New Mountain Finance Corporation Issues Letter to Stakeholders

New Mountain Finance Corporation (NYSE:NMFC)

Dear Fellow Stakeholders:

As the COVID-19 pandemic continues and as we now have finished our first quarter end during this crisis, we are writing to keep you informed about New Mountain Finance Corporation (“NMFC”, the “Company”, “we”, “us”, or “our”) and its progress.

Before we do, we want to begin by recognizing the human toll of the COVID-19 crisis and want to wish good health and safety to all of you and your families. We sincerely hope you stay well throughout this dangerous time.

Turning to business, New Mountain has long sought to emphasize "defensive growth" industries in both its private equity and credit efforts. As a result, NMFC has had an annualized realized default rate from the time of our 2011 IPO until now of under 50 basis points, while paying over $700 million of cash dividends, equivalent to $12.33 per share. We, as the managers of NMFC, are the company’s largest shareholder and own approximately 12% of NMFC's stock personally and have continued to add shares during open window periods when allowable. Our objective is to continue to manage NMFC safely through the crisis, and to resume our normal operations as the crisis ends.

It is too soon for us to formally report on the quarter ended March 31, 2020, but we believe we can now make the following observations:

Portfolio:

• Every one of NMFC's borrowers paid interest for the first quarter of 2020, except for two. One, representing under 1% of total assets, has paid 50% of its cash interest and has agreed to pay the balance within days. The second, which we still hope may pay interest soon, accounts for just over 1% of our total assets.
• We estimate that approximately 1% of our total portfolio, in aggregate, is in the areas of restaurants, gyms, hospitality, leisure, commercial aviation, automotive manufacturing, home building and discretionary consumer products. Less than 2% of our assets are in companies that are exposed to oil and gas. Our largest area of lending has been to software companies, which typically have large installed bases of repeat users, and with on average about 50% of the capital structure junior to our loans at the time our loan was made.
• Our most impacted loans – about 11% of assets – are in the dental practice, dermatology and eye care industries, which we expect will be necessary services again when the pandemic is contained. New Mountain has extensive ownership experience in the dental practice and optical supply industries through its private equity efforts.
• Our portfolio is well diversified overall; as of December 31, 2019, our largest individual position was 2.7% in fair value and our top 15 positions accounted for 31.7% of fair value.
• Over 66% of our portfolio is in the senior securities of the borrower, rather than in the second lien, preferred equity or common equity.

Valuation and Leverage: