New Mountain Finance (NMFC) - 2022 Q4 - Annual Report

Part I Business NMFC is a BDC investing in U.S. middle-market debt, managing a $3.22 billion portfolio focused on defensive growth companies - NMFC is a closed-end, non-diversified management investment company regulated as a BDC and qualifying as a RIC for tax purposes[12] - The company's investment objective is to generate current income and capital appreciation by sourcing and originating debt securities, with a focus on U.S. middle-market defensive growth companies[19][20] Portfolio Summary (as of December 31, 2022) | Metric | Value | | :--- | :--- | | Portfolio Fair Value | $3,221.2 million | | Number of Portfolio Companies | 107 | | Weighted Average YTM at Cost | 11.3% | | Weighted Average YTM at Cost for Investments | 10.0% | Portfolio Composition by Investment Type (as of December 31, 2022) | Investment Type | Percentage of Portfolio (Fair Value) | | :--- | :--- | | First Lien Loans | 54.5% | | Second Lien Loans | 17.4% | | Subordinated Debt | 2.4% | | Equity and Other | 25.7% | Top 5 Industry Concentrations (as of December 31, 2022) | Industry | Percentage of Portfolio (Fair Value) | | :--- | :--- | | Software | 26.7% | | Business Services | 17.7% | | Healthcare | 16.3% | | Investment Fund (Joint Ventures) | 7.5% | | Education | 7.1% | Risk Factors The company faces significant business, operational, investment, and securities risks, including market volatility and concentration - The company operates in a period of capital markets disruption and economic uncertainty, which could impair its ability to secure debt financing, increase funding costs, and negatively impact the fair value of its investments[125][126][128] - The business is highly dependent on the key investment personnel of the Investment Adviser, whose departure could significantly harm the company's ability to achieve its investment objective[161][162] - The use of leverage magnifies the potential for both gain and loss, with approximately $2.0 billion in total debt outstanding as of December 31, 2022[176][178][179] - The company's portfolio may be concentrated in a limited number of industries, subjecting it to significant loss if there is a downturn in those particular sectors[270][271] - The transition from LIBOR to alternative reference rates like SOFR creates uncertainty and could adversely affect the value of the company's floating-rate debt securities and reduce net investment income[305][306][310] - Shares of the company's common stock have traded at a discount to Net Asset Value (NAV) and may do so in the future, which could impair the ability to raise additional equity capital[317] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[328] Properties The company does not own any material real estate or physical properties, with offices provided by the Administrator - The company does not own any real estate or other physical properties material to its operations, with office space provided through its Administration Agreement[329] Legal Proceedings As of December 31, 2022, the company and its affiliates are not subject to any material pending legal proceedings - The company is not currently subject to any material pending legal proceedings[330] Mine Safety Disclosures This item is not applicable to the company's business - Not applicable[331] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities NMFC common stock trades on NASDAQ, supported by a dividend reinvestment plan and a $50 million stock repurchase program Quarterly Stock Performance and Distributions (2022) | Quarter | NAV Per Share ($) | High Closing Price ($) | Low Closing Price ($) | Declared Distributions Per Share ($) | | :--- | :--- | :--- | :--- | :--- | | Q4 2022 | $13.02 | $12.80 | $11.40 | $0.32 | | Q3 2022 | $13.20 | $13.50 | $11.26 | $0.30 | | Q2 2022 | $13.42 | $13.91 | $11.20 | $0.30 | | Q1 2022 | $13.56 | $13.85 | $12.94 | $0.30 | - The company maintains an opt out dividend reinvestment plan, where stockholder cash distributions are automatically reinvested in additional shares unless they elect to receive cash[340] - A $50.0 million stock repurchase program was extended until December 31, 2023, though no shares were repurchased under this program during the year ended December 31, 2022[348] Reserved This item is reserved and contains no information Management's Discussion and Analysis of Financial Condition and Results of Operations In 2022, investment income increased to $294.6 million, but a net loss from investment activities decreased NAV per share Results of Operations Comparison (in thousands) | Metric | 2022 (in thousands) | 2021 (in thousands) | | :--- | :--- | :--- | | Total Investment Income | $294,630 | $270,959 | | Net Expenses after Taxes | $175,026 | $152,119 | | Net Investment Income | $119,604 | $118,840 | | Net Realized/Unrealized (Losses) Gains | $(45,076) | $88,342 | - The increase in total investment income was primarily due to higher SOFR and LIBOR rates on larger invested balances, while the increase in net operating expenses was driven by higher interest rates on floating-rate borrowings and new debt issuances[466][468] - The net loss from investment activities in 2022 was primarily driven by unrealized depreciation on investments in NM CLFX LP, Ansira, National HME, and TVG-Edmentum Holdings, LLC[469] Liquidity and Capital Resources (as of Dec 31, 2022) | Metric | Value | | :--- | :--- | | Cash and Cash Equivalents | $71.2 million | | Total Borrowings Outstanding | $1,997.9 million | | Asset Coverage Ratio | 177.42% | | Unfunded Commitments | $224.1 million | - In 2022, the company sold 2,950,300 shares of common stock under its at-the-market (ATM) offering agreement, raising net proceeds of approximately $40.0 million[476] Quantitative and Qualitative Disclosures About Market Risk The company is primarily exposed to interest rate risk due to its floating-rate investments and borrowings, with sensitivity analysis indicating increased net interest income from rate hikes - The company's primary market risk is interest rate fluctuation, as approximately 86.7% of its investments at fair value are floating-rate, while its credit facilities are also subject to floating rates[546] Interest Rate Sensitivity Analysis (as of Dec 31, 2022) | Change in Interest Rates (Basis Points) | Estimated Percentage Change in Net Interest Income (%) | | :--- | :--- | | -25 | (2.08)% | | +100 | 8.34% | | +200 | 16.68% | | +300 | 25.02% | Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements, including the independent auditor's report - The independent registered public accounting firm, Deloitte & Touche LLP, issued an unqualified opinion on the consolidated financial statements and the company's internal control over financial reporting as of December 31, 2022[553][554] Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2022 (in thousands) | Dec 31, 2021 (in thousands) | | :--- | :--- | :--- | | Total Investments at Fair Value | $3,221,247 | $3,174,364 | | Total Assets | $3,354,927 | $3,295,812 | | Net Borrowings | $1,980,661 | $1,907,188 | | Total Liabilities | $2,028,736 | $1,953,200 | | Total Net Assets | $1,326,191 | $1,342,612 | | Net Asset Value Per Share | $13.02 | $13.49 | Financial Highlights Per Share | Metric (Year Ended Dec 31) | 2022 ($) | 2021 ($) | | :--- | :--- | :--- | | Net Asset Value, Beginning | $13.49 | $12.62 | | Net Investment Income | $1.18 | $1.21 | | Net Realized/Unrealized (Losses) Gains | $(0.43) | $0.86 | | Distributions Declared | $(1.22) | $(1.20) | | Net Asset Value, End | $13.02 | $13.49 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[984] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2022, with an unqualified auditor opinion - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[985] - Management determined that the company's internal control over financial reporting was effective as of December 31, 2022, based on the COSO 2013 framework[987] - No changes in internal control over financial reporting occurred during the fourth quarter of 2022 that materially affected, or are reasonably likely to materially affect, internal controls[997] Other Information The company reports no other information for this item - None[998] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not Applicable[999] Part III Directors, Executive Officers, Corporate Governance, Executive Compensation, Security Ownership, and Principal Accountant Fees Information for Items 10-14, including governance, compensation, and ownership, is incorporated by reference from the 2023 Proxy Statement - Information for Part III (Items 10-14) is incorporated by reference from the Registrant's Proxy Statement for its 2023 Annual Meeting of Stockholders[1003] Part IV Exhibits and Financial Statement Schedules This section lists all financial statements and exhibits filed with the report, with no separate financial schedules - This section lists all financial statements included in Item 8 and all exhibits filed with the 10-K, such as the Certificate of Incorporation, Bylaws, Indentures, and various credit and management agreements[1011][1012] - No financial statement schedules are filed because the required information is either not applicable or has been presented within the consolidated financial statements[1020] Form 10-K Summary The company reports no summary for this item - None[1021]