Good day, everyone, and welcome to the New Mountain Finance Corporation Fourth Quarter 2018 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] And please note that today’s event is being recorded. And now I would like to turn the conference over to Rob Hamwee, CEO of New Mountain Finance. Please go ahead.

Thank you. Good morning, everyone, and welcome to New Mountain Finance Corporation’s fourth quarter earnings call for 2018. On the line with me here today are Steve Klinsky, Chairman of NMFC and CEO of New Mountain Capital; John Kline, President and COO of NMFC; and Shiraz Kajee, CFO of NMFC. Steve Klinsky is going to make some introductory remarks. Before he does, I’d like to ask Shiraz to make some important statements regarding today’s call.

Thanks, Rob. Good morning, everyone. Before we get into the presentation, I would like to advise everyone that today’s call and webcast are being recorded. Please note that they are the property of New Mountain Finance Corporation and if any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available in our February 27 earnings press release. I would also like to call your attention to the customary Safe Harbor disclosure in our press release and on Page 2 of the slide presentation regarding forward-looking statements. Today’s conference call and webcast may include forward-looking statements and projections and we ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from those statements and projections. We do not undertake to update our forward-looking statements or projections unless required to by law. To obtain copies of our latest SEC filings and to access the slide presentation that we will be referencing throughout this call, please visit our website at www.newmountainfinance.com. At this time, I would like to turn the call over to Steve Klinsky, NMFC’s Chairman who will give some highlights beginning on Pages 4 and 5 of the slide presentation. Steve?

The team will go through the details in a moment. But let me start by presenting the highlights of another strong quarter for New Mountain Finance. New Mountain Finance’s net investment income for the quarter ended December 31, 2018 was once again $0.36 per share above our guidance of $0.33 to $0.35 per share and more than covering our quarterly dividend of $0.34 per share. New Mountain Finance’s book value decreased by $0.36 per share to $13.22 per share. Importantly, this decrease in book value is not reflective of any material credit deterioration. But reflects overall financial market weakness at $12.31 much of which has reversed quarter-to-date. We are also able to announce our regular dividend, which for the 28th straight quarter will again be $0.34 per share, an annualized yield of approximately 10% based on last Friday’s close. The company had a productive quarter of deal generation, investing $265 million in gross originations versus repayments of $76 million. To support our growth, we have continued to expand our credit facilities secured and investment grade rating from Kroll and recently completed a tactical equity issuance. Additionally, at the end of Q4, we successfully monetized our largest investment high technology generating $35 million of investment income and gains in under two years. Credit quality remains strong with once again no new non-accruals. I and other members of New Mountain continue to be very large owners of our stock with aggregate ownership of 10.1 million shares, approximately 13% of total shares outstanding. Finally, the broader New Mountain platform that supports NMFC continues to grow with over $20 billion of assets under management and over 145 team members. In summary, we are pleased with NMFC’s continued performance and progress overall. With that, let me turn the call back over to Rob Hamwee, NMFC’s CEO.

Thank you, Steve. Before diving into the details of the quarter, as always, I’d like to give everyone a brief review of NMFC and our strategy. As outlined on Page 6 of our presentation, NMFC is externally managed by New Mountain Capital, a leading private equity firm. Since the inception of our debt investment program in 2008, we have taken New Mountain’s approach to private equity and applied it to corporate credit with a consistent focus on defensive growth business models and extensive fundamental research within the industries that are already well known to New Mountain. Or more simply put, we invest in recession resistant businesses that we really know and that we really like. We believe this approach results in a differentiated and sustainable model that allows us to generate attractive risk adjusted rates of return across changing cycles and market conditions. To achieve our mandate, we utilize the existing New Mountain investment team as our primary underwriting resource. Turning to Page 7, you can see our total return performance from our IPO in May 2011 through February 22, 2019, in the nearly eight years since our IPO we have generated a compounded annual return to our initial public investors of over 11%, meaningfully higher than our peers and the high yield index and approximately 1000 basis points per annum above relevant risk free benchmarks. Page 8 goes into a little more detail around relative performance against our peers set, benchmarking against the 10 largest externally managed BDCs that have been public at least as long as we have. Page 9 shows return attribution, total cumulative return continues to be largely driven by our cash dividend, which in turn has been more than 100% covered by net investment income. As the bar on the far right illustrates over the…

Thanks, Rob. As outlined on Page 15, credit markets experience volatility in the month of December, negatively impacted the marks our liquid portfolio, but also provided us with the opportunity to invest money in high quality assets and attractive yields. Certain segments of the loan market sold off by as much as three to five points and some primary loans were issued in the mid-90s. While the leverage levels and structures of these new loans were consistent with the rest of the quarter, in December, investors demanded more compensation for credit and market risk. Since the end of the quarter, the broader loan market has stabilized. The secondary market for loans has almost recovered to November levels and high quality new issue loans have strong demand from the lending community. New Deal activity has also begun to accelerate resulting in a consistent improvement of our pipeline throughout the quarter. We anticipate funding a number of high quality deals with attractive spreads in the coming months. Turning to Page 16, throughout 2018, the steady increase in three-months LIBOR has been a meaningful earnings tailwind for NMFC. This benefit has been driven by our floating rate loan portfolio combined with our fixed rate liabilities, which currently account for 55% of our total debt. The four is, LIBOR curve currently suggest a flattening of three months LIBOR over the near-term, which would have no material earnings impact on our business. In the event that rate restarts their upward trajectory, the earnings of the portfolio will benefit, while a potential base rate decrease would pressure earnings. However, in our view, any such material move lower, which signal challenging financial market conditions, which would be accompanied by higher loan spreads. Turning to portfolio activity on Pages 17 and 18, NMFC had a very good quarter…

Thank you, John. For more details on our financial results and today’s commentary, please refer to the Form 10-K that was filed last evening with the SEC. Now, I would like to turn your attention to Slide 25. The portfolio had approximately $2.35 billion in investments at fair value at December 31, 2018 and total assets of $2.45 billion. With total liabilities of $1.4 billion of which total statutory debt outstanding was $1.2 billion excluding $165 million of growing SBA guaranteed debentures. Net asset value of $1 billion or $13.22 per share was down $0.36 from the prior quarter. As of December 31, our statutory debt to equity ratio was 1.23 to 1. On Slide 26, we show our historical leverage ratios. The step-up in leverage over the past three quarters is in line with our new target statutory debt to equity ratio of 1.2 times to 1.4 times. On the slide, we also show historical NAV adjusted for the cumulative impact of special dividends, which shows the stability of our book value since our IPO. On Slide 27, we show our quarterly income statement results. We believe that our NII is the most appropriate measure of our quarterly performance. This slide highlights that while realized and unrealized gains and losses can be volatile below the line, we continued to generate stable net investment income above the line. Focusing on the quarter ended December 31, 2018, we earned total investment income of $63.5 million, a $3 million increase from the prior quarter, largely attributable to an increase in interest income from a larger asset base. Total net expenses were approximately $36 million, a $2.6 million increase from the prior quarter, primarily due to higher borrowing costs from the added leverage. As in prior quarters, the investment advisor continues to waive…

Thanks, Shiraz. It continues to remain our intention to consistently pay the $0.34 per share on a quarterly basis for future quarters for long as net investment income covers the dividend in line with our current expectations. In closing, I would just like to say that we continue to be pleased with our performance to-date. Most importantly, from a credit perspective, our portfolio overall continues to be healthy. Once again, we’d like to thank you for your support and interest. And at this point turn things back to the operator to begin Q&A. Operator?

Thank you. And we will now begin the question-and-answer session. [Operator Instructions] And the first questionnaire today will be Chris Kotowski with Oppenheimer. Please go ahead.

Yes, good morning. I guess, I was wondering you folks have a good track record of not raising equity, unless you see near-term use for it. And just all things being equal, one would have kind of expected that the hiccup in the – in leverage credit markets in the fourth quarter would have put a pause on things. But then you look at the capital that you’ve deployed in since the end of the year. And it’s quite a lot and I’m just curious, why – where these transactions in the works prior to December and they did it all just go through or how did it come that the market wasn’t more disrupted than it was?

Yes, it’s a combination of things, Chris. You’re right. Number of the more deals that were in process and MNA has to get – that’s committed to has to get funded. And I think we were able to get somewhat higher spreads given the disruption. And then secondly, the market is still open. It was clearly disrupted in December. It’s come pretty roaring back with the equity markets as John talked about. So there are – there’s new business to be done as well, again, at somewhat higher spreads. But this is – this disruption is, we’ve seen this many times before since the financial crisis, going all the way back to the European issues REACH 1, REACH 2 Fukushima, whatever then couple of years ago with the oil disruption. So this is something you’ve experienced many times and continue to be able to transact in this environment.

Okay. And then I had just kind of two questions about the like use of the 30% bucket and the triple net lease vehicle in particular. And kind of the specific question is within the triple net lease vehicles on Page 106 of the investment schedule. It look like there was a significant mark up on GLRC, GLCR and kind of mark down on KRLN. And I’m just wondering, does that an accounting cork or is that something fundamental? And then kind of more broadly philosophically speaking, does the availability of the higher leverage limits that you have now make the use of the 30% buckets less strategic, are they as important to you going forward as they were in the past?

Yes. So in the first issue around net lease, end of the year, given the seasoning of the net lease portfolio working with our accountants, we felt it was important for the first time really to revisit cap rates across the board for all of the underlying properties in the net least portfolio. We did some extensive market studies and things have moved a little bit up, a little bit down. And that’s what you’ve seen across the portfolio for the most part, cap rates have improved and that drives valuation upwards. The one exception where there has been some tenant weakness is on KRLN and we thought it was prudent to increase the cap rate there, modestly decreasing the value there. So that is fundamental. It is substantive kind of across the board and you can see the net impact is a modest, overall increase across the net lease portfolio. In terms of the 30%, that’s get going forward, it continues to be an important element for us. We are not ever have been close to maxing out that basket. I wouldn’t expect us in the near intermediate term to use that. We always run a significant flexibility there, but it’s still as an important element of the overall strategy.

Okay. That’s it for me. Thank you.

Great. Thanks, Chris.

[Operator Instructions] And our next questionnaire will be Angela Guarino with Retail. Please go ahead.

Hi, thanks for taking my call. Do you have a sense Shiraz, of the UTI carry forward from 2018 yet?

Yes. We were putting that together right now. So we’ll actually be posting that to a website in the next two days.

Okay. Thank you very much. Good quarter.

Thank you.

[Operator Instructions] Our next questionnaire will be Paul Johnson with KBW. Please go ahead.

Good morning, guys. Thanks for taking my question. My question on the net lease is already answered. But I’m just curious, you mentioned in a little bit, I’m curious as far as your fourth quarter originations go, were any of those opportunistic secondary purchases that you were able to make during the volatility late in the quarter. Or were the maturity of them just kind of traditional deals that have been in the works for awhile?

So this is John. I’ll highlight two deals. One deal is towards the end of the quarter, we are able to add to our existing position in Kronos Software and we did that in the secondary market. And typically that loan is not available at all. And so the Kronos did become available in decent size. And we were able to purchase at a par typically traits well above par. The other just one note was, a dealer tire in early December was not a secondary purchase, but it was a syndication that’s struggled. And we were able to purchase that – at an attractive price, significant discount to par or a couple of points discount to par. And it’s worth noting that first lien loan had a spread of probably 150 basis points wider than the targeted spread that the underwriters had at the outset. So that went from being a pretty normal first lien loan that would go on CLO very attractive asset for BDC. So I would highlight those two deals as ways that we were able to take advantage of the volatility that we saw.

Yes. Then John, there were few things that flowed into Q1 yet, that will be help, I think it's on the schedule as a secondary trade and there maybe some smaller things and the other buckets.

So I think yes, overall, we are always looking to be opportunistic, when the market dislocate.

Great. That’s wonderful detail. Those were all my questions this morning.

Great. Thank you.

[Operator Instructions] And there look to be no further questions at this time. So this will conclude our question-and-answer session. I would now like to turn the conference back over to Rob Hamwee for any closing remarks.

Thank you. And thanks to everyone on the phone today. We appreciate the continuing interest and support and look forward to speaking again in a few months. Have a great day. Bye-bye.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect your lines.