by all of the investments of NMF Holdings on an investment by investment basis. All fees associated with the origination or upsizing of the Predecessor Holdings Credit Facility were capitalized on the Company'sour Consolidated Statement of Assets and Liabilities and charged against income as other financing expenses over the life of the Predecessor Holdings Credit Facility. The Predecessor Holdings Credit Facility contained certain customary affirmative and negative covenants and events of default, including the occurrence of a change in control. In addition, the Predecessor Holdings Credit Facility required the Companyus to maintain a minimum asset coverage ratio. However, the covenants were generally not tied to mark to market fluctuations in the prices of NMF Holdings' investments, but rather to the performance of the underlying portfolio companies.

The Predecessor Holdings Credit Facility bore interest at a rate of the LIBOR plus 2.75% per annum and charged a non-usage fee, based on the unused facility amount multiplied by the Non-Usage Fee Rate (as defined in the Loan and Security Agreement).

The following table summarizes the interest expense, and non-usage fees and amortization of financing costs incurred, together, on the Holdings Credit Facility and the Predecessor Holdings Credit Facility for the years ended December 31, 2014,2015, December 31, 20132014 and December 31, 2012.

2013.


 Years ended December 31, Years Ended December 31,
(in millions)
 2014 2013 2012 2015 2014 2013

Interest expense

 $7.1 $5.5 $4.2 $10.5
 $7.1
 $5.5

Non-usage fee

 $0.2 $0.4 $0.3 $0.5
 $0.2
 $0.4

Amortization of financing costs

 $0.9 $0.7 $0.4 $1.6
 $0.9
 $0.7

Weighted average interest rate

 2.9% 2.9% 3.1%2.6% 2.9% 2.9%

Effective interest rate

 3.4% 3.6% 3.6%3.2% 3.4% 3.6%

Average debt outstanding

 $244.6 $184.1 $133.6 $394.9
 $244.6
 $184.1

        The


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As of December 31, 2015 and December 31, 2014, the outstanding balance ofon the Holdings Credit Facility was $419.3 million and $468.1 million, respectively, and as of December 31, 2014 was $468.1 million and2013, the outstanding balance ofon the Predecessor Holdings Credit Facility as of December 31, 2013 and December 31, 2012 was $221.8 million, and $206.9 million, respectively and NMF Holdings was in compliance with the applicable covenants in the Holdings Credit Facility orand Predecessor Holdings Credit Facility on such dates.

SLF Credit Facility—NMF SLF's Loan and Security Agreement, as amended and restated, dated October 27, 2010 (the "SLF Credit Facility") among NMF SLF as the Borrower, NMF Holdings as the Collateral Administrator, Wells Fargo Securities, LLC as the Administrative Agent, and Wells Fargo Bank, National Association, as the Collateral Custodian, was structured as a revolving credit facility and wouldwas set to mature on October 27, 2016. The maximum amount of revolving borrowings available under the SLF Credit Facility was $215.0 million. The SLF Credit Facility was non-recourse to the Companyus and secured by all assets of NMF SLF on an investment by investment basis. All fees associated with the origination or upsizing of the SLF Credit Facility were capitalized on the Company'sour Consolidated Statement of Assets and Liabilities and charged against income as other financing expenses over the life of the SLF Credit Facility. The SLF Credit Facility contained certain customary affirmative and negative covenants and events of default, including the occurrence of a change in control. The covenants were generally not tied to mark to market fluctuations in the prices of the NMF SLF's investments, but rather to the performance of the underlying portfolio companies. NMF SLF was not


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restricted from the purchase or sale of loans with an affiliate. Therefore, specified first lien loans could be moved as collateral between the Holdings Credit Facility and the SLF Credit Facility. The SLF Credit Facility merged with the Holdings Credit Facility on December 18, 2014.

Until December 18, 2014, the SLF Credit Facility permitted borrowings of up to 70.0% of the purchase price of pledged first lien debt securities and up to 25.0% of the purchase price of specified second lien loans, of which, up to 25.0% of the aggregate outstanding loan balance of all pledged debt securities in the SLF Credit Facility was allowed to be derived from second lien loans, subject to approval by Wells Fargo Bank, National Association.

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

The following table summarizes the interest expense, and non-usage fees and amortization of financing costs incurred on the SLF Credit Facility for the period January 1, 2014 to December 17, 2014 (date of SLF Credit Facility merger with and into the Holdings Credit Facility) and for the years ended December 31, 20132015, December 31, 2014 and December 31, 2012.

2013.
 Years Ended December 31, 
(in millions)2015(1) 2014(2) 2013 
Interest expense$—
 $4.5
 $4.9
 
Non-usage fee$—
 $—
(3)$—
(3)
Amortization of financing costs$—
 $0.8
 $0.9
 
Weighted average interest rate—% 2.2% 2.3% 
Effective interest rate—% 2.6% 2.7% 
Average debt outstanding$—
 $209.3
 $214.3
 

(1)Not applicable, as the SLF Credit Facility merged into the Holdings Credit Facility on December 18, 2014.
(2)For the year ended December 31, 2014, amounts reported relate to the period from January 1, 2014 to December 17, 2014 (date of merger).
(3)For the years ended December 31, 2014 and December 31, 2013, the total non-usage fee was less than $50 thousand.
 
 January 1,
2014 to
December 17,
2014 (date of
merger)		 Years ended
December 31,		 
(in millions)
 2013 2012 

Interest expense

 $4.5 $4.9 $4.2 

Non-usage fee

 $—(1)$—(1)$—(1)

Amortization of financing costs

 $0.8 $0.9 $0.7 

Weighted average interest rate

  2.2% 2.3% 2.3%

Effective interest rate

  2.6% 2.7% 2.8%

Average debt outstanding

 $209.3 $214.3 $181.4 
(1)
For the years ended December 31, 2014, December 31, 2013 and December 31, 2012, the total non-usage fee was less than $50 thousand.

The SLF Credit Facility merged with the Holdings Credit Facility on December 18, 2014. The outstanding balance as of December 31, 2013 and December 31, 2012 was $214.7 million and $214.3 million, respectively, and NMF SLF was in compliance with the applicable covenants in the SLF Credit Facility on such dates.

date.

NMFC Credit Facility—The Senior Secured Revolving Credit Agreement, as amended, dated June 4, 2014 (together with the related guarantee and security agreement, the "NMFC Credit Facility"), among the Companyus as the Borrower, and Goldman Sachs Bank USA as the Administrative Agent and Collateral Agent, and Goldman Sachs Bank USA, and Morgan Stanley Bank, N.A. and Stifel Bank & Trust as Lenders, is structured as a senior secured revolving credit facility and matures on June 4, 2019. The NMFC Credit Facility is guaranteed by certain of our domestic subsidiaries of the Company and proceeds from the NMFC Credit Facility may be used for general corporate purposes, including the funding of portfolio investments.


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The maximum amount of revolving borrowings available under the NMFC Credit Facility is $80.0$95.0 million, as amended on December 29, 2014. The Company isJune 26, 2015. We are permitted to borrow at various advance rates depending on the type of portfolio investment as outlined in the Senior Secured Revolving Credit Agreement. All fees associated with the origination of the NMFC Credit Facility are capitalized on the Company'sour Consolidated Statement of Assets and Liabilities and charged against income as other financing expenses over the life of the NMFC Credit Facility. The NMFC Credit Facility contains certain customary affirmative and negative covenants and events of default, including certain financial covenants related to asset coverage and liquidity and other maintenance covenants.


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The NMFC Credit Facility will generally bearbears interest at a rate of LIBOR plus 2.50% per annum or the prime rate plus 1.50% per annum, and charges a commitment fee, based on the unused facility amount multiplied by 0.375% per annum (as defined in the Senior Secured Revolving Credit Agreement).

The following table summarizes the interest expense, and non-usage fees and amortization of financing costs incurred on the NMFC Credit Facility for the period June 4, 2014 (commencement of the NMFC Credit Facility) toyears ended December 31, 2015, December 31, 2014 and for the years ended December 31, 2013 and2013.
 Years Ended December 31,
(in millions)2015 2014(1) 2013(2)
Interest expense$1.7
 $0.2
 $—
Non-usage fee$0.1
 $0.1
 $—
Amortization of financing costs$0.4
 $0.1
 $—
Weighted average interest rate2.7% 2.7% —%
Effective interest rate3.5% 3.4% —%
Average debt outstanding$60.5
 $11.2
 $—

(1)For the year ended December 31, 2014, amounts reported relate to the period from June 4, 2014 (commencement of the NMFC Credit Facility) to December 31, 2014.
(2)Not applicable, as the NMFC Credit Facility commenced on June 4, 2014.
As of December 31, 2012.

 
  
 Years ended December 31, 
 
 June 4, 2014
(commencement of
facility) to
December 31, 2014		 
(in millions)
 2013(1) 2012(1) 

Interest expense

 $0.2 $— $— 

Non-usage fee

 $0.1 $— $— 

Amortization of financing costs

 $0.1 $— $— 

Weighted average interest rate

  2.7% —% —%

Effective interest rate

  3.4% —% —%

Average debt outstanding

 $11.2 $— $— 
(1)
Not applicable, as the NMFC Credit Facility commenced on June 4, 2014.

        As of2015 and December 31, 2014, the outstanding balance on the NMFC Credit Facility was $90.0 million and $50.0 million, respectively, and NMFC was in compliance with the applicable covenants in the NMFC Credit Facility on such dates.

Convertible Notes—On June 3, 2014, the Companywe closed a private offering of $115.0 million aggregate principal amount of senior unsecured convertible notes (the "Convertible Notes"), pursuant to an indenture, dated June 3, 2014 (the "Indenture"). The Convertible Notes were issued in a private placement only to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933. As of the first anniversary, June 3, 2015, of the Convertible Notes, the restrictions under Rule 144A under the Securities Act of 1933 were removed, allowing the Convertible Notes to be eligible and freely tradeable without restrictions for resale pursuant to Rule 144(b)(1) under the Securities Act of 1933. The Convertible Notes bear interest at an annual rate of 5.0%, payable semi-annually in arrears on June 15 and December 15 of each year, commencingwhich commenced on December 15, 2014. The Convertible Notes will mature on June 15, 2019 unless earlier converted or repurchased at the holder's option.

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The following table summarizes certain key terms related to the convertible features of our Convertible Notes will be convertible by the holders into sharesas of common stock, initially at a conversion rate of 62.7746 shares of the Company's common stock per $1.0 thousand principal amount of Convertible Notes (7,219,083 common shares) corresponding to an initial conversion price per share of approximately $15.93, which represents a premium of 12.5% to the $14.16 per share closing price of the Company's common stock on May 28, 2014. December 31, 2015.
 December 31, 2015
Initial conversion premium12.5%
Initial conversion rate(1)62.7746
Initial conversion price$15.93
Conversion premium at December 31, 201511.7%
Conversion rate at December 31, 2015(1)(2)63.2794
Conversion price at December 31, 2015(2)(3)$15.80
Last conversion price calculation dateJune 3, 2015

(1)Conversion rates denominated in shares of common stock per $1.0 thousand principal amount of the Convertible Notes converted.
(2)Represents conversion rate and conversion price, as applicable, taking into account certain de minimis adjustments that will be made on the conversion date.
(3)The conversion price in effect at December 31, 2015 was calculated on the last anniversary of the issuance and will be adjusted again on the next anniversary, unless the exercise price shall have changed by more than 1.0% before the anniversary.
The conversion rate will be subject to adjustment upon certain events, such as stock splits and combinations, mergers, spin-offs, increases in dividends in excess of $0.34 per share per quarter and certain changes in control. Certain of these adjustments, including adjustments for increases in dividends, are subject to a conversion price floor of $14.16 per share. In no event will the total number of shares of common stock issuable upon conversion exceed 70.6214 per $1.0 thousand principal amount of the Convertible Notes. The Company hasWe have determined that the embedded conversion option in the Convertible Notes is not required to be separately accounted for as a derivative under GAAP.

The Convertible Notes are senior unsecured obligations and rank senior in right of payment to our existing and future indebtedness that is expressly subordinated in right of payment to the Convertible Notes; equal in right of payment to our existing and future unsecured indebtedness that is not so subordinated; effectively junior in right of payment to any of our secured indebtedness (including existing unsecured indebtedness that the Companywe later secures)secure) to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness (including trade payables) incurred by our subsidiaries and financing vehicles. TheAs reflected in Item 8.—Financial Statements and Supplementary Data—Note 12, Earnings Per Share, the issuance is considered part of the if-converted method for calculation of diluted earnings per share.


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        The CompanyWe may not redeem the Convertible Notes prior to maturity. No sinking fund is provided for the Convertible Notes. In addition, if certain corporate events, occur in respect of the Company, holders of the Convertible Notes may require the Companyus to repurchase for cash all or part of their Convertible Notes at a repurchase price equal to 100.0% of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest through, but excluding, the repurchase date.

The Indenture contains certain covenants, including covenants requiring the Companyus to provide financial information to the holders of the Convertible Note and the Trustee if the Company ceaseswe cease to be subject to the reporting requirements of the Exchange Act. These covenants are subject to limitations and exceptions that are described in the Indenture. As

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The following table summarizes the Company was in compliance with the terms of the Indenture.

        Interestinterest expense and amortization of financing costs incurred on the Convertible Notes for the yearyears ended December 31, 2014 was $3.3 million and $0.4 million, respectively. The effective interest rate for the year ended2015, December 31, 2014 and December 31, 2013.

 Years Ended December 31,
(in millions)2015 2014(1) 2013(2)
Interest expense$5.8
 $3.3
 $—
Amortization of financing costs$0.7
 $0.4
 $—
Effective interest rate5.6% 5.6% —%

(1)For the year ended December 31, 2014, amounts reported relate to the period from June 3, 2014 (commencement of the Convertible Notes) to December 31, 2014.
(2)Not applicable, as the Convertible Notes commenced on June 3, 2014.
As of December 31, 2015 and December 31, 2014, the outstanding balance on the Convertible Notes was 5.6%.

$115.0 million and $115.0 million, respectively, and NMFC was in compliance with the terms of the Indenture on such dates.

SBA-guaranteed debentures—On August 1, 2014, SBIC LP received an SBIC license from the SBA.

The SBIC license allows SBIC LP to obtain leverage by issuing SBA-guaranteed debentures, subject to the issuance of a capital commitment by the SBA and other customary procedures. SBA-guaranteed debentures are non-recourse to us, interest only debentures with interest payable semi-annually and have a ten year maturity. The principal amount of SBA-guaranteed debentures is not required to be paid prior to maturity but may be prepaid at any time without penalty. The interest rate of SBA-guaranteed debentures is fixed on a semi-annual basis at a market-driven spread over U.S. Treasury Notes with ten year maturities. The SBA, as a creditor, will have a superior claim to the assets of SBIC LP over the Company'sour stockholders in the event SBIC LP is liquidated or the SBA exercises remedies upon an event of default.

The maximum amount of borrowings available under current SBA regulations is $150.0 million as long as the licensee has at least $75.0 million in regulatory capital, receives a capital commitment from the SBA and has been through an examination by the SBA subsequent to licensing.

As of December 31, 2015 and December 31, 2014, SBIC LP had regulatory capital of approximately $72.4 million and $42.2 million, respectively, and SBA-guaranteed debentures outstanding of $117.7 million and $37.5 million.million, respectively. The SBA-guaranteed debentures incur upfront fees of 3.43%3.425%, which consists of a 1.00% commitment fee and a 2.43%2.425% issuance discount, which are amortized over the life of the SBA-guaranteed debentures. AsThe following table summarizes our fixed-rate SBA-guaranteed debentures as of December 31, 2014, SBIC LP's2015.
(in millions)        
Issuance Date Maturity Date Debenture Amount Interest Rate SBA Annual Charge
Fixed SBA-guaranteed debentures:    
  
  
March 25, 2015 March 1, 2025 $37.5
 2.517% 0.355%
September 23, 2015 September 1, 2025 37.5
 2.829% 0.355%
September 23, 2015 September 1, 2025 28.8
 2.829% 0.742%
Interim SBA-guaranteed debentures:        
  March 1, 2026(1) 7.0
 0.760% 0.742%
  March 1, 2026(1) 6.9
 0.887% 0.742%
Total SBA-guaranteed debentures   $117.7
  
 ��

(1)Estimated maturity date as interim SBA-guaranteed debentures are expected to pool in March 2016.
Prior to pooling, the SBA-guaranteed debentures are set to pool in March 2015 and until pooling bear interest at an interim floating rate of LIBOR plus 0.30%. InterestOnce pooled, which occurs in March and September each year, the SBA-guaranteed debentures bear interest at a fixed rate that is set to the current 10-year treasury rate plus a spread at each pooling date.

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The following table summarizes the interest expense and amortization of financing costs incurred on the SBA-guaranteed debentures for the yearyears ended December 31, 2015, December 31, 2014 was $34 thousand and $12 thousand, respectively.December 31, 2013.
 Years ended December 31,
(in millions)2015 2014(1) 2013(2)
Interest expense$1.7
 $—
(3)$—
Amortization of financing costs$0.2
 $—
(3)$—
Weighted average interest rate2.4% 0.9% —%
Effective interest rate2.7% 1.3% —%
Average debt outstanding$71.9
 $29.2
 $—

(1)For the year ended December 31, 2014, amounts reported relate to the period from August 1, 2014 (receipt of the SBIC license) to December 31, 2014. The initial SBA-guaranteed debenture borrowing occurred on November 17, 2014.
(2)Not applicable, as the SBIC LP received an SBIC license from the SBA on August 1, 2014.
(3)For the year ended December 31, 2014, the total interest expense and amortization of financing costs were less than $50 thousand.

The SBIC program is designed to stimulate the flow of private investor capital into eligible small businesses, as defined by the SBA. Under SBA regulations, SBIC LP is subject to regulatory requirements, including making investments in SBA-eligible businesses, investing at least 25.0% of its investment capital in eligible smaller businesses, as defined under the 1958 Act, placing certain limitations on the financing terms of investments, regulating the types of financing, prohibiting investments in small businesses with certain characteristics or in certain industries and requiring capitalization thresholds that limit distributions to the Company.us. SBIC LP is subject to an annual periodic examination by an SBA examiner to determine SBIC LP's compliance with the relevant SBA regulations and an annual financial audit of its financial statements that are prepared on a basis of accounting other than GAAP (such as ASC 820) by an independent auditor. As of December 31, 2015 and December 31, 2014, SBIC LP was in compliance with SBA regulatory requirements.


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Off-Balance Sheet Arrangements

        The Company

We may become a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of itsour 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, 2015 and December 31, 2014, the Companywe had outstanding commitments to third parties to fund investments totaling $26.3 million and $27.4 million and as of December 31, 2013, the Predecessor Operating Company had outstanding commitments to third parties to fund investments totaling $15.5 million,respectively, under various undrawn revolving credit facilities, delayed draw commitments or other future funding commitments.

        The Company

We may from time to time enter into financing commitment letters or bridge financing commitments, which could require funding in the future. As of December 31, 2015 and December 31, 2014, the Companywe did not enter into any commitment letters to purchase debt investments. As of December 31, 2013, the Predecessor Operating Company did not enter into any commitment letters to purchase debt investments. As of2015 and December 31, 2014, the Companywe had not entered into any bridge financing commitments which could require funding in the future. As

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Table of December 31, 2013, the Predecessor Operating Company had not entered into any bridge financing commitments which could require funding in the future.

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Contractual Obligations

A summary of the Company'sour significant contractual payment obligations as of December 31, 20142015 is as follows:

 Contractual Obligations Payments Due by Period
(in millions)Total 
Less than
1 Year
 1 - 3 Years 3 - 5 Years 
More than
5 Years
Holdings Credit Facility(1)$419.3
 $—
 $—
 $419.3
 $—
SBA-guaranteed debentures(2)117.7
 —
 —
 —
 117.7
Convertible Notes(3)115.0
 —
 —
 115.0
 —
NMFC Credit Facility(4)90.0
 —
 —
 90.0
 —
Total Contractual Obligations$742.0
 $—
 $—
 $624.3
 $117.7

(1)Under the terms of the $495.0 million Holdings Credit Facility, all outstanding borrowings under that facility ($419.3 million as of December 31, 2015) must be repaid on or before December 18, 2019. As of December 31, 2015, there was approximately $75.7 million of possible capacity remaining under the Holdings Credit Facility.
(2)Our SBA-guaranteed debentures will begin to mature on March 1, 2025.
(3)The $115.0 million Convertible Notes will mature on June 15, 2019 unless earlier converted or repurchased at the holder's option.
(4)Under the terms of the $95.0 million NMFC Credit Facility, all outstanding borrowings under that facility ($90.0 million as of December 31, 2015) must be repaid on or before June 4, 2019. As of December 31, 2015, there was approximately $5.0 million of possible capacity remaining under the NMFC Credit Facility.
 
  
 Contractual Obligations Payments
Due by Period (in millions)		  
 
 
 Total Less than
1 Year		 1 - 3 Years 3 - 5 Years More than
5 Years		 

Holdings Credit Facility(1)

 $468.1 $— $— $468.1 $— 

Convertible Notes(2)

  115.0  —  —  115.0  — 

NMFC Credit Facility(3)

  50.0  —  —  50.0  — 

SBA-guaranteed debentures(4)

  37.5  —  —  —  37.5 
​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​

Total Contractual Obligations

 $670.6 $— $— $633.1 $37.5 
(1)
Under the terms of the $495.0 million Holdings Credit Facility, all outstanding borrowings under that facility ($468.1 million as of December 31, 2014) must be repaid on or before December 18, 2019. As of December 31, 2014, there was approximately $26.9 million of possible capacity remaining under the Holdings Credit Facility.

(2)
The $115.0 million Convertible Notes will mature on June 15, 2019 unless earlier converted or repurchased at the holder's option.

(3)
Under the terms of the $80.0 million NMFC Credit Facility, all outstanding borrowings under that facility ($50.0 million as of December 31, 2014) must be repaid on or before June 4, 2019. As of December 31, 2014, there was approximately $30.0 million of possible capacity remaining under the NMFC Credit Facility.

(4)
The SBA-guaranteed debentures will mature on March 1, 2025.

        The Company hasWe have certain contracts under which it haswe have material future commitments. The Company has $27.4We have $26.3 million of undrawn funding commitments as of December 31, 20142015 related to itsour participation as a lender in revolving credit facilities, delayed draw commitments or other future funding commitments of the Company'sour portfolio companies. As of December 31, 2014, the Company did2015, we had not enterentered into any bridge financing commitments or commitment letters which could require funding in the future.


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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 Companyus 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 itsour performance.

We have also entered into an Administration Agreement with the Administrator. Under the Administration Agreement, the Administrator has agreed to arrange office space for us and provide office equipment and clerical, bookkeeping and record keeping services and other administrative services necessary to conduct our respective day-to-day operations. The Administrator has also agreed to perform, or oversee the performance of, our financial records, our reports to stockholders and reports filed with the SEC.

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


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Distributions and Dividends

        Dividends

Distributions declared and paid to stockholders of the Company for the year ended December 31, 20142015 totaled $77.6$81.0 million.


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The following table summarizes the Company's quarterlyreflects cash distributions, including dividends and returns of capital, if any, per share that have been declared by the Company'sour board of directors sincefor the Company's IPO:

years ended December 31, 2015 and December 31, 2014:
Fiscal Year EndedDate Declared Record Date Payment Date Per Share Amount 
December 31, 2015        
Fourth QuarterNovember 3, 2015 December 16, 2015 December 30, 2015 $0.34
 
Third QuarterAugust 4, 2015��September 16, 2015 September 30, 2015 0.34
 
Second QuarterMay 5, 2015 June 16, 2015 June 30, 2015 0.34
 
First QuarterFebruary 23, 2015 March 17, 2015 March 31, 2015 0.34
 
       $1.36
 
         
December 31, 2014       
 
Fourth QuarterNovember 4, 2014 December 16, 2014 December 30, 2014 $0.34
 
Third QuarterAugust 5, 2014 September 16, 2014 September 30, 2014 0.34
 
Third QuarterJuly 30, 2014 August 20, 2014 September 3, 2014 0.12
(1)
Second QuarterMay 6, 2014 June 16, 2014 June 30, 2014 0.34
 
First QuarterMarch 4, 2014 March 17, 2014 March 31, 2014 0.34
 
       $1.48
 

(1)Special dividend related to estimated realized capital gains attributable to the Predecessor Operating Company's warrant investments in Learning Care Group (US), Inc.
Fiscal Year Ended
 Date Declared Record Date Payment Date Per Share
Amount		 

December 31, 2014

          

Fourth Quarter

 November 4, 2014 December 16, 2014 December 30, 2014 $0.34 

Third Quarter

 August 5, 2014 September 16, 2014 September 30, 2014  0.34 

Third Quarter

 July 30, 2014 August 20, 2014 September 3, 2014  0.12(1)

Second Quarter

 May 6, 2014 June 16, 2014 June 30, 2014  0.34 

First Quarter

 March 4, 2014 March 17, 2014 March 31, 2014  0.34 
​​​​​​​​​ ​ ​

       $1.48 

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(2)

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

 December 27, 2012 December 31, 2012 January 31, 2013 $0.14(3)

Fourth Quarter

 November 6, 2012 December 14, 2012 December 28, 2012  0.34 

Third Quarter

 August 8, 2012 September 14, 2012 September 28, 2012  0.34 

Second Quarter

 May 8, 2012 June 15, 2012 June 29, 2012  0.34 

Second Quarter

 May 8, 2012 May 21, 2012 May 31, 2012  0.23(4)

First Quarter

 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 

Third Quarter

 August 10, 2011 September 15, 2011 September 30, 2011  0.29 

Second Quarter

 August 10, 2011 August 22, 2011 August 31, 2011  0.27 
​​​​​​​​​ ​ ​

       $0.86 
​​​​​​​​​ ​ ​

Total

       $5.53 
​​​​​​​​​ ​ ​
​​​​​​​​​​​
​​​​​​​​​ ​ ​
(1)
Special dividend related to realized capital gains attributable to the Company's warrant investments in Learning Care Group (US), Inc.

(2)
Special dividend related to a distribution received attributable to the Predecessor Operating Company's investment in YP Equity Investors LLC.

(3)
Special dividend intended to minimize to the greatest extent possible the Company's U.S. federal income or excise tax liability.

(4)
Special dividend related to estimated realized capital gains attributable to the Predecessor Operating Company's investments in Lawson Software, Inc. and Infor Lux Bond Company.

Tax characteristics of all dividends paid by the Company wereare reported to stockholders on Form 1099 after the end of the calendar year. Future quarterly dividends, if any, for the Company will be determined by theour board of directors.

        The Company intends

We intend to pay quarterly distributions to itsour stockholders andin amounts sufficient to maintain itsour status as a RIC. The Company intendsWe intend to distribute approximately its entire portionall of our Adjusted Net Investment Income on a quarterly basis and substantially its entireall of our taxable income on an annual basis, except that itwe may retain certain net capital gains for reinvestment.


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        The Company maintainsWe maintain an "opt out" dividend reinvestment plan for itson behalf of our common stockholders. As a result, the Company'sstockholders, pursuant to which each of our stockholders' cash dividendsdistributions will be automatically reinvested in additional shares of common stock, unless the stockholder elects to receive cash. Cash dividends reinvested in additional shares of the Company's common stock will be automatically reinvested by the Company into additional shares of the Company's common stock. SeeItem 8—Financial Statements and Supplementary Data—Note 2, Summary of Significant Accounting Policies for additional details regarding the Company'sour dividend reinvestment plan.

Related Parties

        The Company has

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

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

•
The Company has
We have entered into an Administration Agreement with the Administrator, a wholly-owned subsidiary of New Mountain Capital. The Administrator arranges our office space for the Company and provides office equipment and administrative services necessary to conduct theirour respective day-to-day operations pursuant to the Administration Agreement. The Company reimbursesWe reimburse the Administrator for the allocable portion of overhead and other expenses incurred by it in performing its obligations to the Companyus under the Administration Agreement, which includes the fees and expenses associated with performing administrative, finance, and compliance functions, and the compensation of the Company'sour chief financial officer and chief compliance officer and their respective staffs. Pursuant to the Administration Agreement and further restricted by the Company,us, expenses payable to the Administrator by the Company as well as other direct and indirect expenses (excluding

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interest, other financing expense, trading expenses and management and incentive fees) had 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 expired on March 31, 2014. Thereafter, the Administrator may, in its own discretion, submit to the Companyus for reimbursement some or all of the expenses that the Administrator has incurred on our behalf of the Company during any quarterly period. As a result, the amount of expenses for which the Companywe 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 Companyus for reimbursement in the future. However, it is expected that the Administrator will continue to support part of theour expense burden of the Company in the near future and may decide to not calculate and charge through certain overhead related amounts as well as continue to cover some of the indirect costs. The Administrator cannot recoup any expenses that the Administrator has previously waived. For the year ended December 31, 2014,2015, approximately $1.4 million of indirect administrative expenses were included in administrative expenses, of which $0.8$0.7 million were waived by the Administrator. As of December 31, 2014,2015, approximately $0.3$0.4 million were payable to the Administrator.

•
The Company,
We, the Investment Adviser and the Administrator have entered into a royalty-free Trademark License Agreement, as amended, with New Mountain Capital, pursuant to which New Mountain Capital has agreed to grant the Company,us, the Investment Adviser and the

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

The Investment Adviser and its affiliates may also manage other funds in the future that may have investment mandates that are similar, in whole and in part, with the Company'sour investment mandates. The Investment Adviser and its affiliates may determine that an investment is appropriate for the Companyus and for one or more of those other funds. In such event, depending on the availability of such investment and other appropriate factors, the Investment Adviser or its affiliates may determine that we should invest side-by-side with one or more other funds. Any such investments will be made only to the extent permitted by applicable law and interpretive positions of the SEC and its staff, and consistent with the Investment Adviser's allocation procedures.

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


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Item 7A.    Quantitative and Qualitative Disclosures About Market Risk

        The Company is

We are subject to certain financial market risks, such as interest rate fluctuations. During the year ended December 31, 2014,2015, certain of the loans held in the Company'sour portfolio had floating interest rates. As of December 31, 2014,2015, approximately 87.7%86.8% of investments at fair value (excluding investments on non-accrual, revolvers, delayed draws and non-interest bearing equity investments) represent floating-rate investments with a LIBOR floor (includes investments bearing prime interest rate contracts) and approximately 12.3%13.2% of investments at fair value represent fixed-rate investments. Additionally, the Company'sour 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 Company'sour portfolio of investments held on December 31, 2014.2015. Interest expense is calculated based on the terms of the Company'sour outstanding revolving credit facilities and convertible notes. For the Company'sour floating rate credit facilities, the Company useswe use the outstanding balance as of December 31, 2014.2015. Interest expense on the Company'sour floating rate credit facilities are calculated using the interest rate as of December 31, 2014,2015, adjusted for the hypothetical changes in rates, as shown below. The base interest rate case assumes the rates on the Company'sour portfolio investments remain unchanged from the actual effective interest rates as of December 31, 2014.2015. These hypothetical calculations are based on a model of the investments in our portfolio, held as of December 31, 2014,2015, and are only adjusted for assumed changes in the underlying base interest rates.


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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 Points1.06%(1)
Base Interest Rate—% 
+100 Basis Points0.82% 
+200 Basis Points7.27% 
+300 Basis Points14.06% 

(1)Limited to the lesser of the December 31, 2015 LIBOR rates or a decrease of 25 basis points.
Change in Interest Rates
 Estimated Percentage
Change in Interest
Income Net of
Interest Expense
(unaudited)		 

–25 Basis Points

  0.69%(1)

Base Interest Rate

  —%

+100 Basis Points

  (2.98)%

+200 Basis Points

  2.73%

+300 Basis Points

  9.16%
(1)
Limited to the lesser of the December 31, 2014 LIBOR rates or a decrease of 25 basis points.

        The Company wasWe were not exposed to any foreign currency exchange risks as of December 31, 2014.

2015.

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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

88
106New Mountain Finance Corporation 

New Mountain Finance Corporation

Consolidated Statements of Assets and Liabilities as of December 31, 20142015 and December 31, 2013

2014
10789

Consolidated Statements of Operations for the years ended December 31, 2014,2015, December 31, 20132014 and December 31, 2012

2013
10890

Consolidated Statements of Changes in Net Assets for the years ended December 31, 2014,2015, December 31, 20132014 and December 31, 2012

2013
10991

Consolidated Statements of Cash Flows for the years ended December 31, 2014,2015, December 31, 20132014 and December 31, 2012

2013
11092
Consolidated Schedule of Investments as of December 31, 2015

93
Consolidated Schedule of Investments as of December 31, 2014

111104

Consolidated Schedule of Investments as of December 31, 2013

118

Notes to the Consolidated Financial Statements of New Mountain Finance Corporation


123112


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Deloitte & Touche LLP
30 Rockefeller Plaza
New York, NY 10112
USA
Tel:    + 1 212 492 4000
Fax: + 1 212 489 1687
www.deloitte.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the BoardsBoard of Directors and Stockholders of
New Mountain Finance Corporation
and subsidiaries
New York, New York


We have audited the accompanying consolidated statements of assets and liabilities of New Mountain Finance Corporation and subsidiaries (the "Company"“Company”), including the consolidated schedules of investments, as of December 31, 20142015 and 2013,2014, and the related consolidated statements of operations, changes in net assets, and cash flows for each of the three years in the period ended December 31, 20142015 and the consolidated financial highlights for the period from May 19, 2011 (commencement of operations) to December 31, 2011 and for the years ended December 31, 2015, 2014, 2013 and 2012. These financial statements and financial highlights are the responsibility of the management of the Company. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements and consolidated financial highlights referred to above present fairly, in all material respects, the financial position of New Mountain Finance Corporation and subsidiaries as of December 31, 20142015 and 2013,2014, and the results of their operations, the changes in their net assets, and their cash flows for each of the three years in the period ended December 31, 20142015 and the financial highlights for the period from May 19, 2011 (commencement of operations) to December 31, 2011 and for the years ended December 31, 2015, 2014, 2013 and 2012 in conformity with accounting principles generally accepted in the United States of America.

        As discussed in Note 1 to the consolidated financial statements, the Company completed a restructuring during the year ended December 31, 2014.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company'sCompany’s internal control over financial reporting as of December 31, 2014,2015, based on the criteria established inInternal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 2, 2015,February, 29, 2016, expressed an unqualified opinion on the Company's internal control over financial reporting.



/s/ DELOITTE & TOUCHE LLP


New York, New York
March 2, 2015

February 29, 2016


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New Mountain Finance Corporation

Consolidated Statements of Assets and Liabilities

(in thousands, except shares and per share data)


 December 31,
2014		 December 31,
2013		 December 31, 2015 December 31, 2014

Assets

      
  

Investments at fair value

      
  

Non-controlled/non-affiliated investments (cost of $1,422,891 and $0, respectively)

 $1,402,210 $— 

Non-controlled/affiliated investments (cost $23,000 and $0, respectively)

 22,461 — 

Investment in New Mountain Finance Holdings, L.L.C. (cost of $0 and $633,835, respectively)

 — 650,107 
​​ ​ ​​ ​​

Total investments at fair value (cost $1,445,891 and $633,835, respectively)

 1,424,671 650,107 

Securities purchased under collateralized agreements to resell

 30,000 — 
Non-controlled/non-affiliated investments (cost of $1,438,415 and $1,422,891, respectively)$1,377,515
 $1,402,210
Non-controlled/affiliated investments (cost $89,047 and $23,000, respectively)87,287
 22,461
Controlled investments (cost of $41,254 and $0, respectively)47,422
 —
Total investments at fair value (cost $1,568,716 and $1,445,891, respectively)1,512,224
 1,424,671
Securities purchased under collateralized agreements to resell (cost of $30,000 and $30,000, respectively)29,704
 30,000

Cash and cash equivalents

 23,445 — 30,102
 23,445

Deferred financing costs (net of accumulated amortization of $5,867 and $0, respectively)

 14,052 — 
Deferred financing costs (net of accumulated amortization of $8,822 and $5,867, respectively)13,992
 14,052

Interest and dividend receivable

 11,744 — 13,832
 11,744
Receivable from affiliates360
 490

Receivable from unsettled securities sold

 8,912 — —
 8,912

Receivable from affiliates

 490 — 

Other assets

 1,606 — 1,924
 1,606
​​ ​ ​​​ ​

Total assets

 $1,514,920 $650,107 $1,602,138
 $1,514,920
​​ ​ ​​ ​​
​​​​​
​​ ​ ​​ ​ ​

Liabilities

      
  

Holdings Credit Facility

 $468,108 $— $419,313
 $468,108
SBA-guaranteed debentures117,745
 37,500

Convertible Notes

 115,000 — 115,000
 115,000

NMFC Credit Facility

 50,000 — 90,000
 50,000

SBA-guaranteed debentures

 37,500 — 
Incentive fee payable5,622
 4,803
Management fee payable5,466
 5,144

Payable for unsettled securities purchased

 26,460 — 5,441
 26,460

Management fee payable

 5,144 — 

Incentive fee payable

 4,803 — 

Interest payable

 1,352 — 2,343
 1,352
Deferred tax liability1,676
 493

Payable to affiliates

 822 — 564
 822

Deferred tax liability

 493 — 

Other liabilities

 3,068 — 2,060
 3,068
​​ ​ ​​​ ​

Total liabilities

 712,750 — 765,230
 712,750

Commitments and contingencies (See Note 9)

      
  

Net assets

      
  

Preferred stock, par value $0.01 per share, 2,000,000 shares authorized, none issued

 — — —
 —

Common stock, par value $0.01 per share 100,000,000 shares authorized, and 57,997,890 and 45,224,755 shares issued and outstanding, respectively

 580 452 
Common stock, par value $0.01 per share, 100,000,000 shares authorized, and 64,005,387 and 57,997,890 shares issued and outstanding, respectively640
 580

Paid in capital in excess of par

 817,129 633,383 899,713
 817,129

Accumulated undistributed net investment income

 2,530 — 4,164
 2,530

Accumulated undistributed net realized gains on investments

 14,131 5,056 1,342
 14,131

Net unrealized (depreciation) appreciation of investments (net of provision for taxes of $493 and $0, respectively)

 (32,200) 11,216 
​​ ​​​ ​ ​
Net unrealized (depreciation) appreciation (net of provision for taxes of $1,676 and $493, respectively)(68,951) (32,200)

Total net assets

 $802,170 $650,107 $836,908
 $802,170
​​ ​ ​​ ​​

Total liabilities and net assets

 $1,514,920 $650,107 $1,602,138
 $1,514,920
​​ ​​​ ​ ​
​​​​​
​​ ​ ​​​ ​

Number of shares outstanding

 57,997,890 45,224,755 64,005,387
 57,997,890

Net asset value per share

 $13.83 $14.38 $13.08
 $13.83



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


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New Mountain Finance Corporation

Consolidated Statements of Operations

(in thousands, except shares and per share data)

 Years Ended December 31,
 2015 2014 2013
Investment income(1) 
  
  
From non-controlled/non-affiliated investments: 
  
  
Interest income$132,665
 $85,123
 $—
Dividend income(407) 1,243
 —
Other income5,996
 4,023
 —
From non-controlled/affiliated investments: 
  
  
Interest income5,402
 —
 —
Dividend income3,619
 1,066
 —
Other income1,965
 468
 —
From controlled investments: 
  
  
Interest income2,007
 —
 —
Dividend income2,559
 —
 —
Other income49
 —
 —
Investment income allocated from New Mountain Finance Holdings, L.L.C.(2) 
  
  
Interest income—
 40,515
 84,925
Dividend income—
 2,368
 3,567
Other income—
 795
 2,384
Total investment income153,855
 135,601
 90,876
Expenses 
  
  
Incentive fee(1)20,591
 12,070
 —
Capital gains incentive fee(1)—
 (8,573) —
Total incentive fees(1)20,591
 3,497
 —
Management fee(1)25,858
 13,593
 —
Interest and other financing expenses(1)23,374
 13,269
 —
Professional fees(1)3,214
 2,390
 —
Administrative expenses(1)2,450
 1,470
 —
Other general and administrative expenses(1)1,665
 1,138
 —
Net expenses allocated from New Mountain Finance Holdings, L.L.C.(2)—
 20,808
 40,355
Total expenses77,152
 56,165
 40,355
Less: management fee waived (see Note 5)(1)(5,219) (686) —
Less: expenses waived and reimbursed (see Note 5)(1)(733) (380) —
Net expenses71,200
 55,099
 40,355
Net investment income before income taxes82,655
 80,502
 50,521
Income tax expense(1)160
 436
 —
Net investment income82,495
 80,066
 50,521
Net realized (losses) gains: 
  
  
Non-controlled/non-affiliated investments(1)(12,789) 357
 —
Investments allocated from New Mountain Finance Holdings, L.L.C.(2)—
 8,568
 5,427
Net change in unrealized (depreciation) appreciation: 
  
  
Non-controlled/non-affiliated investments(1)(40,807) (43,324) —
Non-controlled/affiliated investments(1)(633) (539) —
Controlled investments(1)6,168
 —
 —
Securities purchased under collateralized agreements to resell(1)(296) —
 —
Investments allocated from New Mountain Finance Holdings, L.L.C.(2)—
 940
 6,016
Investment in New Mountain Finance Holdings, L.L.C.(2)—
 —
 (44)
Provision for taxes(1)(1,183) (493) —
Net realized and unrealized (losses) gains(49,540) (34,491) 11,399
Net increase in net assets resulting from operations$32,955
 $45,575
 $61,920
Basic earnings per share$0.55
 $0.88
 $1.76
Weighted average shares of common stock outstanding—basic (See Note 12)59,715,290
 51,846,164
 35,092,722
Diluted earnings per share$0.55
 $0.86
 $1.76
Weighted average shares of common stock outstanding—diluted (See Note 12)66,968,089
 56,157,835
 35,092,722
Dividends declared and paid per share$1.36
 $1.48
 $1.48

(1)For the year ended December 31, 2014, the amounts reported relate to the period from May 8, 2014 to December 31, 2014.
(2)For the year ended December 31, 2014, the amounts reported relate to the period from January 1, 2014 to May 7, 2014.
 
 Years ended December 31, 
 
 2014 2013 2012 

Investment income(1)

          

From non-controlled/non-affiliated investments:

          

Interest income

 $85,123 $— $— 

Dividend income

  1,243  —  — 

Other income

  4,023  —  — 

From non-controlled/affiliated investments:

          

Dividend income

  1,066  —  — 

Other income

  468  —  — 

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

          

Interest income

  40,515  84,925  36,439 

Dividend income

  2,368  3,567  455 

Other income

  795  2,384  617 
​​​ ​​​ ​ ​​ ​​

Total investment income

  135,601  90,876  37,511 
​​​ ​ ​​ ​ ​​ ​ ​

Expenses

          

Incentive fee(1)

  12,070  —  — 

Capital gains incentive fee(1)

  (8,573) —  — 
​​​ ​ ​​ ​ ​​ ​ ​

Total incentive fees(1)

  3,497  —  — 

Management fee(1)

  13,593  —  — 

Interest and other financing expenses(1)

  13,269  —  — 

Professional fees(1)

  2,390  —  — 

Administrative expenses(1)

  1,470  —  — 

Other general and administrative expenses(1)

  1,138  —  — 

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

  20,808  40,355  17,719 
​​​ ​ ​​ ​ ​​​ ​

Total expenses

  56,165  40,355  17,719 

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

  (686) —  — 

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

  (380) —  — 
​​​ ​ ​​​ ​​ ​ ​

Net expenses

  55,099  40,355  17,719 
​​​ ​ ​​ ​ ​​​ ​

Net investment income before income taxes

  80,502  50,521  19,792 

Income tax expense(1)

  436  —  — 
​​​ ​ ​​ ​ ​​ ​ ​

Net investment income

  80,066  50,521  19,792 

Net realized gains (losses):

          

Non-controlled/non-affiliated investments(1)

  357  —  — 

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

  8,568  5,427  7,593 

Net change in unrealized (depreciation) appreciation:

          

Non-controlled/non-affiliated investments(1)

  (43,324) —  — 

Non-controlled/affiliated investments(1)

  (539) —  — 

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

  940  6,016  4,494 

Investment in New Mountain Finance Holdings, L.L.C.(2)

  —  (44) (95)

Provision for taxes(1)

  (493) —  — 
​​​ ​​​ ​ ​​ ​​

Net increase in net assets resulting from operations

 $45,575 $61,920 $31,784 
​​​ ​ ​​ ​ ​​​ ​
​​​​​​​​​​​
​​​ ​​​ ​ ​​ ​​

Basic earnings per share

 $0.88 $1.76 $2.14 

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

  51,846,164  35,092,722  14,860,838 

Diluted earnings per share

 $0.86 $1.76 $2.14 

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

  56,157,835  35,092,722  14,860,838 

Dividends declared and paid per share

 $1.48 $1.48 $1.71 


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

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

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


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New Mountain Finance Corporation

Consolidated Statements of Changes in Net Assets

(in thousands)

thousands, except share data)
 Years Ended December 31,
 2015 2014 2013
Increase (decrease) in net assets resulting from operations:   
  
Net investment income(1)$82,495
 $57,196
 $—
Net investment income allocated from New Mountain Finance Holdings, L.L.C.(2)—
 22,870
 50,521
Net realized (losses) gains on investments(1)(12,789) 357
 —
Net realized gains on investments allocated from New Mountain Finance Holdings, L.L.C.(2)—
 8,568
 5,427
Net change in unrealized (depreciation) appreciation of investments(1)(35,272) (43,863) —
Net change in unrealized (depreciation) appreciation of securities purchased under collateralized agreements to resell(1)(296) —
 —
Net change in unrealized appreciation (depreciation) of investments allocated from New Mountain Finance Holdings, L.L.C.(2)—
 940
 6,016
Net change in unrealized (depreciation) appreciation of investment in New Mountain Finance Holdings, L.L.C.(2)—
 —
 (44)
Provision for taxes(1)(1,183) (493) —
Net increase in net assets resulting from operations32,955
 45,575
 61,920
Capital transactions 
  
  
Net proceeds from shares sold79,415
 141,157
 100,040
Deferred offering costs allocated from New Mountain Finance Holdings, L.L.C.(2)—
 (250) (281)
Deferred offering costs(1)(285) (476) —
Value of shares issued for exchanged units—
 38,840
 193,262
Dividends declared to stockholders from net investment income(81,002) (71,365) (50,521)
Dividends declared to stockholders from net realized gains—
 (6,247) (1,323)
Reinvestment of dividends3,655
 4,829
 5,084
Total net increase in net assets resulting from capital transactions1,783
 106,488
 246,261
Net increase in net assets34,738
 152,063
 308,181
Net assets at the beginning of the period802,170
 650,107
 341,926
Net assets at the end of the period(3)$836,908
 $802,170
 $650,107
      
Capital share activity     
Shares sold5,750,000
 9,775,000
 7,000,000
Shares issued for exchanged units—
 2,671,938
 13,550,000
Shares issued from reinvestment of dividends257,497
 326,197
 348,504
Net increase in shares outstanding6,007,497
 12,773,135
 20,898,504

(1)For the year ended December 31, 2014, the amounts reported relate to the period from May 8, 2014 to December 31, 2014.
(2)For the year ended December 31, 2014, the amounts reported relate to the period from January 1, 2014 to May 7, 2014.
(3)For the years ended December 31, 2015, December 31, 2014 and December 31, 2013, includes accumulated undistributed net investment income of $4,164, $2,530 and $0, respectively.
 
 Years ended December 31, 
 
 2014 2013 2012 

Increase (decrease) in net assets resulting from operations:

          

Net investment income(1)

 $57,196 $— $— 

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

  22,870  50,521  19,792 

Net realized gains on investments(1)

  357  —  — 

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

  8,568  5,427  7,593 

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

  (43,863) —  — 

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

  940  6,016  4,494 

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

  —  (44) (95)

Provision for taxes(1)

  (493) —  — 
​​​ ​ ​​ ​​​ ​ ​

Net increase in net assets resulting from operations

  45,575  61,920  31,784 

Capital transactions

          

Net proceeds from shares sold

  141,157  100,040  133,428 

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

  (250) (281) (323)

Deferred offering costs(1)

  (476) —  — 

Value of shares issued for exchanged units

  38,840  193,262  56,314 

Dividends declared to stockholders from net investment income

  (71,365) (50,521) (19,792)

Dividends declared to stockholders from net realized gains

  (6,247) (1,323) (6,927)

Reinvestment of dividends

  4,829  5,084  1,955 
​​​ ​ ​​ ​ ​​​ ​

Total net increase in net assets resulting from capital transactions

  106,488  246,261  164,655 
​​​ ​ ​​ ​​​ ​ ​

Net increase in net assets

  152,063  308,181  196,439 

Net assets at the beginning of the period

  650,107  341,926  145,487 
​​​ ​​​ ​ ​​ ​​

Net assets at the end of the period

 $802,170 $650,107 $341,926 
​​​ ​ ​​ ​ ​​ ​ ​
​​​​​​​​​​​
​​​ ​​​ ​ ​​ ​ ​

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

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

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


91

Table of Contents



New Mountain Finance Corporation

Consolidated Statements of Cash Flows

(in thousands)

 Years Ended December 31,
 2015 2014 2013
Cash flows from operating activities 
  
  
Net increase in net assets resulting from operations$32,955
 $45,575
 $61,920
Adjustments to reconcile net (increase) decrease in net assets resulting from operations to net cash (used in) provided by operating activities: 
  
  
Net investment income allocated from New Mountain Finance Holdings, L.L.C.(2)—
 (22,870) (50,521)
Net realized losses (gains) on investments(1)12,789
 (357) —
Net realized gains on investments allocated from New Mountain Finance Holdings, L.L.C.(2)—
 (8,568) (5,427)
Net change in unrealized depreciation (appreciation) of investments(1)35,272
 43,863
 —
Net change in unrealized depreciation (appreciation) of securities purchased under collateralized agreements to resell

296
 —
 —
Net change in unrealized (appreciation) depreciation of investments allocated from New Mountain Finance Holdings, L.L.C.(2)—
 (940) (6,016)
Net change in unrealized depreciation (appreciation) in New Mountain Finance Holdings, L.L.C.(2)—
 —
 44
Amortization of purchase discount(1)(2,511) (1,721) —
Amortization of deferred financing costs(1)2,955
 1,713
 —
Non-cash investment income(1)(5,978) (3,479) —
(Increase) decrease in operating assets: 
  
  
Cash and cash equivalents from New Mountain Finance Holdings, L.L.C.(3)—
 957
 —
Purchase of investments and delayed draw facilities(1)(609,667) (529,540) —
Proceeds from sales and paydowns of investments(1)483,936
 261,747
 —
Cash received for purchase of undrawn portion of revolving credit
or delayed draw facilities(1)
157
 29
 —
Cash paid for purchase of drawn portion of revolving credit facilities(1)(3,227) (2,548) —
Cash paid for drawn revolvers(1)(4,376) —
 —
Cash repayments on drawn revolvers(1)6,052
 380
 —
Cash paid for securities purchased under collateralized agreements to resell(1)—
 (30,000) —
Interest and dividend receivable(1)(2,088) (207) —
Receivable from affiliates(1)130
 (106) —
Receivable from unsettled securities sold(1)8,912
 (8,912) —
Other assets(1)(156) 196
 —
Purchase of investment in New Mountain Finance Holdings, L.L.C.(2)—
 (58,644) (100,040)
Distributions from New Mountain Finance Holdings, L.L.C.(2)—
 15,247
 50,165
Increase (decrease) in operating liabilities(1): 
  
  
Incentive fee payable819
 (1,522) —
Management fee payable322
 (911) —
Payable for unsettled securities purchased(21,019) 17,054
 —
Interest payable991
 1,259
 —
Deferred tax liability1,183
 493
 —
Payable to affiliates(258) 589
 —
Capital gains incentive fee payable—
 (8,573) —
Other liabilities(836) 225
 —
Net cash flows used in operating activities(63,347) (289,571) (49,875)
Cash flows from financing activities 
  
  
Net proceeds from shares sold79,415
 141,157
 100,040
Dividends paid(77,347) (72,783) (50,165)
Offering costs paid(1)(325) (478) —
Proceeds from Holdings Credit Facility(1)400,355
 384,721
 —
Repayment of Holdings Credit Facility(1)(449,150) (314,400) —
Proceeds from SBA-guaranteed debentures(1)80,245
 37,500
 —
Proceeds from Convertible Notes(1)—
 115,000
 —
Proceeds from NMFC Credit Facility(1)148,800
 72,000
 —
Repayment of NMFC Credit Facility(1)(108,800) (22,000) —
Proceeds from SLF Credit Facility(1)—
 21,255
 —
Repayment of SLF Credit Facility(1)—
 (37,700) —
Deferred financing costs paid(1)(3,189) (11,256) —
Net cash flows provided by financing activities70,004
 313,016
 49,875
Net increase in cash and cash equivalents6,657
 23,445
 —
Cash and cash equivalents at the beginning of the period23,445
 —
 —
Cash and cash equivalents at the end of the period$30,102
 $23,445
 $—
Supplemental disclosure of cash flow information 
  
  
Cash interest paid$18,683
 $9,924
 $—
Income taxes paid217
 437
 —
Non-cash operating activities:     
Non-cash activity on investments$60,652
 $—
 $—
Non-cash financing activities: 
  
  
New Mountain Finance AIV Holdings Corporation exchange of New Mountain Finance Holdings, L.L.C. units for shares$—
 $38,840
 $193,262
Value of shares issued in connection with dividend reinvestment plan3,655
 4,829
 5,084
Accrual for offering costs(1)638
 516
 —
Accrual for deferred financing costs(1)81
 375
 —
Deferred offering costs allocated from New Mountain Finance Holdings, L.L.C(2)—
 (250) (281)
SLF Credit Facility merger with the Holdings Credit Facility(1)—
 198,555
 —

(1)For the year ended December 31, 2014, the amounts reported relate to the period from May 8, 2014 to December 31, 2014.
(2)For the year ended December 31, 2014, the amounts reported relate to the period from January 1, 2014 to May 7, 2014.
(3)
Represents the cash and cash equivalent balance of New Mountain Finance Holdings, L.L.C.'s at the date of restructuring. See Note 1, Formation and Business Purpose.
 
 Years ended December 31, 
 
 2014 2013 2012 

Cash flows from operating activities

          

Net increase in net assets resulting from operations

 $45,575 $61,920 $31,784 

Adjustments to reconcile net (increase) decrease in net assets resulting from operations to net cash (used in) provided by operating activities:

          

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

  (22,870) (50,521) (19,792)

Net realized gains on investments(1)

  (357) —  — 

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

  (8,568) (5,427) (7,593)

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

  43,863  —  — 

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

  (940) (6,016) (4,494)

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

  —  44  95 

Amortization of purchase discount(1)

  (1,721) —  — 

Amortization of deferred financing costs(1)

  1,713  —  — 

Non-cash investment income(1)

  (3,479) —  — 

(Increase) decrease in operating assets:

          

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

  957  —  — 

Purchase of investments and delayed draw facilities(1)

  (529,540) —  — 

Proceeds from sales and paydowns of investments(1)

  261,747  —  — 

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

  29  —  — 

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

  (2,548) —  — 

Cash repayments on drawn revolvers(1)

  380  —  — 

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

  (30,000) —  — 

Interest and dividend receivable(1)

  (207) —  — 

Receivable from unsettled securities sold(1)

  (8,912) —  — 

Receivable from affiliates(1)

  (106) —  — 

Other assets(1)

  196  —  — 

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

  (58,644) (100,040) (133,428)

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

  15,247  50,165  23,314 

Increase (decrease) in operating liabilities(1):

          

Payable for unsettled securities purchased

  17,054  —  — 

Management fee payable

  (911) —  — 

Incentive fee payable

  (1,522) —  — 

Capital gains incentive fee payable

  (8,573) —  — 

Interest payable

  1,259  —  — 

Payable to affiliates

  589  —  — 

Deferred tax liability

  493  —  — 

Other liabilities

  225  —  — 
​​​ ​​​ ​ ​​ ​​

Net cash flows used in operating activities

  (289,571) (49,875) (110,114)
​​​ ​ ​​ ​ ​​ ​ ​

Cash flows from financing activities

          

Net proceeds from shares sold

  141,157  100,040  133,428 

Dividends paid

  (72,783) (50,165) (23,314)

Offering costs paid(1)

  (478) —  — 

Proceeds from Holdings Credit Facility(1)

  384,721  —  — 

Repayment of Holdings Credit Facility(1)

  (314,400) —  — 

Proceeds from SLF Credit Facility(1)

  21,255  —  — 

Repayment of SLF Credit Facility(1)

  (37,700) —  — 

Proceeds from Convertible Notes(1)

  115,000  —  — 

Proceeds from NMFC Credit Facility(1)

  72,000  —  — 

Repayment of NMFC Credit Facility(1)

  (22,000) —  — 

Proceeds from SBA-guaranteed debentures(1)

  37,500  —  — 

Deferred financing costs paid(1)

  (11,256) —  — 
​​​ ​ ​​ ​ ​​ ​ ​

Net cash flows provided by financing activities

  313,016  49,875  110,114 
​​​ ​ ​​ ​​​ ​ ​

Net increase (decrease) in cash and cash equivalents

  23,445  —  — 

Cash and cash equivalents at the beginning of the period

  —  —  — 
​​​ ​​​ ​ ​​ ​​

Cash and cash equivalents at the end of the period

 $23,455 $— $— 
​​​ ​ ​​ ​ ​​​ ​
​​​​​​​​​​​
​​​ ​​​ ​ ​​ ​​

Supplemental disclosure of cash flow information

          

Cash interest paid

 $9,924 $— $— 

Income taxes paid

  437  —  — 

Distribution receivable from New Mountain Finance Holdings, L.L.C. 

  —  —  3,405 

Non-cash financing activities:

          

Dividends declared and payable

 $— $— $(3,405)

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

  38,840  193,262  56,314 

Value of shares issued in connection with dividend reinvestment plan

  4,829  5,084  1,955 

Accrual for offering costs(1)

  516  —  — 

Accrual for deferred financing costs(1)

  375  —  — 

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

  (250) (281) (323)

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

  198,555  —  — 
(1)
For the year ended December 31, 2014, the amounts reported relate to the period from May 8, 2014 to December 31, 2014.

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

(3)
Represents the cash and cash equivalent balance of New Mountain Finance Holdings, L.L.C.'s at the date of restructuring. See Note 1,Formation and Business Purpose.

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


92

Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments

December 31, 2014

2015
(in thousands, except shares)


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

Non-Controlled/Non-Affiliated Investments

                   

Funded Debt Investments—Australia

                   

Project Sunshine IV Pty Ltd**

                   

Media

 First lien(2) 8.00% (Base Rate + 7.00%) 9/23/2019 $17,689 $17,594 $17,888  2.23%
​​​​​​​​​ ​​​ ​ ​​ ​ ​​​​

Total Funded Debt Investments—Australia

       $17,689 $17,594 $17,888  2.23%
​​​​​​​​​ ​ ​​ ​ ​​ ​ ​​​​

Funded Debt Investments—Luxembourg

                   

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

                   

Software

 Second lien(2) 10.50% (Base Rate + 9.25%) 7/30/2020 $24,630 $24,319 $22,905    

 Second lien(3) 10.50% (Base Rate + 9.25%) 7/30/2020  8,204  8,317  7,629    
​​​​​​​​​ ​ ​​ ​ ​​ ​ ​​​​

        32,834  32,636  30,534  3.80%
​​​​​​​​​ ​ ​​ ​ ​​ ​ ​​​​

Evergreen Skills Lux S.À.R.L.**

                   

Education

 Second lien(3) 9.25% (Base Rate + 8.25%) 4/28/2022  5,000  4,877  4,737  0.59%
​​​​​​​​​ ​​​ ​ ​​ ​ ​​​​

Total Funded Debt Investments—Luxembourg

       $37,834 $37,513 $35,271  4.39%
​​​​​​​​​ ​ ​​ ​ ​​ ​ ​​​​

Funded Debt Investments—United States

                   

Ascend Learning, LLC

                   

Education

 First lien(2) 6.00% (Base Rate + 5.00%) 7/31/2019 $14,888 $14,824 $14,813    

 Second lien(3) 9.50% (Base Rate + 8.50%) 11/30/2020  29,000  28,881  28,855    
​​​​​​​​​ ​​​ ​ ​​ ​ ​​​​

        43,888  43,705  43,668  5.44%
​​​​​​​​​ ​ ​​ ​ ​​ ​ ​​​​

TIBCO Software Inc**.

                   

Software

 First lien(2) 6.50% (Base Rate + 5.50%) 12/4/2020  30,000  28,512  29,100    

 Subordinated(3) 11.38% 12/1/2021  15,000  14,567  14,550    
​​​​​​​​​ ​ ​​ ​ ​​ ​ ​​​​

        45,000  43,079  43,650  5.44%
​​​​​​​​​ ​ ​​ ​ ​​ ​ ​​​​

Global Knowledge Training LLC

                   

Education

 Second lien(2) 12.00% (Base Rate + 8.75%) 10/21/2018  41,450  41,137  41,786  5.21%

Deltek, Inc.

                   

Software

 Second lien(2) 10.00% (Base Rate + 8.75%) 10/10/2019  40,000  39,989  40,300    

 Second lien(3) 10.00% (Base Rate + 8.75%) 10/10/2019  1,000  990  1,008    
​​​​​​​​​ ​ ​​ ​ ​​ ​ ​​​​

        41,000  40,979  41,308  5.15%
​​​​​​​​​ ​ ​​ ​ ​​ ​ ​​​​

Tenawa Resource Holdings LLC(16)

                   

Tenawa Resource Management LLC

                   

Energy

 First lien(3) 10.50% (Base Rate + 8.00%) 5/12/2019  40,000  39,838  39,820  4.96%

Kronos Incorporated

                   

Software

 Second lien(2) 9.75% (Base Rate + 8.50%) 4/30/2020  32,641  32,407  33,355    

 Second lien(3) 9.75% (Base Rate + 8.50%) 4/30/2020  5,000  4,955  5,109    
​​​​​​​​​ ​ ​​ ​ ​​ ​ ​​​​

        37,641  37,362  38,464  4.80%
​​​​​​​​​ ​ ​​ ​ ​​ ​ ​​​​

McGraw-Hill Global Education Holdings, LLC

                   

Education

 First lien(2)(9) 9.75% 4/1/2021  24,500  24,362  27,195    

 First lien(2) 5.75% (Base Rate + 4.75%) 3/22/2019  9,863  9,641  9,830    
​​​​​​​​​ ​​​ ​ ​​ ​ ​​​​

        34,363  34,003  37,025  4.62%
​​​​​​​​​ ​ ​​ ​ ​​ ​ ​​​​

Tolt Solutions, Inc.(15)

                   

Business Services

 First lien(2) 7.00% (Base Rate + 6.00%) 3/7/2019  18,537  18,538  18,075    

 First lien(2) 12.00% (Base Rate + 11.00%) 3/7/2019  18,800  18,800  18,540    
​​​​​​​​​ ​ ​​ ​ ​​ ​ ​​​​

        37,337  37,338  36,615  4.56%
​​​​​​​​​ ​ ​​ ​ ​​ ​ ​​​​

Acrisure, LLC

                   

Business Services

 Second lien(2) 11.50% (Base Rate + 10.50%) 3/31/2020  35,175  34,848  35,471  4.42%
Portfolio Company, Location and Industry(1) 
Type of
Investment
 Interest Rate(10) 
Maturity/Expiration
Date
 
Principal
Amount,
Par Value
or Shares
 Cost Fair Value 
Percent of
Net
Assets
Non-Controlled/Non-Affiliated Investments        
  
  
  
Funded Debt Investments - Australia              
   Project Sunshine IV Pty Ltd**              
   Media First lien (2)  8.00% (L + 7.00%/M) 9/23/2019 $10,800
 $10,752
 $10,314
 1.23 %
Total Funded Debt Investments - Australia       $10,800
 $10,752
 $10,314
 1.23 %
Funded Debt Investments - Luxembourg              
   Pinnacle Holdco S.à.r.l. / Pinnacle (US) Acquisition Co Limited**              
   Software Second lien (2)  10.50% (L + 9.25%/Q) 7/30/2020 $24,630
 $24,339
 $19,581
  
  Second lien (3)  10.50% (L + 9.25%/Q) 7/30/2020 8,204
 8,324
 6,522
  
        32,834
 32,663
 26,103
 3.12 %
Total Funded Debt Investments - Luxembourg       $32,834
 $32,663
 $26,103
 3.12 %
Funded Debt Investments - Netherlands              
   Eiger Acquisition B.V. (Eiger Co-Borrower, LLC)**              
   Software Second lien (3)  10.13% (L + 9.13%/Q) 2/17/2023 $10,000
 $9,303
 $9,049
 1.08 %
Total Funded Debt Investments - Netherlands       $10,000
 $9,303
 $9,049
 1.08 %
Funded Debt Investments - United Kingdom              
   Air Newco LLC**              
   Software Second lien (3)  10.50% (L + 9.50%/Q) 1/31/2023 $32,500
 $31,736
 $31,363
 3.75 %
Total Funded Debt Investments - United Kingdom       $32,500
 $31,736
 $31,363
 3.75 %
               
Funded Debt Investments - United States              
   Deltek, Inc.              
   Software Second lien (3)  9.50% (L + 8.50%/Q) 6/26/2023 $21,000
 $20,972
 $20,948
  
  Second lien (2)  9.50% (L + 8.50%/Q) 6/26/2023 20,000
 19,619
 19,950
  
        41,000
 40,591
 40,898
 4.89 %
   TIBCO Software Inc.              
   Software First lien (2)  6.50% (L + 5.50%/M) 12/4/2020 29,775
 28,508
 27,021
  
  Subordinated (3)  11.38%/S 12/1/2021 15,000
 14,611
 12,600
  
        44,775
 43,119
 39,621
 4.73 %
               
   AssuredPartners, Inc.              
   Business Services Second lien (2)  10.00% (L + 9.00%/Q) 10/20/2023 20,000
 19,212
 19,600
  
  Second lien (3)  10.00% (L + 9.00%/Q) 10/20/2023 20,000
 19,212
 19,600
  
        40,000
 38,424
 39,200
 4.68 %
               
   Kronos Incorporated              
   Software Second lien (2)  9.75% (L + 8.50%/Q) 4/30/2020 32,641
 32,443
 32,546
  
  Second lien (3)  9.75% (L + 8.50%/Q) 4/30/2020 5,000
 4,961
 4,985
  
        37,641
 37,404
 37,531
 4.48 %
   Hill International, Inc.              
   Business Services First lien (2)  7.75% (L + 6.75%/Q) 9/28/2020 37,056
 36,752
 36,779
 4.39 %
   ProQuest LLC              
   Business Services Second lien (3)  10.00% (L + 9.00%/M) 12/15/2022 35,000
 34,302
 34,300
 4.10 %


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


93

Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2014

2015

(in thousands, except shares)



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

UniTek Global Services, Inc.

                   

Business Services

 First lien(2) 15.00% PIK (Base Rate + 13.50% PIK)(7)* 4/15/2018 $20,596 $20,104 $14,706    

 First lien(3) 15.00% PIK (Base Rate + 13.50% PIK)(7)* 4/15/2018  7,772  7,552  5,550    

 First lien(2) 15.00% PIK (Base Rate + 13.50% PIK)(7)* 4/15/2018  6,271  6,116  4,478    

 First lien(3) 15.00% PIK (Base Rate + 13.50% PIK)(7)* 4/15/2018  597  580  426    

 First lien(2) 15.00% PIK (Base Rate + 13.50% PIK)(7)* 4/15/2018  5,213  5,083  3,722    

 First lien(3) 15.00% PIK (Base Rate + 13.50% PIK)(7)* 4/15/2018  496  482  354    

 First lien(3)(11)—Drawn 9.50% (Base Rate + 7.50% + 1.00% PIK)* 1/21/2015  3,381  3,381  3,381    

 First lien(3)(11)—Drawn 10.25% (Base Rate + 4.00% + 5.25% PIK)* 4/15/2016  2,610  2,610  2,610    
​​​​​​​​​ ​ ​​ ​ ​​ ​ ​​​​

        46,936  45,908  35,227  4.39%
​​​​​​​​​ ​ ​​ ​ ​​ ​ ​​​​

Envision Acquisition Company, LLC

                   

Healthcare Services

 Second lien(2) 9.75% (Base Rate + 8.75%) 11/4/2021  26,000  25,603  25,772    

 Second lien(3) 9.75% (Base Rate + 8.75%) 11/4/2021  9,250  9,305  9,169    
​​​​​​​​​ ​ ​​ ​ ​​ ​ ​​​​

        35,250  34,908  34,941  4.37%
​​​​​​​​​ ​ ​​ ​ ​​ ​ ​​​​

Hill International, Inc.

                   

Business Services

 First lien(2) 7.75% (Base Rate + 6.75%) 9/26/2020  34,913  34,574  34,215  4.27%

Meritas Schools Holdings, LLC

                   

Education

 First lien(2) 7.00% (Base Rate + 5.75%) 6/25/2019  21,658  21,487  21,549    

 Second lien(2) 10.00% (Base Rate + 9.00%) 1/23/2021  12,000  11,943  11,820    
​​​​​​​​​ ​ ​​ ​ ​​ ​ ​​​​

        33,658  33,430  33,369  4.16%
​​​​​​​​​ ​ ​​ ​ ​​ ​ ​​​​

TASC, Inc.

                   

Federal Services

 First lien(2) 6.50% (Base Rate + 5.50%) 5/22/2020  30,860  30,454  30,108    

 Second lien(3) 12.00% 5/21/2021  2,000  1,960  1,960    
​​​​​​​​​​ ​​ ​ ​​ ​ ​​​​

        32,860  32,414  32,068  4.00%
​​​​​​​​​ ​ ​​ ​ ​​ ​ ​​​​

SRA International, Inc.

                   

Federal Services

 First lien(2) 6.50% (Base Rate + 5.25%) 7/20/2018  31,765  31,059  31,805  3.96%

Navex Global,Inc.

                   

Software

 First lien(4) 5.75% (Base Rate + 4.75%) 11/19/2021  10,547  10,442  10,441    

 First lien(2) 5.75% (Base Rate + 4.75%) 11/19/2021  4,453  4,409  4,409    

 Second lien(4) 9.75% (Base Rate + 8.75%) 11/18/2022  11,953  11,834  11,775    

 Second lien(3) 9.75% (Base Rate + 8.75%) 11/18/2022  5,047  4,997  4,970    
​​​​​​​​​ ​ ​​ ​ ​​ ​ ​​​​

        32,000  31,682  31,595  3.94%
​​​​​​​​​ ​ ​​ ​ ​​ ​ ​​​​

Rocket Software, Inc.

                   

Software

 Second lien(2) 10.25% (Base Rate + 8.75%) 2/8/2019  30,875  30,756  30,875  3.85%

KeyPoint Government Solutions, Inc.

                   

Federal Services

 First lien(2) 7.75% (Base Rate + 6.50%) 11/13/2017  29,342  28,937  29,359  3.66%

CompassLearning, Inc.(14)

                   

Education

 First lien(2) 8.00% (Base Rate + 6.75%) 11/26/2018  30,000  29,391  29,184  3.64%

Aderant North America, Inc.

                   

Software

 Second lien(2) 10.00% (Base Rate + 8.75%) 6/20/2019  24,000  23,767  23,940    

 Second lien(3) 10.00% (Base Rate + 8.75%) 6/20/2019  5,000  5,070  4,988    
​​​​​​​​​ ​​​ ​ ​​ ​ ​​​​

        29,000  28,837  28,928  3.61%
​​​​​​​​​ ​ ​​ ​ ​​ ​ ​​​​

Transtar Holding Company

                   

Distribution & Logistics

 Second lien(2) 10.00% (Base Rate + 8.75%) 10/9/2019  28,300  27,906  27,946  3.48%

Pelican Products, Inc.

                   

Business Products

 Second lien(3) 9.25% (Base Rate + 8.25%) 4/9/2021  15,500  15,531  15,306    

 Second lien(2) 9.25% (Base Rate + 8.25%) 4/9/2021  10,000  10,123  9,875    
​​​​​​​​​ ​​​ ​ ​​ ​ ​​​​

        25,500  25,654  25,181  3.14%
​​​​​​​​​ ​ ​​ ​ ​​ ​ ​​​​
Portfolio Company, Location and Industry(1) 
Type of
Investment
 Interest Rate(10) 
Maturity/Expiration
Date
 
Principal
Amount,
Par Value
or Shares
 Cost Fair Value 
Percent of
Net
Assets
   Navex Global, Inc.              
   Software First lien (4)  5.75% (L + 4.75%/Q) 11/19/2021 $4,610
 $4,570
 $4,471
  
  First lien (2)  5.75% (L + 4.75%/Q) 11/19/2021 2,610
 2,587
 2,531
  
  Second lien (4)  9.75% (L + 8.75%/Q) 11/18/2022 17,879
 17,683
 17,343
  
  Second lien (3)  9.75% (L + 8.75%/Q) 11/18/2022 10,121
 10,001
 9,817
  
        35,220
 34,841
 34,162
 4.08 %
   Ascend Learning, LLC              
   Education Second lien (3)  9.50% (L + 8.50%/Q) 11/30/2020 34,727
 34,352
 33,077
 3.95 %
   CRGT Inc.              
   Federal Services First lien (2)  7.50% (L + 6.50%/Q) 12/19/2020 33,261
 33,030
 32,928
 3.93 %
   Physio-Control International, Inc.              
   Healthcare Products Second lien (2)  10.00% (L + 9.00%/Q) 6/5/2023 30,000
 29,426
 27,451
  
  Second lien (3)  10.00% (L + 9.00%/Q) 6/5/2023 4,000
 3,703
 3,660
  
        34,000
 33,129
 31,111
 3.72 %
   Valet Waste Holdings, Inc.              
   Business Services First lien (2)  8.00% (L + 7.00%/Q) 9/24/2021 29,925
 29,564
 29,505
  
  First lien (3)(11) - Drawn  8.00% (L + 7.00%/Q) 9/24/2021 1,500
 1,481
 1,479
  
        31,425
 31,045
 30,984
 3.70 %
   Rocket Software, Inc.              
   Software Second lien (2)  10.25% (L + 8.75%/Q) 2/8/2019 30,875
 30,781
 30,759
 3.68 %
   TASC, Inc.              
   Federal Services First lien (2)  7.00% (L + 6.00%/Q) 5/22/2020 28,314
 28,001
 28,396
  
  Second lien (3)  12.00%/Q 5/21/2021 2,000
 1,964
 2,062
  
        30,314
 29,965
 30,458
 3.64 %
   Pittsburgh Glass Works, LLC (24)              
   Manufacturing First lien (2)  10.13% (L + 9.13%/M) 11/25/2021 30,000
 29,852
 29,850
 3.57 %
   Integro Parent Inc.              
   Business Services First lien (2)  6.75% (L + 5.75%/Q) 10/31/2022 17,370
 17,029
 16,980
  
  First lien (2)  6.75% (L + 5.75%/M) 10/31/2022 2,630
 2,578
 2,570
  
  Second lien (3)  10.25% (L + 9.25%/Q) 10/30/2023 10,000
 9,901
 9,625
  
        30,000
 29,508
 29,175
 3.49 %
   CompassLearning, Inc. (15)              
   Education First lien (2)  8.00% (L + 6.75%/Q) 11/26/2018 30,000
 29,531
 28,471
 3.40 %
   Ryan, LLC              
   Business Services First lien (2)  6.75% (L + 5.75%/M) 8/7/2020 27,300
 26,918
 26,583
 3.18 %
   McGraw-Hill Global Education Holdings, LLC              
   Education First lien (2)(9)  9.75%/S 4/1/2021 24,500
 24,378
 26,093
 3.12 %
   KeyPoint Government Solutions, Inc.              
   Federal Services First lien (2)  7.75% (L + 6.50%/M) 11/13/2017 25,876
 25,636
 25,747
 3.08 %
   DigiCert Holdings, Inc.              
   Software First lien (2)  6.00% (L + 5.00%/Q) 10/21/2021 25,000
 24,268
 24,375
 2.91 %
   Pelican Products, Inc.              
   Business Products Second lien (3)  9.25% (L + 8.25%/Q) 4/9/2021 15,500
 15,519
 14,764
  
  Second lien (2)  9.25% (L + 8.25%/Q) 4/9/2021 10,000
 10,115
 9,524
  
        25,500
 25,634
 24,288
 2.90 %


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


94

Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2014

2015

(in thousands, except shares)



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

YP Holdings LLC(10)

                   

YP LLC

                   

Media

 First lien(2) 8.00% (Base Rate + 6.75%) 6/4/2018 $24,936 $24,678 $25,029  3.12%

CRGT Inc.

                   

Federal Services

 First lien(2) 7.50% (Base Rate + 6.50%) 12/19/2020  25,000  24,750  24,750  3.09%

Confie Seguros Holding II Co.

                   

Consumer Services

 Second lien(2) 10.25% (Base Rate + 9.00%) 5/8/2019  18,886  18,786  18,877    

 Second lien(3) 10.25% (Base Rate + 9.00%) 5/8/2019  5,571  5,647  5,569    
​​​​​​​​​ ​ ​​ ​ ​​ ​ ​​​​

        24,457  24,433  24,446  3.05%
​​​​​​​​​ ​ ​​ ​ ​​ ​ ​​​​

PetVet Care Centers LLC

                   

Consumer Services

 Second lien(3) 9.75% (Base Rate + 8.75%) 6/17/2021  24,000  23,761  23,760  2.96%

Sierra Hamilton LLC / Sierra Hamilton Finance, Inc.

                   

Energy

 First lien(2) 12.25% 12/15/2018  25,000  25,000  23,250  2.90%

Aricent Technologies

                   

Business Services

 Second lien(2) 9.50% (Base Rate + 8.50%) 4/14/2022  20,000  19,871  20,162    

 Second lien(3) 9.50% (Base Rate + 8.50%) 4/14/2022  2,550  2,556  2,571    
​​​​​​​​​ ​ ​​ ​ ​​ ​ ​​​​

        22,550  22,427  22,733  2.83%
​​​​​​​​​ ​ ​​ ​ ​​ ​ ​​​​

McGraw-Hill School Education Holdings, LLC

                   

Education

 First lien(2) 6.25% (Base Rate + 5.00%) 12/18/2019  21,780  21,594  21,771  2.71%

Weston Solutions, Inc.

                   

Business Services

 Subordinated(4) 16.00% (11.50% + 4.50% PIK)* 7/3/2019  20,458  20,458  20,828  2.60%

Aspen Dental Management, Inc.

                   

Healthcare Services

 First lien(2) 7.00% (Base Rate + 5.50%) 10/6/2016  20,862  20,697  20,732  2.58%

TWDiamondback Holdings Corp.(18)

                   

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

                   

Distribution & Logistics

 First lien(4) 9.75% (Base Rate + 8.75%) 11/19/2019  19,895  19,895  19,895  2.48%

American Pacific Corporation**

                   

Specialty Chemicals and Materials

 First lien(2) 7.00% (Base Rate + 6.00%) 2/27/2019  19,850  19,722  19,825  2.47%

Novitex Acquisition, LLC (fka ARSloane Acquisition, LLC)

                   

Business Services

 First lien(2) 7.50% (Base Rate + 6.25%) 7/7/2020  19,950  19,592  19,152  2.39%

eResearchTechnology, Inc.

                   

Healthcare Services

 First lien(2) 6.00% (Base Rate + 4.75%) 5/2/2018  19,059  18,521  19,083  2.38%

First American Payment Systems, L.P.

                   

Business Services

 Second lien(2) 10.75% (Base Rate + 9.50%) 4/12/2019  18,643  18,369  18,457  2.30%

Permian Tank & Manufacturing, Inc.

                   

Energy

 First lien(2) 10.50% 1/15/2018  24,357  24,555  18,390  2.29%

AgKnowledge Holdings Company, Inc.

                   

Business Services

 Second lien(2) 9.25% (Base Rate + 8.25%) 7/23/2020  18,500  18,326  17,814  2.22%

Vertafore, Inc.

                   

Software

 Second lien(2) 9.75% (Base Rate + 8.25%) 10/27/2017  13,855  13,852  13,959    

 Second lien(3) 9.75% (Base Rate + 8.25%) 10/27/2017  2,000  2,017  2,015    
​​​​​​​​​ ​​​ ​ ​​ ​ ​​​​

        15,855  15,869  15,974  1.99%
​​​​​​​​​ ​ ​​ ​ ​​ ​ ​​​​

MailSouth, Inc. (d/b/a Mspark)

                   

Media

 First lien(2) 6.75% (Base Rate + 4.99%) 12/14/2016  16,778  16,190  15,771  1.97%

Edmentum, Inc.(fka Plato, Inc.)

                   

Education

 Second lien(2) 11.25% (Base Rate + 9.75%) 5/17/2019  25,000  24,713  12,500    

 Second lien(3) 11.25% (Base Rate + 9.75%) 5/17/2019  6,150  6,040  3,075    
​​​​​​​​​ ​​​ ​ ​​ ​ ​​​​

        31,150  30,753  15,575  1.94%
​​​​​​​​​ ​ ​​ ​ ​​ ​ ​​​​

GSDM Holdings Corp.

                   

Healthcare Services

 Subordinated(4) 10.00% 6/23/2020  15,000  14,860  14,642  1.83%

Smile Brands Group Inc.

                   

Healthcare Services

 First lien(2) 7.50% (Base Rate + 6.25%) 8/16/2019  14,319  14,154  13,746  1.71%

Vision Solutions, Inc.

                   

Software

 Second lien(2) 9.50% (Base Rate + 8.00%) 7/23/2017  14,000  13,966  13,580  1.69%

Harley Marine Services, Inc.

                   

Distribution & Logistics

 Second lien(2) 10.50% (Base Rate + 9.25%) 12/20/2019  9,000  8,843  8,910  1.11%

Vitera Healthcare Solutions, LLC

                   

Software

 First lien(2) 6.00% (Base Rate + 5.00%) 11/4/2020  1,980  1,964  1,970    

 Second lien(2) 9.25% (Base Rate + 8.25%) 11/4/2021  7,000  6,906  6,825    
​​​​​​​​​ ​​​ ​ ​​ ​ ​​​​

        8,980  8,870  8,795  1.10%
​​​​​​​​​ ​ ​​ ​ ​​ ​ ​​​​
Portfolio Company, Location and Industry(1) 
Type of
Investment
 Interest Rate(10) 
Maturity/Expiration
Date
 
Principal
Amount,
Par Value
or Shares
 Cost Fair Value 
Percent of
Net
Assets
   Confie Seguros Holding II Co.              
   Consumer Services Second lien (2)  10.25% (L + 9.00%/M) 5/8/2019 $18,886
 $18,789
 $18,673
  
  Second lien (3)  10.25% (L + 9.00%/M) 5/8/2019 5,571
 5,648
 5,508
  
        24,457
 24,437
 24,181
 2.89 %
   AAC Holding Corp.              
   Education First lien (2)  8.25% (L + 7.25%/M) 9/30/2020 25,000
 24,640
 24,110
 2.88 %
   Transtar Holding Company              
   Distribution & Logistics Second lien (2)  10.00% (L + 8.75%/Q) 10/9/2019 28,300
 27,974
 23,630
 2.82 %
   PetVet Care Centers LLC              
   Consumer Services Second lien (3)  9.75% (L + 8.75%/Q) 6/17/2021 24,000
 23,789
 23,149
 2.77 %
   EN Engineering, L.L.C.              
   Business Services First lien (2)  7.00% (L + 6.00%/Q) 6/30/2021 21,321
 21,121
 20,554
  
  First lien (2)(11) - Drawn  8.50% (P + 5.00%/Q) 6/30/2021 1,223
 1,211
 1,179
  
        22,544
 22,332
 21,733
 2.60 %
   Aricent Technologies              
   Business Services Second lien (2)  9.50% (L + 8.50%/M) 4/14/2022 20,000
 19,881
 19,133
  
  Second lien (3)  9.50% (L + 8.50%/M) 4/14/2022 2,550
 2,558
 2,440
  
        22,550
 22,439
 21,573
 2.58 %
   McGraw-Hill School Education Holdings, LLC              
   Education First lien (2)  6.25% (L + 5.00%/M) 12/18/2019 21,560
 21,408
 21,237
 2.54 %
   VetCor Professional Practices LLC              
   Consumer Services First lien (4)  7.00% (L + 6.00%/Q) 4/20/2021 19,502
 19,324
 19,254
  
  First lien (4)(11) - Drawn  7.00% (L + 6.00%/Q) 4/20/2021 1,753
 1,736
 1,731
  
        21,255
 21,060
 20,985
 2.51 %
   IT'SUGAR LLC              
   Retail First lien (4)  10.50% (L + 9.50%/Q) 10/23/2019 21,000
 20,215
 20,183
 2.41 %
   Weston Solutions, Inc.              
   Business Services Subordinated (4)  16.00%/Q 7/3/2019 20,000
 20,000
 19,430
 2.32 %
   TWDiamondback Holdings Corp. (18)              
   Diamondback Drugs of Delaware, L.L.C. (TWDiamondback II Holdings LLC)              
   Distribution & Logistics First lien (4)  9.75% (L + 8.75%/Q) 11/19/2019 19,895
 19,895
 19,117
 2.28 %
   Severin Acquisition, LLC              
   Software Second lien (4)  9.25% (L + 8.25%/Q) 7/29/2022 15,000
 14,857
 14,272
  
  Second lien (4)  9.75% (L + 8.75%/Q) 7/29/2022 4,154
 4,113
 4,112
  
        19,154
 18,970
 18,384
 2.20 %
   First American Payment Systems, L.P.              
   Business Services Second lien (2)  10.75% (L + 9.50%/M) 4/12/2019 18,643
 18,423
 18,362
 2.20 %
   DCA Investment Holding, LLC              
   Healthcare Services First lien (2)  6.25% (L + 5.25%/Q) 7/2/2021 17,811
 17,645
 17,632
  
  First lien (3)(11) - Drawn  7.75% (P + 4.25%/Q) 7/2/2021 53
 52
 52
  
        17,864
 17,697
 17,684
 2.11 %
   YP Holdings LLC / Print Media Holdings LLC (12)              
   YP LLC / Print Media LLC              
   Media First lien (2)  8.00% (L + 6.75%/M) 6/4/2018 18,320
 18,182
 17,679
 2.11 %
   iPipeline, Inc. (Internet Pipeline, Inc.)              
   Software First lien (4)  8.25% (L + 7.25%/Q) 8/4/2022 17,955
 17,783
 17,550
 2.10 %


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


95

Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2014

2015

(in thousands, except shares)



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

McKissock, LLC

                   

QC McKissock Investment, LLC

                   

Education

 First lien(2) 7.50% (Base Rate + 6.50%) 8/5/2019 $4,923 $4,877 $4,844    

 First lien(2) 7.50% (Base Rate + 6.50%) 8/5/2019  3,178  3,149  3,127    

 First lien(2)(11)—Drawn 7.50% (Base Rate + 6.50%) 8/5/2019  576  570  567    
​​​​​​​​​ ​ ​​ ​ ​​ ​ ​​​​

        8,677  8,596  8,538  1.06%
​​​​​​​​​ ​ ​​ ​ ​​ ​ ​​​​

Asurion, LLC (fka Asurion Corporation)

                   

Business Services

 Second lien(3) 8.50% (Base Rate + 7.50%) 3/3/2021  5,000  4,934  4,987    

 Second lien(2) 8.50% (Base Rate + 7.50%) 3/3/2021  3,000  2,957  2,993    
​​​​​​​​​ ​ ​​ ​ ​​ ​ ​​​​

        8,000  7,891  7,980  0.99%
​​​​​​​​​ ​ ​​ ​ ​​ ​ ​​​​

Physio-Control International, Inc.

                   

Healthcare Products

 First lien(2) 9.88% 1/15/2019  6,651  6,651  7,083  0.88%

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

                   

Federal Services

 First lien(2) 9.00% (Base Rate + 7.50%) 4/21/2017  7,445  7,387  6,626  0.83%

Brock Holdings III, Inc.

                   

Industrial Services

 Second lien(2) 10.00% (Base Rate + 8.25%) 3/16/2018  7,000  6,934  5,548  0.69%

Immucor, Inc.

                   

Healthcare Services

 Subordinated(2)(9) 11.13% 8/15/2019  5,000  4,957  5,425  0.68%

Virtual Radiologic Corporation

                   

Healthcare Information Technology

 First lien(2) 7.25% (Base Rate + 5.50%) 12/22/2016  5,963  5,931  4,979  0.62%

Packaging Coordinators, Inc.(12)

                   

Healthcare Products

 Second lien(3) 9.00% (Base Rate + 8.00%) 8/1/2022  5,000  4,952  4,925  0.61%

LM U.S. Member LLC (and LM U.S. Corp Acquisition Inc.)

                   

Business Services

 Second lien(2) 8.25% (Base Rate + 7.25%) 1/25/2021  5,000  4,940  4,867  0.61%

Learning Care Group (US) Inc.(17)

                   

Learning Care Group (US) No. 2 Inc.

                   

Education

 First lien(2) 5.50% (Base Rate + 4.50%) 5/5/2021  4,465  4,424  4,476  0.56%

CRC Health Corporation

                   

Healthcare Services

 Second lien(3) 9.00% (Base Rate + 8.00%) 9/28/2021  4,000  3,925  4,098  0.51%

GCA Services Group, Inc.

                   

Business Services

 Second lien(3) 9.25% (Base Rate + 8.00%) 11/1/2020  4,000  3,968  3,955  0.49%

Sophia Holding Finance LP / Sophia Holding Finance Inc.

                   

Software

 Subordinated(3) 9.63% 12/1/2018  3,500  3,502  3,531  0.44%

York Risk Services Holding Corp.

                   

Business Services

 Subordinated(3) 8.50% 10/1/2022  3,000  3,000  3,011  0.38%

Winebow Holdings, Inc. (Vinter Group, Inc., The)

                   

Distribution & Logistics

 Second lien(3) 8.50% (Base Rate + 7.50%) 1/2/2022  3,000  2,979  2,910  0.36%

Synarc-Biocore Holdings, LLC

                   

Healthcare Services

 Second lien(3) 9.25% (Base Rate + 8.25%) 3/10/2022  2,500  2,477  2,250  0.28%

Education Management LLC**

                   

Education

 First lien(2) 9.25% PIK (Base Rate + 8.00% PIK)* 3/30/2018  1,944  1,902  880    

 First lien(3) 9.25% PIK (Base Rate + 8.00% PIK)* 3/30/2018  1,097  1,085  496    
​​​​​​​​​ ​​​ ​ ​​ ​ ​​​​

        3,041  2,987  1,376  0.17%
​​​​​​​​​ ​ ​​ ​ ​​ ​ ​​​​

ATI Acquisition Company (fka Ability Acquisition, Inc.)(13)

                   

Education

 First lien(2) 17.25% (Base Rate + 10.00% + 4.00% PIK)(7)* 6/30/2012—Past Due  1,665  1,434  216    

 First lien(2) 17.25% (Base Rate + 10.00% + 4.00% PIK)(7)* 6/30/2012—Past Due  103  94  103    
​​​​​​​​​ ​ ​​ ​ ​​ ​ ​​​​

        1,768  1,528  319  0.04%
​​​​​​​​​ ​ ​​ ​ ​​ ​ ​​​​

Total Funded Debt Investments—United States

       $1,338,642 $1,325,057 $1,291,305  160.98%
​​​​​​​​​ ​​​ ​ ​​ ​ ​​​​

Total Funded Debt Investments

       $1,394,165 $1,380,164 $1,344,464  167.60%
​​​​​​​​​ ​ ​​ ​ ​​ ​ ​​​​
Portfolio Company, Location and Industry(1) 
Type of
Investment
 Interest Rate(10) 
Maturity/Expiration
Date
 
Principal
Amount,
Par Value
or Shares
 Cost Fair Value 
Percent of
Net
Assets
   AgKnowledge Holdings Company, Inc.              
   Business Services Second lien (2)  9.25% (L + 8.25%/M) 7/23/2020 $18,500
 $18,352
 $17,066
 2.04 %
   Vertafore, Inc.              
   Software Second lien (2)  9.75% (L + 8.25%/M) 10/27/2017 13,855
 13,848
 13,844
  
  Second lien (3)  9.75% (L + 8.25%/M) 10/27/2017 2,000
 2,016
 1,999
  
        15,855
 15,864
 15,843
 1.89 %
   GSDM Holdings Corp.              
   Healthcare Services Subordinated (4)  10.00%/M 6/23/2020 15,000
 14,880
 15,000
 1.79 %
   MailSouth, Inc. (d/b/a Mspark)              
   Media First lien (2)  6.75% (L + 5.00%/Q) 12/14/2016 14,998
 14,736
 14,586
 1.74 %
   TW-NHME Holdings Corp. (23)              
   National HME, Inc.              
   Healthcare Services Second lien (4)  10.25% (L + 9.25%/Q) 7/14/2022 14,000
 13,833
 13,825
 1.65 %
   Sierra Hamilton LLC / Sierra Hamilton Finance, Inc.              
   Energy First lien (2)  12.25%/S 12/15/2018 25,000
 25,000
 12,251
  
  First lien (3)  12.25%/S 12/15/2018 2,660
 2,064
 1,302
  
        27,660
 27,064
 13,553
 1.62 %
   Vision Solutions, Inc.              
   Software Second lien (2)  9.50% (L + 8.00%/M) 7/23/2017 14,000
 13,978
 12,740
 1.52 %
   SW Holdings, LLC              
   Business Services Second lien (4)  9.75% (L + 8.75%/Q) 12/30/2021 13,500
 13,373
 12,701
 1.52 %
   Poseidon Intermediate, LLC              
   Software Second lien (2)  9.50% (L + 8.50%/Q) 8/15/2023 13,000
 12,811
 12,427
 1.49 %
   American Tire Distributors, Inc.              
   Distribution & Logistics Subordinated (3)  10.25%/S 3/1/2022 13,000
 12,798
 11,960
 1.43 %
   PowerPlan Holdings, Inc.              
   Software Second lien (2)  10.75% (L + 9.75%/M) 2/23/2023 10,000
 9,907
 9,573
 1.14 %
   Permian Tank & Manufacturing, Inc.              
   Energy First lien (2)  10.50%/S 1/15/2018 24,357
 24,493
 9,377
 1.12 %
   TTM Technologies, Inc.**              
   Business Products First lien (2)  6.00% (L + 5.00%/Q) 5/31/2021 9,980
 9,554
 9,132
 1.09 %
   Smile Brands Group Inc.              
   Healthcare Services First lien (2) 9.00% (L + 6.25% + 1.50% PIK/Q)* 8/16/2019 12,204
 12,091
 8,878
 1.06 %
   Harley Marine Services, Inc.              
   Distribution & Logistics Second lien (2)  10.50% (L + 9.25%/Q) 12/20/2019 9,000
 8,868
 8,865
 1.06 %
   QC McKissock Investment, LLC (17)              
   McKissock, LLC              
   Education First lien (2)  7.50% (L + 6.50%/Q) 8/5/2019 4,875
 4,838
 4,707
  
  First lien (2)  7.50% (L + 6.50%/Q) 8/5/2019 3,148
 3,124
 3,039
  
  First lien (2)(11) - Drawn  7.50% (L + 6.50%/Q) 8/5/2019 1,016
 1,007
 981
  
        9,039
 8,969
 8,727
 1.04 %
   Greenway Health, LLC (fka Vitera Healthcare Solutions, LLC)              
   Software First lien (2)  6.00% (L + 5.00%/Q) 11/4/2020 1,960
 1,946
 1,877
  
  Second lien (2)  9.25% (L + 8.25%/Q) 11/4/2021 7,000
 6,917
 6,720
  
        8,960
 8,863
 8,597
 1.03 %


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


96

Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2014

2015

(in thousands, except shares)



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

Equity—United Kingdom

                   

Packaging Coordinators, Inc.(12)

                   

PCI Pharma Holdings UK Limited**

                   

Healthcare Products

 Ordinary shares(2) — —  19,427 $580 $1,193  0.15%
​​​​​​​​​​​​ ​ ​​ ​ ​​​​

Total Shares—United Kingdom

          $580 $1,193  0.15%
​​​​​​​​​​​​ ​ ​​ ​ ​​​​

Equity—United States

                   

Crowley Holdings Preferred, LLC

                   

Distribution & Logistics

 Preferred shares(3) 12.00% (10.00% + 2.00% PIK)* —  35,721 $35,721 $35,721  4.45%

Global Knowledge Training LLC

                   

Education

 Ordinary shares(2) — —  2  —  8    

 Preferred shares(2) — —  2,423  —  9,739    
​​​​​​​​​​​​ ​ ​​ ​​​​​

           —  9,747  1.22%
​​​​​​​​​​​​ ​ ​​ ​​​​​

Tenawa Resource Holdings LLC(16)

                   

QID NGL LLC

                   

Energy

 Ordinary shares(3) — —  3,000,000  3,000  2,430  0.30%

TWDiamondback Holdings Corp.(18)

                   

Distribution & Logistics

 Preferred shares(4) — —  200  2,000  2,000  0.25%

Ancora Acquisition LLC(13)

                   

Education

 Preferred shares(6) — —  372  83  83  0.01%
​​​​​​​​​​​​ ​ ​​ ​ ​​​​

Total Shares—United States

          $40,804 $49,981  6.23%
​​​​​​​​​​​​ ​ ​​ ​ ​​​​

Total Shares

          $41,384 $51,174  6.38%
​​​​​​​​​​​​ ​ ​​ ​ ​​​​

Warrants—United States

                   

Storapod Holding Company, Inc.

                   

Consumer Services

 Warrants(3) — —  360,129 $156 $4,142  0.51%

YP Holdings LLC(10)

                   

YP Equity Investors LLC

                   

Media

 Warrants(5) — —  5  —  2,549  0.32%

Learning Care Group (US) Inc.(17)

                   

ASP LCG Holdings, Inc.

                   

Education

 Warrants(3) — —  622  37  299  0.04%

UniTek Global Services, Inc.

                   

Business Services

 Warrants(3) — —  1,014,451(8) 1,449  —  —%

Alion Science and Technology Corporation

                   

Federal Services

 Warrants(3) — —  6,000  293  —  —%

Ancora Acquisition LLC(13)

                   

Education

 Warrants(6) — —  20  —  —  —%
​​​​​​​​​​​​ ​ ​​ ​ ​​​​

Total Warrants—United States

          $1,935 $6,990  0.87%
​​​​​​​​​​​​ ​ ​​ ​ ​​​​

Total Funded Investments

          $1,423,483 $1,402,628  174.85%
​​​​​​​​​​​​ ​ ​​ ​ ​​​​

Unfunded Debt Investments—United States

                   

TWDiamondback Holdings Corp.(18)

                   

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

                   

Distribution & Logistics

 First lien(4)(11)—Undrawn — 5/19/2015 $2,763 $— $—  —%

UniTek Global Services, Inc.

                   

Business Services

 First lien(3)(11)—Undrawn — 1/21/2015  5,425  —  —    

 First lien(3)(11)—Undrawn — 1/21/2015  2,048  —  —    

 First lien(3)(11)—Undrawn — 1/21/2015  758  —  —    
​​​​​​​​​​​​ ​ ​​ ​ ​​​​

           —  —  —%
​​​​​​​​​​​​ ​ ​​ ​ ​​​​

McKissock, LLC

                   

Education

 First lien(2)(11)—Undrawn — 8/5/2019  2,304  (23) (37) —%

MailSouth, Inc. (d/b/a Mspark)

                   

Media

 First lien(3)(11)—Undrawn — 12/14/2015  1,900  (181) (156) (0.02)%
Portfolio Company, Location and Industry(1) 
Type of
Investment
 Interest Rate(10) 
Maturity/Expiration
Date
 
Principal
Amount,
Par Value
or Shares
 Cost Fair Value 
Percent of
Net
Assets
   Novitex Acquisition, LLC (fka ARSloane Acquisition, LLC)              
   Business Services First lien (2)  7.50% (L + 6.25%/Q) 7/7/2020 $7,242
 $7,064
 $6,807
 0.81 %
   Sotera Defense Solutions, Inc. (Global Defense Technology & Systems, Inc.)              
   Federal Services First lien (2)  9.00% (L + 7.50%/M) 4/21/2017 6,859
 6,828
 6,344
 0.76 %
   Brock Holdings III, Inc.              
   Industrial Services Second lien (2)  10.00% (L + 8.25%/Q) 3/16/2018 7,000
 6,953
 5,443
 0.65 %
   Packaging Coordinators, Inc. (13)              
   Healthcare Products Second lien (3)  9.00% (L + 8.00%/Q) 8/1/2022 5,000
 4,957
 4,925
 0.59 %
   Immucor, Inc.              
   Healthcare Services Subordinated (2)(9)  11.13%/S 8/15/2019 5,000
 4,963
 4,575
 0.55 %
   GCA Services Group, Inc.              
   Business Services Second lien (3)  9.25% (L + 8.00%/Q) 11/2/2020 4,000
 3,973
 3,950
 0.47 %
   York Risk Services Holding Corp.              
   Business Services Subordinated (3)  8.50%/S 10/1/2022 3,000
 3,000
 2,471
 0.30 %
   Synarc-Biocore Holdings, LLC              
   Healthcare Services Second lien (3)  9.25% (L + 8.25%/Q) 3/10/2022 2,500
 2,479
 2,313
 0.28 %
   Ensemble S Merger Sub, Inc.              
   Software Subordinated (3)  9.00%/S 9/30/2023 2,000
 1,933
 1,940
 0.23 %
   Education Management Corporation (22)              
   Education Management II LLC              
   Education First lien (2)  5.50% (L + 4.50%/Q) 7/2/2020 250
 238
 69
  
  First lien (3)  5.50% (L + 4.50%/Q) 7/2/2020 141
 134
 39
  
  First lien (2)  8.50% (L + 1.00% + 6.50% PIK/Q)* 7/2/2020 437
 375
 46
  
  First lien (3)  8.50% (L + 1.00% + 6.50% PIK/Q)* 7/2/2020 247
 212
 26
  
        1,075
 959
 180
 0.02 %
   ATI Acquisition Company (fka Ability Acquisition, Inc.) (14)              
   Education First lien (2)  17.25% (P + 10.00% + 4.00% PIK/Q) (8)* 6/30/2012 - Past Due 1,665
 1,434
 —
  
  First lien (2)  17.25% (P + 10.00% + 4.00% PIK/Q) (8)* 6/30/2012 - Past Due 103
 94
 —
  
        1,768
 1,528
 —
 — %
Total Funded Debt Investments - United States       $1,314,464
 $1,297,775
 $1,237,175
 147.83 %
Total Funded Debt Investments       $1,400,598
 $1,382,229
 $1,314,004
 157.01 %
Equity - United Kingdom              
   Packaging Coordinators, Inc. (13)              
   PCI Pharma Holdings UK Limited**              
   Healthcare Products Ordinary shares (2) — — 19,427
 $578
 $1,612
 0.19 %
Total Shares - United Kingdom         $578
 $1,612
 0.19 %
Equity - United States              
   Crowley Holdings Preferred, LLC              
   Distribution & Logistics Preferred shares (3)(20) 12.00% (10.00% + 2.00% PIK/Q)* — 52,058
 $51,518
 $51,911
 6.20 %
   TWDiamondback Holdings Corp. (18)              
   Distribution & Logistics Preferred shares (4) — — 200
 2,000
 2,000
 0.24 %
   TW-NHME Holdings Corp. (23)              
   Healthcare Services Preferred shares (4) — — 100
 1,000
 1,000
 0.12 %


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


97

Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2014

2015

(in thousands, except shares)

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

Aspen Dental Management, Inc.

                   

Healthcare Services

 First lien(3)(11)—Undrawn — 4/6/2016 $5,000 $(388)$(225) (0.03)%
​​​​​​​​​ ​ ​​ ​ ​​ ​ ​​​​

Total Unfunded Debt Investments

       $20,198 $(592)$(418) (0.05)%
​​​​​​​​​ ​ ​​ ​ ​​ ​ ​​​​

Total Non-Controlled/Non-Affiliated Investments

          $1,422,891 $1,402,210  174.80%
​​​​​​​​​​​​ ​ ​​ ​ ​​​​

Non-Controlled/Affiliated Investments(19)

                   

Equity—United States

                   

NMFC Senior Loan Program I LLC**

                   

Investment in Fund

 Membership interest(3) — —  — $23,000 $22,461  2.80%
​​​​​​​​​​​​ ​ ​​ ​​​​​

Total Non-Controlled/Affiliated Investments

          $23,000 $22,461  2.80%
​​​​​​​​​​​​ ​ ​​ ​ ​​​​

Total Investments

          $1,445,891 $1,424,671  177.60%
​​​​​​​​​​​​ ​ ​​ ​​​​​
(1)
New Mountain Finance Corporation (the "Company") generally acquires its investments in private transactions exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"). These investments are generally subject to certain limitations on resale, and may be deemed to be "restricted securities" under the Securities Act.

(2)
Investment is pledged as collateral for the Holdings Credit Facility, a revolving credit facility among the Company as Collateral Manager, New Mountain Finance Holdings, L.L.C. ("NMF Holdings") as the Borrower, Wells Fargo Securities, LLC as the Administrative Agent, and Wells Fargo Bank, National Association, as the Lender and Collateral Custodian. See Note 7,Borrowings, for details.
Portfolio Company, Location and Industry(1) 
Type of
Investment
 Interest Rate(10) 
Maturity/Expiration
Date
 
Principal
Amount,
Par Value
or Shares
 Cost Fair Value 
Percent of
Net
Assets
   Ancora Acquisition LLC (14)              
   Education Preferred shares (6) — — 372
 $83
 $393
 0.05 %
   Education Management Corporation (22)              
   Education Preferred shares (2) — — 3,331
 200
 10
  
  Preferred shares (3) — — 1,879
 113
 5
  
  Ordinary shares (2) — — 2,994,065
 100
 202
  
  Ordinary shares (3) — — 1,688,976
 56
 114
  
          469
 331
 0.04 %
Total Shares - United States         $55,070
 $55,635
 6.65 %
Total Shares         $55,648
 $57,247
 6.84 %
Warrants - United States              
   YP Holdings LLC / Print Media Holdings LLC (12)              
   YP Equity Investors, LLC              
   Media Warrants (5) — 5/8/2022 5
 $—
 $5,304
 0.63 %
   IT'SUGAR LLC              
   Retail Warrants (3) — 10/23/2025 94,672
 817
 817
 0.10 %
   ASP LCG Holdings, Inc.              
   Education Warrants (3) — 5/5/2026 622
 37
 610
 0.07 %
   Ancora Acquisition LLC (14)              
   Education Warrants (6) — 8/12/2020 20
 —
 —
 — %
Total Warrants - United States         $854
 $6,731
 0.80 %
Total Funded Investments         $1,438,731
 $1,377,982
 164.65 %
Unfunded Debt Investments - United States              
   DCA Investment Holdings, LLC              
   Healthcare Services First lien (3)(11) - Undrawn — 7/2/2021 $2,047
 $(20) $(20) — %
   iPipeline, Inc. (Internet Pipeline, Inc.)              
   Software First lien (3)(11) - Undrawn — 8/4/2021 1,000
 (10) (23) — %
   Valet Waste Holdings, Inc.              
   Business Services First lien (3)(11) - Undrawn — 9/24/2021 3,000
 (38) (42) — %
   VetCor Professional Practices LLC              
   Consumer Services First lien (3)(11) - Undrawn — 4/20/2021 2,700
 (27) (34)  
  First lien (4)(11) - Undrawn — 4/20/2021 947
 (9) (12)  
        3,647
 (36) (46) (0.01)%
   QC McKissock Investment, LLC (17)              
   McKissock, LLC              
   Education First lien (2)(11) - Undrawn — 12/31/2015 1,862
 (19) (64) (0.01)%
   MailSouth, Inc. (d/b/a Mspark)              
   Media First lien (3)(11) - Undrawn — 12/14/2016 1,900
 (181) (79) (0.01)%
   EN Engineering, L.L.C.              
   Business Services First lien (2)(11) - Undrawn — 12/30/2016 2,348
 (12) (85) (0.01)%
   TWDiamondback Holdings Corp. (18)              
   Diamondback Drugs of Delaware, L.L.C. (TWDiamondback II Holdings LLC)              
   Distribution & Logistics First lien (3)(11) - Undrawn — 2/16/2016 2,158
 —
 (84)  
  First lien (4)(11) - Undrawn — 2/16/2016 605
 —
 (24)  
        2,763
 —
 (108) (0.01)%
Total Unfunded Debt Investments       $18,567
 (316) $(467) (0.05)%


(3)
Investment is pledged as collateral for the NMFC Credit Facility, a revolving credit facility among the Company as the Borrower and Goldman Sachs Bank USA as the Administrative Agent and the Collateral Agent and Goldman Sachs Bank USA and Morgan Stanley, N.A. as Lenders. See Note 7,Borrowings, for details.

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

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

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

(7)
Investment or a portion of the investment is on non-accrual status. See Note 3,Investments, for details.

(8)
The Company holds 1,014,451 warrants in UniTek Global Services, Inc., which represents a 4.41% equity ownership on a fully diluted basis.

(9)
Securities are registered under the Securities Act.

(10)
The Company holds investments in two related entities of YP Holdings LLC. The Company directly holds warrants to purchase a 4.96% membership interest of YP Equity Investors, LLC (which at closing represented an indirect 1.0% equity interest in YP Holdings LLC) and holds an investment in the Term Loan B loans issued by YP LLC, a subsidiary of YP Holdings LLC.

(11)
Par Value amounts represent the drawn or undrawn (as indicated in type of investment) portion of revolving credit facilities or delayed draws. Cost amounts represent the cash received at settlement date net the impact of paydowns and cash paid for drawn revolvers or delayed draws.

(12)
The Company holds investments in Packaging Coordinators, Inc. and one related entity of Packaging Coordinators, Inc. The Company has a debt investment in Packaging Coordinators, Inc. and holds ordinary equity in PCI Pharma Holdings UK Limited, a wholly-owned subsidiary of Packaging Coordinators, Inc.

(13)
The Company holds investments in ATI Acquisition Company and Ancora Acquisition LLC. The Company has debt investments in ATI Acquisition Company and preferred equity and warrants to purchase units of common membership interests of Ancora Acquisition LLC. The Company received its investments in Ancora Acquisition LLC as a result of its investments in ATI Acquisition Company.

(14)
The Company holds an investment in CompassLearning, Inc. that is structured as a first lien last out term loan.

(15)
The Company holds two first lien investments in Tolt Solutions, Inc. The debt investment with an interest rate at base rate + 6.00% is structured as a first lien first out debt investment. The debt investment with an interest rate at base rate + 11.00% is structured as a first lien last out debt investment.

(16)
The Company holds investments in two related entities of Tenawa Resource Holdings LLC. The Company holds 4.76% of the common units in QID NGL LLC (which at closing represented 98.1% of the ownership in the common units in Tenawa Resource Holdings LLC) and holds a first lien investment in Tenawa Resource Management LLC, a wholly-owned subsidiary of Tenawa Resource Holdings LLC.

(17)
The Company holds investments in two wholly-owned subsidiaries of Learning Care Group (US) Inc. The Company has a debt investment in Learning Care Group (US) No. 2 Inc. and holds warrants to purchase common stock of ASP LCG Holdings, Inc.

(18)
The Company holds investments in TWDiamondback Holdings Corp. and one related entity of TWDiamondback Holdings Corp. The Company holds preferred equity in TWDiamondback Holdings Corp. and holds a first lien last out term loan and a delayed draw term loan in Diamondback Drugs of Delaware LLC, a wholly-owned subsidiary of TWDiamondback Holdings Corp.

(19)
Denotes investments in which the Company is an "Affiliated Person", as defined in the Investment Company Act of 1940, as amended, due to owning or holding the power to vote 5.0% or more of the outstanding voting securities of the investment but not controlling the company.

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

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

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


98

Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments (Continued)

December 31, 20142015
(in thousands, except shares)



December 31, 2014
Portfolio Company, Location and Industry(1) 
Type of
Investment
 Interest Rate(10) 
Maturity/Expiration
Date
 
Principal
Amount,
Par Value
or Shares
 Cost Fair Value 
Percent of
Net
Assets
Total Non-Controlled/Non-Affiliated Investments         $1,438,415
 $1,377,515
 164.60 %
Non-Controlled/Affiliated Investments(25)              
Funded Debt Investments - United States              
   Tenawa Resource Holdings LLC (16)              
   Tenawa Resource Management LLC              
   Energy First lien (3) 10.50% (Base + 8.00%/Q) 5/12/2019 $40,000
 $39,869
 $38,813
 4.64 %
   Edmentum Ultimate Holdings, LLC (19)              
   Education Subordinated (3) 8.50% PIK/Q* 6/9/2020 3,786
 3,778
 3,622
  
  Subordinated (2) 10.00% PIK/Q* 6/9/2020 13,715
 13,715
 10,547
  
  Subordinated (3) 10.00% PIK/Q* 6/9/2020 3,374
 3,374
 2,595
  
        20,875
 20,867
 16,764
 2.00 %
Total Funded Debt Investments - United States       $60,875
 $60,736
 $55,577
 6.64 %
Equity - United States              
   NMFC Senior Loan Program I LLC**              
   Investment Fund Membership interest (3) — — —
 $23,000
 $21,914
 2.62 %
   Edmentum Ultimate Holdings, LLC (19)              
   Education Ordinary shares (3) — — 123,968
 11
 3,341
  
  Ordinary shares (2) — — 107,143
 9
 2,888
  
          20
 6,229
 0.74 %
   Tenawa Resource Holdings LLC (16)              
   QID NGL LLC              
   Energy Ordinary shares (7) — — 5,290,997
 5,291
 3,778
 0.45 %
Total Shares - United States         $28,311
 $31,921
 3.81 %
Unfunded Debt Investments - United States              
   Edmentum Ultimate Holdings, LLC (19)              
   Edmentum, Inc. (fka Plato, Inc.) (Archipelago Learning, Inc.)              
   Education Second lien (3)(11) - Undrawn — 6/9/2020 $4,881
 $—
 $(211) (0.02)%
Total Unfunded Debt Investments       $4,881
 $—
 $(211) (0.02)%
Total Non-Controlled/Affiliated Investments         $89,047
 $87,287
 10.43 %
Controlled Investments(26)              
Funded Debt Investments - United States              
   UniTek Global Services, Inc.              
   Business Services First lien (2)  8.50% (L + 7.50%/Q) 1/13/2019 $6,786
 $6,786
 $6,640
  
  First lien (3)  8.50% (L + 7.50%/Q) 1/13/2019 4,060
 4,060
 3,973
  
  First lien (3) 9.50% (L + 7.50% + 1.00% PIK/Q)* 1/13/2019 7,323
 7,323
 7,257
  
  Subordinated (2) 15.00% PIK/Q* 7/13/2019 1,487
 1,487
 1,417
  
  Subordinated (3) 15.00% PIK/Q* 7/13/2019 890
 890
 848
  
        20,546
 20,546
 20,135
 2.40 %
Total Funded Debt Investments - United States       $20,546
 $20,546
 $20,135
 2.40 %

Investment Type
Percent of Total
Investments at Fair Value

First lien

47.58%

Second lien

42.41%

Subordinated

4.35%

Equity and other

5.66%
​​​ ​​

Total investments

100.00%
​​​ ​​
​​​​​
​​​​ ​



December 31, 2014
Industry Type
Percent of Total
Investments at Fair Value

Software

20.16%

Business Services

18.27%

Education

17.68%

Federal Services

8.75%

Healthcare Services

8.05%

Distribution & Logistics

6.83%

Energy

5.89%

Media

4.29%

Consumer Services

3.67%

Business Products

1.77%

Investment in Fund

1.58%

Specialty Chemicals and Materials

1.39%

Healthcare Products

0.93%

Industrial Services

0.39%

Healthcare Information Technology

0.35%
​​​ ​ ​

Total investments

100.00%
​​​ ​ ​
​​​​​
​​​ ​ ​



December 31, 2014
Interest Rate Type
Percent of Total
Investments at Fair Value

Floating rates

12.32%

Fixed rates

87.68%
​​​ ​​

Total investments

100.00%
​​​ ​​
​​​​​
​​​​ ​

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


99

Table of Contents


New Mountain Finance Corporation

Consolidated Schedule of Investments

(Continued)
December 31, 2013

2015
(in thousands, except shares)

 
 Cost Fair Value Percent of
Net Assets		 

Investments

          

Investment in New Mountain Finance Holdings, L.L.C.(1)

 $633,835 $650,107  100.00%
​​​ ​ ​​ ​ ​​​​

Total Investments

 $633,835 $650,107  100.00%
​​​ ​​​ ​ ​​​​
​​​​​​​​​​​
​​​​ ​​ ​ ​​​​
(1)
At December 31, 2013, New Mountain Finance Corporation's only investment was its investment in New Mountain Finance Holdings, L.L.C. Refer below for New Mountain Finance Holdings, L.L.C.'s Consolidated Schedule of Investments as of December 31, 2013.


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%
Portfolio Company, Location and Industry(1) 
Type of
Investment
 Interest Rate(10) 
Maturity/Expiration
Date
 
Principal
Amount,
Par Value
or Shares
 Cost Fair Value 
Percent of
Net
Assets
Equity - United States              
   UniTek Global Services, Inc.              
   Business Services Preferred shares (2)(21) — — 16,680,037
 $14,299
 $13,870
  
  Preferred shares (3)(21) — — 4,609,569
 3,952
 3,833
  
  Ordinary shares (2) — — 2,096,477
 1,925
 7,528
  
  Ordinary shares (3) — — 579,366
 532
 2,081
  
          20,708
 27,312
 3.26 %
Total Shares - United States         $20,708
 $27,312
 3.26 %
Total Funded Investments         $41,254
 $47,447
 5.66 %
Unfunded Debt Investments - United States              
   UniTek Global Services, Inc.              
   Business Services First lien (3)(11) - Undrawn — 1/13/2019 $2,048
 $—
 $(18)  
  First lien (3)(11) - Undrawn — 1/13/2019 758
 —
 (7)  
        2,806
 —
 (25) — %
Total Unfunded Debt Investments       $2,806
 $—
 $(25) — %
Total Controlled Investments         $41,254
 $47,422
 5.66 %
Total Investments         $1,568,716
 $1,512,224
 180.69 %

(1)New Mountain Finance Corporation (the "Company") generally acquires its investments in private transactions exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"). These investments are generally subject to certain limitations on resale, and may be deemed to be "restricted securities" under the Securities Act.
(2)
Investment is pledged as collateral for the Holdings Credit Facility, a revolving credit facility among the Company as Collateral Manager, New Mountain Finance Holdings, L.L.C. ("NMF Holdings") as the Borrower, Wells Fargo Securities, LLC as the Administrative Agent, and Wells Fargo Bank, National Association, as the Lender and Collateral Custodian. See Note 7, Borrowings, for details.
(3)
Investment is pledged as collateral for the NMFC Credit Facility, a revolving credit facility among the Company as the Borrower and Goldman Sachs Bank USA as the Administrative Agent and the Collateral Agent and Goldman Sachs Bank USA, Morgan Stanley Bank, N.A. and Stifel Bank & Trust as Lenders. See Note 7, Borrowings, for details.
(4)Investment is held in New Mountain Finance SBIC, L.P.
(5)Investment is held in NMF YP Holdings, Inc.
(6)Investment is held in NMF Ancora Holdings, Inc.
(7)Investment is held in NMF QID NGL Holdings, Inc.
(8)
Investment or a portion of the investment is on non-accrual status. See Note 3, Investments, for details.
(9)Securities are registered under the Securities Act.
(10)All interest is payable in cash unless otherwise indicated. A majority of the variable rate debt investments bear interest at a rate that may be determined by reference to the London Interbank Offered Rate (L), the Prime Rate (P) and the alternative base rate (Base) and which resets monthly (M), quarterly (Q), semi-annually (S) or annually (A). For each investment the current interest rate provided reflects the rate in effect as of December 31, 2015.
(11)Par Value amounts represent the drawn or undrawn (as indicated in type of investment) portion of revolving credit facilities or delayed draws. Cost amounts represent the cash received at settlement date net the impact of paydowns and cash paid for drawn revolvers or delayed draws.
(12)The Company holds investments in three related entities of YP Holdings LLC/Print Media Holdings LLC. The Company directly holds warrants to purchase a 4.96% membership interest of YP Equity Investors, LLC (which at closing represented an indirect 1.0% equity interest in YP Holdings LLC) and holds an investment in the Term Loan B loans issued by YP LLC and Print Media LLC, wholly-owned subsidiaries of YP Holdings LLC and Print Media Holdings LLC, respectively.
(13)The Company holds investments in Packaging Coordinators, Inc. and one related entity of Packaging Coordinators, Inc. The Company has a debt investment in Packaging Coordinators, Inc. and holds ordinary equity in PCI Pharma Holdings UK Limited, a wholly-owned subsidiary of Packaging Coordinators, Inc.
(14)The Company holds investments in ATI Acquisition Company and Ancora Acquisition LLC. The Company has debt investments in ATI Acquisition Company and preferred equity and warrants to purchase units of common membership interests of Ancora Acquisition LLC. The Company received its investments in Ancora Acquisition LLC as a result of its investments in ATI Acquisition Company.

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


100

Table of Contents


New Mountain Finance Holdings, L.L.C.

Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2013

2015

(in thousands, except shares)



(15)The Company holds an investment in CompassLearning, Inc. that is structured as a first lien last out term loan.
(16)The Company holds investments in two related entities of Tenawa Resource Holdings LLC. The Company holds 5.25% of the common units in QID NGL LLC (which at closing represented 98.1% of the ownership in the common units in Tenawa Resource Holdings LLC) and holds a first lien investment in Tenawa Resource Management LLC, a wholly-owned subsidiary of Tenawa Resource Holdings LLC.
(17)The Company holds investments in QC McKissock Investment, LLC and one related entity of QC McKissock Investment, LLC. The Company holds a first lien term loan in QC McKissock Investment, LLC (which at closing represented 71.1% of the ownership in the Series A common units of McKissock Investment Holdings, LLC) and holds a first lien term loan and a delayed draw term loan in McKissock, LLC, a wholly-owned subsidiary of McKissock Investment Holdings, LLC.
(18)The Company holds investments in TWDiamondback Holdings Corp. and one related entity of TWDiamondback Holdings Corp. The Company holds preferred equity in TWDiamondback Holdings Corp. and holds a first lien last out term loan and a delayed draw term loan in Diamondback Drugs of Delaware LLC, a wholly-owned subsidiary of TWDiamondback Holdings Corp.
(19)The Company holds investments in Edmentum Ultimate Holdings, LLC and its related entities. The Company holds subordinated notes and ordinary equity in Edmentum Ultimate Holdings, LLC and holds a second lien revolver in Edmentum, Inc. and Archipelago Learning, Inc., which are wholly-owned subsidiaries of Edmentum Ultimate Holdings, LLC.
(20)Total shares reported assumes shares issued for the capitalization of PIK interest.  Actual shares owned total 50,000 as of December 31, 2015.
(21)The Company holds preferred equity in UniTek Global Services, Inc. that is entitled to receive cumulative preferential dividends at a rate of 13.5% per annum payable in additional shares.
(22)The Company holds investments in Education Management Corporation and one related entity of Education Management Corporation. The Company holds series A-1 convertible preferred stock and common stock in Education Management Corporation and holds a tranche A first lien term loan and a tranche B first lien term loan in Education Management II LLC, which is an indirect subsidiary of Education Management Corporation.
(23)The Company holds an equity investment in TW-NHME Holdings Corp., as well as a second lien term loan investment in National HME, Inc., a wholly-owned subsidiary of TW-NHME Holdings Corp.
(24)The Company holds an investment in Pittsburgh Glass Works, LLC that is structured as a first lien last out term loan.
(25)Denotes investments in which the Company is an “Affiliated Person”, as defined in the Investment Company Act of 1940, as amended, due to owning or holding the power to vote 5.0% or more of the outstanding voting securities of the investment but not controlling the company. Fair value as of December 31, 2014 and December 31, 2015 along with transactions during the year ended December 31, 2015 in which the issuer was a non-controlled/affiliated investment is as follows:
Portfolio Company, Location and Industry(1)
 Type of
Investment		 Interest Rate Maturity
Date		 Principal
Amount,
Par Value
or Shares		 Cost Fair Value Percent of
Members'
Capital		 

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%
​​​​​​​​​ ​ ​​ ​ ​​ ​ ​​​​

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%

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%
Portfolio Company (1) Fair Value at December 31, 2014 
Gross
Additions(A)
 
Gross
Redemptions
(B)
 
Net
Realized
Gains
(Losses)
 
Net Change In
Unrealized
Appreciation
(Depreciation)
 Fair Value at December 31, 2015 
Interest
Income
 
Dividend
Income
 
Other
Income
Edmentum Ultimate Holdings, LLC/Edmentum Inc. $—
 $23,937
 $(3,050) $—
 $1,895
 $22,782
 $1,171
 $—
 $—
NMFC Senior Loan Program I LLC 22,461
 —
 —
 —
 (547) 21,914
 —
 3,619
 1,215
Tenawa Resource Holdings LLC —
 44,572
 —
 —
 (1,981) 42,591
 4,231
 —
 750
Total Non-Controlled/Affiliated Investments $22,461
 $68,509
 $(3,050) $—
 $(633) $87,287
 $5,402
 $3,619
 $1,965

(A)Gross additions include increases in the cost basis of investments resulting from new portfolio investments, payment-in-kind (“PIK”) interest or dividends, the amortization of discounts, reorganizations or restructurings and the movement at fair value of an existing portfolio company into this category from a different category.
(B)Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, reorganizations or restructurings and the movement of an existing portfolio company out of this category into a different category.


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


101

Table of Contents


New Mountain Finance Holdings, L.L.C.

Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2013

2015

(in thousands, except shares)



(26)Denotes investments in which the Company is in “Control”, as defined in the Investment Company Act of 1940, as amended, due to owning or holding the power to vote 25.0% or more of the outstanding voting securities of the investment. Fair value as of December 31, 2014 and December 31, 2015 along with transactions during the year ended December 31, 2015 in which the issuer was a controlled investment is as follows:
Portfolio Company, Location and Industry(1)
 Type of
Investment		 Interest Rate Maturity
Date		 Principal
Amount,
Par Value
or Shares		 Cost Fair Value Percent of
Members'
Capital		 

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%

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%
​​​​​​​​​ ​ ​​ ​ ​​ ​ ​​​​
Portfolio Company (1) Fair Value at
December 31, 2014		 
Gross
Additions
(A)
 
Gross
Redemptions
(B)
 
Net 
Realized
Gains
(Losses)
 
Net Change In
Unrealized
Appreciation
(Depreciation)
 Fair Value at December 31, 2015 
Interest
Income
 
Dividend
Income
 
Other
Income
UniTek Global Services, Inc. $—
 $42,780
 $(1,526) $—
 $6,168
 $47,422
 $2,007
 $2,559
 $49
Total Controlled Investments $—
 $42,780
 $(1,526) $—
 $6,168
 $47,422
 $2,007
 $2,559
 $49

(A)Gross additions include increases in the cost basis of investments resulting from new portfolio investments, PIK interest or dividends, the amortization of discounts, reorganizations or restructurings and the movement at fair value of an existing portfolio company into this category from a different category.
(B)Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, reorganizations or restructurings and the movement of an existing portfolio company out of this category into a different category.
*All or a portion of interest contains PIK interest.
**Indicates assets that the Company deems to be “non-qualifying assets” under Section 55(a) of the Investment Company Act of 1940, as amended. Qualifying assets must represent at least 70.00% of the Company’s total assets at the time of acquisition of any additional non-qualifying assets. As of December 31, 2015, 6.8% of the Company’s total assets were non-qualifying assets.





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


102

Table of Contents


New Mountain Finance Holdings, L.L.C.

Corporation

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		 

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%

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%
​​​​​​​​​​​​ ​ ​​ ​ ​​​​
2015
(1)
New Mountain Finance Holdings, L.L.C. ("NMF Holdings") 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.



December 31, 2015
Investment Type
Percent of Total
Investments at Fair Value
First lien44.31%
Second lien41.79%
Subordinated5.75%
Equity and other8.15%
Total investments100.00%


December 31, 2015
Industry Type
Percent of Total
Investments at Fair Value
Software24.53%
Business Services24.36%
Education10.97%
Distribution & Logistics7.76%
Federal Services6.31%
Consumer Services4.52%
Energy4.33%
Healthcare Services4.18%
Media3.16%
Healthcare Products2.49%
Business Products2.21%
Manufacturing1.98%
Investment Fund1.45%
Retail1.39%
Industrial Services0.36%
Total investments100.00%
December 31, 2015
Interest Rate Type
Percent of Total
Investments at Fair Value
Floating rates86.26%
Fixed rates13.74%
Total investments100.00%


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


103

Table of Contents


New Mountain Finance Holdings, L.L.C.

Corporation

Consolidated Schedule of Investments (Continued)

December 31, 2013

2014

(in thousands, except shares)

(2)
Investment is pledged as collateral for the Holdings Credit Facility, a revolving credit facility among NMF Holdings as the Borrower and Collateral Administrator, Wells Fargo Securities, LLC as the Administrative Agent, and Wells Fargo Bank, National Association, as the Collateral Custodian. See Note 7,Borrowings, for details.

Portfolio Company, Location and Industry(1) 
Type of
Investment
 Interest Rate 
Maturity
Date
 
Principal
Amount,
Par Value
or Shares
 Cost Fair Value 
Percent of
Net
Assets
Non-Controlled/Non-Affiliated Investments              
Funded Debt Investments - Australia              
   Project Sunshine IV Pty Ltd**              
   Media First lien(2) 8.00% (Base Rate + 7.00%) 9/23/2019 $17,689
 $17,594
 $17,888
 2.23 %
Total Funded Debt Investments - Australia       $17,689
 $17,594
 $17,888
 2.23 %
Funded Debt Investments - Luxembourg              
   Pinnacle Holdco S.à r.l. / Pinnacle (US) Acquisition Co Limited**              
   Software Second lien (2) 10.50% (Base Rate + 9.25%) 7/30/2020 $24,630
 $24,319
 $22,905
  
  Second lien (3) 10.50% (Base Rate + 9.25%) 7/30/2020 8,204
 8,317
 7,629
  
        32,834
 32,636
 30,534
 3.80 %
   Evergreen Skills Lux S.À R.L.**              
   Education Second lien(3) 9.25% (Base Rate + 8.25%) 4/28/2022 5,000
 4,877
 4,737
 0.59 %
Total Funded Debt Investments - Luxembourg       $37,834
 $37,513
 $35,271
 4.39 %
Funded Debt Investments - United States              
   Ascend Learning, LLC              
   Education First lien(2) 6.00% (Base Rate + 5.00%) 7/31/2019 $14,888
 $14,824
 $14,813
  
  Second lien(3) 9.50% (Base Rate + 8.50%) 11/30/2020 29,000
 28,881
 28,855
  
        43,888
 43,705
 43,668
 5.44 %
   TIBCO Software Inc.**              
   Software First lien(2) 6.50% (Base Rate + 5.50%) 12/4/2020 30,000
 28,512
 29,100
  
  Subordinated(3) 11.38% 12/1/2021 15,000
 14,567
 14,550
  
        45,000
 43,079
 43,650
 5.44 %
   Global Knowledge Training LLC              
   Education Second lien(2) 12.00% (Base Rate + 8.75%) 10/21/2018 41,450
 41,137
 41,786
 5.21 %
   Deltek, Inc.              
   Software Second lien(2) 10.00% (Base Rate + 8.75%) 10/10/2019 40,000
 39,989
 40,300
  
  Second lien(3) 10.00% (Base Rate + 8.75%) 10/10/2019 1,000
 990
 1,008
  
        41,000
 40,979
 41,308
 5.15 %
   Tenawa Resource Holdings LLC (16)              
   Tenawa Resource Management LLC              
   Energy First lien(3) 10.50% (Base Rate + 8.00%) 5/12/2019 40,000
 39,838
 39,820
 4.96 %
   Kronos Incorporated              
   Software Second lien(2) 9.75% (Base Rate + 8.50%) 4/30/2020 32,641
 32,407
 33,355
  
  Second lien(3) 9.75% (Base Rate + 8.50%) 4/30/2020 5,000
 4,955
 5,109
  
        37,641
 37,362
 38,464
 4.80 %
   McGraw-Hill Global Education Holdings, LLC              
   Education First lien(2)(9) 9.75% 4/1/2021 24,500
 24,362
 27,195
  
  First lien(2) 5.75% (Base Rate + 4.75%) 3/22/2019 9,863
 9,641
 9,830
  
        34,363
 34,003
 37,025
 4.62 %
   Tolt Solutions, Inc. (15)              
   Business Services First lien(2) 7.00% (Base Rate + 6.00%) 3/7/2019 18,537
 18,538
 18,075
  
  First lien(2) 12.00% (Base Rate + 11.00%) 3/7/2019 18,800
 18,800
 18,540
  
        37,337
 37,338
 36,615
 4.56 %
   Acrisure, LLC              
   Business Services Second lien(2) 11.50% (Base Rate + 10.50%) 3/31/2020 35,175
 34,848
 35,471
 4.42 %

(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, NMF Holdings as the Collateral Administrator, Wells Fargo Securities, LLC as the Administrative Agent, and Wells Fargo Bank, National Association, as the Collateral Custodian. See Note 7,Borrowings, for details.

(4)
NMF Holdings holds investments in two related entities of Stratus Technologies Bermuda Holdings, Ltd. ("Stratus Holdings"). NMF Holdings 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)
NMF Holdings 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)
NMF Holdings holds investments in two related entities of YP Holdings LLC. NMF Holdings 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)
NMF Holdings holds investments in Packaging Coordinators, Inc. and one related entity of Packaging Coordinators, Inc. NMF Holdings 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)
NMF Holdings holds investments in ATI Acquisition Company and Ancora Acquisition LLC. NMF Holdings has credit investments in ATI Acquisition Company and preferred equity and warrants to purchase units of common membership interests of Ancora Acquisition LLC. NMF Holdings received its investments in Ancora Acquisition LLC as a result of its investments in ATI Acquisition Company.

(12)
NMF Holdings 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 NMF Holdings 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 NMF Holdings' 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.


104

Table of Contents

New Mountain Finance Corporation
Consolidated Schedule of Investments (Continued)
December 31, 2014
(in thousands, except shares)


Portfolio Company, Location and Industry(1) 
Type of
Investment
 Interest Rate 
Maturity
Date
 
Principal
Amount,
Par Value
or Shares
 Cost Fair Value 
Percent of
Net
Assets
   UniTek Global Services, Inc.              
   Business Services First lien(2) 15.00% PIK (Base Rate + 13.50% PIK)(7)* 4/15/2018 $20,596
 $20,104
 $14,706
  
  First lien(3) 15.00% PIK (Base Rate + 13.50% PIK)(7)* 4/15/2018 7,772
 7,552
 5,550
  
  First lien(2) 15.00% PIK (Base Rate + 13.50% PIK)(7)* 4/15/2018 6,271
 6,116
 4,478
  
  First lien(3) 15.00% PIK (Base Rate + 13.50% PIK)(7)* 4/15/2018 597
 580
 426
  
  First lien(2) 15.00% PIK (Base Rate + 13.50% PIK)(7)* 4/15/2018 5,213
 5,083
 3,722
  
  First lien(3) 15.00% PIK (Base Rate + 13.50% PIK)(7)* 4/15/2018 496
 482
 354
  
  First lien(3)(11)—Drawn 9.50% (Base Rate + 7.50% + 1.00% PIK)* 1/21/2015 3,381
 3,381
 3,381
  
  First lien(3)(11)—Drawn 10.25% (Base Rate + 4.00% + 5.25% PIK)* 4/15/2016 2,610
 2,610
 2,610
  
        46,936
 45,908
 35,227
 4.39 %
   Envision Acquisition Company, LLC              
   Healthcare Services Second lien(2) 9.75% (Base Rate + 8.75%) 11/4/2021 26,000
 25,603
 25,772
  
  Second lien(3) 9.75% (Base Rate + 8.75%) 11/4/2021 9,250
 9,305
 9,169
  
        35,250
 34,908
 34,941
 4.37 %
   Hill International, Inc.              
   Business Services First lien(2) 7.75% (Base Rate + 6.75%) 9/26/2020 34,913
 34,574
 34,215
 4.27 %
   Meritas Schools Holdings, LLC              
   Education First lien(2) 7.00% (Base Rate + 5.75%) 6/25/2019 21,658
 21,487
 21,549
  
  Second lien(2) 10.00% (Base Rate + 9.00%) 1/23/2021 12,000
 11,943
 11,820
  
        33,658
 33,430
 33,369
 4.16 %
   TASC, Inc.              
   Federal Services First lien(2) 6.50% (Base Rate + 5.50%) 5/22/2020 30,860
 30,454
 30,108
  
  Second lien(3) 12.00% 5/21/2021 2,000
 1,960
 1,960
  
        32,860
 32,414
 32,068
 4.00 %
   SRA International, Inc.              
   Federal Services First lien(2) 6.50% (Base Rate + 5.25%) 7/20/2018 31,765
 31,059
 31,805
 3.96 %
   Navex Global, Inc.              
   Software First lien(4) 5.75% (Base Rate + 4.75%) 11/19/2021 10,547
 10,442
 10,441
  
  First lien(2) 5.75% (Base Rate + 4.75%) 11/19/2021 4,453
 4,409
 4,409
  
  Second lien(4) 9.75% (Base Rate + 8.75%) 11/18/2022 11,953
 11,834
 11,775
  
  Second lien(3) 9.75% (Base Rate + 8.75%) 11/18/2022 5,047
 4,997
 4,970
  
        32,000
 31,682
 31,595
 3.94 %
   Rocket Software, Inc.              
   Software Second lien(2) 10.25% (Base Rate + 8.75%) 2/8/2019 30,875
 30,756
 30,875
 3.85 %
   KeyPoint Government Solutions, Inc.              
   Federal Services First lien(2) 7.75% (Base Rate + 6.50%) 11/13/2017 29,342
 28,937
 29,359
 3.66 %
   CompassLearning, Inc. (14)              
   Education First lien(2) 8.00% (Base Rate + 6.75%) 11/26/2018 30,000
 29,391
 29,184
 3.64 %
   Aderant North America, Inc.              
   Software Second lien(2) 10.00% (Base Rate + 8.75%) 6/20/2019 24,000
 23,767
 23,940
  
  Second lien(3) 10.00% (Base Rate + 8.75%) 6/20/2019 5,000
 5,070
 4,988
  
        29,000
 28,837
 28,928
 3.61 %
   Transtar Holding Company              
   Distribution & Logistics Second lien(2) 10.00% (Base Rate + 8.75%) 10/9/2019 28,300
 27,906
 27,946
 3.48 %

The accompanying notes are an integral part of these consolidated financial statements.
105

Table of Contents
New Mountain Finance Corporation
Consolidated Schedule of Investments (Continued)
December 31, 2014
(in thousands, except shares)


Portfolio Company, Location and Industry(1) 
Type of
Investment
 Interest Rate 
Maturity
Date
 
Principal
Amount,
Par Value
or Shares
 Cost Fair Value 
Percent of
Net
Assets
   Pelican Products, Inc.              
   Business Products Second lien(3) 9.25% (Base Rate + 8.25%) 4/9/2021 $15,500
 $15,531
 $15,306
  
  Second lien(2) 9.25% (Base Rate + 8.25%) 4/9/2021 10,000
 10,123
 9,875
  
        25,500
 25,654
 25,181
 3.14 %
   YP Holdings LLC (10)              
   YP LLC              
   Media First lien(2) 8.00% (Base Rate + 6.75%) 6/4/2018 24,936
 24,678
 25,029
 3.12 %
   CRGT Inc.              
   Federal Services First lien(2) 7.50% (Base Rate + 6.50%) 12/19/2020 25,000
 24,750
 24,750
 3.09 %
   Confie Seguros Holding II Co.              
   Consumer Services Second lien(2) 10.25% (Base Rate + 9.00%) 5/8/2019 18,886
 18,786
 18,877
  
  Second lien(3) 10.25% (Base Rate + 9.00%) 5/8/2019 5,571
 5,647
 5,569
  
        24,457
 24,433
 24,446
 3.05 %
   PetVet Care Centers LLC              
   Consumer Services Second lien(3) 9.75% (Base Rate + 8.75%) 6/17/2021 24,000
 23,761
 23,760
 2.96 %
   Sierra Hamilton LLC / Sierra Hamilton Finance, Inc.              
   Energy First lien(2) 12.25% 12/15/2018 25,000
 25,000
 23,250
 2.90 %
   Aricent Technologies              
   Business Services Second lien(2) 9.50% (Base Rate + 8.50%) 4/14/2022 20,000
 19,871
 20,162
  
  Second lien(3) 9.50% (Base Rate + 8.50%) 4/14/2022 2,550
 2,556
 2,571
  
        22,550
 22,427
 22,733
 2.83 %
   McGraw-Hill School Education Holdings, LLC              
   Education First lien(2) 6.25% (Base Rate + 5.00%) 12/18/2019 21,780
 21,594
 21,771
 2.71 %
   Weston Solutions, Inc.              
   Business Services Subordinated(4) 16.00% (11.50% + 4.50% PIK)* 7/3/2019 20,458
 20,458
 20,828
 2.60 %
   Aspen Dental Management, Inc.              
   Healthcare Services First lien(2) 7.00% (Base Rate + 5.50%) 10/6/2016 20,862
 20,697
 20,732
 2.58 %
   TWDiamondback Holdings Corp. (18)              
Diamondback Drugs of Delaware, L.L.C. (TWDiamondback II Holdings LLC)              
   Distribution & Logistics First lien(4) 9.75% (Base Rate + 8.75%) 11/19/2019 19,895
 19,895
 19,895
 2.48 %
   American Pacific Corporation**              
   Specialty Chemicals and Materials First lien(2) 7.00% (Base Rate + 6.00%) 2/27/2019 19,850
 19,722
 19,825
 2.47 %
   Novitex Acquisition, LLC (fka ARSloane Acquisition, LLC)              
   Business Services First lien(2) 7.50% (Base Rate + 6.25%) 7/7/2020 19,950
 19,592
 19,152
 2.39 %
   eResearchTechnology, Inc.              
   Healthcare Services First lien(2) 6.00% (Base Rate + 4.75%) 5/2/2018 19,059
 18,521
 19,083
 2.38 %
   First American Payment Systems, L.P.              
   Business Services Second lien(2) 10.75% (Base Rate + 9.50%) 4/12/2019 18,643
 18,369
 18,457
 2.30 %
   Permian Tank & Manufacturing, Inc.              
   Energy First lien(2) 10.50% 1/15/2018 24,357
 24,555
 18,390
 2.29 %
   AgKnowledge Holdings Company, Inc.              
   Business Services Second lien(2) 9.25% (Base Rate + 8.25%) 7/23/2020 18,500
 18,326
 17,814
 2.22 %
   Vertafore, Inc.              
   Software Second lien(2) 9.75% (Base Rate + 8.25%) 10/27/2017 13,855
 13,852
 13,959
  
  Second lien(3) 9.75% (Base Rate + 8.25%) 10/27/2017 2,000
 2,017
 2,015
  
        15,855
 15,869
 15,974
 1.99 %

The accompanying notes are an integral part of these consolidated financial statements.
106
Table of Contents
New Mountain Finance Corporation
Consolidated Schedule of Investments (Continued)
December 31, 2014
(in thousands, except shares)


Portfolio Company, Location and Industry(1) 
Type of
Investment
 Interest Rate 
Maturity
Date
 
Principal
Amount,
Par Value
or Shares
 Cost Fair Value 
Percent of
Net
Assets
   MailSouth, Inc. (d/b/a Mspark)              
   Media First lien(2) 6.75% (Base Rate + 4.99%) 12/14/2016 $16,778
 $16,190
 $15,771
 1.97 %
   Edmentum, Inc.(fka Plato, Inc.)              
   Education Second lien(2) 11.25% (Base Rate + 9.75%) 5/17/2019 25,000
 24,713
 12,500
  
  Second lien(3) 11.25% (Base Rate + 9.75%) 5/17/2019 6,150
 6,040
 3,075
  
        31,150
 30,753
 15,575
 1.94 %
   GSDM Holdings Corp.              
   Healthcare Services Subordinated(4) 10.00% 6/23/2020 15,000
 14,860
 14,642
 1.83 %
   Smile Brands Group Inc.              
   Healthcare Services First lien(2) 7.50% (Base Rate + 6.25%) 8/16/2019 14,319
 14,154
 13,746
 1.71 %
   Vision Solutions, Inc.              
   Software Second lien(2) 9.50% (Base Rate + 8.00%) 7/23/2017 14,000
 13,966
 13,580
 1.69 %
   Harley Marine Services, Inc.              
   Distribution & Logistics Second lien(2) 10.50% (Base Rate + 9.25%) 12/20/2019 9,000
 8,843
 8,910
 1.11 %
   Vitera Healthcare Solutions, LLC              
   Software First lien(2) 6.00% (Base Rate + 5.00%) 11/4/2020 1,980
 1,964
 1,970
  
  Second lien(2) 9.25% (Base Rate + 8.25%) 11/4/2021 7,000
 6,906
 6,825
  
        8,980
 8,870
 8,795
 1.10 %
   McKissock, LLC              
   QC McKissock Investment, LLC              
   Education First lien(2) 7.50% (Base Rate + 6.50%) 8/5/2019 4,923
 4,877
 4,844
  
  First lien(2) 7.50% (Base Rate + 6.50%) 8/5/2019 3,178
 3,149
 3,127
  
  First lien(2)(11)—Drawn 7.50% (Base Rate + 6.50%) 8/5/2019 576
 570
 567
  
        8,677
 8,596
 8,538
 1.06 %
   Asurion, LLC (fka Asurion Corporation)              
   Business Services Second lien(3) 8.50% (Base Rate + 7.50%) 3/3/2021 5,000
 4,934
 4,987
  
  Second lien(2) 8.50% (Base Rate + 7.50%) 3/3/2021 3,000
 2,957
 2,993
  
        8,000
 7,891
 7,980
 0.99 %
   Physio-Control International, Inc.              
   Healthcare Products First lien(2) 9.88% 1/15/2019 6,651
 6,651
 7,083
 0.88 %
   Sotera Defense Solutions, Inc. (Global Defense Technology & Systems, Inc.)              
   Federal Services First lien(2) 9.00% (Base Rate + 7.50%) 4/21/2017 7,445
 7,387
 6,626
 0.83 %
   Brock Holdings III, Inc.              
   Industrial Services Second lien(2) 10.00% (Base Rate + 8.25%) 3/16/2018 7,000
 6,934
 5,548
 0.69 %
   Immucor, Inc.              
   Healthcare Services Subordinated(2)(9) 11.13% 8/15/2019 5,000
 4,957
 5,425
 0.68 %
   Virtual Radiologic Corporation              
   Healthcare Information Technology First lien(2) 7.25% (Base Rate + 5.50%) 12/22/2016 5,963
 5,931
 4,979
 0.62 %
   Packaging Coordinators, Inc. (12)              
   Healthcare Products Second lien(3) 9.00% (Base Rate + 8.00%) 8/1/2022 5,000
 4,952
 4,925
 0.61 %
   LM U.S. Member LLC (and LM U.S. Corp Acquisition Inc.)              
   Business Services Second lien(2) 8.25% (Base Rate + 7.25%) 1/25/2021 5,000
 4,940
 4,867
 0.61 %
   Learning Care Group (US) Inc. (17)              
   Learning Care Group (US) No. 2 Inc.              
   Education First lien(2) 5.50% (Base Rate + 4.50%) 5/5/2021 4,465
 4,424
 4,476
 0.56 %
   CRC Health Corporation              
   Healthcare Services Second lien(3) 9.00% (Base Rate + 8.00%) 9/28/2021 4,000
 3,925
 4,098
 0.51 %

The accompanying notes are an integral part of these consolidated financial statements.
107
Table of Contents
New Mountain Finance Corporation
Consolidated Schedule of Investments (Continued)
December 31, 2014
(in thousands, except shares)


Portfolio Company, Location and Industry(1) 
Type of
Investment
 Interest Rate 
Maturity
Date
 
Principal
Amount,
Par Value
or Shares
 Cost Fair Value 
Percent of
Net
Assets
   GCA Services Group, Inc.              
   Business Services Second lien(3) 9.25% (Base Rate + 8.00%) 11/1/2020 $4,000
 $3,968
 $3,955
 0.49 %
   Sophia Holding Finance LP / Sophia Holding Finance Inc.              
   Software Subordinated(3) 9.63% 12/1/2018 3,500
 3,502
 3,531
 0.44 %
   York Risk Services Holding Corp.              
   Business Services Subordinated(3) 8.50% 10/1/2022 3,000
 3,000
 3,011
 0.38 %
   Winebow Holdings, Inc. (Vinter Group, Inc., The)              
   Distribution & Logistics Second lien(3) 8.50% (Base Rate + 7.50%) 1/2/2022 3,000
 2,979
 2,910
 0.36 %
   Synarc-Biocore Holdings, LLC              
   Healthcare Services Second lien(3) 9.25% (Base Rate + 8.25%) 3/10/2022 2,500
 2,477
 2,250
 0.28 %
   Education Management LLC**              
   Education First lien(2) 9.25% PIK (Base Rate + 8.00% PIK)* 3/30/2018 1,944
 1,902
 880
  
  First lien(3) 9.25% PIK (Base Rate + 8.00% PIK)* 3/30/2018 1,097
 1,085
 496
  
        3,041
 2,987
 1,376
 0.17 %
   ATI Acquisition Company (fka Ability Acquisition, Inc.) (13)              
   Education First lien(2) 17.25% (Base Rate + 10.00% + 4.00% PIK) (7)* 6/30/2012 - Past Due 1,665
 1,434
 216
  
  First lien(2) 17.25% (Base Rate + 10.00% + 4.00% PIK) (7)* 6/30/2012 - Past Due 103
 94
 103
  
        1,768
 1,528
 319
 0.04 %
Total Funded Debt Investments - United States       $1,338,642
 $1,325,057
 $1,291,305
 160.98 %
Total Funded Debt Investments       $1,394,165
 $1,380,164
 $1,344,464
 167.60 %
Equity - United Kingdom              
   Packaging Coordinators, Inc. (12)              
   PCI Pharma Holdings UK Limited**              
   Healthcare Products Ordinary shares(2) — — 19,427
 $580
 $1,193
 0.15 %
Total Shares - United Kingdom         $580
 $1,193
 0.15 %
Equity - United States              
   Crowley Holdings Preferred, LLC              
   Distribution & Logistics Preferred shares(3) 12.00% (10.00% + 2.00% PIK)* — 35,721
 $35,721
 $35,721
 4.45 %
   Global Knowledge Training LLC              
   Education Ordinary shares(2) — — 2
 —
 8
  
  Preferred shares(2) — — 2,423
 —
 9,739
  
          —
 9,747
 1.22 %
   Tenawa Resource Holdings LLC (16)              
   QID NGL LLC              
   Energy Ordinary shares(3) — — 3,000,000
 $3,000
 $2,430
 0.30 %
   TWDiamondback Holdings Corp. (18)              
   Distribution & Logistics Preferred shares(4) — — 200
 2,000
 2,000
 0.25 %
   Ancora Acquisition LLC (13)              
   Education Preferred shares(6) — — 372
 83
 83
 0.01 %
Total Shares - United States         $40,804
 $49,981
 6.23 %
Total Shares         $41,384
 $51,174
 6.38 %

The accompanying notes are an integral part of these consolidated financial statements.
108
Table of Contents
New Mountain Finance Corporation
Consolidated Schedule of Investments (Continued)
December 31, 2014
(in thousands, except shares)


Portfolio Company, Location and Industry(1) 
Type of
Investment
 Interest Rate 
Maturity
Date
 
Principal
Amount,
Par Value
or Shares
 Cost Fair Value 
Percent of
Net
Assets
Warrants - United States              
   Storapod Holding Company, Inc.              
   Consumer Services Warrants(3) — — 360,129
 $156
 $4,142
 0.51 %
   YP Holdings LLC (10)              
   YP Equity Investors, LLC              
   Media Warrants(5) — — 5
 —
 2,549
 0.32 %
   Learning Care Group (US) Inc. (17)              
   ASP LCG Holdings, Inc.              
   Education Warrants(3) — — 622
 37
 299
 0.04 %
   UniTek Global Services, Inc.              
   Business Services Warrants(3) — — 1,014,451
-81,449
 —
 — %
   Alion Science and Technology Corporation              
   Federal Services Warrants(3) — — 6,000
 293
 —
 — %
   Ancora Acquisition LLC (13)              
   Education Warrants(6) — — 20
 —
 —
 — %
Total Warrants - United States         $1,935
 $6,990
 0.87 %
Total Funded Investments         $1,423,483
 $1,402,628
 174.85 %
Unfunded Debt Investments - United States              
   TWDiamondback Holdings Corp. (18)              
   Diamondback Drugs of Delaware, L.L.C. (TWDiamondback II Holdings LLC)              
   Distribution & Logistics First lien(4)(11)—Undrawn — 5/19/2015 $2,763
 $—
 $—
 — %
   UniTek Global Services, Inc.              
   Business Services First lien(3)(11)—Undrawn — 1/21/2015 5,425
 —
 —
  
  First lien(3)(11)—Undrawn — 1/21/2015 2,048
 —
 —
  
  First lien(3)(11)—Undrawn — 1/21/2015 758
 —
 —
  
          —
 —
 — %
   McKissock, LLC              
   Education First lien(2)(11)—Undrawn — 8/5/2019 2,304
 (23) (37) — %
   MailSouth, Inc. (d/b/a Mspark)              
   Media First lien(3)(11)—Undrawn — 12/14/2015 1,900
 (181) (156) (0.02)%
   Aspen Dental Management, Inc.              
   Healthcare Services First lien(3)(11) - Undrawn — 4/6/2016 5,000
 (388) (225) (0.03)%
Total Unfunded Debt Investments       $20,198
 $(592) $(418) (0.05)%
Total Non-Controlled/Non-Affiliated Investments         $1,422,891
 $1,402,210
 174.80 %
Non-Controlled/Affiliated Investments(19)              
Equity - United States              
   NMFC Senior Loan Program I LLC**              
   Investment in Fund Membership interest(3) — — — $23,000
 $22,461
 2.80 %
Total Non-Controlled/Affiliated Investments         $23,000
 $22,461
 2.80 %
Total Investments         $1,445,891
 $1,424,671
 177.60 %

The accompanying notes are an integral part of these consolidated financial statements.
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New Mountain Finance Corporation
Consolidated Schedule of Investments (Continued)
December 31, 2014
(in thousands, except shares)


(1)New Mountain Finance Corporation (the “Company”) generally acquires its investments in private transactions exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”). These investments are generally subject to certain limitations on resale, and may be deemed to be “restricted securities” under the Securities Act.
(2)
Investment is pledged as collateral for the Holdings Credit Facility, a revolving credit facility among the Company as Collateral Manager, New Mountain Finance Holdings, L.L.C. (“NMF Holdings”) as the Borrower, Wells Fargo Securities, LLC as the Administrative Agent, and Wells Fargo Bank, National Association, as the Lender and Collateral Custodian. See Note 7, Borrowings, for details.
(3)
Investment is pledged as collateral for the NMFC Credit Facility, a revolving credit facility among the Company as the Borrower and Goldman Sachs Bank USA as the Administrative Agent and the Collateral Agent and Goldman Sachs Bank USA and Morgan Stanley Bank, N.A. as Lenders. See Note 7, Borrowings, for details.
(4)Investment is held in New Mountain Finance SBIC, L.P.
(5)Investment is held in NMF YP Holdings, Inc.
(6)Investment is held in NMF Ancora Holdings, Inc.
(7)
Investment or a portion of the investment is on non-accrual status. See Note 3, Investments, for details.
(8)The Company holds 1,014,451 warrants in UniTek Global Services, Inc., which represents a 4.41% equity ownership on a fully diluted basis.
(9)Securities are registered under the Securities Act.
(10)The Company holds investments in two related entities of YP Holdings LLC. The Company directly holds warrants to purchase a 4.96% membership interest of YP Equity Investors, LLC (which at closing represented an indirect 1.0% equity interest in YP Holdings LLC) and holds an investment in the Term Loan B loans issued by YP LLC, a subsidiary of YP Holdings LLC.
(11)Par Value amounts represent the drawn or undrawn (as indicated in type of investment) portion of revolving credit facilities or delayed draws. Cost amounts represent the cash received at settlement date net the impact of paydowns and cash paid for drawn revolvers or delayed draws.
(12)The Company holds investments in Packaging Coordinators, Inc. and one related entity of Packaging Coordinators, Inc. The Company has a debt investment in Packaging Coordinators, Inc. and holds ordinary equity in PCI Pharma Holdings UK Limited, a wholly-owned subsidiary of Packaging Coordinators, Inc.
(13)The Company holds investments in ATI Acquisition Company and Ancora Acquisition LLC. The Company has debt investments in ATI Acquisition Company and preferred equity and warrants to purchase units of common membership interests of Ancora Acquisition LLC. The Company received its investments in Ancora Acquisition LLC as a result of its investments in ATI Acquisition Company.
(14)The Company holds an investment in CompassLearning, Inc. that is structured as a first lien last out term loan.
(15)The Company holds two first lien investments in Tolt Solutions, Inc. The debt investment with an interest rate at base rate + 6.00% is structured as a first lien first out debt investment. The debt investment with an interest rate at base rate + 11.00% is structured as a first lien last out debt investment.
(16)The Company holds investments in two related entities of Tenawa Resource Holdings LLC. The Company holds 4.76% of the common units in QID NGL LLC (which at closing represented 98.1% of the ownership in the common units in Tenawa Resource Holdings LLC) and holds a first lien investment in Tenawa Resource Management LLC, a wholly-owned subsidiary of Tenawa Resource Holdings LLC.
(17)The Company holds investments in two wholly-owned subsidiaries of Learning Care Group (US) Inc. The Company has a debt investment in Learning Care Group (US) No. 2 Inc. and holds warrants to purchase common stock of ASP LCG Holdings, Inc.
(18)The Company holds investments in TWDiamondback Holdings Corp. and one related entity of TWDiamondback Holdings Corp. The Company holds preferred equity in TWDiamondback Holdings Corp. and holds a first lien last out term loan and a delayed draw term loan in Diamondback Drugs of Delaware LLC, a wholly-owned subsidiary of TWDiamondback Holdings Corp.
(19)Denotes investments in which the Company is an “Affiliated Person”, as defined in the Investment Company Act of 1940, as amended, due to owning or holding the power to vote 5.0% or more of the outstanding voting securities of the investment but not controlling the company.
*All or a portion of interest contains payment-in-kind (“PIK”).
**Indicates assets that the Company deems to be “non-qualifying assets” under Section 55(a) of the Investment Company Act of 1940, as amended. Qualifying assets must represent at least 70.00% of the Company’s total assets at the time of acquisition of any additional non-qualifying assets.




The accompanying notes are an integral part of these consolidated financial statements.
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New Mountain Finance Corporation
Consolidated Schedule of Investments (Continued)
December 31, 2014



December 31, 2014
Investment Type
Percent of Total
Investments at Fair Value
First lien47.58%
Second lien42.41%
Subordinated4.35%
Equity and other5.66%
Total investments100.00%


December 31, 2014
Industry Type
Percent of Total
Investments at Fair Value
Software20.16%
Business Services18.27%
Education17.68%
Federal Services8.75%
Healthcare Services8.05%
Distribution & Logistics6.83%
Energy5.89%
Media4.29%
Consumer Services3.67%
Business Products1.77%
Investment in Fund1.58%
Specialty Chemicals and Materials1.39%
Healthcare Products0.93%
Industrial Services0.39%
Healthcare Information Technology0.35%
Total investments100.00%
December 31, 2014
Interest Rate Type (1)
Percent of Total
Investments at Fair Value
Floating rates87.68%
Fixed rates12.32%
Total investments100.00%

(1)The categories in this table have been corrected for a transposition error in the Company’s Form 10-K for the year ended December 31, 2014, as filed with the United States Securities and Exchange Commission on March 2, 2015, wherein the categories were inversely reported.


The accompanying notes are an integral part of these consolidated financial statements.
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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation

December 31, 2014
2015
(in thousands, except share data)

Note 1. Formation and Business Purpose

New Mountain Finance Corporation
New Mountain Finance Corporation ("NMFC"(“NMFC” or the "Company"“Company”) is a Delaware corporation that was originally incorporated on June 29, 2010. NMFC is a closed-end, non-diversified management investment company that has elected to be regulated as a business development company ("BDC"(“BDC”) under the Investment Company Act of 1940, as amended (the "1940 Act"“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"(“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended, (the "Code"“Code”). NMFC is also registered as an investment adviser under the Investment Advisers Act of 1940, as amended (the "Advisers Act"“Advisers Act”).

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

New Mountain Finance Holdings, L.L.C.
NMF Holdings is a Delaware limited liability company. Until May 8, 2014, NMF Holdings was externally managed and was regulated as a BDC under the 1940 Act. As such, NMF Holdings was obligated to comply with certain regulatory requirements. NMF Holdings was treated as a partnership for United States ("(“U.S."”) federal income tax purposes for so long as it had at least two members. With the completion of the underwritten secondary offering on February 3, 2014, NMF Holdings'Holdings’ existence as a partnership for U.S. federal income tax purposes terminated and NMF Holdings became an entity that is disregarded as a separate entity from its owner for U.S. federal tax purposes. For additional information on the Company'sCompany’s organizational structure prior to May 8, 2014, see "—Restructuring"“—Restructuring”.

Until May 8, 2014, NMF Holdings was externally managed by New Mountain Finance Advisers BDC, L.L.C. (the "Investment Adviser"“Investment Adviser”). As of May 8, 2014, the Investment Adviser serves as the external investment adviser to NMFC. New Mountain Finance Administration, L.L.C. (the "Administrator"“Administrator”) provides the administrative services necessary for operations. The Investment Adviser and Administrator are wholly-owned subsidiaries of New Mountain Capital. New Mountain Capital is a firm with a track record of investing in the middle market. New Mountain Capital focuses on investing in defensive growth companies across its private equity, public equity and credit investment vehicles. NMF Holdings, formerly known as New Mountain Guardian (Leveraged), L.L.C., was originally formed as a subsidiary of New Mountain Guardian AIV, L.P. ("(“Guardian AIV"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


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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 1. Formation and Business Purpose (Continued)

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"“Predecessor Entities”.

Prior to December 18, 2014, New Mountain Finance SPV Funding, L.L.C. ("(“NMF SLF"SLF”) was a Delaware limited liability company. NMF SLF was a wholly-owned subsidiary of NMF Holdings and thus a wholly-owned indirect subsidiary of the Company. NMF SLF was bankruptcy-remote and non-recourse to NMFC. As part of an amendment to the Company'sCompany’s existing credit facilities with Wells Fargo Bank, National Association, NMF SLF merged with and into NMF Holdings on December 18, 2014. See Note 7,Borrowings, for details.


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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)
December 31, 2015
(in thousands, except share data)

New Mountain Finance AIV Holdings Corporation
Until April 25, 2014, New Mountain Finance AIV Holdings Corporation ("(“AIV Holdings"Holdings”) was a Delaware corporation that was originally incorporated on March 11, 2011. AIV Holdings was dissolved on April 25, 2014. Guardian AIV, a Delaware limited partnership, was AIV Holdings'Holdings’ sole stockholder. AIV Holdings was a closed-end, non-diversified management investment company that was regulated as a BDC under the 1940 Act. As such, AIV Holdings was obligated to comply with certain regulatory requirements. AIV Holdings was treated, and complied with the requirements to qualify annually, as a RIC under the Code.

Structure
Prior to the Restructuring (as defined below) on May 8, 2014, NMFC and AIV Holdings were holding companies with no direct operations of their own, and their sole asset was their ownership in NMF Holdings. In connection with the IPO, NMFC and AIV Holdings each entered into a joinder agreement with respect to the Limited Liability Company Agreement, as amended and restated (the "Operating Agreement"“Operating Agreement”), of NMF Holdings, pursuant to which NMFC and AIV Holdings were admitted as members of NMF Holdings. NMFC acquired from NMF Holdings, with the gross proceeds of the IPO and the Concurrent Private Placement, common membership units ("units"(“units”) of NMF Holdings (the number of units were equal to the number of shares of NMFC'sNMFC’s common stock sold in the IPO and the Concurrent Private Placement). Additionally, NMFC received units of NMF Holdings equal to the number of shares of common stock of NMFC issued to the partners of New Mountain Guardian Partners, L.P. Guardian AIV was the parent of NMF Holdings prior to the IPO and, as a result of the transactions completed in connection with the IPO, obtained units in NMF Holdings. Guardian AIV contributed its units in NMF Holdings to its newly formed subsidiary, AIV Holdings, in exchange for common stock of AIV Holdings. AIV Holdings had the right to exchange all or any portion of its units in NMF Holdings for shares of NMFC'sNMFC’s common stock on a one-for-one basis at any time.

The original structure was designed to generally prevent NMFC from being allocated taxable income with respect to unrecognized gains that existed at the time of the IPO in the Predecessor Entities'Entities’ assets, and rather such amounts would be allocated generally to AIV Holdings. The result was that any distributions made to NMFC'sNMFC’s stockholders that were attributable to such gains generally were not treated as taxable dividends but rather as return of capital.

Since NMFC's IPO, and through December 31, 2014,2015, NMFC raised approximately $374,625$454,040 in net proceeds from additional offerings of common stock and issued shares of its common stock valued at approximately $288,416 on behalf of AIV Holdings for exchanged units. NMFC acquired from NMF Holdings units of NMF Holdings equal to the number of shares of NMFC'sNMFC’s common stock sold in the


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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 1. Formation and Business Purpose (Continued)

additional offerings. With the completion of the final secondary offering on February 3, 2014, NMFC owned 100.0% of the units of NMF Holdings, which became a wholly-owned subsidiary of NMFC.

Restructuring

As a BDC, AIV Holdings had been subject to the 1940 Act, including certain provisions applicable only to BDCs. Accordingly, and after careful consideration of the 1940 Act requirements applicable to BDCs, the cost of 1940 Act compliance and a thorough assessment of AIV Holdings'Holdings’ business model, AIV Holdings'Holdings’ board of directors determined that continuation as a BDC was not in the best interests of AIV Holdings and Guardian AIV. Specifically, given that AIV Holdings was formed for the sole purpose of holding units of NMF Holdings and AIV Holdings had disposed of all of the units of NMF Holdings that it was holding as of February 3, 2014, the board of directors of AIV Holdings approved and declared advisable at an in-person meeting held on March 25, 2014 the withdrawal of AIV Holdings'Holdings’ election to be regulated as a BDC under the 1940 Act. In addition, the board of directors of AIV Holdings approved and declared advisable for AIV Holdings to terminate its registration under Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"“Exchange Act”) and to dissolve AIV Holdings under the laws of the State of Delaware.

Upon receipt of the necessary stockholder consent to authorize the board of directors of AIV Holdings to withdraw AIV Holdings'Holdings’ election to be regulated as a BDC, the withdrawal was filed and became effective upon receipt by the U.S. Securities and Exchange Commission ("SEC"(“SEC”) of AIV Holdings'Holdings’ notification of withdrawal on Form N-54C on April 15, 2014. The board of directors of AIV Holdings believed that AIV Holdings met the requirements for filing the notification to withdraw its election to be regulated as a BDC, upon the receipt of the necessary stockholder consent. After the notification of withdrawal of AIV Holdings'Holdings’ BDC election was filed with the SEC, AIV Holdings was no longer subject to the regulatory provisions of the 1940 Act applicable to BDCs generally, including regulations related to insurance, custody, composition of its board of directors, affiliated transactions and any compensation arrangements.


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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)
December 31, 2015
(in thousands, except share data)

In addition, on April 15, 2014, AIV Holdings filed a Form 15 with the SEC to terminate AIV Holdings'Holdings’ registration under Section 12(g) of the Exchange Act. After these SEC filings and any other federal or state regulatory or tax filings were made, AIV Holdings proceeded to dissolve under Delaware law by filing a certificate of dissolution in Delaware on April 25, 2014.

Until May 8, 2014, as a BDC, NMF Holdings had been subject to the 1940 Act, including certain provisions applicable only to BDCs. Accordingly, and after careful consideration of the 1940 Act requirements applicable to BDCs, the cost of 1940 Act compliance and a thorough assessment of NMF Holdings'Holdings’ current business model, NMF Holdings'Holdings’ board of directors determined at an in-person meeting held on March 25, 2014 that continuation as a BDC was not in the best interests of NMF Holdings.

At the 2014 joint annual meeting of the stockholders of NMFC and the sole unit holder of NMF Holdings held on May 6, 2014, the stockholders of NMFC and the sole unit holder of NMF Holdings approved a proposal which authorized the board of directors of NMF Holdings to withdraw NMF Holdings'Holdings’ election to be regulated as a BDC. Additionally, the stockholders of NMFC approved a new investment advisory and management agreement between NMFC and the Investment Adviser. Upon


Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 1. Formation and Business Purpose (Continued)

receipt of the necessary stockholder/unit holder approval to authorize the board of directors of NMF Holdings to withdraw NMF Holdings'Holdings’ election to be regulated as a BDC, the withdrawal was filed and became effective upon receipt by the SEC of NMF Holdings'Holdings’ notification of withdrawal on Form N-54C on May 8, 2014.

Effective May 8, 2014, NMF Holdings amended and restated its Operating Agreement such that the board of directors of NMF Holdings was dissolved and NMF Holdings remained a wholly-owned subsidiary of NMFC with the sole purpose of serving as a special purpose vehicle for NMF Holdings'Holdings’ credit facility, and NMFC assumed all other operating activities previously undertaken by NMF Holdings under the management of the Investment Adviser (collectively, the "Restructuring"“Restructuring”). After the Restructuring, all wholly-owned direct and indirect subsidiaries of NMFC are consolidated with NMFC for both 1940 Act and financial statement reporting purposes, subject to any financial statement adjustments required in accordance with accounting principles generally accepted in the United States of America ("GAAP"(“GAAP”). NMFC continues to remain a BDC under the 1940 Act.

Also, on May 8, 2014, NMF Holdings filed Form 15 with the SEC to terminate NMF Holdings'Holdings’ registration under Section 12(g) of the Exchange Act. As a special purpose entity, NMF Holdings is bankruptcy-remote and non-recourse to NMFC. In addition, the assets held at NMF Holdings will continue to be used to secure NMF Holdings'Holdings’ credit facility.

Current Organization

During the year ended December 31, 2014,2015, the Company established a wholly-owned subsidiary, NMF QID NGL Holdings, Inc. (“NMF QID”). The Company’s wholly-owned subsidiaries, NMF Ancora Holdings Inc. ("(“NMF Ancora"Ancora”), NMF QID and NMF YP Holdings Inc. ("(“NMF YP"YP”), which are structured as Delaware entities that serve as tax blocker corporations which hold equity or equity-like investments in portfolio companies organized as limited liability companies (or other forms of pass-through entities). TaxThe Company consolidates its tax blocker corporations for accounting purposes. The tax blocker corporations are not consolidated for income tax purposes and may incur income tax expense as a result of their ownership of the portfolio companies. Additionally, the Company has a wholly-owned subsidiary, New Mountain Finance Servicing, L.L.C. ("(“NMF Servicing"Servicing”) that serves as the administrative agent on certain investment transactions. New Mountain Finance SBIC, L.P. ("(“SBIC LP"LP”), and its general partner, New Mountain Finance SBIC G.P., L.L.C. ("(“SBIC GP"GP”), were organized in Delaware as a limited partnership and limited liability company, respectively. SBIC LP and SBIC GP are consolidated wholly-owned direct and indirect subsidiaries of the Company. SBIC LP received a license from the U.S. Small Business AssociationAdministration (the "SBA"“SBA”) to operate as a small business investment company ("SBIC"(“SBIC”) under Section 301(c) of the Small Business Investment Act of 1958, as amended (the "1958 Act"“1958 Act”).



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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
2015
(in thousands, except share data)

Note 1. Formation and Business Purpose (Continued)


The diagram below depicts the Company's organizational structure as of December 31, 2014.2015.

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

**
NMFC is the sole limited partner of SBIC LP. NMFC, directly or indirectly through SBIC GP, wholly-owns SBIC LP. NMFC owns 100.0% of SBIC GP which owns 1.0% of SBIC LP. NMFC owns 99.0% of SBIC LP.

*Includes partners of New Mountain Guardian Partners, L.P.
**NMFC is the sole limited partner of SBIC LP. NMFC, directly or indirectly through SBIC GP, wholly-owns SBIC LP. NMFC owns 100.0% of SBIC GP which owns 1.0% of SBIC LP. NMFC owns 99.0% of SBIC LP.

The Company'sCompany’s investment objective is to generate current income and capital appreciation through the sourcing and origination of debt securities at all levels of the capital structure, including first and second lien debt, notes, bonds and mezzanine securities. In some cases, the Company'sCompany’s investments may also include equity interests. The primary focus is in the debt of defensive growth companies, which are defined as generally exhibiting the following characteristics: (i) sustainable secular growth drivers, (ii) high barriers to competitive entry, (iii) high free cash flow after capital expenditure and working capital needs, (iv) high returns on assets and (v) niche market dominance. Similar to the Company, SBIC LP'sLP’s investment objective is to generate current income and capital appreciation under the investment criteria used by the Company, however, SBIC LP'sLP’s investments must be in SBA eligible companies. The Company'sCompany’s portfolio may be concentrated in a limited number of industries. As of December 31, 2014,2015, the Company'sCompany’s top five industry concentrations were software, business services, education, distribution & logistics and federal services and healthcare services.

Note 2. Summary of Significant Accounting Policies

Basis of accounting—The Company's consolidated financial statements have been prepared in conformity with GAAP. The Company is an investment company following accounting and reporting


Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 2. Summary of Significant Accounting Policies (Continued)

guidance in Accounting Standards Codification Topic 946,Financial Services—Investment Companies, ("ASC 946"). NMFC consolidates its wholly-owned direct and indirect subsidiaries: NMF Holdings, NMF Servicing, SBIC LP, SBIC GP, NMF Ancora, NMF QID and NMF YP. Previously, the Company consolidated its wholly-owned indirect subsidiary NMF SLF until it merged with and into NMF Holdings on December 18, 2014. See Note 7,Borrowings, for details. Prior to the Restructuring, the Predecessor Operating Company consolidated its wholly-owned subsidiary, NMF SLF. NMFC and AIV Holdings did not consolidate the Predecessor Operating Company. Prior to the Restructuring, NMFC and AIV Holdings applied investment company master-feeder financial statement presentation, as described in ASC 946 to their interest in the Predecessor Operating Company. NMFC and AIV Holdings observed that it was also industry practice to follow the presentation prescribed for a master fund-feeder fund structure in ASC 946 in instances in which a master fund was owned by more than one feeder fund and that such presentation provided stockholders of NMFC and AIV Holdings with a clearer depiction of their investment in the master fund.


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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)
December 31, 2015
(in thousands, except share data)

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

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

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

The Company values its assets on a quarterly basis, or more frequently if required under the 1940 Act. In all cases, the Company's board of directors is ultimately and solely responsible for determining the fair value of the portfolio investments on a quarterly basis in good faith, including 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


Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 2. Summary of Significant Accounting Policies (Continued)

are accounted for on a trade date basis. The Company's quarterly valuation procedures are set forth in more detail below:

    (1)
(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 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.
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;


(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 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.

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

d.
When deemed appropriate by the Company's management, an independent valuation firm may be engaged to review and value investment(s) of a portfolio company, without any

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
2015
(in thousands, except share data)

Note 2. Summary of Significant Accounting Policies (Continued)

        preliminary valuation being performed by the Investment Adviser. The investment professionals of the Investment Adviser will review and validate the value provided.


b.Preliminary valuation conclusions will then be documented and discussed with the 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 Company does not have a readily available market quotation will be reviewed by an independent valuation firm engaged by the Company's board of directors; and
d.When deemed appropriate by the 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 costs/netbacks received for any unfunded portion on the total balance committed. The fair value is also adjusted for the price appreciation or depreciation on the unfunded portion. As a result, the purchase of commitments not completely funded may result in a negative fair value until it is called and funded.

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

Prior to the Restructuring, NMFC was a holding company with no direct operations of its own, and its sole asset was its ownership in the Predecessor Operating Company. Prior to the completion of the underwritten secondary public offering on February 3, 2014, AIV Holdings was a holding company with no direct operations of its own, and its sole asset was its ownership in the Predecessor Operating Company. NMFC's and AIV Holdings' investments in the Predecessor Operating Company were carried at fair value and represented the respective pro-rata interest in the net assets of the Predecessor Operating Company as of the applicable reporting date. NMFC and AIV Holdings valued their ownership interest on a quarterly basis, or more frequently if required under the 1940 Act.

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

Collateralized agreements or repurchase financings—The Company follows the guidance in Accounting Standards Codification Topic 860,Transfers and Servicing—Secured Borrowing and Collateral, ("ASC 860") when accounting for transactions involving the purchases of securities under collateralized agreements to resell (resale agreements). These transactions are treated as collateralized financing transactions and are recorded at their contracted resale or repurchase amounts, as specified in the respective agreements. Interest on collateralized agreements is accrued and recognized over the life of the transaction and included in interest income. As of December 31, 2015 and December 31, 2014, the Company held one collateralized agreement to resell with a cost basis of $30,000 and $30,000, respectively, and a carrying value of $29,704 and $30,000, respectively, collateralized by a securitysecond lien bond in Northstar GOM Holdings Group LLC with a fair value of $29,704 and $30,000, respectively, and guaranteed by a private hedge fund with approximately $716,590 and $769,390, respectively, of assets under management. Pursuant to the counterparty. The counterparty hasterms of the optioncollateralized agreement, the private hedge fund is obligated to repurchase the collateral from the Company at the par value of the collateralized agreement within a year.once called upon by the Company or if the private hedge fund's total assets under management fall below the agreed upon thresholds. The collateralized agreement earnsearned interest at a weighted average rate of 15.0% per annum as of December 31, 2014. The Predecessor Operating Company did not have any collateralized agreements as of the year ended2015 and December 31, 2013.2014.

Cash and cash equivalents—Cash and cash equivalents include cash and short-term, highly liquid investments. The Company defines cash equivalents as securities that are readily convertible into known amounts of cash and so near maturity that there is insignificant risk of changes in value. These securities have original maturities of three months or less. The Company did not hold any cash equivalents as of December 31, 2015 and December 31, 2014.



117

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
2015
(in thousands, except share data)

Note 2. Summary of Significant Accounting Policies (Continued)


Revenue recognition

The Company's revenue recognition policies are as follows:

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

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

Dividend income on common equity is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies. Dividend income on preferred securities is recorded as dividend income on an accrual basis to the extent that such amounts are deemed collectible.
Non-accrual income:    LoansInvestments 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 isor dividends are reversed when a loanan investment is placed on non-accrual status. Previously capitalized PIK interest isor dividends are not reversed when an investment is placed on non-accrual status. Interest or dividend payments received on non-accrual loansinvestments may be recognized as income or applied to principal depending upon management's judgment of the ultimate outcome. Non-accrual loansinvestments 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, structuring fees, upfront fees, management fees from a non-controlled/affiliated investment and other miscellaneous fees received and are typically non-recurring in nature. Delayed compensation is income earned from counterparties on trades that do not settle within a set number of business days after trade date. Other income may also include fees from bridge loans. The Company may from time to time enter into bridge financing commitments, an obligation to provide interim financing to a counterparty until permanent credit can be obtained. These commitments are short-term in nature and may expire unfunded. A fee is received by the Company for providing such commitments. Structuring fees and upfront fees are recognized as income when earned, usually when paid at the closing of the investment and are non-refundable.

Prior to the Restructuring, NMFC's revenue recognition policies were as follows:

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


Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 2. Summary of Significant Accounting Policies (Continued)

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

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


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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)
December 31, 2015
(in thousands, except share data)

Interest and other financing expenses—Interest and other financing fees are recorded on an accrual basis by the Company. See Note 7,Borrowings, for details.

Deferred financing costs—The deferred financing costs of the Company consists of capitalized expenses related to the origination and amending of the Company's borrowings. The Company amortizes these costs into expense using the straight-line method over the stated life of the related borrowing. See Note 7,Borrowings, for details.

Deferred offering costs—The Company's deferred offering costs consist of fees and expenses incurred in connection with equity offerings and the filing of shelf registration statements. Upon the issuance of shares, offering costs are charged as a direct reduction to net assets. Deferred offering costs are included in other assets on the Company's Consolidated Statements of Assets and Liabilities.
Income taxes—The Company has elected to be treated, and intends to comply with the requirements to qualify annually, as a RIC under subchapter M of the Code. As a RIC, the Company is not subject to U.S. federal income tax on the portion of taxable income and gains timely distributed to its stockholders.

To continue to qualify as a RIC, the Company is required to meet certain income and asset diversification tests in addition to distributing at least 90.0% of its investment company taxable income, as defined by the Code. Since U.S. federal income tax regulations differ from GAAP, distributions in accordance with tax regulations may differ from net investment income and realized gains recognized for financial reporting purposes.

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

For U.S. federal income tax purposes, distributions paid to stockholders of the Company are reported as ordinary income, return of capital, long term capital gains or a combination thereof.

The Company will be subject to a 4.0% nondeductible federal excise tax on certain undistributed income unless the Company distributes, in a timely manner as required by the Code, an amount at least equal to the sum of (1) 98.0% of its respective net ordinary income earned for the calendar year


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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 2. Summary of Significant Accounting Policies (Continued)

and (2) 98.2% of its respective capital gain net income for the one-year period ending October 31 in the calendar year.

Certain consolidated subsidiaries of the Company are subject to U.S. federal and state income taxes. These taxable entities are not consolidated for income tax purposes and may generate income tax liabilities or assets from permanent and temporary differences in the recognition of items for financial reporting and income tax purposes.

For the year ended December 31, 2015, the Company recognized a total provision for income taxes of $1,343 for the Company's consolidated subsidiaries. For the year ended December 31, 2015, the Company recorded current income tax expense of approximately $160 and deferred income tax expense of approximately $1,183, which excludes a deferred tax benefit of $520 attributable to one of the Company's consolidated subsidiaries. For the year ended December 31, 2014, the Company recognized a total provision for income taxes of $929 for the Company's consolidated subsidiaries. The Company did not recognize a benefit or provision for taxes duringFor the year ended December 31, 2013. 2014, the Company recorded current income tax expense of approximately $436 and deferred income tax expense of approximately $493.
As of December 31, 20142015 and December 31, 2013,2014, the Company had $493$1,676 and $0,$493, respectively, of deferred tax liabilities primarily relating to deferred taxes attributable to certain differences between the computation of income for U.S. federal income tax purposes as compared to GAAP. For the year endedAs of December 31, 2014,2015, the Company recorded current incomehad a deferred tax expenseasset of approximately $436.$520 attributable to one of the Company’s consolidated subsidiaries primarily related to net operating losses.  The Company didhas determined that it is more likely than not recognize anythat the subsidiary will have insufficient taxable income to realize some portion or all of the deferred tax expense forasset.  As such, a full valuation allowance of $520 has been recorded against the year ended December 31, 2013.

deferred tax asset.

    The Company has adopted the Income Taxes topic of the Accounting Standards Codification Topic 740 ("ASC 740"). ASC 740 provides guidance for income taxes, including how uncertain income tax positions should be recognized, measured, and disclosed in the financial statements. Based on its analysis, the Company has determined that there were no material uncertain income tax positions that do not meet the more likely than not threshold through December 31, 2014.2015. The 2011, 2012 2013 and 2014through 2015 tax years remain subject to examination by the U.S. federal, state, and local tax authorities.


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Table of Contents
Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)
December 31, 2015
(in thousands, except share data)

Dividends—Distributions to common stockholders of the Company are recorded on the record date as set by the board of directors. The Company intends to make distributions to its stockholders that will be sufficient to enable the Company to maintain its status as a RIC. The Company intends to distribute approximately all of its adjusted net investment income (see Note 5,Agreements) on a quarterly basis and substantially all of its taxable income on an annual basis, except that the Company may retain certain net capital gains for reinvestment.

The Company has adopted a dividend reinvestment plan that provides on behalf of its stockholders for reinvestment of any distributions declared, unless a stockholder elects to receive cash.

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

If the price at which newly issued shares are to be credited to stockholders' accounts is less than 110.0% of the last determined net asset value of the shares, the Company will either issue new shares


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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 2. Summary of Significant Accounting Policies (Continued)

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

Earnings per share—The Company's earnings per share ("EPS") amounts have been computed based on the weighted-average number of shares of common stock outstanding for the period. Basic EPS is computed by dividing net increase (decrease) in net assets resulting from operations by the weighted average number of shares of common stock outstanding during the period of computation. Diluted EPS is computed by dividing net increase (decrease) in net assets resulting from operations by the weighted average number of shares of common stock assuming all potential shares had been issued, and its related net impact to net assets accounted for, and the additional shares of common stock were dilutive. Diluted EPS reflects the potential dilution, using the as-if-converted method for convertible debt, which could occur if all potentially dilutive securities were exercised.

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

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

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

Dividend income recorded related to distributions received from flow-through investments is an accounting estimate based on the most recent estimate of the tax treatment of the distribution. During the three monthsyear ended MarchDecember 31, 2014,2015, the Predecessor Operating Company adjusted an accounting estimateestimates related to the classification of dividend income for a distributiondistributions received from onethree of the Predecessor Operating Company's warrantequity investments. Based on updated tax projections received

during the year ended December 31, 2015, the


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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
2015
(in thousands, except share data)

Note 2. Summary of Significant Accounting Policies (Continued)

during the quarter ended March 31, 2014, the Predecessor Operating


Company increaseddecreased dividend income by $214$533, which decreased the equity investments cost basis by $3 and reducedincreased the realized gain by $214$530 to agree to the tax treatment on the investment. This resulted in a reclass from capital gains incentive fee to incentive feeequity investments.
Note 3. Investments
At December 31, 2015, the Company's investments consisted of $43 for the quarter ended March 31, 2014.

        Based on updated tax projections received during the three months ended June 30, 2014, the Company increased dividend incomefollowing:

Investment Cost and Fair Value by $472Type
 Cost Fair Value
First lien$711,601
 $670,023
Second lien656,165
 631,985
Subordinated95,429
 87,005
Equity and other105,521
 123,211
Total investments$1,568,716
 $1,512,224

Investment Cost and reduced the realized gainFair Value by $472 to agreeIndustry
 Cost Fair Value
Software$384,805
 $370,892
Business Services367,109
 368,409
Education167,222
 165,947
Distribution & Logistics123,053
 117,375
Federal Services95,459
 95,477
Consumer Services69,250
 68,269
Energy96,717
 65,521
Healthcare Services66,923
 63,255
Media43,489
 47,804
Healthcare Products38,664
 37,648
Business Products35,188
 33,420
Manufacturing29,852
 29,850
Investment Fund23,000
 21,914
Retail21,032
 21,000
Industrial Services6,953
 5,443
Total investments$1,568,716
 $1,512,224

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Notes to the tax treatmentConsolidated Financial Statements of a distribution received in the first quarter of 2014 from one of the Company's warrant investments. This resulted in a reclass from capital gains incentive fee to incentive fee of $94 for the quarter ended June 30, 2014. During the quarter ended September 30, 2013, the Predecessor Operating Company changed an accounting estimate related to the classification of dividend income for a distribution recorded in the prior quarter from one of the Predecessor Operating Company's warrant investments. Based on tax projections received during the quarter ended September 30, 2013, the Predecessor 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 tax treatment on the investment. This resulted in a reclass of $360 from incentive fee to capital gains incentive fee. Based on updated tax projections received during the quarter ended
New Mountain Finance Corporation (Continued)
December 31, 2013, the Predecessor 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 2015
(in a reclass of $45 from capital gains incentive fee to incentive fee.

Note 3. Investments

thousands, except share data)


At December 31, 2014, the Company's investments consisted of the following:

Investment Cost and Fair Value by Type


 Cost Fair Value Cost Fair Value

First lien

 $696,994 $677,901 $696,994
 $677,901

Second lien

 621,234 604,158 621,234
 604,158

Subordinated

 61,344 61,987 61,344
 61,987

Equity and other

 66,319 80,625 66,319
 80,625
​​​ ​​ ​ ​

Total investments

 $1,445,891 $1,424,671 $1,445,891
 $1,424,671
​​ ​ ​​ ​ ​
​​​​​
​​ ​ ​​ ​ ​

Investment Cost and Fair Value by Industry
 Cost Fair Value
Software$287,538
 $287,234
Business Services273,088
 260,325
Education256,522
 251,916
Federal Services124,840
 124,608
Healthcare Services114,111
 114,692
Distribution & Logistics97,344
 97,382
Energy92,393
 83,890
Media58,281
 61,081
Consumer Services48,350
 52,348
Business Products25,654
 25,181
Investment in Fund23,000
 22,461
Specialty Chemicals and Materials19,722
 19,825
Healthcare Products12,183
 13,201
Industrial Services6,934
 5,548
Healthcare Information Technology5,931
 4,979
Total investments$1,445,891
 $1,424,671
During the first quarter of 2015, the Company placed a portion of its second lien position in Edmentum, Inc. (“Edmentum”) on non-accrual status due to its ongoing restructuring. As of March 31, 2015, the Company’s investment in Edmentum had an aggregate cost basis of $30,771, an aggregate fair value of $15,575 and total unearned interest income of $438 for the three months then ended. In June 2015, Edmentum completed a restructuring which resulted in a material modification of the original terms and an extinguishment of the Company’s original investment in Edmentum. Prior to the extinguishment in June 2015, the Company’s original investment in Edmentum had an aggregate cost of $31,636, an aggregate fair value of $16,437 and total unearned interest income of $851 for the six months ended June 30, 2015. The extinguishment resulted in a realized loss of $15,199.  Post restructuring, the Company’s investments in Edmentum have been restored to full accrual status.  As of December 31, 2015, the Company’s investments in Edmentum have an aggregate cost basis of $20,887 and an aggregate fair value of $22,782.
During the first quarter of 2015, the Company’s first lien position in Education Management LLC (“EDMC”) was non-income producing as a result of the portfolio company undergoing a restructuring. As of December 31, 2014, the Company’s investment in EDMC had an aggregate cost basis of $2,987, an aggregate fair value of $1,376 and no unearned interest income for the three months then ended.  In January 2015, EDMC completed a restructuring which resulted in a material modification of the original terms and an extinguishment of the Company’s original investment in EDMC. Prior to the extinguishment in January 2015, the Company’s original investment in EDMC had an aggregate cost of $2,987, an aggregate

122
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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
2015
(in thousands, except share data)

Note 3. Investments (Continued)

    Investment Cost


fair value of $1,376 and Fair Value by Industry

 
 Cost Fair Value 

Software

 $287,538 $287,234 

Business Services

  273,088  260,325 

Education

  256,522  251,916 

Federal Services

  124,840  124,608 

Healthcare Services

  114,111  114,692 

Distribution & Logistics

  97,344  97,382 

Energy

  92,393  83,890 

Media

  58,281  61,081 

Consumer Services

  48,350  52,348 

Business Products

  25,654  25,181 

Investment in Fund

  23,000  22,461 

Specialty Chemicals and Materials

  19,722  19,825 

Healthcare Products

  12,183  13,201 

Industrial Services

  6,934  5,548 

Healthcare Information Technology

  5,931  4,979 
​​​ ​ ​​ ​​

Total investments

 $1,445,891 $1,424,671 
​​​ ​ ​​ ​​
​​​​​​​​
​​​ ​ ​​ ​ ​

        At December 31, 2013, NMFC's only investment was its investmentno unearned interest income for the period then ended. The extinguishment resulted in a realized loss of $1,611.  Post restructuring, the Predecessor Operating Company. At December 31, 2013, the Predecessor Operating Company'sCompany’s investments consisted of the following:

 
 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


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 3. Investments (Continued)

 
 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 
​​​ ​ ​​ ​ ​
​​​​​​​​
​​​ ​ ​​ ​ ​

EDMC are income producing.  As of December 31, 2014,2015, the Company's two super priority first lien positionsCompany’s investments in ATI Acquisition Company remained on non-accrual status due to the inability of the portfolio company to service its interest payment for the quarter then ended and uncertainty about its ability to pay such amounts in the future. During the third quarter of 2013, the Predecessor 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, 2014, the Company's investment hadEDMC have an aggregate cost basis of $1,611,$1,428 and an aggregate fair value of $402 and total unearned interest income of $329 for the year then ended. As of December 31, 2013, the Predecessor Operating Company's total 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, 2014 and December 31, 2013, unrealized gains (losses) include a fee that the Company would receive upon maturity of the two super priority first lien debt investments.

$511.

During the third quarter of 2014, the Company placed a portion of its first lien position in UniTek Global Services, Inc. ("UniTek") on non-accrual status in anticipation of a voluntary petition for a "Pre-Packaged" Chapter 11 Bankruptcy in the U.S. Bankruptcy Court for the District of Delaware which was filed on November 3, 2014. As of December 31, 2014, the portion of theCompany's investments in UniTek first lien position placed on non-accrual status representedhad an aggregate cost basis of $12,078,$47,357, an aggregate fair value of $8,846$35,227 and total unearned interest income of $975 for the year then ended.

In January 2015, UniTek emerged from “Pre-Packaged” Chapter 11 Bankruptcy and completed its restructuring.  The restructuring resulted in a material modification of the original terms and an extinguishment of the Company’s original investments in UniTek. Prior to the extinguishment in January 2015, the Company’s original investments in UniTek had an aggregate cost of $52,902, an aggregate fair value of $40,137 and total unearned interest income of $68 for the period then ended. The extinguishment resulted in a realized loss of $12,765.  Post restructuring, the Company’s investments in UniTek have been restored to full accrual status.  As of December 31, 2015, the Company’s investments in UniTek have an aggregate cost basis of $41,254 and an aggregate fair value of $47,422.

As of December 31, 2015, the Company's two super priority first lien positions in ATI Acquisition Company and its related preferred shares and warrants in Ancora Acquisition LLC remained on non-accrual status due to the inability of the portfolio company to service its interest payment for the quarter then ended and uncertainty about its ability to pay such amounts in the future. As of December 31, 2015, the Company's investment had an aggregate cost basis of $1,611, an aggregate fair value of $393 and total unearned interest income of $83 for the year then ended. As of December 31, 2014, the Company's investments had an aggregate cost basis of $1,611, an aggregate fair value of $402 and total unearned interest income of $329 for the year then ended. As of December 31, 2015 and December 31, 2014, unrealized gains (losses) include a fee that the Company would recognize upon realization of the two super priority first lien debt investments.
As of December 31, 2015, the Company had unfunded commitments on revolving credit facilities and bridge facilities of $17,576 and $0, respectively. As of December 31, 2015, the Company had unfunded commitments in the form of delayed draws or other future funding commitments of $8,678. As of December 31, 2015, the Company did not have any commitment letters to purchase debt investments. The unfunded commitments on revolving credit facilities and delayed draws are disclosed on the Company's Consolidated Schedule of Investments as of December 31, 2015.
As of December 31, 2014, the Company had unfunded commitments on revolving credit facilities and bridge facilities of $8,948 and $0, respectively. TheAs of December 31, 2014, the Company had unfunded commitments in the form of a delayed drawdraws or other future funding commitments of $18,475 as$18,475. As of December 31, 2014.2014, the Company did not have any commitment letters to purchase debt investments. The unfunded commitments on revolving credit facilities and a delayed drawdraws are disclosed on the Company's Consolidated Schedule of Investments as of December 31, 2014.


Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 3. Investments (Continued)

        At December 31, 2013, NMFC's only investment was its investment in the Predecessor Operating Company. As of December 31, 2013, the Predecessor Operating Company had unfunded commitments on revolving credit facilities and bridge facilities of $15,500 and $0, respectively. The Predecessor Operating Company did not have any unfunded commitments in the form of a delayed draw or other future funding commitments as of December 31, 2013. The unfunded commitments on revolving credit facilities are disclosed on the Predecessor Operating Company's Consolidated Schedule of Investments as of December 31, 2013.

NMFC Senior Loan Program I, LLC

        On June 10, 2014,

NMFC Senior Loan Program I, LLC ("(“SLP I"I”) was formed as a Delaware limited liability company.company on May 27, 2014 and commenced operations on June 10, 2014. SLP I is a portfolio company held by the Company. SLP I is structured as a private investment fund, in which all of the investors are qualified purchasers, as such term is defined under the 1940 Act. Transfer of interests in SLP I is subject to restrictions, and as a result, such interests are not readily marketable. SLP I operates under a limited liability company agreement (the "Agreement"“Agreement”) and will continue in existence until June 10, 2019, subject to earlier termination pursuant to certain terms of the Agreement. The term may be extended for up to one year pursuant to certain terms of the Agreement. SLP I has a three year re-investment period.

SLP I invests in senior secured loans issued by companies within the Company's core industry verticals. These investments are typically broadly syndicated first lien loans.

SLP I is capitalized with $93,000 of capital commitments, $275,000 of debt from a revolving credit facility and is managed by the Company. The Company's capital commitment is $23,000, representing less than 25.0% ownership, with third party investors representing the remaining capital commitment. As of December 31, 2015, SLP I had total investments with an aggregate fair value of approximately $349,704, debt outstanding of $267,617 and capital that had been called and funded of $93,000. As of December 31, 2014, SLP I had total investments with an aggregate fair value of approximately $369,194, debt outstanding of $266,916 and capital that had been called and funded of $93,000. The Company's investment in SLP I is disclosed on the Company's Consolidated Schedules of Investments as of December 31, 20142015 and December 31, 2014.

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Notes to the Consolidated ScheduleFinancial Statements of Investments.

New Mountain Finance Corporation (Continued)
December 31, 2015
(in thousands, except share data)

The Company, as an investment adviser registered under the Advisers Act, acts as the collateral manager to SLP I and is entitled to receive a management fee for its investment management services provided to SLP I. As a result, SLP I is classified as an affiliate of the Company. No management fee is charged on the Company's investment in SLP I in connection with the administrative services provided to SLP I. For the yearyears ended December 31, 2015 and December 31, 2014, the Company earned approximately $1,215 and $468, respectively, in management fees related to SLP I which is included in other income. As of December 31, 2015 and December 31, 2014, approximately $311 and $468, respectively, of management fees related to SLP I was included in receivable from affiliates. For the yearyears ended December 31, 2015 and December 31, 2014, the Company earned approximately $3,619 and $1,066, respectively, of dividend income related to SLP I, which is included in dividend income. As of December 31, 2015 and December 31, 2014, approximately $918 and $828, respectively, of dividend income related to SLP I was included in interest and dividend receivable.

        SLP I invests in senior secured loans issued by companies within The Company did not earn management fees or dividend income for the Company's core industry verticals. These investments are typically broadly syndicated first lien loans.


Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

year ended December 31, 2014
(2013.

UniTek Global Services, Inc.
UniTek Global Services, Inc. (“UniTek”) is a full service provider of technical services to customers in thousands, except share data)

the wireless telecommunications, public safety, satellite television and broadband cable industries in the U.S. and Canada. UniTek’s customers are primarily satellite television, broadband cable and other telecommunications companies, their contractors, and municipalities and related agencies. UniTek’s customers utilize its services to build and maintain their infrastructure and networks and to provide residential and commercial fulfillment services, which is critical to their ability to deliver voice, video and data services to end users.

In accordance with Regulation S-X Rules 3-09 and 4-08(g), the Company evaluates its unconsolidated controlled portfolio companies as significant subsidiaries under the respective rules.  As of December 31, 2015, UniTek was considered a significant unconsolidated subsidiary under Regulation S-X Rule 4-08(g). Based on the requirements under Regulation S-X Rule 4-08(g), the summarized consolidated financial information of UniTek is shown below:
Balance Sheet:December 31, 2015 December 31, 2014
Current assets$78,202
 $84,473
Noncurrent assets125,241
 124,858
Total assets$203,443
 $209,331
Current liabilities36,167
 268,091
Noncurrent liabilities123,361
 2,638
Total liabilities$159,528
 $270,729
Total equity$43,915
 $(61,398)
 Years Ended December 31,
Summary of Operations:2015 2014 2013
Net sales$269,893
 $334,139
 $471,933
Cost of goods sold218,331
 291,672
 387,376
Gross profit51,562
 42,467
 84,557
Other expenses58,863
 116,612
 135,048
Net loss from continuing operations before extraordinary items(7,301) (74,145) (50,491)
Loss from discontinued operations—
 —
 (1,582)
Net loss$(7,301) $(74,145) $(52,073)
Note 3. Investments (Continued)

Investment risk factors—First and second lien debt that the Company invests in is entirely, or almost entirely, rated below investment grade or may be unrated. Debt investments rated below investment grade are often referred to as "leveraged loans," "high yield" or "junk" debt investments, and may be considered "high risk" compared to debt investments that are rated investment grade. These debt investments are considered speculative because of the credit risk of the issuers. Such issuers are


124
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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)
December 31, 2015
(in thousands, except share data)

considered more likely than investment grade issuers to default on their payments of interest and principal and such risk of default could reduce the net asset value and income distributions of the Company. In addition, some of the Company's debt investments will not fully amortize during their lifetime, which could result in a loss or a substantial amount of unpaid principal and interest due upon maturity. First and second lien debt may also lose significant market value before a default occurs. Furthermore, an active trading market may not exist for these first and second lien debt investments. This illiquidity may make it more difficult to value the debt.

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

The Company may directly invest in the equity of private companies or in some cases, equity investments could be made in connection with a debt investment. Equity investments may or may not appreciatefluctuate in value. As a result the Company may or may not be able to recognizevalue resulting in recognized realized gains or losses upon disposition.

Note 4. Fair Value

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

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

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

•
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);

Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 4. Fair Value (Continued)

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

inputs.

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


125
Table of Contents
Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)
December 31, 2015
(in thousands, except share data)

The following table summarizes the levels in the fair value hierarchy that the Company's portfolio investments fall into as of December 31, 2015:
 Total Level I Level II Level III
First lien$670,023
 $—
 $329,133
 $340,890
Second lien631,985
 —
 449,227
 182,758
Subordinated87,005
 —
 33,546
 53,459
Equity and other123,211
 316
 15
 122,880
Total investments$1,512,224
 $316
 $811,921
 $699,987
The following table summarizes the levels in the fair value hierarchy that the Company's portfolio investments fall into as of December 31, 2014:


 Total Level I Level II Level III Total Level I Level II Level III

First lien

 $677,901 $— $508,721 $169,180 $677,901
 $—
 $508,721
 $169,180

Second lien

 604,158 — 469,752 134,406 604,158
 —
 469,752
 134,406

Subordinated

 61,987 — 26,517 35,470 61,987
 —
 26,517
 35,470

Equity and other

 80,625 — — 80,625 80,625
 —
 —
 80,625
​​ ​ ​​ ​ ​​ ​ ​​ ​ ​

Total investments

 $1,424,671 $— $1,004,990 $419,681 $1,424,671
 $—
 $1,004,990
 $419,681
​​ ​ ​​ ​ ​​ ​ ​​ ​ ​
​​​​​​​​​
​​ ​ ​​ ​​​ ​ ​​ ​ ​
The following table summarizes the changes in fair value of Level III portfolio investments for the year ended December 31, 2015, as well as the portion of appreciation (depreciation) included in income attributable to unrealized appreciation (depreciation) related to those assets and liabilities still held by the Company at December 31, 2015:
 Total First Lien Second Lien Subordinated 
Equity and
other
Fair value, December 31, 2014$419,681
 $169,180
 $134,406
 $35,470
 $80,625
Total gains or losses included in earnings: 
  
  
  
  
Net realized (losses) gains on investments(12,730) (10,895) (14,542) —
 12,707
Net change in unrealized appreciation (depreciation) of investments12,348
 7,048
 6,575
 (4,797) 3,522
Purchases, including capitalized PIK and revolver fundings(1)418,208
 237,731
 116,135
 23,709
 40,633
Proceeds from sales and paydowns of investments(1)(205,103) (84,346) (105,227) (923) (14,607)
Transfers into Level III(2)95,190
 49,779
 45,411
 —
 —
Transfers out of Level III(2)(27,607) (27,607) —
 —
 —
Fair value, December 31, 2015$699,987
 $340,890
 $182,758
 $53,459
 $122,880
Unrealized appreciation (depreciation) for the period relating to those Level III assets that were still held by the Company at the end of the period:$(999) $(4,332) $(7,384) $(4,797) $15,514

(1)Includes reorganizations and restructurings.
(2)As of December 31, 2015, the portfolio companies were transferred into Level III from Level II and out of Level III into Level II at fair value as of the beginning of the quarter in which the reclassifications occurred.

126

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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
2015
(in thousands, except share data)

Note 4. Fair Value (Continued)

        At December 31, 2013, NMFC's only investment was its investment in the Predecessor Operating Company. The following table summarizes the levels in the fair value hierarchy that the Predecessor Operating Company's portfolio investments fall into as of December 31, 2013:


 
 Total Level I Level II Level III 

First lien

 $553,549 $— $525,138 $28,411 

Second lien

  468,945  —  413,407  55,538 

Subordinated

  26,863  —  21,692  5,171 

Equity and other

  66,294  1,694  —  64,600 
​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​

Total investments

 $1,115,651 $1,694 $960,237 $153,720 
​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​
​​​​​​​​​​​​​​
​​​ ​ ​​ ​​​ ​ ​​ ​ ​

The following table summarizes the changes in fair value of Level III portfolio investments for the year ended December 31, 2014, as well as the portion of appreciation (depreciation) included in income attributable to unrealized appreciation (depreciation) related to those assets and liabilities still held by the Company at December 31, 2014:

 Total First Lien Second Lien Subordinated 
Equity and
other
Fair value, December 31, 2013$153,720
 $28,411
 $55,538
 $5,171
 $64,600
Total gains or losses included in earnings: 
  
  
  
  
Net realized gains on investments7,329
 1,260
 581
 196
 5,292
Net change in unrealized (depreciation) appreciation of investments(20,922) (12,451) (16,043) (33) 7,605
Purchases, including capitalized PIK and revolver fundings265,112
 114,940
 85,719
 35,695
 28,758
Proceeds from sales and paydowns of investments(74,968) (1,233) (42,130) (5,559) (26,046)
Transfers into Level III(1)(2)109,610
 38,253
 70,941
 —
 416
Transfers out of Level III(1)(20,200) —
 (20,200) —
 —
Fair value, December 31, 2014$419,681
 $169,180
 $134,406
 $35,470
 $80,625
Unrealized (depreciation) appreciation for the period relating to those Level III assets that were still held by the Company at the end of the period:$(17,254) $(11,978) $(15,404) $163
 $9,965

(1)As of December 31, 2014, the portfolio investments were transferred into Level III from Level II or Level I and out of Level III into Level II at fair value as of the beginning of the quarter in which the reclassifications occurred.
(2)During the year ended December 31, 2014, the valuation methodology for two portfolio companies changed due to the portfolio companies' deterioration in operating results and as such, these portfolio companies were transferred into Level III from Level II during the year then ended.
 
 Total First Lien Second Lien Subordinated Equity and
other		 

Fair value, December 31, 2013

 $153,720 $28,411 $55,538 $5,171 $64,600 

Total gains or losses included in earnings:

                

Net realized gains on investments

  7,329  1,260  581  196  5,292 

Net change in unrealized (depreciation) appreciation

  (20,922) (12,451) (16,043) (33) 7,605 

Purchases, including capitalized PIK and revolver fundings

  265,112  114,940  85,719  35,695  28,758 

Proceeds from sales and paydowns of investments

  (74,968) (1,233) (42,130) (5,559) (26,046)

Transfers into Level III(1)(2)

  109,610  38,253  70,941  —  416 

Transfers out of Level III(1)

  (20,200) —  (20,200) —  — 
​​​ ​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​

Fair value, December 31, 2014

 $419,681 $169,180 $134,406 $35,470 $80,625 
​​​​ ​​ ​ ​​ ​​​ ​ ​​ ​​
​​​​​​​​​​​​​​​​​
​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​​ ​

Unrealized (depreciation) appreciation for the period relating to those Level III assets that were still held by the Company at the end of the period:

 $(17,254)$(11,978)$(15,404)$163 $9,965 
​​​ ​ ​​ ​​​ ​ ​​ ​ ​​ ​ ​
(1)
As of December 31, 2014, the portfolio investments were transferred into Level III from Level II or Level I and out of Level III into Level II at fair value as of the beginning of the quarter in which the reclassifications occurred.

(2)
During the year ended December 31, 2014, the valuation methodology for two portfolio companies changed due to the portfolio companies deterioration in operating results and as such, these portfolio companies were transferred into Level III from Level II during the year then ended.

Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 4. Fair Value (Continued)

        At December 31, 2013, NMFC's only investment was its investment in the Predecessor Operating Company. 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 Predecessor Operating Company at December 31, 2013:

 
 Total First Lien Second Lien Subordinated Equity and
other(3)		 

Fair value, December 31, 2012

 $119,128 $42,885 $43,255 $22,891 $10,097 

Total gains or losses included in earnings:

                

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

  120,147  28,874  31,060  2,620  57,593 

Proceeds from sales and paydowns of investments

  (85,910) (41,417) (20,000) (21,226) (3,267)

Transfers into Level III

  6,574  6,574(1) —  —  — 

Transfers out of Level III

  (9,847) (8,838)(1) —  —  (1,009)(2)
​​​ ​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​

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 Predecessor Operating Company at the end of the period:

 $821 $(333)$722 $409 $23 
​​​ ​ ​​ ​​​ ​ ​​ ​ ​​ ​ ​
(1)
As of December 31, 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.

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

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

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, 20142015 and December 31, 2013.2014. Transfers into Level III occurredoccur as quotations obtained through pricing services wereare not deemed representative of fair value as of the balance sheet date and such assets wereare internally valued. As quotations obtained through pricing services wereare substantiated through additional market sources, investments wereare transferred out of


Table Level III. In addition, transfers out of Contents


Notes toLevel III and transfers into Level III occur based on the Consolidated Financial Statementsincrease or decrease in the availability of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 4. Fair Value (Continued)

Level III. certain observable inputs. The Company invests in revolving credit facilities. These investments are categorized as Level III investments as these assets are not actively traded and their fair values are often implied by the term loans of the respective portfolio companies.

The Company generally uses the following framework when determining the fair value of investments where there are little, if any, market activity or observable pricing inputs. The Company typically determines the fair value of its performing debt investments utilizing an income approach. Additional consideration is given using a market based approach, as well as reviewing the overall underlying portfolio company's performance and associated financial risks. The following outlines additional details on the approaches considered:

Company Performance, Financial Review, and Analysis:    Prior to investment, as part of its due diligence process, the Company evaluates the overall performance and financial stability of the portfolio company. Post investment, the Company analyzes each portfolio company's current operating performance and relevant financial trends versus prior year and budgeted results, including, but not limited to, factors affecting its revenue and earnings before interest, taxes, depreciation, and amortization ("EBITDA") growth, margin trends, liquidity position, covenant compliance and changes to its capital structure. The Company also attempts to identify and subsequently track any developments at the portfolio company, within its customer or vendor base or within the industry or the macroeconomic environment, generally, that may alter any material element of its original investment thesis. This analysis is specific to each portfolio company. The Company leverages the knowledge gained

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Table of Contents
Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)
December 31, 2015
(in thousands, except share data)

from its original due diligence process, augmented by this subsequent monitoring, to continually refine its outlook for each of its portfolio companies and ultimately form the valuation of its investment in each portfolio company. When an external event such as a purchase transaction, public offering or subsequent sale occurs, the Company will consider the pricing indicated by the external event to corroborate the private valuation.

For debt investments, the Company may employ the Market Based Approach (as described below) to assess the total enterprise value of the portfolio company, in order to evaluate the enterprise value coverage of the Company’s debt investment. For equity investments or in cases where the Market Based Approach implies a lack of enterprise value coverage for the debt investment, the Company may additionally employ a discounted cash flow analysis based on the free cash flows of the portfolio company to assess the total enterprise value.
After enterprise value coverage is demonstrated for the Company’s debt investments through the method(s) above, the Income Based Approach (as described below) may be employed to estimate the fair value of the investment.
Market Based Approach:    The Company may estimate the total enterprise value of each portfolio company by utilizing market value cash flow (EBITDA) multiples of publicly traded comparable companies.companies and comparable transactions. The Company considers numerous factors when selecting the appropriate companies whose trading multiples are used to value its portfolio companies. These factors include, but are not limited to, the type of organization, similarity to the business being valued, relevant risk factors, as well as size, profitability and growth expectations. The Company may apply an average of various relevant comparable company EBITDA multiples to the portfolio company's latest twelve month ("LTM") EBITDA or projected EBITDA to calculate the enterprise value of the portfolio company enterprise value.company. Significant increases or decreases in the EBITDA multiple will result in an increase or decrease in enterprise value, resultingwhich may result in an increase or decrease in the fair value estimate of the investment. In applying the market based approach as of December 31, 2015 and December 31, 2014, the Company used the relevant EBITDA multiple ranges set forth in the table below to determine the enterprise value of investments in twelve of its portfolio companies. The Company believes this was a reasonable range in light of current comparable company trading levels and the specific portfolio companies involved.

Income Based Approach:    The Company also may use a discounted cash flow analysis to estimate the fair value of the investment. Projected cash flows represent the relevant security's contractual interest, fee and principal payments plus the assumption of full principal recovery at the investment's


Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 4. Fair Value (Continued)

expected maturity date. These cash flows are discounted at a rate established utilizing a yield calibration approach, which incorporates changes in the credit quality (as measured by relevant statistics) of the portfolio company, as compared to changes in the yield associated with comparable credit quality market indices, between the date of origination and the valuation date. Significant increases or decreases in the discount rate would result in a decrease or increase in the fair value measurement. In applying the income based approach as of December 31, 2015 and December 31, 2014, the Company used the discount ranges set forth in the table below to value investments in seventeen of its portfolio companies.


 
  
  
  
 Range 
Type
 Fair Value Approach Unobservable Input Low High Weighted
Average		 

First lien

 $169,180 Market approach EBITDA multiple  6.5x  12.0x  8.6x 

    Income approach Discount rate  8.2% 16.5% 12.0%

Second lien

  134,406 Market approach EBITDA multiple  5.5x  15.5x  10.6x 

    Income approach Discount rate  11.0% 16.0% 12.7%

    Other N/A(1)  N/A(1) N/A(1) N/A(1)

Subordinated

  35,470 Market approach EBITDA multiple  8.0x  12.0x  10.0x 

    Income approach Discount rate  10.7% 17.7% 14.7%

Equity and other

  80,625 Market approach EBITDA multiple  7.0x  12.0x  8.1x 

    Income approach Discount rate  8.0% 15.0% 12.9%

    Other N/A(1)  N/A(1) N/A(1) N/A(1)

    Black Scholes analysis Expected life in years  11.3  11.3  11.3 

      Volatility  31.6% 31.6% 31.6%

      Discount rate  2.3% 2.3% 2.3%
​​​​ ​​​​​​​​​​​​​​

 $419,681              
​​​ ​ ​​​​​​​​​​​​​​
​​​​​​​​​​​​​​​​​​
​​​ ​ ​​​​​​​​​​​​​​
128
Table of Contents
(1)
Fair value was determined based on transaction pricing or recent acquisition or sale asNotes to the best measureConsolidated Financial Statements of
New Mountain Finance Corporation (Continued)
December 31, 2015
(in thousands, except share data)

The unobservable inputs used in the fair value with no material changes in operationsmeasurement of the Company's Level III investments as of December 31, 2015 were as follows:
       Range 
TypeFair Value as of December 31, 2015 Approach Unobservable Input Low High Weighted
Average		 
First lien$292,507
 Market & income approach EBITDA multiple 4.5x
 15.5x
 10.0x
 
  
   Discount rate 7.3% 13.9% 11.0% 
 30,719
 Market quote Broker quote N/A
 N/A
 N/A
 
 17,664
 Other N/A(1) N/A
(1)N/A
(1)N/A
(1)
Second lien88,977
 Market & income approach EBITDA multiple 6.5x
 16.0x
 12.3x
 
  
   Discount rate 10.0% 14.2% 12.7% 
 41,544
 Market quote Broker quote N/A
 N/A
 N/A
 
 52,237
 Other N/A(1) N/A
(1)N/A
(1)N/A
(1)
Subordinated38,459
 Market & income approach EBITDA multiple 4.5x
 9.0x
 7.6x
 
  
   Discount rate 10.0% 19.4% 17.7% 
 15,000
 Other N/A(1) N/A
(1)N/A
(1)N/A
(1)
Equity and other121,453
 Market & income approach EBITDA multiple 2.5x
 12.0x
 6.3x
 
  
   Discount rate 8.0% 21.3% 14.6% 
 1,427
 Black Scholes analysis Expected life in years 9.8
 10.3
 10.0
 
  
   Volatility 27.0% 30.3% 28.9% 
  
   Discount rate 2.1% 2.1% 2.1% 
 $699,987
      
  
  
 

(1)Fair value was determined based on transaction pricing or recent acquisition or sale as the best measure of fair value with no material changes in operations of the related portfolio company since the transaction date.

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Table of Contents
Notes to the transaction date.Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)
December 31, 2015
(in thousands, except share data)

The unobservable inputs used in the fair value measurement of the Company's Level III investments as of December 31, 2014 were as follows:
       Range 
TypeFair Value as of December 31, 2014 Approach Unobservable Input Low High 
Weighted
Average
 
First lien$169,180
 Market & income approach EBITDA multiple 6.5x
 12.0x
 8.6x
 
  
   Discount rate 8.2% 16.5% 12.0% 
Second lien92,620
 Market & income approach EBITDA multiple 5.5x
 15.5x
 10.6x
 
  
   Discount rate 11.0% 16.0% 12.7% 
 41,786
 Other N/A(1) N/A
(1)N/A
(1)N/A
(1)
Subordinated35,470
 Market & income approach EBITDA multiple 8.0x
 12.0x
 10.0x
 
  
   Discount rate 10.7% 17.7% 14.7% 
Equity and other66,437
 Market & income approach EBITDA multiple 7.0x
 12.0x
 8.1x
 
  
   Discount rate 8.0% 15.0% 12.9% 
 9,747
 Other N/A(1) N/A
(1)N/A
(1)N/A
(1)
 4,441
 Black Scholes analysis Expected life in years 11.3
 11.3
 11.3
 
  
   Volatility 31.6% 31.6% 31.6% 
  
   Discount rate 2.3% 2.3% 2.3% 
 $419,681
           

(1)Fair value was determined based on transaction pricing or recent acquisition or sale as the best measure of fair value with no material changes in operations of the related portfolio company since the transaction date.
Based on a comparison to similar BDC credit facilities, the terms and conditions of the Holdings Credit Facility and the NMFC Credit Facility (as defined in Note 7,Borrowings) are representative of market. The carrying values of the Holdings Credit Facility and NMFC Credit Facility approximate fair value as of December 31, 2014,2015, as the facilities are continually monitored and examined by both the borrower and the lender. The carrying value of the SBA-guaranteed debentures approximate fair value as of December 31, 20142015 based on a comparisioncomparison of market interest rates for the Company's borrowings and similar entities. The fair value of the Holdings Credit Facility, NMFC Credit Facility and SBA-guaranteed debentures are considered Level III. The fair value of the Convertible Notes (as defined in Note 7,Borrowings) as of December 31, 20142015 was $117,803,$112,988, which was based on quoted prices and considered Level II. See Note 7,Borrowings, for details. The carrying value of the collateralized agreement approximates fair value as of December 31, 20142015 and is considered Level III. The fair value of other financial assets and liabilities approximates their carrying value based on the short-term nature of these items.


Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 4. Fair Value (Continued)

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

Note 5. Agreements

NMF Holdings entered into an investment advisory and management agreement, as amended and restated with the Investment Adviser on May 19, 2011. Until May 8, 2014, under the investment advisory and management agreement, the Investment Adviser managed the day-to-day operations of, and provided investment advisory services to, NMF Holdings. For providing these services, the Investment Adviser received a fee from NMF Holdings, consisting of two components—a base management fee and an incentive fee.


130
Table of Contents
Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)
December 31, 2015
(in thousands, except share data)

On May 6, 2014, the stockholders of NMFC approved a new investment advisory and management agreement (the "Investment Management Agreement") with the Investment Adviser which became effective on May 8, 2014. Under the Investment Management Agreement, the Investment Adviser manages the day-to-day operations of, and provides investment advisory services to, the Company. For providing these services, the Investment Adviser receives a fee from the Company, consisting of two components—a base management fee and an incentive fee.

        ThePursuant to the Investment Management Agreement, the base management fee is calculated at an annual rate of 1.75% of the Company's gross assets, which equals the Company's total assets on the Consolidated Statements of Assets and Liabilities, less (i) the borrowings under the SLF Credit Facility (as defined in Note 7,Borrowings) and (ii) cash and cash equivalents. The base management fee is payable quarterly in arrears, and is calculated based on the average value of the Company's gross assets, which equals the Company's total assets, as determined in accordance with GAAP, less the borrowings under the SLF Credit Facility and cash and cash equivalents at the end of each of the two most recently completed calendar quarters, and appropriately adjusted on a pro rata basis for any equity capital raises or repurchases during the current calendar quarter. The Company has not invested, and currently is not invested, in derivatives. To the extent the Company invests in derivatives in the future, the Company will use the actual value of the derivatives, as reported on the Consolidated Statements of Assets and Liabilities, for purposes of calculating its base management fee.

Since the IPO, the base management fee calculation has deducted the borrowings under the SLF Credit Facility. The SLF Credit Facility hashad historically consisted of primarily lower yielding assets at higher advance rates. As part of an amendment to the Company's existing credit facilities with Wells Fargo Bank, National Association, the SLF Credit Facility merged with the Predecessor Holdings Credit Facility and into the Holdings Credit Facility on December 18, 2014 (as defined in Note 7,Borrowings).


Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 5. Agreements (Continued)

Post credit facility merger and to be consistent with the methodology since the IPO, the Investment AdvisorAdviser will continue to waive management fees on the leverage associated with those assets that share the same underlying yield characteristics with investments leveraged under the legacy SLF Credit Facility.Facility, which as of December 31, 2015 and December 31, 2014 was approximately $304,899 and $313,455, respectively. The Investment AdvisorAdviser cannot recoup management fees that the Investment AdvisorAdviser has previously waived. For the yearyears ended December 31, 2015 and December 31, 2014, management fees waived were approximately $5,219 and $686.

No management fees were waved during the year ended December 31, 2013, as the SLF Credit Facility was in existence during this period.

The incentive fee consists of two parts. The first part is calculated and payable quarterly in arrears and equals 20.0% of the Company's "Pre-Incentive Fee Adjusted Net Investment Income" for the immediately preceding quarter, subject to a "preferred return", or "hurdle", and a "catch-up" feature. "Pre-Incentive Fee Net Investment Income" means interest income, dividend income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, upfront, diligence and consulting fees or other fees that the Company receives from portfolio companies) accrued during the calendar quarter, minus the Company's operating expenses for the quarter (including the base management fee, expenses payable under an administration agreement, as amended and restated (the "Administration Agreement"), with the Administrator, and any interest expense and distributions paid on any issued and outstanding preferred stock (of which there are none as of December 31, 2014)2015), but excluding the incentive fee). Pre-Incentive Fee Net Investment Income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with PIK interest and zero coupon securities), accrued income that the Company has not yet received in cash. Pre-Incentive Fee Net Investment Income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation.

Under GAAP, NMFC's IPO did not step-up the cost basis of the Predecessor Operating Company's existing investments to fair market value at the IPO date. Since the total value of the Predecessor Operating Company's investments at the time of the IPO was greater than the investments' cost basis, a larger amount of amortization of purchase or original issue discount, as well as different amounts in realized gain and unrealized appreciation, may be recognized under GAAP in each period than if the step-up had occurred. This will remain until such predecessor investments are sold, repaid or mature in the future. The Company tracks the transferred (or fair market) value of each of its investments as of the time of the IPO and, for purposes of the incentive fee calculation, adjusts Pre-Incentive Fee Net Investment Income to reflect the amortization of purchase or original issue discount on the Company's investments as if each investment was purchased at the date of the IPO, or stepped up to fair market value. This is defined as "Pre-Incentive Fee Adjusted Net Investment Income". The Company also uses the transferred (or fair market) value of each of its investments as of the time of the IPO to adjust capital gains ("Adjusted Realized Capital Gains") or losses ("Adjusted Realized Capital Losses") and unrealized capital appreciation ("Adjusted Unrealized Capital Appreciation") and unrealized capital depreciation ("Adjusted Unrealized Capital Depreciation").


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Table of Contents
Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)
December 31, 2015
(in thousands, except share data)

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


Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 5. Agreements (Continued)

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

No incentive fee is payable to the Investment Adviser in any calendar quarter in which the 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 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 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 Company's Pre-Incentive Fee Adjusted Net Investment Income as if a hurdle rate did not apply when the Company's Pre-Incentive Fee Adjusted Net Investment Income exceeds 2.5% in any calendar quarter.

•
20.0% of the amount of the 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 Company's Adjusted Realized Capital Gains, if any, on a cumulative basis from inception through the end of each calendar year, computed net of all Adjusted Realized Capital Losses and Adjusted Unrealized Capital Depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fee.

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


Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 5. Agreements (Continued)

The following table summarizes the management fees and incentive fees incurred by the Company for the years ended December 31, 2014,2015, December 31, 20132014 and December 31, 2012.

2013.
 Years Ended December 31,
 2015 2014 2013
Management fee$25,858
 $13,593
 $—
Management fee allocated from NMF Holdings(2)—
 5,983
 11,812
Less: management fee waiver(5,219) (686) —
Total management fee20,639
 18,890
 11,812
Incentive fee, excluding accrued capital gains incentive fees$20,591
 $12,070
 $—
Incentive fee, excluding accrued capital gains incentive fees allocated from NMF Holdings(2)—
 6,248
 13,050
Total incentive fee20,591
 18,318
 13,050
Accrued capital gains incentive fees(1)$—
 $(8,573) $—
Accrued capital gains incentive fees allocated from NMF Holdings(1)(2)—
 2,024
 2,351
Total accrued capital gains incentive fees—
 (6,549) 2,351

 
 Years ended December 31, 
 
 2014 2013 2012 

Management fee

 $13,593 $— $— 

Management fee allocated from NMF Holdings(2)

  5,983  11,812  4,849 

Less: management fee waiver

  (686) —  — 
​​​ ​ ​​ ​ ​​ ​ ​

Total Management fee

  18,890  11,812  4,849 

Incentive fee, excluding accrued capital gains incentive fees

 
$
12,070		 
$
—		 
$
—		 

Incentive fee, excluding accrued capital gains incentive fees allocated from NMF Holdings(2)

  6,248  13,050  5,056 
​​​ ​ ​​​ ​​ ​ ​

Total Incentive fee

  18,318  13,050  5,056 

Accrued capital gains incentive fees(1)

 
$
(8,573
)
$
—		 
$
—		 

Accrued capital gains incentive fees allocated from NMF Holdings(1)(2)

  2,024  2,351  1,977 
​​​ ​ ​​ ​ ​​​ ​

Total Accrued capital gains incentive fees

  (6,549) 2,351  1,977 
(1)
(1)As of December 31, 2015 and December 31, 2014, no actual capital gains incentive fee was owed under the Investment Management Agreement by the Company, as cumulative net Adjusted Realized Capital Gains did not exceed cumulative

132
Table of Contents
Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)
December 31, 2014, no actual capital gains incentive fee was owed under the Investment Management Agreement by the Company, as cumulative net Adjusted Realized Capital Gains did not exceed cumulative 2015
(in thousands, except share data)

Adjusted Unrealized Capital Depreciation. As of December 31, 2013, approximately $1,113 of capital gains incentive fees was owed under the Investment Management Agreement by the Predecessor Operating Company, as cumulative net Adjusted Realized Capital Gains exceeded cumulative Adjusted Unrealized Capital Depreciation and was paid during the year ended December 31, 2014. As of December 31, 2012, no actual capital gains incentive fee was owed under the Investment Management Agreement by the Predecessor Operating Company, as cumulative net Adjusted Realized Capital Gains did not exceed cumulative Adjusted Unrealized Capital Depreciation.

(2)
For the years ended December 31, 2013 and December 31, 2012, the Company is reflecting its proportionate share of the Predecessor Operating Company's management, incentive and capital gains incentive fees. For the years ended December 31, 2013 and December 31, 2012, the management fees at NMF Holdings were $14,905 and $11,109, respectively. For the years ended December 31, 2013 and December 31, 2012, the incentive fee, excluding accrued capital gains incentive fees, at NMF Holdings was $16,502 and $11,537, respectively. For the years ended December 31, 2013, and December 31, 2012 the accrued capital gains incentive fees at NMF Holdings were $3,229 and $4,407, respectively.

(2)For the year ended December 31, 2013, the Company is reflecting its proportionate share of the Predecessor Operating Company's management, incentive and capital gains incentive fees. For the year ended December 31, 2013, the management, incentive and accrued capital gains incentive fees at NMF Holdings were $14,905, $16,502 and $3,229, respectively.

The Company's Consolidated Statements of Operations below are adjusted as if the step-up in cost basis to fair market value had occurred at the IPO date, May 19, 2011.
The following Consolidated Statement of Operations for the year ended December 31, 2015 is adjusted to reflect this step-up to fair market value.
 Year Ended
December 31, 2015		 Stepped-up
Cost Basis
Adjustments		 Adjusted
Year Ended
December 31, 2015
Investment income 
  
  
Interest income(1)$140,074
 $(131) $139,943
Dividend income(2)5,771
 —
 5,771
Other income8,010
 —
 8,010
Total investment income(3)153,855
 (131) 153,724
Total expenses pre-incentive fee(4)50,769
 —
 50,769
Pre-Incentive Fee Net Investment Income103,086
 (131) 102,955
Incentive fee(5)20,591
 —
 20,591
Post-Incentive Fee Net Investment Income82,495
 (131) 82,364
Net realized losses on investments(6)(12,789) (78) (12,867)
Net change in unrealized (depreciation) appreciation of investments(6)(35,272) 209
 (35,063)
Net change in unrealized (depreciation) appreciation of securities purchased under collateralized agreements to resell(296) —
 (296)
Provision for taxes(1,183) —
 (1,183)
Net increase in net assets resulting from operations$32,955
   $32,955

(1)Includes $3,942 in PIK interest from investments.
(2)Includes $2,559 in PIK dividends from investments.
(3)Includes income from non-controlled/non-affiliated investments, non-controlled/affiliated investments and controlled investments.
(4)Includes expense waivers and reimbursements of $733 and management fee waivers of $5,219.
(5)For the year ended December 31, 2015, the Company incurred total incentive fees of $20,591, of which none is related to capital gains incentive fees on a hypothetical liquidation basis.
(6)Includes net realized gains and losses on investments and net change in unrealized (deprecation) appreciation of investments from non-controlled/non-affiliated investments, non-controlled/affiliated investments and controlled investments.


133

Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
2015
(in thousands, except share data)

Note 5. Agreements (Continued)


The following Consolidated StatementsStatement of Operations for the year ended December 31, 2014 is adjusted to reflect this step-up to fair market value.

 Year Ended
December 31, 2014		 
Stepped-up
Cost Basis
Adjustments
 Adjusted
Year Ended
December 31, 2014
Investment income 
  
  
Interest income(1)$85,123
 $(193) $84,930
Dividend income2,309
 —
 2,309
Other income4,491
 —
 4,491
Investment income allocated from NMF Holdings 
  
  
Interest income(1)40,515
 —
 40,515
Dividend income2,368
 —
 2,368
Other income795
 —
 795
Total investment income(2)135,601
 (193) 135,408
Total expenses pre-incentive fee(3)43,766
 —
 43,766
Pre-Incentive Fee Net Investment Income91,835
 (193) 91,642
Incentive fee(4)11,769
 —
 11,769
Post-Incentive Fee Net Investment Income80,066
 (193) 79,873
Net realized gains (losses) on investments357
 (456) (99)
Net realized gains on investment allocated from NMF Holdings8,568
 —
 8,568
Net change in unrealized (depreciation) appreciation of investments(5)(43,863) 649
 (43,214)
Net change in unrealized appreciation (depreciation) of investments allocated from NMF Holdings940
 —
 940
Provision for taxes(493) —
 (493)
Net increase in net assets resulting from operations$45,575
   $45,575

(1)Includes $4,644 in PIK interest from investments.
(2)Includes income from non-controlled/non-affiliated investments.
(3)Includes expense waivers and reimbursements of $1,145 and management fee waivers of $686.
(4)For the year ended December 31, 2014, the Company and the Predecessor Operating Company incurred total incentive fees of $11,769, of which $(6,549) is related to a decrease of the capital gains incentive fee accrual on a hypothetical liquidation basis.
(5)Includes net change in unrealized (depreciation) appreciation of investments from non-controlled/non-affiliated and non-controlled/affiliated investments.

 
 Year Ended
December 31, 2014		 Stepped-up
Cost Basis
Adjustments		 Adjusted Year
Ended December 31, 2014		 

Investment income

          

Interest income(1)

 $85,123 $(193)$84,930 

Dividend income

  2,309  —  2,309 

Other income

  4,491  —  4,491 

Investment income allocated from NMF Holdings

          

Interest income(1)

  40,515  —  40,515 

Dividend income

  2,368  —  2,368 

Other income

  795  —  795 
​​​ ​​​ ​ ​​ ​​

Total investment income(2)

  135,601  (193) 135,408 
​​​ ​ ​​ ​ ​​ ​ ​

Total expenses pre-incentive fee(3)

  43,766  —  43,766 
​​​ ​ ​​ ​​​ ​ ​

Pre-Incentive Fee Net Investment Income

  91,835  (193) 91,642 
​​​ ​​​ ​ ​​ ​​

Incentive fee(4)

  11,769  —  11,769 
​​​ ​ ​​ ​ ​​​ ​

Post-Incentive Fee Net Investment Income

  80,066  (193) 79,873 
​​​ ​ ​​ ​ ​​ ​ ​

Net realized gains (losses) on investments

  357  (456) (99)

Net realized gains on investments allocated from NMF Holdings

  8,568  —  8,568 

Net change in unrealized (depreciation) appreciation of investments(5)

  (43,863) 649  (43,214)

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

  940  —  940 

Provision for taxes

  (493) —  (493)
​​​​ ​​​​​ ​​

Net increase in net assets resulting from operations

 $45,575    $45,575 
​​​ ​ ​​​​​ ​​
​​​​​​​​​​​
​​​ ​ ​​​​​ ​ ​
134
(1)
Includes $4,644 in payment-in-kind interest from investments.

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

(3)
Includes expense waivers and reimbursements of $1,145 and management fee waivers of $686.

(4)
For the year ended December 31, 2014, the Company and Predecessor Operating Company incurred total incentive fees of $11,769, of which $(6,549) is related to a decrease of the capital gains incentive fee accrual on a hypothetical liquidation basis.

(5)
Includes net change in unrealized (deprecation) appreciation of investments from non-controlled/non-affiliated investments and non-controlled/affiliated investments.

Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
2015
(in thousands, except share data)

Note 5. Agreements (Continued)


At December 31, 2013, NMFC's only investment was its investment in the Predecessor Operating Company. The following Consolidated Statement of Operations of the Predecessor Operating Company for the year ended December 31, 2013 is adjusted to reflect this step-up to fair market value.

 Year Ended
December 31, 2013		 
Stepped-up
Cost Basis
Adjustments
 Adjusted
Year Ended
December 31, 2013
Investment income 
  
  
Interest income(1)$107,027
 $(896) $106,131
Dividend income5,049
 —
 5,049
Other income2,836
 —
 2,836
Total investment income114,912
 (896) 114,016
Total expenses pre-incentive fee(2)31,504
 —
 31,504
Pre-Incentive Fee Net Investment Income83,408
 (896) 82,512
Incentive fee(3)19,731
 —
 19,731
Post-Incentive Fee Net Investment Income63,677
 (896) 62,781
Net realized gains (losses) on investments7,253
(4)(3,158) 4,095
Net change in unrealized appreciation (depreciation) of investments7,994
 4,054
 12,048
Net increase in members' capital resulting from operations$78,924
  
 $78,924

(1)Includes $3,428 in PIK interest from investments.
(2)Includes expense waivers and reimbursements of $3,233.
(3)For the year ended December 31, 2013, the Predecessor Operating Company incurred total incentive fees of $19,731, of which $3,229 related to capital gains incentive fees on a hypothetical liquidation basis.
(4)Includes $1,722 of realized gains on investments resulting from the modification of terms on one debt investment that was accounted for as an extinguishment.
 
 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 (depreciation) of investments

  7,994  4,054  12,048 
​​​ ​ ​​​​​ ​ ​

Net increase in members' capital resulting from operations

 $78,924    $78,924 
​​​​ ​​​​​ ​​
​​​​​​​​​​​
​​​ ​ ​​​​​ ​ ​
(1)
Includes $3,428 in payment-in-kind interest from investments.

(2)
Includes expense waivers and reimbursements of $3,233.

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

(4)
Includes $1,722 of realized gains on investments resulting from the modification of terms on one debt investment that was accounted for as an extinguishment.

Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 5. Agreements (Continued)

        At December 31, 2012, NMFC's only investment was its investment in the Predecessor Operating Company. The following Consolidated Statement of Operations of the Predecessor Operating Company for the year ended December 31, 2012 is adjusted to reflect this step-up to fair market value.

 
 Year Ended
December 31, 2012		 Stepped-up
Cost Basis
Adjustments		 Adjusted
Year Ended
December 31, 2012		 

Investment income

          

Interest income(1)

 $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(3)

  15,944  —  15,944 
​​​ ​ ​​​ ​​ ​ ​

Post-Incentive Fee Net Investment Income

  45,217  (3,476) 41,741 
​​​ ​ ​​ ​ ​​​ ​

Net realized gains (losses) on investments

  18,851  (6,958) 11,893 

Net change in unrealized appreciation (depreciation) of investments

  9,928  10,434  20,362 
​​​ ​ ​​​​​ ​ ​

Net increase in members' capital resulting from operations

 $73,996    $73,996 
​​​​ ​​​​​ ​​
​​​​​​​​​​​
​​​ ​ ​​​​​ ​ ​
(1)
Includes $2,240 in payment-in-kind interest from investments.

(2)
Includes expense waivers and reimbursements of $2,460.

(3)
For the year ended December 31, 2012, the Predecessor Operating Company incurred total incentive fees of $15,944, of which $4,407 related to capital gains incentive fees on a hypothetical liquidation basis.

The Company has entered into an Administration Agreement with the Administrator under which the Administrator provides administrative services. The Administrator performs, or oversees the performance of, the Company's consolidated financial records, prepares reports filed with the SEC, generally monitors the payment of the Company's expenses and watches the performance of administrative and professional services rendered by others. The Company will reimburse the Administrator for the Company's allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations to the Company under the Administration Agreement. Pursuant to the Administration Agreement and further restricted by the Company, expenses payable to the Administrator by the Company as well as other direct and indirect expenses (excluding interest, other financing expenses, trading expenses and management and incentive fees) had been capped at $3,500 for the time period from April 1, 2012 to March 31, 2013 and capped at $4,250 for the time period from April 1, 2013 to March 31, 2014. The expense cap expired on March 31, 2014. Thereafter,


Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 5. Agreements (Continued)

the Administrator may, in its own discretion, submit to the Company for reimbursement some or all of the expenses that the Administrator has incurred on behalf of the Company during any quarterly period. As a result, the amount of expenses for which the Company will have to reimburse the Administrator may fluctuate in future quarterly periods and there can be no assurance given as to when, or if, the Administrator may determine to limit the expenses that the Administrator submits to the Company for reimbursement in the future. However, it is expected that the Administrator will continue to support part of the expense burden of the Company in the near future and may decide to not calculate and charge through certain overhead related amounts as well as continue to cover some of the indirect costs. The Administrator cannot recoup any expenses that the Administrator has previously waived. For the year ended December 31, 2014, approximately $1,395 of indirect administrative expenses were included in administrative expenses of which $770 of indirect administrative expenses were waived by the Administrator. As of December 31, 2014, $326 of indirect administrative expenses were included in payable to affiliates as the expenses were payable to the Administrator.

        The Predecessor Operating Company had revised its presentation of expenses and expense waivers and reimbursements for the year ended December 31, 2012. 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 Company incurred the following expenses, which were waived by the Administrator or were in excess of the expense cap, for the years ended December 31, 2014, December 31, 2013 and December 31, 2012:

 
 Years ended December 31, 
 
 2014 2013 2012 

Administrative expenses

 $380 $— $— 

Administrative expenses allocated from NMF Holdings

  390  1,180  554 

Professional fees

  —  —  — 

Professional fees allocated from NMF Holdings

  375  1,360  583 

Other general and administrative expenses

  —  —  — 

Other general and administrative expenses allocated from NMF Holdings

  —  —  — 
​​​ ​ ​​ ​ ​​​ ​

Total expense reimbursement

 $1,145 $2,540 $1,137 
​​​ ​ ​​ ​​​ ​ ​
​​​​​​​​​​​
​​​ ​ ​​ ​ ​​​ ​

        As of December 31, 2014, no expense waivers and reimbursements were receivable from an affiliate. As of December 31, 2013 and December 31, 2012, $399 and $305, respectively, of the expense waivers and reimbursements were allocated from NMF Holdings and were receivable by NMF Holdings from an affiliate.

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


Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 5. Agreements (Continued)

names. Under the Trademark License Agreement, as amended, subject to certain conditions, the Company, the Investment Adviser and the Administrator will have a right to use the "New Mountain" and "New Mountain Finance" names, for so long as the Investment Adviser or one of its affiliates remains the investment adviser of the Company. Other than with respect to this limited license, the Company, the Investment Adviser and the Administrator will have no legal right to the "New Mountain" or the "New Mountain Finance" names.

        NMFC entered into a Registration Rights Agreement with Steven B. Klinsky (the Chairman of the Company's board of directors), an entity related to Steven B. Klinsky and the Investment Adviser. Subject to several exceptions, the Investment Adviser has 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 the Investment Adviser and any of their transferees. The rights under the Registration Rights Agreement can be conditionally exercised by the Investment Adviser, meaning that prior to the effectiveness of the registration statement related to the shares, the Investment Adviser can withdraw its request to have the shares registered. Investment Adviser may assign its rights to any person that acquires registerable securities subject to the Registration Rights Agreement and who agrees to be 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. Shares held by Steven B. Klinsky were registered on a shelf registration statement on Form N-2.

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

        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 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. 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.


Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 6. Related Parties

        The Company has entered into a number of business relationships with affiliated or related parties.

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

        The Company has entered into an Administration Agreement with the Administrator, a wholly-owned subsidiary of New Mountain Capital. The Administrator arranges office space for the Company and provides office equipment and administrative services necessary to conduct their respective day-to-day operations pursuant to the Administration Agreement. The Company reimburses the Administrator for the allocable portion of overhead and other expenses incurred by it in performing its obligations to the Company under the Administration Agreement which includes the fees and expenses associated with performing administrative, finance and compliance functions, and the compensation of the Company's chief financial officer and chief compliance officer and their respective staffs. Pursuant to the Administration Agreement and further restricted by the Company, expenses payable to the Administrator by the Company as well as other direct and indirect expenses (excluding interest, other financing expenses, trading expenses and management and incentive fees) had been capped at $3,500 for the time period from April 1, 2012 to March 31, 2013 and capped at $4,250 for the time period from April 1, 2013 to March 31, 2014. The expense cap expired on March 31, 2014. Thereafter, the Administrator may, in its own discretion, submit to the Company for reimbursement some or all of the expenses that the Administrator has incurred on behalf of the Company during any quarterly period. As a result, the amount of expenses for which the Company will have to reimburse the Administrator may fluctuate in future quarterly periods and there can be no assurance given as to when, or if, the Administrator may determine to limit the expenses that the Administrator submits to the Company for reimbursement in the future. However, it is expected that the Administrator will continue to support part of the expense burden of the Company in the near future and may decide to not calculate and charge through certain overhead related amounts as well as continue to cover some of the indirect costs. The Administrator cannot recoup any expenses that the Administrator has previously waived. For the yearyears ended December 31, 2015, December 31, 2014 and December 31, 2013, approximately $1,431, $1,395 and $1,180, respectively, of indirect administrative expenses were included in administrative expenses of which $733, $770 and $1,180, respectively, of indirect administrative expenses were waived by the Administrator. As of December 31, 2015 and December 31, 2014, $374 and $326, respectively, of indirect administrative expenses were included in payable to affiliates as the expenses were payable to the Administrator.


135
Table of Contents
Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)
December 31, 2015
(in thousands, except share data)

The Company incurred the following expenses, which were waived by the Administrator or were in excess of the expense cap, for the years ended December 31, 2015, December 31, 2014 and December 31, 2013:
 Years Ended December 31,
 2015 2014 2013
Administrative expenses$733
 $380
 $—
Administrative expenses allocated from NMF Holdings—
 390
 1,180
Professional fees—
 —
 —
Professional fees allocated from NMF Holdings—
 375
 1,360
Other general and administrative expenses—
 —
 —
Other general and administrative expenses allocated from NMF Holdings—
 —
 —
Total expense reimbursement$733
 $1,145
 $2,540
As of December 31, 2015 and December 31, 2014, no expense waivers and reimbursements were receivable from an affiliate. As of December 31, 2013, $399 of the expense waivers and reimbursements were allocated from NMF Holdings and were receivable by NMF Holdings from an affiliate.
The Company, the Investment Adviser and the Administrator have also entered into a Trademark License Agreement, as amended, with New Mountain Capital, pursuant to which New Mountain Capital has agreed to grant the Company, the Investment Adviser and the Administrator, a non-exclusive, royalty-free license to use the "New Mountain" and the "New Mountain Finance" names. Under the Trademark License Agreement, as amended, subject to certain conditions, the Company, the Investment Adviser and the Administrator will have a right to use the "New Mountain" and "New Mountain Finance" names, for so long as the Investment Adviser or one of its affiliates remains the investment adviser of the Company. Other than with respect to this limited license, the Company, the Investment Adviser and the Administrator will have no legal right to the "New Mountain" or the "New Mountain Finance" names.
Note 6. Related Parties
The Company has entered into a number of business relationships with affiliated or related parties.
The Company has entered into the Investment Management Agreement with the Investment Adviser, a wholly-owned subsidiary of New Mountain Capital. Therefore, New Mountain Capital is entitled to any profits earned by the Investment Adviser, which includes any fees payable to the Investment Adviser under the terms of the Investment Management Agreement, less expenses incurred by the Investment Adviser in performing its services under the Investment Management Agreement.
The Company has entered into an Administration Agreement with the Administrator, a wholly-owned subsidiary of New Mountain Capital. The Administrator arranges office space for the Company and provides office equipment and administrative services necessary to conduct their respective day-to-day operations pursuant to the Administration Agreement. The Company reimburses the Administrator for the allocable portion of overhead and other expenses incurred by it in performing its obligations to the Company under the Administration Agreement which includes the fees and expenses associated with performing administrative, finance and compliance functions, and the compensation of the Company's chief financial officer and chief compliance officer and their respective staffs.
The Company, the Investment Adviser and the Administrator have entered into a royalty-free Trademark License Agreement, as amended, with New Mountain Capital, pursuant to which New Mountain Capital has agreed to grant the Company, the Investment Adviser and the Administrator, a non-exclusive, royalty-free license to use the name "New Mountain" and "New Mountain Finance".

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

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


Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 6. Related Parties (Continued)

The Investment Adviser and its affiliates may determine that an investment is appropriate for the Company or for one or more of those other funds. In such


136
Table of Contents
Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)
December 31, 2015
(in thousands, except share data)

event, depending on the availability of such investment and other appropriate factors, the Investment Adviser or its affiliates may determine that the Company should invest side-by-side with one or more other funds. Any such investments will be made only to the extent permitted by applicable law and interpretive positions of the SEC and its staff and consistent with the Investment Adviser's allocation procedures.

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

Note 7. Borrowings

Holdings Credit Facility—On December 18, 2014 the Company entered into the Second Amended and Restated Loan and Security Agreement (the "Holdings Credit Facility"), among the Company, as the Collateral Manager, NMF Holdings as the Borrower, Wells Fargo Securities, LLC as the Administrative Agent and Wells Fargo Bank, National Association, as the Lender and Collateral Custodian, which is structured as a revolving credit facility and matures on December 18, 2019.

Immediately prior to amending the Holdings Credit Facility, NMF SPVSLF merged with and into NMF Holdings. The Holdings Credit Facility effectively amended and restated the Predecessor Holdings Credit Facility (as defined below), merged with the SLF Credit Facility (as defined below), and combined the amount of borrowings previously available.

The maximum amount of revolving borrowings available under the Holdings Credit Facility is $495,000, which is the aggregate of the $280,000 previously available under the Predecessor Holdings Credit Facility (as defined below) and the $215,000 previously available under the SLF Credit Facility (as defined below). Under the Holdings Credit Facility, NMF Holdings is still permitted to borrow up to 25.0%, 45.0% or 70.0% of the purchase price of pledged assets, subject to approval by the Wells Fargo Securities, LLC. The Holdings Credit Facility is non-recourse to the Company and is collateralized by all of the investments of NMF Holdings on an investment by investment basis. All fees associated with the origination or upsizing of the Holdings Credit Facility are capitalized on the Company's Consolidated Statement of Assets and Liabilities and charged against income as other financing expenses over the life of the Holdings Credit Facility. The Holdings Credit Facility contains certain customary affirmative and negative covenants and events of default. In addition, the Holdings Credit Facility requires the Company to maintain a minimum asset coverage ratio. The covenants are generally not tied to mark to market fluctuations in the prices of NMF Holdings investments, but rather to the performance of the underlying portfolio companies.

The Holdings Credit Facility bears interest at a rate of the LIBORLondon Interbank Offered Rate ("LIBOR") plus 2.00% per annum for Broadly Syndicated Loans (as defined in the Loan and Security Agreement) and LIBOR plus 2.75% per annum for all other investments. The Holdings Credit Facility also charges a non-usage fee, based on the unused facility amount multiplied by the Non-Usage Fee Rate (as defined in the Loan and Security Agreement).


Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 7. Borrowings (Continued)

Prior to December 18, 2014, the Loan and Security Agreement, as amended and restated, dated May 19, 2011 (the "Predecessor Holdings Credit Facility") among NMF Holdings as the Borrower and Collateral Administrator, Wells Fargo Securities, LLC as the Administrative Agent, and Wells Fargo Bank, National Association, as the Collateral Custodian, was structured as a revolving credit facility and would mature on October 27, 2016. NMF Holdings became a party to the Predecessor Holdings Credit Facility upon the IPO of NMFC. The Predecessor Holdings Credit Facility amended and restated the credit facility of the Predecessor Entities (the "Predecessor Credit Facility").

The maximum amount of revolving borrowings available under the Predecessor Holdings Credit Facility was $280,000. Until December 18, 2014, NMF Holdings was permitted to borrow up to 45.0% or 25.0% of the purchase price of pledged first lien or non-first lien debt securities, and up to 70.0% and 45.0% of the purchase price of specified first lien debt securities and specified non-first lien debt securities, respectively, subject to approval by Wells Fargo Bank, National Association. The Predecessor Holdings Credit Facility was amended and restated on May 6, 2014 and as a result, it was non-recourse to the Company and was collateralized by all of the investments of NMF Holdings on an investment by investment basis. All fees associated with the origination or upsizing of the Predecessor Holdings Credit Facility waswere capitalized on the Company's Consolidated Statement of Assets and Liabilities and charged against income as other financing expenses over the life of the Predecessor Holdings Credit Facility. The Predecessor Holdings Credit Facility contained certain customary affirmative and negative covenants and events of default, including the occurrence of a change in control. In addition, the Predecessor Holdings Credit Facility required the Company to maintain a minimum asset coverage ratio. However, the covenants were generally not tied to mark to market fluctuations in the prices of NMF Holdings' investments, but rather to the performance of the underlying portfolio companies.


137
Table of Contents
Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)
December 31, 2015
(in thousands, except share data)

The Predecessor Holdings Credit Facility bore interest at a rate of the London Interbank Offered Rate ("LIBOR")LIBOR plus 2.75% per annum and charged a non-usage fee, based on the unused facility amount multiplied by the Non-Usage Fee Rate (as defined in the Loan and Security Agreement).

The following table summarizes the interest expense, and non-usage fees and amortization of financing costs incurred, together, on the Holdings Credit Facility and the Predecessor Holdings Credit Facility for the years ended December 31, 2014,2015, December 31, 20132014 and December 31, 2012.

2013.


 Years ended December 31, Years Ended December 31,

 2014 2013 2012 2015 2014 2013

Interest expense

 $7,147 $5,487 $4,172 $10,512
 $7,147
 $5,487

Non-usage fee

 $243 $367 $281 $500
 $243
 $367

Amortization of financing costs

 $893 $682 $413 $1,612
 $893
 $682

Weighted average interest rate

 2.9% 2.9% 3.1%2.6% 2.9% 2.9%

Effective interest rate

 3.4% 3.6% 3.6%3.2% 3.4% 3.6%

Average debt outstanding

 $244,598 $184,124 $133,600 $394,945
 $244,598
 $184,124

As of December 31, 2015 and December 31, 2014, the outstanding balance on the Holdings Credit Facility was $419,313 and $468,108, respectively, and as of December 31, 2013, and December 31, 2012, the outstanding balance on the Predecessor Holdings Credit Facility was $221,849, and $206,938, respectively, and NMF Holdings was in compliance


Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 7. Borrowings (Continued)

with the applicable covenants in the Holdings Credit Facility and Predecessor Holdings Credit Facility on such dates.

SLF Credit Facility—NMF SLF's Loan and Security Agreement, as amended and restated, dated October 27, 2010 (the "SLF Credit Facility") among NMF SLF as the Borrower, NMF Holdings as the Collateral Administrator, Wells Fargo Securities, LLC as the Administrative Agent, and Wells Fargo Bank, National Association, as the Collateral Custodian, was structured as a revolving credit facility and wouldwas set to mature on October 27, 2016. The maximum amount of revolving borrowings available under the SLF Credit Facility was $215,000. The SLF Credit Facility was non-recourse to the Company and secured by all assets of NMF SLF on an investment by investment basis. All fees associated with the origination or upsizing of the SLF Credit Facility were capitalized on the Company's Consolidated Statement of Assets and Liabilities and charged against income as other financing expenses over the life of the SLF Credit Facility. The SLF Credit Facility containdcontained certain customary affirmative and negative covenants and events of default, including the occurrence of a change in control. The covenants were generally not tied to mark to market fluctuations in the prices of NMF SLF's investments, but rather to the performance of the underlying portfolio companies. NMF SLF was not restricted from the purchase or sale of loans with an affiliate. Therefore, specified loans could be moved as collateral between the Holdings Credit Facility and the SLF Credit Facility. The SLF Credit Facility merged with the Holdings Credit Facility on December 18, 2014.

Until December 18, 2014, the SLF Credit Facility permitted borrowings of up to 70.0% of the purchase price of pledged first lien debt securities and up to 25.0% of the purchase price of specified second lien loans, of which, up to 25.0% of the aggregate outstanding loan balance of all pledged debt securities in the SLF Credit Facility was allowed to be derived from second lien loans, subject to approval by Wells Fargo Bank, National Association.

The SLF Credit Facility bore interest at a rate of LIBOR plus 2.00% per annum for first lien loans and LIBOR plus 2.75% per annum for second lien loans, respectively. A non-usage fee was paid, based on the unused facility amount multiplied by the Non-Usage Fee Rate (as defined in the Loan and Security Agreement).


138
Table of Contents
Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)
December 31, 2015
(in thousands, except share data)

The following table summarizes the interest expense, and non-usage fees and amortization of financing costs incurred on the SLF Credit Facility for the period January 1, 2014 to December 17, 2014 (date of SLF Credit Facility merger with and into the Holdings Credit Facility) and for the years ended December 31, 20132015, December 31, 2014 and December 31, 2012.

2013.


 January 1,
2014 to
December 17,
2014 (date of
merger)		 Years ended
December 31,		 Years Ended December 31,

 2013 2012 2015(1) 2014(2) 2013

Interest expense

 $4,549 $4,891 $4,274 $—
 $4,549
 $4,891

Non-usage fee

 $28 $3 $22 $—
 $28
 $3

Amortization of financing costs

 $846 $864 $747 $—
 $846
 $864

Weighted average interest rate

 2.2% 2.3% 2.3%—% 2.2% 2.3%

Effective interest rate

 2.6% 2.7% 2.8%—% 2.6% 2.7%

Average debt outstanding

 $209,333 $214,317 $181,395 $—
 $209,333
 $214,317

(1)Not applicable, as the SLF Credit Facility merged with and into the Holdings Credit Facility on December 18, 2014.
(2)For the year ended December 31, 2014, amounts reported relate to the period from January 1, 2014 to December 17, 2014 (date of merger).

TableAs of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 7. Borrowings (Continued)

        As of2015 and December 31, 2014, the SLF Credit Facility had merged with the Holdings Credit Facility. As of December 31, 2013, and December 31, 2012, the outstanding balance on the SLF Credit Facility was $214,668, and $214,262, respectively, and NMF SLF was in compliance with the applicable covenants in the SLF Credit Facility on such dates.

date.

NMFC Credit Facility—The Senior Secured Revolving Credit Agreement, as amended, dated June 4, 2014 (together with the related guarantee and security agreement, the "NMFC Credit Facility"), among the Company as the Borrower, and Goldman Sachs Bank USA as the Administrative Agent and Collateral Agent, and Goldman Sachs Bank USA, and Morgan Stanley Bank, N.A. and Stifel Bank & Trust as Lenders, is structured as a senior secured revolving credit facility and matures on June 4, 2019. The NMFC Credit Facility is guaranteed by certain domestic subsidiaries of the Company and proceeds from the NMFC Credit Facility may be used for general corporate purposes, including the funding of portfolio investments.

The maximum amount of revolving borrowings available under the NMFC Credit Facility is $80,000,$95,000, as amended on December 29, 2014.June 26, 2015. The Company is permitted to borrow at various advance rates depending on the type of portfolio investment as outlined in the Senior Secured Revolving Credit Agreement. All fees associated with the origination of the NMFC Credit Facility are capitalized on the Company's Consolidated Statement of Assets and Liabilities and charged against income as other financing expenses over the life of the NMFC Credit Facility. The NMFC Credit Facility contains certain customary affirmative and negative covenants and events of default, including certain financial covenants related to asset coverage and liquidity and other maintenance covenants.

The NMFC Credit Facility will generally bearbears interest at a rate of LIBOR plus 2.50% per annum or the prime rate plus 1.50% per annum, and charges a commitment fee, based on the unused facility amount multiplied by 0.375% per annum (as defined in the Senior Secured Revolving Credit Agreement).


139
Table of Contents
Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)
December 31, 2015
(in thousands, except share data)

The following table summarizes the interest expense, and non-usage fees and amortization of financing costs incurred on the NMFC Credit Facility for the period June 4, 2014 (commencement of the NMFC Credit Facility) toyears ended December 31, 2015, December 31, 2014 and for the years ended December 31, 2013 and2013.
 Years Ended December 31,
 2015 2014(1) 2013(2)
Interest expense$1,653
 $175
 $—
Non-usage fee$104
 $86
 $—
Amortization of financing costs$360
 $121
 $—
Weighted average interest rate2.7% 2.7% —%
Effective interest rate3.5% 3.4% —%
Average debt outstanding$60,477
 $11,227
 $—

(1)For the year ended December 31, 2014, amounts reported relate to the period from June 4, 2014 (commencement of the NMFC Credit Facility) to December 31, 2014.
(2)Not applicable, as the NMFC Credit Facility commenced on June 4, 2014.
As of December 31, 2012.

 
  
 Years ended
December 31,		 
 
 June 4, 2014
(commencement of
facility) to
December 31, 2014		 
 
 2013(1) 2012(1) 

Interest expense

 $175 $— $— 

Non-usage fee

 $86 $— $— 

Amortization of financing costs

 $121 $— $— 

Weighted average interest rate

  2.7% —% —%

Effective interest rate

  3.4% —% —%

Average debt outstanding

 $11,227 $— $— 
(1)
Not applicable, as the NMFC Credit Facility commenced on June 4, 2014.

        As of2015 and December 31, 2014, the outstanding balance on the NMFC Credit Facility was $90,000 and $50,000, respectively, and NMFC was in compliance with the applicable covenants in the NMFC Credit Facility on such dates.


Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 7. Borrowings (Continued)

Convertible Notes—On June 3, 2014, the Company closed a private offering of $115,000 aggregate principal amount of senior unsecured convertible notes (the "Convertible Notes"), pursuant to an indenture, dated June 3, 2014 (the "Indenture"). The Convertible Notes were issued in a private placement only to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933. As of the first anniversary, June 3, 2015, of the Convertible Notes, the restrictions under Rule 144A under the Securities Act of 1933 were removed, allowing the Convertible Notes to be eligible and freely tradable without restrictions for resale pursuant to Rule 144(b)(1) under the Securities Act of 1933. The Convertible Notes bear interest at an annual rate of 5.0%, payable semi-annually in arrears on June 15 and December 15 of each year, commencingwhich commenced on December 15, 2014. The Convertible Notes will mature on June 15, 2019 unless earlier converted or repurchased at the holder's option.

The following table summarizes certain key terms related to the convertible features of the Company’s Convertible Notes will be convertible by the holders into sharesas of common stock, initially at aDecember 31, 2015.
 December 31, 2015
Initial conversion premium12.5%
Initial conversion rate(1)62.7746
Initial conversion price$15.93
Conversion premium at December 31, 201511.7%
Conversion rate at December 31, 2015(1)(2)63.2794
Conversion price at December 31, 2015(2)(3)$15.80
Last conversion price calculation dateJune 3, 2015

(1)Conversion rates denominated in shares of common stock per $1 principal amount of the Convertible Notes converted.
(2)Represents conversion rate and conversion price, as applicable, taking into account certain de minimis adjustments that will be made on the conversion date.
(3)The conversion price in effect at December 31, 2015 was calculated on the last anniversary of the issuance and will be adjusted again on the next anniversary, unless the exercise price shall have changed by more than 1.0% before the anniversary.

140
Table of 62.7746 shares of the Company's common stock per $1 principal amount of Convertible Contents
Notes (7,219,083 common shares) corresponding to an initial conversion price per share of approximately $15.93, which represents a premium of 12.5% to the $14.16 perConsolidated Financial Statements of
New Mountain Finance Corporation (Continued)
December 31, 2015
(in thousands, except share closing price of the Company's common stock on May 28, 2014. data)

The conversion rate will be subject to adjustment upon certain events, such as stock splits and combinations, mergers, spin-offs, increases in dividends in excess of $0.34 per share per quarter and certain changes in control. Certain of these adjustments, including adjustments for increases in dividends, are subject to a conversion price floor of $14.16 per share. In no event will the total number of shares of common stock issuable upon conversion exceed 70.6214 per $1 principal amount of the Convertible Notes. The Company has determined that the embedded conversion option in the Convertible Notes is not required to be separately accounted for as a derivative under GAAP.

The Convertible Notes are senior unsecured obligations and rank senior in right of payment to the Company'sCompany’s existing and future indebtedness that is expressly subordinated in right of payment to the Convertible Notes; equal in right of payment to the Company'sCompany’s existing and future unsecured indebtedness that is not so subordinated; effectively junior in right of payment to any of the Company'sCompany’s secured indebtedness (including existing unsecured indebtedness that the Company later secures) to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness (including trade payables) incurred by the Company'sCompany’s subsidiaries and financing vehicles. As more reflected in Note 12,Earnings Per Share, the issuance is to be considered as part of the if-converted method for calculation of diluted earnings per share.

The Company may not redeem the Convertible Notes prior to maturity. No sinking fund is provided for the Convertible Notes. In addition, if certain corporate events occur in respect of the Company, holders of the Convertible Notes may require the Company to repurchase for cash all or part of their Convertible Notes at a repurchase price equal to 100.0% of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest through, but excluding, the repurchase date.

The Indenture contains certain covenants, including covenants requiring the Company to provide financial information to the holders of the Convertible Note and the Trustee if the Company ceases to be subject to the reporting requirements of the Exchange Act. These covenants are subject to limitations and exceptions that are described in the Indenture. As of December 31, 2014,
The following table summarizes the Company was in compliance with the terms of the Indenture.

        Interestinterest expense and amortization of financing costs incurred on the Convertible Notes for the yearyears ended December 31, 2014 was $3,322 and $432, respectively. The effective interest rate for the year ended2015, December 31, 2014 was 5.6%.

and December 31, 2013.

 Years Ended December 31,
 2015 2014(1) 2013(2)
Interest expense$5,750
 $3,322
 $—
Amortization of financing costs$743
 $432
 $—
Effective interest rate5.6% 5.6% —%

Table

(1)For the year ended December 31, 2014, amounts reported relate to the period from June 3, 2014 (commencement of the Convertible Notes) to December 31, 2014.
(2)Not applicable, as the Convertible Notes commenced on June 3, 2014.
As of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2015 and December 31, 2014,
( the outstanding balance on the Convertible Notes was $115,000 and $115,000, respectively, and NMFC was in thousands, except share data)

compliance with the terms of the Indenture on such dates.

Note 7. Borrowings (Continued)

SBA-guaranteed debentures—On August 1, 2014, SBIC LP received an SBIC license from the SBA.

The SBIC license allows SBIC LP to obtain leverage by issuing SBA-guaranteed debentures, subject to the issuance of a capital commitment by the SBA and other customary procedures. SBA-guaranteed debentures are non-recourse to the Company, interest only debentures with interest payable semi-annually and have a ten year maturity. The principal amount of SBA-guaranteed debentures is not required to be paid prior to maturity but may be prepaid at any time without penalty. The interest rate of SBA-guaranteed debentures is fixed on a semi-annual basis at a market-driven spread over U.S. Treasury Notes with ten year maturities. The SBA, as a creditor, will have a superior claim to the assets of SBIC LP over the Company's stockholders in the event SBIC LP is liquidated or the SBA exercises remedies upon an event of default.

The maximum amount of borrowings available under current SBA regulations is $150,000 as long as the licensee has at least $75,000 in regulatory capital, receives a capital commitment from the SBA and has been through an examination by the SBA subsequent to licensing.


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Table of Contents
Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)
December 31, 2015
(in thousands, except share data)

As of December 31, 2015 and December 31, 2014, SBIC LP had regulatory capital of approximately $72,402 and $42,168, respectively, and SBA-guaranteed debentures outstanding of $37,500.$117,745 and $37,500, respectively. The SBA-guaranteed debentures incur upfront fees of 3.43%3.425%, which consists of a 1.00% commitment fee and a 2.43%2.425% issuance discount, which are amortized over the life of the SBA-guaranteed debentures. AsThe following table summarizes the Company's SBA-guaranteed debentures as of December 31, 2014, SBIC LP's2015.
Issuance Date Maturity Date Debenture Amount Interest Rate SBA Annual Charge
Fixed SBA-guaranteed debentures:    
  
  
March 25, 2015 March 1, 2025 $37,500
 2.517% 0.355%
September 23, 2015 September 1, 2025 37,500
 2.829% 0.355%
September 23, 2015 September 1, 2025 28,795
 2.829% 0.742%
Interim SBA-guaranteed debentures:        
  March 1, 2026(1) 7,000
 0.760% 0.742%

 March 1, 2026(1) 6,950
 0.887% 0.742%
Total SBA-guaranteed debentures   $117,745
  
  

(1)Estimated maturity date as interim SBA-guaranteed debentures are expected to pool in March 2016.
Prior to pooling, the SBA-guaranteed debentures are set to pool in March 2015 and until pooling bear interest at an interim floating rate of LIBOR plus 0.30%. InterestOnce pooled, which occurs in March and September each year, the SBA-guaranteed debentures bear interest at a fixed rate that is set to the current 10-year treasury rate plus a spread at each pooling date.
The following table summarizes the interest expense and amortization of financing costs incurred on the SBA-guaranteed debentures for the yearyears ended December 31, 2015, December 31, 2014 was $34 and $12, respectively.December 31, 2013.
 Years Ended December 31,
 2015 2014(1) 2013(2)
Interest expense$1,701
 $34
 $—
Amortization of financing costs$240
 $12
 $—
Weighted average interest rate2.4% 0.9% —%
Effective interest rate2.7% 1.3% —%
Average debt outstanding$71,921
 $29,167
 $—

(1)For the year ended December 31, 2014, amounts reported relate to the period from August 1, 2014 (receipt of the SBIC license) to December 31, 2014. The initial SBA-guaranteed debenture borrowing occurred on November 17, 2014.
(2)Not applicable, as the SBIC LP received an SBIC license from the SBA on August 1, 2014.

The SBIC program is designed to stimulate the flow of private investor capital into eligible small businesses, as defined by the SBA. Under SBA regulations, SBIC LP is subject to regulatory requirements, including making investments in SBA-eligible businesses, investing at least 25.0% of its investment capital in eligible smaller businesses, as defined under the 1958 Act, placing certain limitations on the financing terms of investments, regulating the types of financing, prohibiting investments in small businesses with certain characteristics or in certain industries and requiring capitalization thresholds that limit distributions to the Company. SBIC LP is subject to an annual periodic examination by an SBA examiner to determine SBIC LP's compliance with the relevant SBA regulations and an annual financial audit of its financial statements that are prepared on a basis of accounting other than GAAP (such as ASC 820) by an independent auditor. As of December 31, 2015 and December 31, 2014, SBIC LP was in compliance with SBA regulatory requirements.

Leverage risk factors—The Company utilizes and may utilize leverage to the maximum extent permitted by the law for investment and other general business purposes. The Company's lenders will have fixed dollar claims on certain assets that are superior to the claims of the Company's common stockholders, and the Company would expect such lenders to seek recovery against these assets in the event of a default. The use of leverage also magnifies the potential for gain or loss on

142
Table of Contents
Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)
December 31, 2015
(in thousands, except share data)

amounts invested. Leverage may magnify interest rate risk (particularly on the Company's fixed-rate investments), which is the risk that the prices of portfolio investments will fall or rise if market interest rates for those types of securities rise or fall. As a result, leverage may cause greater changes in the Company's net asset value. Similarly, leverage may cause a sharper decline in the Company's income


Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 7. Borrowings (Continued)

than if the Company had not borrowed. Such a decline could negatively affect the Company's ability to make dividend payments to its stockholders. Leverage is generally considered a speculative investment technique. The Company's ability to service any debt incurred will depend largely on financial performance and will be subject to prevailing economic conditions and competitive pressures.

Note 8. Regulation

The Company has elected to be treated, and intends to comply with the requirements to continue to qualify annually, as a RIC under Subchapter M of the Code. In order to continue to qualify as a RIC, among other things, the Company is required to timely distribute to its stockholders at least 90.0% of investment company taxable income, as defined by the Code, for each year. The Company, among other things, intends to make and will continue to make the requisite distributions to its stockholders, which will generally relieve the Company from U.S. federal, state, and local income taxes (excluding excise taxes which may be imposed under the Code).

Additionally as a BDC, the Company must not acquire any assets other than "qualifying assets" specified in the 1940 Act unless, at the time the acquisition is made, at least 70.0% of its total assets are qualifying assets (with certain limited exceptions).

Note 9. Commitments and Contingencies

In the normal course of business, the Company may enter into contracts that contain a variety of representations and warranties and which provide general indemnifications. The Company may also enter into future funding commitments such as revolving credit facilities, bridge financing commitments or delayed draw commitments. As of December 31, 2015, the Company had unfunded commitments on revolving credit facilities of $17,576, no outstanding bridge financing commitments and other future funding commitments of $8,678. As of December 31, 2014, the Company had unfunded commitments on revolving credit facilities of $8,948, no outstanding bridge financing commitments and other future funding commitments of $18,475. The unfunded commitments on revolving credit facilities and a delayed drawdraws are disclosed on the Company's respective Consolidated ScheduleSchedules of Investments. As of December 31, 2013, the Company's only investment was its investment in the Predecessor Operating Company. As of December 31, 2013, the Predecessor Operating Company had unfunded commitments on revolving credit facilities of $15,500 and no outstanding bridge financing commitments or other future funding commitments, all of which were disclosed on NMF Holdings' Consolidated Schedule of Investments.

The Company also has revolving borrowings available under the Holdings Credit Facility and the NMFC Credit Facility as of December 31, 2015 and December 31, 2014. See Note 7,Borrowings, for details.

The Company may from time to time enter into financing commitment letters. As of December 31, 2015 and December 31, 2014, the Company did not enter into any commitment letters to purchase debt investments which could require funding in the future. As of December 31, 2013, the Company's only investment was its investment in the Predecessor Operating Company. As of December 31, 2013, the Predecessor Operating Company did not enter into any commitment letters to purchase debt investments, which could require funding in the future.


Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

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, 2014,2015, December 31, 20132014 and December 31, 2012,2013, the Company's reclassifications of amounts for book purposes arising from permanent book/tax differences related to return of capital distributions were as follows:


 Years ended December 31, Years Ended December 31,

 2014 2013 2012 2015 2014 2013

Undistributed net investment income

 $(6,171)$— $— $141
 $(6,171) $—

Distributions in excess of net realized gains

 6,397 — — —
 6,397
 —

Additional paid-in-capital

 (226) — — (141) (226) —


143
Table of Contents
Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)
December 31, 2015
(in thousands, except share data)

For U.S. federal income tax purposes, distributions paid to stockholders of the Company are reported as ordinary income, return of capital, long term capital gains or a combination thereof. The tax character of distributions paid by the Company for the years ended December 31, 2014,2015, December 31, 20132014 and December 31, 20122013 were estimated to be as follows:


 Years ended December 31, Years Ended December 31,

 2014 2013 2012 2015 2014 2013

Ordinary income (non-qualified)

 $73,968 $44,778 $26,218 $80,967
 $73,968
 $44,778

Ordinary income (qualified)

 664 2,742 — —
 664
 2,742

Capital gains

 2,754 4,324 501 —
 2,754
 4,324

Return of capital

 226 — — 35
 226
 —
​​​ ​​ ​ ​​ ​ ​

Total

 $77,612 $51,844 $26,719 $81,002
 $77,612
 $51,844

As of December 31, 2014,2015, December 31, 20132014 and December 31, 2012,2013, the costs of investments for the Company for tax purposes were $1,587,189, $1,474,075 and $642,704, and $343,248, respectively.

At December 31, 2014,2015, December 31, 20132014 and December 31, 2012,2013, the components of distributable earnings on a tax basis differ from the amounts reflected per the Company's Consolidated Statements of Assets and Liabilities by temporary book/tax differences primarily arising from differences between the tax and book basis of the Company's investment in securities held directly as well as through the Predecessor Operating Company and undistributed income.


Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 10. Distributions (Continued)

As of December 31, 2014,2015, December 31, 20132014 and December 31, 2012,2013, the Company's components of accumulated earnings / (deficit) on a tax basis were as follows:

 Years Ended December 31,
 2015 2014 2013
Accumulated capital gains (capital loss carryforwards)$(19,081) $—
 $—
Other temporary differences2,991
 4,775
 10,070
Undistributed ordinary income—
 —
 3,856
Unrealized (appreciation) depreciation(57,424) (30,383)(1)2,346
Total$(73,514) $(25,608) $16,272

(1)Prior to the Restructuring, the Company's only investment was its investment in the Predecessor Operating Company. After the Restructuring, the Company directly holds the Predecessor Operating Company's investments. As a result, included in unrealized (appreciation) depreciation is $(10,069) of timing differences attributable to deferred offering costs, built-in gains and other book/tax differences impacting the tax basis of the Predecessor Operating Company's investments. These differences were carried over to the Company, as the new operating company, from the Predecessor Operating Company.
 
 Years ended December 31, 
 
 2014 2013 2012 

Accumulated capital gains / (losses)

 $— $— $— 

Other temporary differences

  4,775  10,070  7,942 

Undistributed ordinary income

  —  3,856  528 

Unrealized (appreciation) / depreciation

  (30,383)(1) 2,346  (2,274)
​​​ ​ ​​ ​ ​​ ​ ​

Components of distributable earnings

 $(25,608)$16,272 $6,196 
(1)
Prior to the Restructuring, the Company's only investment was its investment in the Predecessor Operating Company. After the Restructuring, the Company directly holds the Predecessor Operating Company's investments. As a result, included in unrealized (appreciation) / depreciation is $(10,069) of timing differences attributable to deferred offering costs, built-in gains and other book/tax differences impacting the tax basis of the Predecessor Operating Company's investments. These differences were carried over to the Company, as the new operating company, from the Predecessor Operating Company.

The Company is subject to a 4.0% nondeductible federal excise tax on certain undistributed income unless the Company distributes, in a timely manner as required by the Code, an amount at least equal to the sum of (1) 98.0% of its net ordinary income earned for the calendar year and (2) 98.2% of its capital gain net income for the one-year period ending October 31 in the calendar year. For the year ended December 31, 2014,2015, the Company had no accrued estimateddoes not expect to incur any excise taxes. For the yearyears ended December 31, 2014 and December 31, 2013, the Company accrued estimateddid not incur any excise taxes of $2.3. For the year ended December 31, 2012, the Company had no accrued estimated excise taxes.


144

Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
2015
(in thousands, except share data)

The following information is hereby provided with respect to distributions declared during the calendar years ended December 31, 2015, December 31, 2014 and December 31, 2013:
 Years Ended December 31,
(unaudited)2015 2014 2013
Dividends per share$1.36
 $1.48
 $1.48
Ordinary dividends99.96% 96.16% 91.66%
Long-term capital gains—% 3.55% 8.34%
Qualified dividend income—% 0.89% 5.77%
Dividends received deduction—% —% —%
Interest-related dividends(1)90.71% 89.11% 93.05%
Qualified short-term capital gains(1)—% 0.47% —%
Return of capital0.04% 0.29% —%

(1)    Represents the portion of the taxable ordinary dividends eligible for exemption from U.S. withholding tax for nonresident aliens and foreign corporations.
Dividends and distributions that were reinvested through the Company’s dividend reinvestment plan are treated, for tax purposes, as if they had been paid in cash.  Therefore, stockholders who participated in the dividend reinvestment plan should also refer to the information as provided in the table above.

145
Table of Contents
Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)
December 31, 2015
(in thousands, except share data)

Note 11. Net Assets

The table below illustrates the effect of certain transactions on the net asset accounts of the Company:


 Common Stock  
  
  
  
  
 

 Paid in
Capital in
Excess
of Par		 Undistributed
Net
Investment
Income		 Accumulated
Undistributed
Net Realized
Gains		 Net
Unrealized
Appreciation
(Depreciation)		  
 Common Stock 
Paid in
Capital in
Excess
of Par
 
Accumulated Undistributed
Net Investment
Income
 
Accumulated
Undistributed
Net Realized
Gains (Losses)
 
Net
Unrealized
Appreciation
(Depreciation)
  

 Shares Par
Amount		 Total
Net Assets		 Shares 
Par
Amount
 
Total
Net Assets

Balance at December 31, 2011

 10,697,691 $107 $144,249 $— $286 $845 $145,487 

Issuances of common stock

 13,628,560 136 191,561 — — — 191,697 

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

 — — (323) — — — (323)

Dividends declared

 — — — (19,792) (6,927) — (26,719)

Net increase in net assets resulting from operations

 — — — 19,792 7,593 4,399 31,784 
​​ ​ ​​ ​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​​ ​

Balance at December 31, 2012

 24,326,251 $243 $335,487 $— $952 $5,244 $341,926 24,326,251
 $243
 $335,487
 $—
 $952
 $5,244
 $341,926

Issuances of common stock

 20,898,504 209 298,177 — — — 298,386 20,898,504
 209
 298,177
 —
 —
 —
 298,386

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

 — — (281) — — — (281)—
 —
 (281) —
 —
 —
 (281)

Dividends declared

 — — — (50,521) (1,323) — (51,844)—
 —
 —
 (50,521) (1,323) —
 (51,844)

Net increase in net assets resulting from operations

 — — — 50,521 5,427 5,972 61,920 —
 —
 —
 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 45,224,755
 $452
 $633,383
 $—
 $5,056
 $11,216
 $650,107

Issuances of common stock

 12,773,135 128 184,698 — — — 184,826 12,773,135
 128
 184,698
 —
 —
 —
 184,826

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

 — — (250) — — — (250)—
 —
 (250) —
 —
 —
 (250)

Deferred offering costs

 — — (476) — — — (476)—
 —
 (476) —
 —
 —
 (476)

Dividends declared

 — — — (71,365) (6,247) — (77,612)—
 —
 —
 (71,365) (6,247) —
 (77,612)

Net increase (decrease) in net assets resulting from operations

 — — — 80,066 8,925 (43,416) 45,575 —
 —
 —
 80,066
 8,925
 (43,416) 45,575

Tax reclassifications related to return of capital distributions (See Note 10)

 — — (226) (6,171) 6,397 — — —
 —
 (226) (6,171) 6,397
 —
 —
​​ ​ ​​ ​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​​ ​

Balance at December 31, 2014

 57,997,890 $580 $817,129 $2,530 $14,131 $(32,200)$802,170 57,997,890
 $580
 $817,129
 $2,530
 $14,131
 $(32,200) $802,170
​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​​ ​​
​​​​​​​​​​​​​​​
​​ ​ ​​ ​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​​ ​
Issuances of common stock6,007,497
 60
 83,010
 —
 —
 —
 83,070
Deferred offering costs—
 —
 (285) —
 —
 —
 (285)
Dividends declared—
 —
 —
 (81,002) —
 —
 (81,002)
Net increase (decrease) in net assets resulting from operations—
 —
 —
 82,495
 (12,789) (36,751) 32,955
Tax reclassifications related to return of capital distributions (See Note 10)—
 —
 (141) 141
 —
 —
 —
Balance at December 31, 201564,005,387
 $640
 $899,713
 $4,164
 $1,342
 $(68,951) $836,908


146

Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
2015
(in thousands, except share data)


Note 12. Earnings Per Share

The following information sets forth the computation of basic and diluted net increase in the Company's net assets per share resulting from operations for the years ended December 31, 2014,2015, December 31, 20132014 and December 31, 2012:

2013:
 Years Ended December 31,
 2015 2014 2013
Earnings per share—basic 
  
  
Numerator for basic earnings per share:$32,955
 $45,575
 $61,920
Denominator for basic weighted average share:59,715,290
 51,846,164
 35,092,722
Basic earnings per share:$0.55
 $0.88
 $1.76
Earnings per share—diluted(1) 
  
  
Numerator for increase in net assets per share$32,955
 $45,575
 $61,920
Adjustment for interest on Convertible Notes and incentive fees, net4,600
 2,658
 —
Numerator for diluted earnings per share:$37,555
 $48,233
 $61,920
Denominator for basic weighted average share59,715,290
 51,846,164
 35,092,722
Adjustment for dilutive effect of Convertible Notes7,252,799
 4,311,671
 —
Denominator for diluted weighted average share66,968,089
 56,157,835
 35,092,722
Diluted earnings per share$0.55
 $0.86
 $1.76

(1)In applying the if-converted method, conversion is not assumed for purposes of computing diluted earnings per share if the effect would be anti-dilutive. For the year ended December 31, 2015, there was anti-dilution. For the year ended December 31, 2014, there was no anti-dilution. For the year ended December 31, 2013, due to reflecting earnings for the full year of operations of the Predecessor Operating Company assuming 100.0% NMFC ownership of Predecessor Operating Company and assuming all of AIV Holdings' units in the Predecessor Operating Company were exchanged for public shares of NMFC during the year then ended, the earnings per share would be $1.79.

 
 Years ended December 31, 
 
 2014 2013 2012 

Earnings per share—basic

          

Numerator for basic earnings per share:

 $45,575 $61,920 $31,784 

Denominator for basic weighted average share:

  51,846,164  35,092,722  14,860,838 
​​​ ​ ​​ ​​​ ​ ​

Basic earnings per share:

 $0.88 $1.76 $2.14 
​​​ ​​​ ​ ​​ ​​

Earnings per share—diluted(1)

          

Numerator for increase in net assets per share

 $45,575 $61,920 $31,784 

Adjustment for interest on Convertible Notes and incentive fees, net

  2,658  —  — 
​​​ ​ ​​ ​ ​​ ​ ​

Numerator for diluted earnings per share:

 $48,233 $61,290 $31,784 

Denominator for basic weighted average share

  
51,846,164		  
35,092,722		  
14,860,838		 

Adjustment for dilutive effect of Convertible Notes

  4,311,671  —  — 
​​​ ​ ​​​ ​​ ​ ​

Denominator for diluted weighted average share

  56,157,835  35,092,722  14,860,838 
​​​ ​ ​​ ​ ​​​ ​

Diluted earnings per share

 $0.86 $1.76 $2.14 
​​​ ​ ​​​ ​​ ​ ​
147
(1)
In applying the if-converted method, conversion is not assumed for purposes of computing diluted earnings per share if the effect would be anti-dilutive. For the year ended December 31, 2014, there was no anti-dilution. For the years ended December 31, 2013 and December 31, 2012, due to reflecting earnings for the full year of operations of the Predecessor Operating Company assuming 100.0% NMFC ownership of Predecessor Operating Company and assuming all of AIV Holdings' units in the Predecessor Operating Company were exchanged for public shares of NMFC during the years then ended, the earnings per share would be $1.79 and $2.18, respectively.

Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
2015
(in thousands, except share data)


Note 13. Financial Highlights

The following information sets forth the financial highlights for the Company for the years ended December 31, 2015, December 31, 2014, December 31, 2013, December 31, 2012 and the period May 19, 2011 to December 31, 2011. The ratios to average net assets have been annualized for the period May 19, 2011 to December 31, 2011.

 Years Ended December 31, May 19, 2011 (commencement of operations) to December 31, 2011(2)
 2015 2014 2013 2012 
Per share data(1):   
  
  
  
Net asset value at the beginning of the period$13.83
 $14.38
 $14.06
 $13.60
 $13.50
Net investment income1.38
 1.10
 —
 —
 —
Net realized and unrealized gains (losses)(3)(0.77) (0.80) —
 —
 —
Net increase (decrease) in net assets resulting from operations allocated from NMF Holdings: 
  
  
    
Net investment income(4)—
 0.44
 1.45
 1.33
 0.78
Net realized and unrealized gains (losses)(3)(4)—
 0.19
 0.35
 0.84
 (0.40)
Total net increase0.61
 0.93
 1.80
 2.17
 0.38
Net change in unrealized appreciation (depreciation) of investment in NMF Holdings—
 —
 —
 —
 0.58
Dividends declared to stockholders from net investment income(1.36) (1.36) (1.45) (1.28) (0.78)
Dividends declared to stockholders from net realized gains—
 (0.12) (0.03) (0.43) (0.08)
Net asset value at the end of the period$13.08
 $13.83
 $14.38
 $14.06
 $13.60
Per share market value at the end of the period$13.02
 $14.94
 $15.04
 $14.90
 $13.41
Total return based on market value(5)(4.00)% 9.66% 11.62% 24.84% 4.16%
Total return based on net asset value(6)4.32 % 6.56% 13.27% 16.61% 2.82%
Shares outstanding at end of period64,005,387
 57,997,890
 45,224,755
 24,326,251
 10,697,691
Average weighted shares outstanding for the period59,715,290
 51,846,164
 35,092,722
 14,860,838
 10,697,691
Average net assets for the period$832,805
 $749,732
 $502,822
 $196,312
 $147,766
Ratio to average net assets(7): 
        
Net investment income9.91 % 10.68% 10.10% 9.53% 9.08%
Total expenses, before waivers/reimbursements9.28 % 7.65% 8.53% 9.61% 6.62%
Total expenses, net of waivers/reimbursements8.57 % 7.41% 8.13% 8.55% 5.79%

(1)Per share data is based on weighted average shares outstanding for the respective period (except for dividends declared to stockholders which is based on actual rate per share).
(2)Data presented from May 19, 2011 to December 31, 2011 as the fund became unitized on May 19, 2011, the IPO date.
(3)Includes the accretive effect of common stock issuances per share, which for the years ended December 31, 2015, December 31, 2014, December 31, 2013 and December 31, 2012 were $0.06, $0.05, $0.04, and $0.03 respectively. No additional common stock issuances were made during 2011 after the IPO.
(4)For the years ended December 31, 2014, December 31, 2013 and December 31, 2012 and for the period May 19, 2011 to December 31, 2011, per share data is based on the summation of the per share results of operations items over the outstanding shares for the period in which the respective line items were realized or earned.
(5)For the years ended December 31, 2015, December 31, 2014, December 31, 2013, December 31, 2012 and for the period May 19, 2011 to December 31, 2011, total return is calculated assuming a purchase of common stock at the opening of the first day of the period and assuming a purchase of common stock at IPO, respectively, and a sale on the closing of the last day of the respective period ends. Dividends and distributions, if any, are assumed for purposes of this calculation, to be reinvested at prices obtained under the Company's dividend reinvestment plan.
(6)Total return is calculated assuming a purchase at net asset value on the opening of the first day of the period and a sale at net asset value on the last day of the period. Dividends and distributions, if any, are assumed for purposes of this calculation, to be reinvested at the net asset value on the last day of the respective quarter.
(7)Ratio to average net assets for the years ended December 31, 2014, December 31, 2013, December 31, 2012 and for the period May 19, 2011 to December 31, 2011 is based on the summation of the results of operations items over the net assets for the period in which the respective line items were realized or earned. For the year ended December 31, 2014, the Company is reflecting its net investment income and expenses as well as its proportionate share of the Predecessor Operating Company's net investment income and expenses. For the years ended December 31, 2013 and December 31, 2012 and for the period May 19, 2011 to December 31, 2011, the Company is reflecting its proportionate share of the Predecessor Operating Company's net investment income and expenses.

 
 Years ended December 31, May 19, 2011
(commencement of
operations) to
December 31, 2011		 
 
 2014 2013 2012 

Per share data(1):

             

Net asset value, January 1, 2014, January 1, 2013, January 1, 2012 and May 19, 2011(2), respectively

 $14.38 $14.06 $13.60 $13.50 

Net investment income

  1.10  —  —  — 

Net realized and unrealized gains (losses)(3)

  (0.80) —  —  — 

Net increase (decrease) in net assets resulting from operations allocated from NMF Holdings:

             

Net investment income(4)

  0.44  1.45  1.33  0.78 

Net realized and unrealized gains (losses)(3)(4)

  0.19  0.35  0.84  (0.40)
​​​ ​​​ ​ ​​ ​ ​​ ​ ​

Total net increase

  0.93  1.80  2.17  0.38 

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

  —  —  —  0.58 

Dividends declared to stockholders from net investment income

  (1.36) (1.45) (1.28) (0.78)

Dividends declared to stockholders from net realized gains

  (0.12) (0.03) (0.43) (0.08)
​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​

Net asset value, December 31, 2014, December 31, 2013, December 31, 2012 and December 31, 2011, respectively

 $13.83 $14.38 $14.06 $13.60 
​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​
​​​​​​​​​​​​​​
​​​ ​​​ ​ ​​ ​ ​​ ​ ​

Per share market value, December 31, 2014, December 31, 2013, December 31, 2012 and December 31, 2011, respectively

 $14.94 $15.04 $14.90 $13.41 
​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​
​​​​​​​​​​​​​​
​​​ ​���​ ​ ​​ ​ ​​ ​ ​

Total return based on market value(5)

  9.66% 11.62% 24.84% 4.16%

Total return based on net asset value(6)

  6.56% 13.27% 16.61% 2.82%

Shares outstanding at end of period

  57,997,890  45,224,755  24,326,251  10,697,691 

Average weighted shares outstanding for the period

  51,846,164  35,092,722  14,860,838  10,697,691 

Average net assets for the period

 $749,732 $502,822 $196,312 $147,766 

Ratio to average net assets(7):

             

Net investment income

  10.68% 10.10% 9.53% 9.08%

Total expenses, before waivers/reimbursements

  7.65% 8.53% 9.61% 6.62%

Total expenses, net of waivers/reimbursements

  7.41% 8.13% 8.55% 5.79%
148
(1)
Per share data is based on weighted average shares outstanding for the respective period (except for dividends declared to stockholders which is based on actual rate per share).

(2)
Data presented from May 19, 2011 to December 31, 2011 as the fund became unitized on May 19, 2011, the IPO date.

(3)
Includes the accretive effect of common stock issuances per share, which for the years ended December 31, 2014, December 31, 2013 and December 31, 2012 were $0.05, $0.04 and $0.03, respectively. No additional common stock issuances were made during 2011 after the IPO.

(4)
For the years ended December 31, 2014, December 31, 2013, December 31, 2012 and December 31, 2011, per share data is based on the summation of the per share results of operations items over the outstanding shares for the period in which the respective line items were realized or earned.

Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
2015
(in thousands, except share data)

Note 13. Financial Highlights (Continued)


(5)
Total return is calculated assuming a purchase of common stock at the opening of the first day of the year and a sale on the closing of the last business day of the period. Dividends and distributions, if any, are assumed for purposes of this calculation, to be reinvested at prices obtained under the Company's dividend reinvestment plan.

(6)
Total return is calculated assuming a purchase at net asset value on the opening of the first day of the period and a sale at net asset value on the last day of the period. Dividends and distributions, if any, are assumed for purposes of this calculation, to be reinvested at the net asset value on the last day of the respective quarter.

(7)
Ratio to average net assets for the years ended December 31, 2014, December 31, 2013 and December 31, 2012 and for the period May 19, 2011 to December 31, 2011, is based on the summation of the results of operations items over the net assets for the period in which the respective line items were realized or earned. For the year ended December 31, 2014, the Company is reflecting its net investment income and expenses as well as its proportionate share of the Predecessor Operating Company's net investment income and expenses. For the years ended December 31, 2013 and December 31, 2012 and for the period May 19, 2011 to December 31, 2011, the Company is reflecting its proportionate share of the Predecessor Operating Company's net investment income and expenses.

The following information sets forth the financial highlights for the Company for the yearyears ended December 31, 2015 and December 31, 2014 and NMF Holdings for the years ended December 31, 2013, December 31, 2012 December 31, 2011 and December 31, 2010.

2011.
 
NMFC
Years Ended December 31,
 
NMF Holdings
Years Ended December 31,
 2015 2014 2013 2012 2011
Average debt outstanding—Holdings Credit Facility(1)$394,945
 $243,693
 $184,124
 $133,600
 $61,561
Average debt outstanding—SLF Credit Facility(2)—
 208,377
 214,317
 181,395
 133,825
Average debt outstanding—Convertible Notes(3)115,000
 115,000
 —
 —
 —
Average debt outstanding—SBA-guaranteed debentures(4)71,921
 29,167
 —
 —
 —
Average debt outstanding—NMFC Credit Facility(5)60,477
 11,227
 —
 —
 —
Asset coverage ratio(6)234.05% 226.70% 257.73% 235.31% 242.56%
Portfolio turnover(7)33.93% 29.51% 40.52% 52.02% 42.13%

(1)For the year ended December 31, 2014, average debt outstanding represents the Company's average debt outstanding as well as the Company's proportionate share of the Predecessor Operating Company's average debt outstanding. The average debt outstanding for the year ended December 31, 2014 at the Holdings Credit Facility was $244,598.
(2)For the year ended December 31, 2014, average debt outstanding represents the Company's average debt outstanding as well as the Company's proportionate share of the Predecessor Operating Company's average debt outstanding for the period January 1, 2014 to December 17, 2014 (date of SLF Credit Facility merger with and into the Holdings Credit Facility). The average debt outstanding for the period January 1, 2014 to December 17, 2014 at the SLF Credit Facility was $209,333.
(3)For the year ended December 31, 2014, average debt outstanding represents the period from June 3, 2014 (issuance of the Convertible Notes) to December 31, 2014.
(4)For the year ended December 31, 2014, average debt outstanding represents the period from November 17, 2014 (date of initial SBA-guaranteed debenture borrowing) to December 31, 2014.
(5)For the year ended December 31, 2014, average debt outstanding represents the period from June 4, 2014 (commencement of the NMFC Credit Facility) to December 31, 2014.
(6)On November 5, 2014, the Company received exemptive relief from the SEC allowing the Company to modify the asset coverage requirement to exclude the SBA-guaranteed debentures from this calculation.
(7)For the year ended December 31, 2014, portfolio turnover represents the investment activity of the Predecessor Operating Company and the Company.

 
  
 NMF Holdings
Years ended December 31,		 
 
 NMFC
Year ended
December 31,
2014		 
 
 2013 2012 2011 2010 

Average debt outstanding—Holdings Credit Facility(1)

 $243,693 $184,124 $133,600 $61,561 $68,343 

Average debt outstanding—SLF Credit Facility(2)

 $208,377 $214,317 $181,395 $133,825 $27,672 

Average debt outstanding—Convertible Notes(3)

 $115,000 $— $— $— $— 

Average debt outstanding—SBA-guaranteed debentures(4)

 $29,167 $— $— $— $— 

Average debt outstanding—NMFC Credit Facility(5)

 $11,227 $— $— $— $— 

Asset coverage ratio(6)

  226.70% 257.73% 235.31% 242.56% 307.43%

Portfolio turnover(7)

  29.51% 40.52% 52.02% 42.13% 76.69%
149
(1)
For the year ended December 31, 2014, average debt outstanding represents the Company's average debt outstanding as well as the Company's proportionate share of the Predecessor Operating Company's average debt outstanding. The average debt outstanding for the year ended December 31, 2014 at the Holdings Credit Facility was $244,598.

(2)
For the year ended December 31, 2014, average debt outstanding represents the Company's average debt outstanding as well as the Company's proportionate share of the Predecessor Operating Comapany's average debt outstanding for the period January 1, 2014 to December 17, 2014 (date of SLF Credit Facility merger with and into the Holdings Credit Facility). The average debt outstanding for the period January 1, 2014 to December 17, 2014 at the SLF Credit Facility was $209,333.

(3)
For the year ended December 31, 2014, average debt outstanding represents the period from June 3, 2014 (issuance of the Convertible Notes) to December 31, 2014.

(4)
For the year ended December 31, 2014, average debt outstanding represents the period from November 17, 2014 (date of initial SBA-guaranteed debenture borrowing) to December 31, 2014.

(5)
For the year ended December 31, 2014, average debt outstanding represents the period from June 4, 2014 (commencement of the NMFC Credit Facility) to December 31, 2014.

(6)
On November 5, 2014, the Company received exemptive relief from the SEC allowing the Company to modify the asset coverage requirement to exclude the SBA-guaranteed debentures from this calculation.

(7)
For the year ended December 31, 2014, portfolio turnover represents the investment activity of the Predecessor Operating Company and the Company.

Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
2015
(in thousands, except share data)


Note 14. Selected Quarterly Financial Data (unaudited)

The below selected quarterly financial data is for the Company.

(in thousands except for per share data)


 Total Investment
Income		 Net Investment
Income		 Total Net Realized
and Unrealized
(Losses) Gains		 Net Increase
(Decrease) in Net
Assets Resulting
from Operations		 Total Investment Income Net Investment Income 
Total Net Realized (Losses)
Gains and Net Changes in Unrealized Appreciation (Depreciation) of Investments(1)
 
Net Increase (Decrease)
in Net Assets Resulting
from Operations
Quarter Ended
 Total Per Share Total Per Share Total Per Share Total Per Share Total Per Share Total Per Share Total Per Share Total Per Share
December 31, 2015$41,967
 $0.66
 $22,521
 $0.35
 $(42,548) $(0.66) $(20,027) $(0.31)
September 30, 201537,447
 0.64
 20,659
 0.35
 (10,855) (0.18) 9,804
 0.17
June 30, 201537,905
 0.65
 20,253
 0.35
 11
 —
 20,264
 0.35
March 31, 201536,536
 0.63
 19,062
 0.33
 3,852
 0.07
 22,914
 0.40
               

December 31, 2014

 $36,748 $0.65 $25,919 $0.46 $(34,865)$(0.62)$(8,946)$(0.16)$36,748
 $0.65
 $25,919
 $0.46
 $(34,865) $(0.62) $(8,946) $(0.16)

September 30, 2014

 34,706 0.67 20,800 0.40 (13,389) (0.26) 7,411 0.14 34,706
 0.67
 20,800
 0.40
 (13,389) (0.26) 7,411
 0.14

June 30, 2014

 33,708 0.65 17,289 0.34 6,373 0.12 23,662 0.46 33,708
 0.65
 17,289
 0.34
 6,373
 0.12
 23,662
 0.46

March 31, 2014

 30,439 0.65 16,058 0.34 7,390 0.16 23,448 0.50 30,439
 0.65
 16,058
 0.34
 7,390
 0.16
 23,448
 0.50
               

December 31, 2013

 
$
26,783		 
$
0.60		 
$
14,826		 
$
0.33		 
$
3,119		 
$
0.07		 
$
17,945		 
$
0.40		 $26,783
 $0.60
 $14,826
 $0.33
 $3,119
 $0.07
 $17,945
 $0.40

September 30, 2013

 22,012 0.58 10,803 0.29 6,664 0.17 17,467 0.46 22,012
 0.58
 10,803
 0.29
 6,664
 0.17
 17,467
 0.46

June 30, 2013

 26,400 0.82 17,674 0.55 (6,682) (0.21) 10,992 0.34 26,400
 0.82
 17,674
 0.55
 (6,682) (0.21) 10,992
 0.34

March 31, 2013

 15,681 0.62 7,218 0.28 8,298 0.33 15,516 0.61 15,681
 0.62
 7,218
 0.28
 8,298
 0.33
 15,516
 0.61

December 31, 2012

 
$
14,165		 
$
0.65		 
$
7,759		 
$
0.36		 
$
2,047		 
$
0.09		 
$
9,806		 
$
0.45		 

September 30, 2012

 9,742 0.60 4,574 0.28 5,381 0.34 9,955 0.62 

June 30, 2012

 7,023 0.66 4,029 0.38 (194) (0.02) 3,835 0.36 

March 31, 2012

 6,581 0.62 3,430 0.32 4,758 0.45 8,188 0.77 

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

Note 15. Recent Accounting Standards Updates

        In June 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2013-08,Financial Services—Investment Companies Topic 946—Amendments to the Scope, Measurement and Disclosure Requirements ("ASU 2013-08"), which contains new guidance on assessing whether an entity is an investment company, requiring non-controlling ownership interests in investment companies to be measured at fair value and requiring certain additional disclosures. ASU 2013-08 is effective for interim and annual periods beginning after December 15, 2013. The Company is an investment company that is applying the specialized guidance in Topic 946 as of January 1, 2014.

        In May 2014, the FASB issued Accounting Standards Update No. 2014-09,Revenue from Contracts with Customers Topic 606—Summary and Amendments that Create Revenue from Contracts with Customers and Other Assets and Deferred Costs ("ASU 2014-09"). ASU 2014-09 establishes a comprehensive and converged standard on revenue recognition to enable financial statement users to better understand and consistently analyze an entity's revenue across industries, transactions and geographies. The core principle of the new guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The new guidance also specifies the


Table of Contents


Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)

December 31, 2014
(in thousands, except share data)

Note 15. Recent Accounting Standards Updates (Continued)

accounting for certain costs to obtain or fulfill a contract with a customer. The new guidance requires improved disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue that is recognized. Qualitative and quantitative information is required to be disclosed about: (1) contracts with customers, (2) significant judgments and changes in judgments, and (3) assets recognized from costs to obtain or fulfill a contract. The new guidance will apply to all entities. The guidance is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2016. Early application is not permitted. The Company is in the process of evaluating the impact that this guidance will have on its consolidated financial statements and disclosures.

In June 2014, the FASB issued Accounting Standards Update No. 2014-11,Transfers and Servicing Topic 860��860—Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures ("(“ASU 2014-11"2014-11”). ASU 2014-11 changes the accounting for repurchase- and resale-to-maturity agreements by requiring that such agreements be recognized as financing arrangements, and requires that a transfer of a financial asset and a repurchase agreement entered into contemporaneously be accounted for separately. ASU 2014-11 requires additional disclosures about certain transferred financial assets accounted for as sales and certain securities financing transactions. The accounting changes and additional disclosures about certain transferred financial assets accounted for as sales are effective for the first interim and annual reporting periods beginning after December 15, 2014. The additional disclosures for securities financing transactions are required for annual reporting periods beginning after December 15, 2014 and for interim reporting periods beginning after March 15, 2015. The Company is inadoption of ASU 2014-11 did not have a material impact on the process of evaluating the impact that this guidance will have on itsCompany’s consolidated financial statements and disclosures.

In August 2014, the FASB issued Accounting Standards Update No. 2014-15,Presentation of Financial Statements—Going Concern Subtopic 205-40—Disclosure of Uncertainties about an Entity'sEntity’s Ability to Continue as a Going Concern ("(“ASU 2014-15"2014-15”). ASU 2014-15 will explicitly require management to assess an entity'sentity’s ability to continue as a going concern, and to provide related footnote disclosure in certain circumstances. The new standard will be effective for all entities in the first annual period ending after December 15, 2016. Earlier adoption is permitted. The adoption of ASU 2014-15 is not expected to have a material impact on the Company'sCompany’s consolidated financial statements and disclosures.


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Notes to the Consolidated Financial Statements of
New Mountain Finance Corporation (Continued)
December 31, 2015
(in thousands, except share data)

In February 2015, the FASB issued Accounting Standards Update No. 2015-02, Consolidation Topic 810—Amendments to the Consolidation Analysis (“ASU 2015-02”), which modifies the consolidation analysis in determining if limited partnerships or similar type entities fall under the variable interest model or voting interest model, particularly those that have fee arrangements and related party relationships. ASU 2015-02 will be effective for all public entities for interim and annual reporting periods beginning after December 15, 2015. Earlier adoption is permitted. The Company is in the process of evaluating the impact that this guidance will have on its consolidated financial statements and disclosures.

In April 2015, the FASB issued Accounting Standards Update No. 2015-03, Interest—Imputation of Interest Subtopic 835-30—Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”), which changes the presentation of debt issuance costs in financial statements. Under ASU 2015-03, an entity presents such costs on the statement of assets and liabilities as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs is reported as interest expense.  The new standard will be effective for all public entities for interim and annual reporting periods beginning after December 15, 2015. Earlier adoption is permitted. The Company is in the process of evaluating the impact that this guidance will have on its consolidated financial statements and disclosures.

In May 2015, the FASB issued Accounting Standards Update No. 2015-07, Fair Value Measurement Topic 820—Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent) ("ASU 2015-07"), which amends the presentation of investments measured at net asset value, as a practical expedient for fair value, from the fair value hierarchy. Under ASU 2015-07, an entity would remove investments measured using the practical expedient from the fair value hierarchy. ASU 2015-07 will be effective for annual and interim reporting periods after December 15, 2015. The Company is in the process of evaluating the impact that this guidance will have on its consolidated financial statements and disclosures.

Note 16. Subsequent Events

On December 31, 2014 and continuing subsequent to the year then ended,February 4, 2016, the Company's portfolio investment in Edmentum, Inc. disclosed its projected substantial financial deterioration. Theboard of directors authorized a program for the purpose of repurchasing up to $50.0 million worth of the Company's common stock. Under the repurchase program, the Company reflects this informationmay, but is not obligated to, repurchase outstanding common stock in the valuationopen market from time to time provided that the Company complies with its code of this portfolio investment asethics and the guidelines specified in Rule 10b-18 of the Exchange Act, including certain price, market volume and timing constraints. In addition, any repurchases will be conducted in accordance with the 1940 Act. Unless amended or extended by the Company's board of directors, the Company expects the repurchase program to be in place until the earlier of December 31, 2014. All interest due2016 or until $50.0 million of its outstanding shares of common stock have been repurchased.
The Company's board of directors authorized the repurchase program because it believes the sustained market volatility and uncertainty may cause the Company's common stock to be undervalued from time to time. The timing and number of shares to be repurchased will depend on a number of factors, including market conditions. There are no assurances that the Company will engage in repurchases, but if market conditions warrant, the Company now has the ability to take advantage of situations where management believes share repurchases would be advantageous to the Company through the year ended December 31, 2014 has been paid. As more information becomes available, the Company may experience a further mark down of the fair value of this investment. This investment may be placed on non-accrual status in the future. The investment represents 1.1% of the total portfolio at fair value as of December 31, 2014.

        In January 2015, UniTek emerged from "Pre-Packaged" Chapter 11 Bankruptcy and completed its restructuring.

shareholders.

On February 23, 2015,22, 2016, the Company's board of directors declared a first quarter 20152016 distribution of $0.34 per share payable on March 31, 20152016 to holders of record as of March 17, 2015.

2016.


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The terms "we", "us", "our" and the "Company" refers to New Mountain Finance Corporation and its consolidated subsidiaries.

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

(a)Evaluation of Disclosure Controls and Procedures
As of December 31, 20142015 (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 United States Securities and Exchange Commission filings is recorded, processed, summarized and reported within the time periods specified in the United States 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

(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 Company'sOur internal control over financial reporting includes those policies and procedures that (i) pertain to assets of the Company; (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 Company are being made only in accordance with authorizations of our management and directors of the Company;directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Companyour assets that could have a material effect on the financial statements.

Management performed an assessment of the effectiveness of the Company'sour internal control over financial reporting as of December 31, 20142015 based upon the criteria in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on management's assessment, management determined that the Company'sour internal control over financial reporting was effective as of December 31, 2014.

(c)    Attestation Report of the Registered Public Accounting Firm.

2015.

(c)Attestation Report of the Registered Public Accounting Firm.
Our independent registered public accounting firm, Deloitte & Touche LLP, has issued an attestation report on New Mountain Finance Corporation's internal control over financial reporting, which is set forth on the following page.



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Deloitte & Touche LLP
30 Rockefeller Plaza
New York, NY 10112
USA
Tel:    + 1 212 492 4000
Fax: + 1 212 489 1687
www.deloitte.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
New Mountain Finance Corporation
and subsidiaries
New York, New York


We have audited the internal control over financial reporting of New Mountain Finance Corporation and subsidiaries (the "Company") as of December 31, 2014,2015, based on criteria established inInternal Control—Integrated Framework (2013) 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, 2014,2015, based on the criteria established inInternal


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Control—Integrated Framework (2013) 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 consolidated statements as of and for the year ended December 31, 20142015 of the Company and our report dated March 2, 2015February 29, 2016 expressed an unqualified opinion on those consolidated financial statements and included an explanatory paragraph regarding the Company's restructuring.

statements.


/s/ DELOITTE & TOUCHE LLP


New York, New York
February 29, 2016

March 2, 2015


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(d)    



Changes in Internal ControlsControl Over Financial Reporting

Management has not identified any change in the Company'sour internal control over financial reporting that occurred during the quarter ended December 31, 20142015 that has materially affected, or is reasonably likely to materially affect, the Company'sour internal control over financial reporting.

Item 9B.    Other Information
None.

        None.


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The terms "we", "us", "our" and the "Company" refers to New Mountain Finance Corporation and its consolidated subsidiaries.


PART III

We will file a definitive Proxy Statement for the Company's 2015our 2016 Annual Meeting of Stockholders with the United States 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 Proxy Statement relating to the Company's 2015our 2016 Annual Meeting of Stockholders, to be filed with the United States Securities and Exchange Commission within 120 days following the end of the Company'sour fiscal year.

Item 11.    Executive Compensation

The information required by Item 11 is hereby incorporated by reference from the definitive Proxy Statement relating to the Company's 2015our 2016 Annual Meeting of Stockholders, to be filed with the United States Securities and Exchange Commission within 120 days following the end of the Company'sour 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 Proxy Statement relating to the Company's 2015our 2016 Annual Meeting of Stockholders, to be filed with the United States Securities and Exchange Commission within 120 days following the end of the Company'sour 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 Proxy Statement relating to the Company's 2015our 2016 Annual Meeting of Stockholders, to be filed with the United States Securities and Exchange Commission within 120 days following the end of the Company'sour fiscal year.

Item 14.    Principal Accountant Fees and Services

The information required by Item 14 is hereby incorporated by reference from the definitive Proxy Statement relating to the Company's 2015our 2016 Annual Meeting of Stockholders, to be filed with the United States Securities and Exchange Commission within 120 days following the end of the Company'sour fiscal year.



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PART IV

Item 15.    Exhibits and Financial Statement Schedules

(a)    Documents Filed as Part of this Report

(a)Documents Filed as Part of this Report
The following financial statements are set forth in Item 8:

New Mountain Finance Corporation

 

Consolidated Statements of Assets and Liabilities as of December 31, 20142015 and December 31, 2013

2014
10789

Consolidated Statements of Operations for the years ended December 31, 2014,2015, December 31, 20132014 and December 31, 2012

2013
10890

Consolidated Statements of Changes in Net Assets for the years ended December 31, 2014,2015, December 31, 20132014 and December 31, 2012

2013
10991

Consolidated Statements of Cash Flows for the years ended December 31, 2014,2015, December 31, 20132014 and December 31, 2012

2013
11092
Consolidated Schedule of Investments as of December 31, 2015

93
Consolidated Schedule of Investments as of December 31, 2014

111104

Consolidated Schedule of Investments as of December 31, 2013

118

Notes to the Consolidated Financial Statements of New Mountain Finance Corporation


123112


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(b)    Exhibits



(b)Exhibits
The following exhibits are filed as part of this report or hereby incorporated by reference to exhibits previously filed with the United States Securities and Exchange Commission:

Exhibit NumberDescription
 Description
3.1
(a)Amended and Restated Certificate of Incorporation of New Mountain Finance Corporation(2)

3.1
3.1
(b)
Certificate of Change of Registered Agent and/or Registered Office of New Mountain Finance Corporation(3)

3.2
3.2
 
Amended and Restated Bylaws of New Mountain Finance Corporation(2)

4.1
4.1
 
Form of Stock Certificate of New Mountain Finance Corporation(1)

4.2
4.2
 
Indenture by and between New Mountain Finance Corporation, as Issuer, and U.S. Bank National Association, as Trustee, dated June 3, 2014(7)

4.3
4.3
 
Form of Global Note 5.00% Convertible Senior Note Due 2019 (included as part of Exhibit 4.2)(7)

10.1
10.1
 
Second Amended and Restated Loan and Security Agreement, dated as of December 18, 2014, by and among New Mountain Finance Corporation, as the collateral manager, New Mountain Finance Holdings, L.L.C., as the borrower, Wells Fargo Securities, LLC, as administrative agent, and Wells Fargo, National Association, as lender and custodian(9)

10.2
10.2
 
Form of Variable Funding Note of New Mountain Finance Holdings, L.L.C., as the Borrower(1)

10.3
10.3
 
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)

10.4
10.4
 
Form of Senior Secured Revolving Credit Agreement, by and between New Mountain Finance Corporation, as Borrower, and Goldman Sachs Bank USA, as Administrative Agent and Syndication Agent, dated June 4, 2014(8)

10.5
10.5
 
Form of Guarantee and Security Agreement dated June 4, 2014, among New Mountain Finance Corporation, as Borrower, and Goldman Sachs Bank USA, as Administrative Agent(8)

10.6
10.6
 
Amendment No. 1, dated December 31,29, 2014, to the Senior Secured Revolving Credit Agreement dated June 4, 2014, by and among New Mountain Finance Corporation, as Borrower, and Goldman Bank USA, as Administrative Agent and Syndication Agent(10)

10.7
10.7		Amendment No. 2, dated June 26, 2015, to the Senior Secured Revolving Credit Agreement dated June 4, 2014, by and among New Mountain Finance Corporation, as Borrower, and Goldman Bank USA, as Administrative Agent and Syndication Agent(12)
10.8

Investment Advisory and Management Agreement by and between New Mountain Finance Corporation and New Mountain Finance Advisers BDC, LLC(6)

10.9
10.8
 
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)

10.10
10.9
 
Custody Agreement by and between New Mountain Finance Corporation and U.S. Bank National Association(5)

10.11
10.10
 
Second Amended and Restated Administration Agreement(4)Agreement(11)

10.12
10.11
 
Form of Trademark License Agreement(1)

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Exhibit NumberDescription
10.1310.12
 Amendment No. 1 to Trademark License Agreement(4)

10.14
10.13
 
Form of Registration Rights Agreement(1)


10.14

Form of Indemnification Agreement by and between New Mountain Finance Corporation and each director(1)

10.15
10.15
 
Dividend Reinvestment Plan(2)

11.1
11.1
 
Computation of Per Share Earnings for New Mountain Finance Corporation (included in the notes to the financial statements contained in this report)

14.1
14.1
 
Code of Ethics(1)

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Exhibit NumberDescription
21.1
21.1
 
Subsidiaries of New Mountain Finance Corporation:
 
 New Mountain Finance Holdings, L.L.C. (Delaware)
 
 New Mountain Finance SPV Funding, L.L.C. (Delaware)
 
 NMF Ancora Holdings, Inc. (Delaware)
  NMF QID NGL Holdings, Inc. (Delaware)
 
NMF YP Holdings, Inc. (Delaware)
 
 New Mountain Finance Servicing, L.L.C. (Delaware)
 
 New Mountain Finance SBIC G.P., L.L.C. (Delaware)
 
 New Mountain Finance SBIC, L.P. (Delaware)

31.1
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
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)

99.1
99.1
 
Supplemental Financial Information

(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 Corporation's quarterly report on Form 10-Q filed on August 11, 2011.
(3)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.
(4)Previously filed in connection with New Mountain Finance Corporation's quarterly report on Form 10-Q filed on November 14, 2011.
(5)Previously filed in connection with New Mountain Finance Corporation's registration statement on Form N-2 Post-Effective Amendment No. 2 (File Nos. 333-189706 and 333-189707) filed on April 11, 2014.
(6)Previously filed in connection with New Mountain Finance Corporation's report on Form 8-K filed on May 8, 2014.
(7)Previously filed in connection with New Mountain Finance Corporation's report on Form 8-K filed on June 4, 2014.
(8)Previously filed in connection with New Mountain Finance Corporation's report on Form 8-K filed on June 10, 2014.
(9)Previously filed in connection with New Mountain Finance Corporation's report on Form 8-K filed on December 23, 2014.
(10)Previously filed in connection with New Mountain Finance Corporation's report on Form 8-K filed on January 5, 2015.
(11)Previously filed in connection with New Mountain Finance Corporation's quarterly report on Form 10-Q filed on May 5, 2015
(12)Previously filed in connection with New Mountain Finance Corporation's report on Form 8-K filed on June 30, 2015.
(c)Financial Statement Schedules
(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 Corporation's quarterly report on Form 10-Q filed on August 11, 2011.

(3)
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.

(4)
Previously filed in connection with New Mountain Finance Corporation's quarterly report on Form 10-Q filed on November 14, 2011.

(5)
Previously filed in connection with New Mountain Finance Corporation's registration statement on Form N-2 Post-Effective Amendment No. 2 (File Nos. 333-189706 and 333-189707) filed on April 11, 2014.

(6)
Previously filed in connection with New Mountain Finance Corporation's report on Form 8-K filed on May 8, 2014.

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(7)
Previously filed in connection with New Mountain Finance Corporation's report on Form 8-K filed on June 4, 2014.

(8)
Previously filed in connection with New Mountain Finance Corporation's report on Form 8-K filed on June 10, 2014.

(9)
Previously filed in connection with New Mountain Finance Corporation's report on Form 8-K filed on December 23, 2014.

(10)
Previously filed in connection with New Mountain Finance Corporation's report on Form 8-K filed on January 5, 2015.

(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

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 2, 2015.

February 29, 2016.

 NEW MOUNTAIN FINANCE CORPORATION

 
By:
By:

/s/ ROBERT A. HAMWEE
Robert A. Hamwee
Chief Executive Officer
and President
(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 Registrant 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), President and Director March 2, 2015February 29, 2016

By:
 
Robert A. Hamwee
By:/s/ DAVID M. CORDOVA
David M. CordovaSHIRAZ Y. KAJEE
 
Chief Financial Officer (Principal Financial and Accounting Officer) and Treasurer
 
March 2, 2015February 29, 2016

By:
 
Shiraz Y. Kajee
By:/s/STEVEN B. KLINSKY
Steven B. Klinsky
 
Chairman of the Board Directorof Directors
 
March 2, 2015February 29, 2016

By:
 
Steven B. Klinsky
By:/s/ ADAM B. WEINSTEIN
Adam B. Weinstein
 
Executive Vice President, Chief Administrative Officer and Director
 
March 2, 2015February 29, 2016

By:
 
Adam B. Weinstein
By:/s/ ALFRED F. HURLEY, JR.
DirectorFebruary 29, 2016
Alfred F. Hurley, Jr.
 
Director

March 2, 2015

By:
 
By:/s/ DAVID MALPASS
David Malpass
 
Director
 
March 2, 2015February 29, 2016

By:
 
David Malpass
By:/s/ DAVID OGENS
David Ogens
 
Director
 
March 2, 2015February 29, 2016

By:
 
David Ogens
By:/s/ KURT J. WOLFGRUBER
DirectorFebruary 29, 2016
Kurt J. Wolfgruber
 
Director

March 2, 2015



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